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The Times: Staff and rigs shortages put oil firms over barrel

August 26, 2006

By David Robertson
 
A CRITICAL shortage of skilled workers and of drilling equipment is preventing the oil industry increasing production. With oil prices at near-record levels every producer is working at full capacity and there are insufficient people and rigs to develop fully new projects.
 
 
With so much demand for key technical staff and equipment, salaries and costs have been soaring. According to senior executives the cost of hiring a deep-water drilling rig in the Gulf of Mexico has doubled to $400,000 (£210,000) a day in the past two years.

The rigs are operated by contractors and, with so many companies trying to develop new oilfields, a bidding war has broken out for their services. With costs so high, delays cost companies millions of dollars in lost revenue and expenses.

Salaries are also soaring, particularly for technical workers like geologists, geophysicists and petroleum engineers. Headhunters say that the oil industry is also short of senior project managers that are capable of running multibilliondollar operations.

As a result oil-industry salaries have increased by 20 to 50 per cent in the last year and many firms are offering the sort of sign-on bonuses that are normally reserved for the investment-banking community.

As the need for new sources of oil has grown, so too have exploration budgets. According to Lehman Brothers, the oil industry will spend about $238 billion looking for new fields this year, up 14.7 per cent on last year.  This has created huge opportunities for small exploration firms, called “juniors”.

According to headhunters many highly qualified staff working for the giant oil companies like Exxon-Mobil, BP and Shell are leaving to join these juniors because of the share options on offer. If these companies strike oil the shareholders will usually become instant multimillionaires.

Iain Manson, a headhunter at Korn/Ferry International, said: “Getting qualified people is the biggest limitor in the oil and gas market at the moment. If you add up the business plans the oil companies want more people than are currently available.”

Mr Manson said that the oil industry was probably 40,000 to 100,000 people short at present.

This has created a spike in salaries with petroleum engineers now able to demand £100,000 to £200,000 a year compared with the £70,000 to £100,000 they might have earned earlier this decade, Mr Manson said.

He added: “Major projects are not going to be delivered on budget or on time because of these shortages. The world needs these new mega-projects or the oil and gas is not going to get to market.”

A spokesman for BP said: “With the high oil price a lot of work is going on and there is a lot of demand for people with the right training.”

He added: “We are working in increasingly demanding environments, like deep water, as we look for more oil. There are not that many rigs capable of operating in these conditions and the demand for them is reflected in the day rates being charged.”

The Offshore North Sea conference in Stavanger, Norway, yesterday debated the issue of staff shortages. Those attending agreed that more needed to be spent on training and education so that more new workers could be brought into the industry.

Earlier this week BHP Billiton, which is aiming to become a major force in the oil industry, admitted that the high costs caused by these shortages were a concern.

It is investing $5.2 billion to bring nine new projects onstream but getting access to rigs and workers was “challenging”, it said.

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