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Dow Jones Newswires: Oil Industry’s Mega-Projects Face Looming Labor Shortage

By  Brian Baskin          

HOUSTON (Dow Jones Newswires): Good project managers in the oil industry may be like rock stars, but they’re becoming just as rare.

As an aging generation of workers retires, industry experts say the resulting shortfall in skilled labor could lead to an increase in delays and problems on mega oil and gas projects.

The industry suffers from an “if we can problem,” said David Hobbs, an analyst at Cambridge Energy Research Associates, speaking at the consultancy’s annual conference, referring to chronic delays plaguing mega-projects around the world.

Hobbs, who made the rock star comment, noted that deepwater oil production is set to rise from 4 million to 11 million barrels a day by 2010, if the industry can avoid too many delays. Service costs, up 53% since 2004, are helping companies focus on sticking to timetables, he said.

But industry officials faced with just that task offer a more sobering assessment. Over the next decade, a wave of retirements will strip the industry of its most skilled project managers, just as some of the most complex operations ever attempted are supposed to come on stream. The combination, they said, could very well lead to an increase in delays.

At the same time, the industry’s biggest growth is expected to come from once unthinkable sources. Jack, Chevron Corp.’s (CVX) recently announced successful find in the Gulf of Mexico, will involve drilling at twice the depth reached by Royal Dutch Shell PLC’s (RDSB.LN) Mars platform, the height of deepwater technology 10 years ago. Canada’s oil sands region is also undergoing a massive expansion, while Russia has only scratched the surface of vast reserves locked under the Siberian tundra. Even Kuwait and Saudi Arabia are looking to advanced techniques to expand on their easy-to-access reserves.

“We’re putting people in challenging roles on unprecedented projects,” said Jack Hartung, manager of benchmarking and cost engineering at Chevron Corp. (CVX.)

Hartung said it is “quite possible” that quality issues on new projects will become more common in the future. The industry is also meeting its manpower shortage through the “accelerated advancement” of professionals, which could put some engineers in charge of projects before they’re ready, he said.

Onslaught Of Retirements

The median age at oil companies is between 48 and 52, Hartung said. Service companies are also expecting a similar onslaught of retirements in the next decade.

Several deepwater projects have already had their completion dates pushed back, in some cases more than once. A design flaw pushed back the start date of BP PLC (BP)’s Thunder Horse platform in the Gulf of Mexico from 2006 to 2008, for example.

The problem isn’t confined to the international oil majors. Kuwait National Oil Company Chairman Farouk Al-Zanki listed skilled labor as a main obstacle for Project Kuwait, a plan to increase of production capacity from 2.7 million to 4 million barrels a day by 2020.

In contrast with current production, 80% of which is extracted from abundant sandstone reserves that require “very minimal” expertise, the majority of Kuwait’s newest output will be drawn out through advanced oil recovery techniques, Al-Zanki said during a panel discussion at the CERA conference. International oil companies will be involved with “transferring technology and training our nationals,” as Kuwait hopes to expand its oil workforce from 5,000 to 8,000 employees by 2015, he said.

But bringing in foreign oil companies has become a sticking point for Project Kuwait, which is currently being held up in the country’s parliament by legislators opposed to opening up the country’s reserves to outside participants.

Rising Service Costs

The worldwide personnel shortage stands in contrast to rising service costs and other obstacles currently affecting the completion date of some projects, said Nigel Wright, functional head of project cost and planning with Shell Global Solutions International BV, a consultancy operated by Royal Dutch Shell PLC (RDSB.LN).

Wright said he agreed that the manpower shortage could cause production problems in the future. But equipment shortages and the rising costs associated with the lack of resources are more fleeting.

“Projects okayed in 2005 and 2006 are enough to keep costs up through 2009,” but the industry should see some moderation after that, he said.

Feb.14, 2007

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