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FT REPORT – WORKING IN THE OIL & GAS INDUSTRY 2008: A shift in the balance of power

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FT REPORT – WORKING IN THE OIL & GAS INDUSTRY 2008: A shift in the balance of power

By Carola Hoyos
Published: May 06, 2008

Senior executives at energy companies have the upper hand over their employers. Just how much the power balance has shifted in their favour became clear earlier this month when BP and Royal Dutch Shell both announced big retention packages.

Shell is planning one-off stock awards to Peter Voser, chief financial officer, Malcolm Brinded, head of exploration and production, and Linda Cook, gas and power chief. The three are the leading contenders vying to take over as chief executive when Jeroen van der Veer retires in June next year. They will get the award come 2011, regardless of how well they perform. The only stipulation is that they remain at the company.

At BP the story is similar, except that the awards were announced at the end of the succession battle. Andy Inglis and Iain Conn, who lost the race to succeed Lord Browne to Tony Hayward in January 2007, each received £1.5m ($3m). A one-off retention award was announced this month and will be paid over three to five years, subject to their remaining at BP and a “satisfactory performance”.

All of those who were awarded the cash are members of a rare tribe: survivors of the 1980s layoffs, when the oil price plummeted to $10 a barrel and about 1m jobs were lost.
The industry is slowly replenishing its ranks. The average age of the Society of Petroleum Engineers membership pool shrunk to 46 in 2007 from 47 in 2006 after an influx of young blood.

But there remains a gap of an entire generation of more seasoned geologists and chemical and petroleum engineers who are now in their 40s and 50s. The so-called “lost generation” is especially apparent at the big oil companies, where rising up the ranks is still the norm and few top positions go to people outside the company.

Fergus Wilson, a consultant at Spencer Stuart, the executive search firm, was a petroleum geologist laid off along with three-quarters of his company in the 1980s. He says: “People who stayed employed are quite valuable commodities. Often they don’t realise it because they have never thought beyond the company, but now that is beginning to change.”

With oil prices at $120 a barrel, companies are desperate to attract and retain talent.

Competition has become fierce as private equity groups, national oil companies and other start-ups have joined the ever more difficult hunt for the increasingly valuable treasure.

So what do those who do jump want? Money is not everything. Career projection, responsibility and freedom are often mentioned, according to leading head hunters in the US and UK.
What is the opportunity for tomorrow? Where is my career heading? How much freedom do I have? These are questions often posed by the energy executives, says Curt Ross, head of the energy group at Russell Reynold’s, an executive search firm. In terms of remuneration, the biggest increases have come within the growth in the value of long-term stock incentives, he says.

Another big draw is the chance to run one’s own show after years of relative confinement. David Sambrooks, 49, jumped from Devon Energy, the US’s biggest independent energy company, to NFR Energy in 2007.

His new employer is a joint venture between Nabors Industries, the oil services company, and First Reserve, the biggest private equity firm in energy. First Reserve handed him $1bn and the assistance of Nabors whose focus is drilling, and told him “go and build a company and find some oil and gas,” says Mr Ross.

Andy Baggus, partner at Boyden, the executive search company, says there is a limited number of places to search for people when it comes to fill senior positions. “There is a massive, massive dearth globally,” he says.

Project managers able to run the construction of a multi-billion dollar refinery could be found in the construction and infrastructure businesses, while heath and safety executives could come from industries such as chemicals and mining, while exploration and production positions can sometimes be filled by people working at companies collecting seismic data. But, generally, they come from competing oil companies, he says.

Other recruiting “academies” include oil service companies such as Schlumberger and Halliburton because they invested in new talent even as major oil companies were shedding theirs, headhunters say. Andrew Gould, chief executive and chairman of Schlumberger, likes to quip that the industry will run out of people before it runs out of oil. He sees the labour shortage as one of most significant reasons industry costs have increased dramatically.

“Years of underinvestment in new talent have led to a limited and ageing pool of skilled workers. Replacing them cannot be done overnight and while the industry has begun to hire again in considerable numbers, it takes time to train the large numbers of new recruits.” In other words, engineering and geology degrees have turned from joker to trump card not just for top executives.

Copyright The Financial Times Limited 2008

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