Upstream sector to experience 'severe' personnel crunch

Sam Fletcher OGJ Online After nearly 20 years of steadily eliminating jobs, upstream producers and service companies may not have the manpower to supply the world's growing demand for oil and gas, said officials of John S. Herold Inc. in a new industry study. The upstream sector has permanently lost thousands of skilled workers through downsizing, and surviving employees are aging. As a result, the industry will probably experience a severe personnel crunch over the next few years, said Aliza Fan, coauthor of that report. "Oil industry executives may soon find that recent downsizing programs are in fact extraordinarily shortsighted," she concluded in the study. Companies who have protected their people as key business assetsfirms such as Anadarko Petroleum Co. and drilling contractor Rowan Cos. Inc. that have never had massive layoffswill profit in the current rebound, Fan predicted. Next employment cycle beginning Even the brief rebound of oil prices in 1996-97 sent producers and service companies scrambling for new employees. Oil industry recruiters returned to college campuses for the first time in more than 15 years, with Schlumberger Ltd. and Halliburton Co. snapping up virtually all of the graduating petroleum engineers. Canadian seismic crews were working in the Permian basin, while Gulf Coast shipyards were importing welders from Mexico to help fabricate offshore platforms. There was even talk of using prison-release programs to crew rigs. But that tepid 1.1% increase in industry employment in 1997 was more than wiped out when oil prices plummeted in 1998. Now the industry is gearing up again, buoyed by rapidly growing demand for world oil and US gas that is driving up commodity prices. So far this year, the combined net profits of ExxonMobil Corp., BP Amoco PLC, and Royal Dutch/Shell Group have "soared 84% to an eye-popping $21.5 billion," said Herold officials. They claim record energy-sector profitability may be the rule in coming months and quarters. In an earlier survey of 217 oil and gas companies, Herold officials indicated that worldwide spending on upstream operations should increase 14% to nearly $86 billion worldwide as a result of better market conditions (OGJ, May 8, 2000, p. 32). Wall Street fuels layoffs But when industry officials venture back into the labor market, they will be even more hard-pressed to find workers, with petroleum-related college classrooms virtually empty and other industries wooing recruits with better pay and greater job security. New technology has helped companies do more with fewer people across the board, from technical to managerial to administrative operations. Herold's analysis of eight integrated oil companies showed that the ratio of earnings before interest, tax, depreciation, and amortization per employee has increased an average 5%/year over the last 5 years. However, officials reported, "Some of this increase has come through efficiency and some through old-fashioned hard workthe oil industry has a higher rate of overtime than all other industries combined!" Herold officials charge that, for the first time in the industry's history, staffing decisions were geared to the dictates of Wall Street rather than on the basis of what's actually happening in the oil patch. The upstream oil and gas industry is still under intense pressure from Wall Street to improve profitability. And downsizingeven in a generally healthy business environmentis a fast way to boost profits. It's a result of "the newly embraced precept that a corporation's loyalty should be to its shareholders, not its employees," officials said. Downsizing programs are supposed to be designed to improve organizational efficiency, productivity, and competitiveness. But Herold officials report, "There is absolutely nothing creative about the destruction that has taken place." As corporate cutbacks became more ruthless in the 1990s, they reported, it hurt employee morale, did not always fulfill corporate expectations, and will thwart efforts to recruit "new blood." History of ruthless cutbacks Over the last 20 years, Herold officials claim, "The process of shedding employees became disconnected with the performance of the economy." They cite a 1995 study by the American Management Association that found almost half of all medium and large US firms had downsized every year during the 1988-95 period. Yet only 6% of those companies had reduced employment because of short-term downturns. The pending personnel shortage is a major topic at oil and gas industry meetings, including the recent Offshore Technology Conference in Houston and the World Petroleum Congress in Calgary next week. The Herold study compiles solid statistics to back up the industry buzz. During a period when a surprisingly robust US economic expansion has created 20.5 million new jobs overall, large energy companies have eliminated more than a third of their workforce, Herold officials reported. From 1970 through the heady boom days of 1981, the oil industry was hiring four times faster than the rest of the US economy as a whole, with the 25 biggest oil companies adding more than 500,000 employees. But from a 1982 employment peak, the 25 largest surviving oil companies have cut more than 1 million workers, Herold reported. By 1988, the industry was back to 1975 pre-boom levels and still dropping. "While oil prices have bounced between $10 and $30/bbl over the last 12 years, oil industry employment has headed in only one directiondown," officials said. "Since 1988, the largest 25 oil companies have cut their workforces in halfagain!" the Herold report said. Those companies have reduced employment an average 5.2%/year over the last 12 years. Last year, the top 10 producers alone eliminated 38,811 jobsenough to pack the new Enron Field in Houston. Yet industry efforts to get "lean and mean" didn't prevent profits from plummeting with oil and gas prices in 1998. Future workers hard to find Now many of the companies that recently laid off scores of workers are proposing optimistic operational and financial growth goals for the next few years. "With only a trickle of new entrants to the energy sector and the pool of experienced oil employees drying up, many of these lofty goals may prove nigh impossible to deliver without the innovation and experience of both young and veteran oil professionals," Herold officials concluded in their report. Of the Houston Geological Society's 4,229 members, nearly 70% are 40 years old or older, say Herold officials. Only 6% of the members are in their 20s, and student memberships total five people. Meanwhile, only 528 petroleum engineering students are in US college classrooms, down 28% over the last decade. The US Bureau of Labor Statistics reports more than 65% of the 339,000 oil and gas extraction workers are ages 35-54. The BLS also tags the oil and gas industry as having the worst employment prospects over the next decade, with openings for petroleum engineers expected to drop 21%

http://ogj.pennnet.com/Content/cd_anchor_article/1,1052,OGJ_7_NEWS_SUB_74753_1,00.html

-- Cave Man (caves@are.us), July 03, 2000

Answers

Upstream sector to experience 'severe' personnel crunch

Sam Fletcher OGJ Online After nearly 20 years of steadily eliminating jobs, upstream producers and service companies may not have the manpower to supply the world's growing demand for oil and gas, said officials of John S. Herold Inc. in a new industry study. The upstream sector has permanently lost thousands of skilled workers through downsizing, and surviving employees are aging. As a result, the industry will probably experience a severe personnel crunch over the next few years, said Aliza Fan, coauthor of that report. "Oil industry executives may soon find that recent downsizing programs are in fact extraordinarily shortsighted," she concluded in the study. Companies who have protected their people as key business assetsfirms such as Anadarko Petroleum Co. and drilling contractor Rowan Cos. Inc. that have never had massive layoffswill profit in the current rebound, Fan predicted. Next employment cycle beginning Even the brief rebound of oil prices in 1996-97 sent producers and service companies scrambling for new employees. Oil industry recruiters returned to college campuses for the first time in more than 15 years, with Schlumberger Ltd. and Halliburton Co. snapping up virtually all of the graduating petroleum engineers. Canadian seismic crews were working in the Permian basin, while Gulf Coast shipyards were importing welders from Mexico to help fabricate offshore platforms. There was even talk of using prison-release programs to crew rigs. But that tepid 1.1% increase in industry employment in 1997 was more than wiped out when oil prices plummeted in 1998. Now the industry is gearing up again, buoyed by rapidly growing demand for world oil and US gas that is driving up commodity prices. So far this year, the combined net profits of ExxonMobil Corp., BP Amoco PLC, and Royal Dutch/Shell Group have "soared 84% to an eye-popping $21.5 billion," said Herold officials. They claim record energy-sector profitability may be the rule in coming months and quarters. In an earlier survey of 217 oil and gas companies, Herold officials indicated that worldwide spending on upstream operations should increase 14% to nearly $86 billion worldwide as a result of better market conditions (OGJ, May 8, 2000, p. 32). Wall Street fuels layoffs But when industry officials venture back into the labor market, they will be even more hard-pressed to find workers, with petroleum-related college classrooms virtually empty and other industries wooing recruits with better pay and greater job security. New technology has helped companies do more with fewer people across the board, from technical to managerial to administrative operations. Herold's analysis of eight integrated oil companies showed that the ratio of earnings before interest, tax, depreciation, and amortization per employee has increased an average 5%/year over the last 5 years. However, officials reported, "Some of this increase has come through efficiency and some through old-fashioned hard workthe oil industry has a higher rate of overtime than all other industries combined!" Herold officials charge that, for the first time in the industry's history, staffing decisions were geared to the dictates of Wall Street rather than on the basis of what's actually happening in the oil patch. The upstream oil and gas industry is still under intense pressure from Wall Street to improve profitability. And downsizingeven in a generally healthy business environmentis a fast way to boost profits. It's a result of "the newly embraced precept that a corporation's loyalty should be to its shareholders, not its employees," officials said. Downsizing programs are supposed to be designed to improve organizational efficiency, productivity, and competitiveness. But Herold officials report, "There is absolutely nothing creative about the destruction that has taken place." As corporate cutbacks became more ruthless in the 1990s, they reported, it hurt employee morale, did not always fulfill corporate expectations, and will thwart efforts to recruit "new blood." History of ruthless cutbacks Over the last 20 years, Herold officials claim, "The process of shedding employees became disconnected with the performance of the economy." They cite a 1995 study by the American Management Association that found almost half of all medium and large US firms had downsized every year during the 1988-95 period. Yet only 6% of those companies had reduced employment because of short-term downturns. The pending personnel shortage is a major topic at oil and gas industry meetings, including the recent Offshore Technology Conference in Houston and the World Petroleum Congress in Calgary next week. The Herold study compiles solid statistics to back up the industry buzz. During a period when a surprisingly robust US economic expansion has created 20.5 million new jobs overall, large energy companies have eliminated more than a third of their workforce, Herold officials reported. From 1970 through the heady boom days of 1981, the oil industry was hiring four times faster than the rest of the US economy as a whole, with the 25 biggest oil companies adding more than 500,000 employees. But from a 1982 employment peak, the 25 largest surviving oil companies have cut more than 1 million workers, Herold reported. By 1988, the industry was back to 1975 pre-boom levels and still dropping. "While oil prices have bounced between $10 and $30/bbl over the last 12 years, oil industry employment has headed in only one directiondown," officials said. "Since 1988, the largest 25 oil companies have cut their workforces in halfagain!" the Herold report said. Those companies have reduced employment an average 5.2%/year over the last 12 years. Last year, the top 10 producers alone eliminated 38,811 jobsenough to pack the new Enron Field in Houston. Yet industry efforts to get "lean and mean" didn't prevent profits from plummeting with oil and gas prices in 1998. Future workers hard to find Now many of the companies that recently laid off scores of workers are proposing optimistic operational and financial growth goals for the next few years. "With only a trickle of new entrants to the energy sector and the pool of experienced oil employees drying up, many of these lofty goals may prove nigh impossible to deliver without the innovation and experience of both young and veteran oil professionals," Herold officials concluded in their report. Of the Houston Geological Society's 4,229 members, nearly 70% are 40 years old or older, say Herold officials. Only 6% of the members are in their 20s, and student memberships total five people. Meanwhile, only 528 petroleum engineering students are in US college classrooms, down 28% over the last decade. The US Bureau of Labor Statistics reports more than 65% of the 339,000 oil and gas extraction workers are ages 35-54. The BLS also tags the oil and gas industry as having the worst employment prospects over the next decade, with openings for petroleum engineers expected to drop 21%.

-- Cave Man (caves@are.us), July 03, 2000.

John S. Herold was claiming this 10,20 and 30 years ago. NEXT ??

-- cpr (buytexas@swbell.net), July 03, 2000.

NEXT ??

Delay in new production coming on line plus maintaining current production levels.

-- Cave Man (caves@are.us), July 03, 2000.

Must be an embedded chip problem. No other possible explanation for the personnel shortage. If you think otherwise, then you're a polly troll, and you're going to Hell.

-- Super Doomer (super.doomer@doomer.edu), July 03, 2000.