Planning ahead

David Delvin and Nigel Elson, Hitachi Consulting, EMEA, examine the significant workforce challenges within the oil and gas industry and look at what can be done.

The upstream oil and gas industry is facing what could be the perfect storm with workforce challenges being felt on many different levels and across its entire value chain. The effects of a major skills shortage are joined by an ageing employee population, low staff productivity and the added challenge of a workforce that knows its market value and is prepared to move to wherever the best opportunities can be found. These challenges have been building for a considerable amount of time and are a product of many factors including past economic downturns, industry policies and decisions taken without necessarily considering the consequences and impact in the longer term. The seeds of many of today’s industry challenges were sown more than two decades ago when the industry focused its efforts on delivering short-term benefits and dealing with immediate challenges rather than putting in place a resourcing strategy that would meet the skills needed for an industry expanding on a global basis. At no point was it ever in question that the carbon economy would continue to underpin economic growth for decades to come and that the search for oil and gas would stretch the supply of skills and resources.

A recent survey conducted by DNV-GL found that oil companies view workforce skills shortages as the leading barrier to growth for the second year in a row. Operators are now more concerned about skill shortages than about any other business risk including rising costs, taxation and competition. The effects of the workforce challenge are clearly visible, and affect the entire spectrum of the workforce, onshore as well as offshore. There is, without a doubt, a need for an industry-wide strategy to address the longer-term implications of a continued and prolonged skills shortage. At the same time, it can be argued that many upstream energy companies are failing to best utilise the skills and resources they already possess, making the current workforce challenge both an industry-wide and organisation-specific issue.

Current oil and gas upstream workforce challenges

The current age demographic of the upstream oil and gas workforce is close to a tipping point, particularly in mature basins. The phenomena of the ‘baby boom’ oilfield workers coming close to or surpassing retirement age is at its most critical point and the challenge facing the industry has been dubbed ‘The Great Crew Change’.

This is being compounded by the rapid growth in workforce demand fuelled by deepwater activity in West Africa, the Mediterranean and Brazil, frontier developments in Mozambique and Tanzania and the shale boom in North America. The workforce is being stretched by both high demand and low supply and the economic forces have created wage inflation for local and international employees resulting in significantly higher operating costs. In addition, the shortage of skills and experience is already increasing the level of business and operational risk in areas such as major project management. Globally, capital expenditure on big projects (> US$ 1 billion) is on the increase; however, a worrying trend of increased overspend and delay to project completion is also being reported. Surveys have shown that 30% of companies attribute delays and cost overruns to a lack of skilled workers, particularly in areas of project management. Current forecasts estimate that 50% of skilled energy professionals will retire by 2018. In a survey conducted by Oil & Gas IQ, 78% of companies stated that this will affect the ways of working by “at least some extent”. The age demographic has been a known problem for many years, but is extremely difficult to mitigate in the short term, as experienced individuals do not simply materialise overnight.

One major factor behind the skills shortage was the prolonged suppressed oil price during the late 80s and 90s that resulted in major cuts in project funding, followed by recruitment freezes and redundancies which, collectively, tarnished the industry with a ‘hire-fire’ culture. Following this period, many graduates and non-graduates alike hesitated to follow a career in the oil and gas industry, and many students shunned associated courses, such as geology and engineering in favour of other careers linked to booming employment sectors such as IT and the financial services. The effects of this recruitment deficit are still being felt today.

The upstream oil and gas industry has a truly dynamic workforce operating on a global scale. This mobility has resulted in skills being transferred across borders and, more than ever, across companies, and has enabled the industry to expand operations quickly into remote regions. However, this has come at a price by creating international competition for human capital and increasing the burden on an already stretched workforce. In high-growth areas such as Angola, local talent development has not been able to keep pace with demand for skills, creating a hotspot where operators and service companies compete for a share of a small pool of resources. Inevitably, this is pushing up both local and international wages and putting a greater strain on the industry as whole.

Dipping productivity and its effect on the workforce

Despite the growing macro problem, oil and gas companies are also faced with the challenge of managing the incumbent workforce more efficiently and effectively. A large proportion of the offshore skilled workforce comprises technicians, operators and vendors who perform the maintenance, integrity and operative tasks necessary to ensure that assets can produce and export hydrocarbons efficiently and safely. Whilst productivity levels offshore have been a concern for some time, it would be fair to say that current levels have reached a depressingly low point. Low production volumes coupled with high and ever-increasing lifting costs have served only to highlight the growing problem.

Benchmarking studies carried out by Hitachi Consulting put offshore workforce efficiency (wrench-time) in the region of 45 - 50% across North Sea assets with productivity struggling to reach 30% in some cases. No other industry would be viable at such low levels and it is becoming evident that productivity will have a major impact in determining the economic life of an asset. Low productivity equates to maintenance backlogs and costly project overruns and these, in turn, affect reliability, production efficiency and lifting cost. The squeeze on costs and operating margins is being felt more and more.

Hitachi Consulting’s findings also show that productivity levels are independent of the age of an asset, suggesting the problem is more ‘cultural’ and institutionalised than situational. The causes are many and varied, however many within the industry would accept that a reactive or ‘fire-fighting’ culture has not helped the situation. ‘Fire-fighting’ is inherently inefficient and ineffective and constrains any attempts to manage operations in a more orderly and systematic manner, yet ‘fire-fighters’ are often rewarded for their efforts and become the role models for future generations. Quick fixes are also often preferred over more thorough investigations. More effort is needed to help better understand root and systemic causes of failures to enable more robust and lasting solutions to be put in place. Robust solutions create capacity, reduce noise and disruption and lay the foundations for stable and efficient operations.

Of course, one cannot simply implicate the workforce as the primary cause of poor productivity – one has to look at the broader picture and understand where and how other factors have played a damaging role. These include poor performance management, weak supervision and a reluctance to deal with persistently poor performers. Unless the basics are in place and the foundations are solid, it is difficult if not impossible to develop a culture of high performance.

The productivity challenge can become endemic within an organisation and a firm commitment from leadership is required to set clear expectations and standards to create an environment where productivity and performance can both flourish. Good working practices and high standards are also the anchors for safe and reliable operations.

Productivity is not the only area where operators make the workforce challenges worse for themselves; companies often fail to structure their organisations in a manner that best utilises the skills and resources they possess, particularly when niche skills are involved. This is most evident in locations where operators manage multiple fields and producing assets, and where the organisation structure encourages assets to adopt a silo mentality, managing skills and resources sub-optimally in a way that best suits individual assets over the operation as whole.

The effect of the these challenges on the upstream oil and gas industry

Lower workforce productivity has been linked directly to lower levels of production efficiency by PILOT, a think tank subsidiary of the UK’s Department of Energy and Climate Change (DECC). Due to the nature of an offshore asset, lower levels of workforce efficiency cannot be compensated for by increasing the number of staff as POB (person on board) capacity is usually constrained. As a result, any decrease in productivity results in less work being completed. Typically, the offshore workforce now directs less than half of its working time to planned maintenance activity, with the remainder going on predominantly reactive maintenance. As a result, there has naturally been an increase in the frequency of critical equipment failure, process trips and subsequent loss of production. Fortunately, safety-critical maintenance has always taken priority and, thankfully, the effect of low workforce productivity has had a limited effect on HSE. However, the backlog of safety-critical preventative maintenance is also starting to increase on many assets, and this can only be viewed as a leading indicator of future process safety performance.

Reducing operational risk due to workforce challenges

The offshore workforce challenge will take time to resolve and will undoubtedly require the industry as a whole to adopt a strategic mind-set to refocus on the ‘long game’. It will also require sustained effort to overcome engrained and outdated practices and collaboration between operators to work together to set the bar and raise performance standards, both internally and with service providers. Short-term measures may force operators to consider trying to prolong the retirement age of essential personnel in order to buy time whilst the next generation gains the necessary skills and experience to take over.

Increasing workforce productivity requires a fundamental change to ways of working and therefore solving the productivity challenge is deceptively difficult, with many initiatives often failing. With productivity being a function of both workforce efficiency (wrench-time) and effectiveness, both aspects require focus to drive improvements. Surprisingly, despite productivity being a known challenge across the industry, it is rarely reported. When it is reported, the measure is often misleading and rarely is it a true measure of productivity. Invariably, it is more likely to reflect levels of utilisation and, therefore, hours worked rather than work completed against a standard or norm. True performance remains largely invisible to management and given that ‘what gets measured, gets done’ it is easy to see how productivity continues to slip off the radar.

Hitachi Consulting has identified trends which are common across the industry and which need to be tackled urgently in order for there to be an impact on performance. Firstly, the role of the frontline supervisor has developed largely into a desk-based role. On average, more than 60% of a supervisor’s time is spent on administrative tasks or in meetings. This directly results in lower workforce effectiveness as less time is spent on coaching problem solving and helping employees develop essential on-the-job skills. An increase in the proportion of active supervision of frontline staff will help shift the ‘fire-fighting’ culture to a more proactive and effective one. The visible presence of high-calibre supervisors will also inevitably result in wrench time gains.

Secondly, though safety is paramount, the blinkered focus on safety critical maintenance to the detriment of non-safety critical maintenance has led to a build-up in the backlog of lower priority tasks. This is a vicious circle, since by not doing routine preventative maintenance, more breakdowns occur, resulting in a sharp rise in reactive maintenance, which in turn lowers levels of productivity and exacerbates the maintenance backlog.

Summary

To assume that the industry’s work forces challenges are straightforward would be naïve in the extreme. Some of these challenges will require industry leaders to take a long-term view, to collaborate and invest and, above all, agree to work together for the good of the industry as a whole. At the same time, there are many things that individual operators can do to help themselves: firstly, the cycle of fire-fighting must be broken. It permeates onshore and offshore organisations alike and drastically reduces the effectiveness of all organisations. The industry must agree on a common measure of productivity to truly understand the gap between what it pays for and what it gets in return, also to better understand the scale of the opportunity gap. The prize is in being able to quantify and mobilise the ‘phantom’ resource base, which lies dormant within all upstream organisations and in doing so leverage the vast untapped talents and energies that collectively can breathe new life into the sector.


Adapted by David Bizley

Published on 12/05/2015


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