Surviving the cycle
03 August 2009
As operators and service companies tighten their belts, even highly skilled technical staff are feeling the pinch. Russell McCulley takes a look at the US Gulf Coast’s market for the engineers amid concerns that the industry may repeat the mistakes of past downturns.
With the global recession threatening to keep demand for their products suppressed for some time, oil & gas companies find themselves in a difficult position; how to scale back the workforce without precipitating the sort of trauma that the industry sustained in the 1980s, when mass layoffs led to severe shortage of skilled workers when market conditions improved – and sullied the industry’s reputation for years.
In June, unemployment in the US reached 9.5%, according to Department of Labor statistics. The energy industry has not been spared: operators and service companies started announcing layoffs not long after oil and gas prices collapsed last year, and more may be in the offing. But they follow a period of remarkable expansion.
Chad Deaton, president and CEO of Baker Hughes International, rolled out some telling statistics at the Offshore Technology Conference in Houston last May: between 2004 and 2008, six large oilfield service companies – Baker Hughes, Halliburton, Schlumberger, Weatherford, BJ Services and NOV- collectively added some 112,000 employees to the workforce, an increase of 64%. In 1Q 2009, Deaton said, those companies had to cut 23,000 jobs, or 8% from the peak; more layoffs have followed, among service companies as well as operators. “There’s a danger that we’ll make the mistakes of prior business cycles and make drastic cuts – particularly in the ranks of young engineers,” Deaton said. “We need qualified engineers young talent for when the market recovers, and we don’t want to send the message to university students that we will cut them first when the market gets tough.”
Recruiters were still optimistic when they visited campus last fall, even as the industry was taking a tumble; this coming fall, Bommer says, “I suspect that the major players will be back – the Chevrons, the Shells and people like that. But some smaller companies may or may not be back,” particularly those, he says, whose fortunes are tied more to the price of natural gas than to oil.
“Up through November [2008] or so, it was a pretty normal year, in terms of companies coming on campus and making job offers,” says Steve Holditch, department head, petroleum engineer, at Texas A&M; University. ‘And then it is started deteriorating after the first of the year. Fortunately, all of the job offers that were made in 2008 were honored by the companies,” he says, and the department ended the school year on par with the typical 90-95% placement rate. What was not typical, he says, was the dearth of internship opportunities in the summer of 2009. “It was pretty silent in the spring,” Holditch says. “The bottom fell out of the internship market.”
Image conscious
Internships can be useful in giving the industry a more positive image among undergraduates, he says. “It would do the industry a terrific service to make sure our freshmen, sophomores and juniors get some summer work. It shows students what our industry is about. It hooks them – they want to be petroleum engineers after that. And they need the money – a lot of students put themselves through school.” The lack of summer internships this year doesn’t necessarily bode ill for the upcoming recruitment season, he notes. “I’ve talked to a lot of companies, and they’re all going to come back to campus this fall, they’re going to interview, and they’re all going to hire.” How much, is anybody’s guess. “They still haven’t made that decision,” Holditch says. “They’re still crunching the numbers.”
Some specialists are faring better than others, says Arno Bracco Gartner, regional director for the Americas at the oil and gas division of the engineering staffing services firm Brunel Energy. “Subsea is still fairly hot, LNG projects are continuing, pipeline specialists – there are still disciplines that are definitely going strong,” he says. Despite the swing from a job-seekers’ market to one that favours those doing the hiring, Gartner insists that, with world hydrocarbon demand expected to rebound and remain strong over the next few decades, prospects remain good for petroleum engineers. “I still feel that is you are a 30-to-35-year-old engineer, you’ve got two to five years’ experience under your belt and you are good at what you do, you’re home free until retirement, whatever age that may be.”
The current economic crises could lead many people nearing retirement to hang onto jobs for a few years more than planned. That might stall, but not prevent, the much-discussed mass exodus of experienced engineers – the so-called big crew change, when the retirement-age workforce will be replaced y a much younger one, with relatively few representatives from the generation that would have been entering the market at the time of the 80s oil crash.
“There’s a period coming where veterans of the oilfield are going to be retiring or going onto consulting,” says Chan Daigle, VP of sales and operations for Americas at Eventure Global Technologies. “If you lose that basic tribal knowledge, how are we going to make it up?” Tribal knowledge, he says, is “not just documentation, but an understanding of how things work. And there will be a gap with the big crew change.”
Daigle says many companies may have compounded their problems by being too aggressive and overly optimistic during the oil boom. “When you’re riding the crest of the wave, there’s optimism and euphoria. But these waves don’t last forever,” he says. “And the troughs don’t either.”
The cutbacks threaten to tarnish the career-friendly image that they industry has worked hard to project over the past several years. “I think oil is still considered a dirty business – a misplaced feeling that traditional energy somehow not legitimate or clean or desirable, at least in places that don’t have big industry presence,” says Steven Kopits, manager of the New York office of Douglas-Westwood. Despite some successes companies had in changing that perception among potential petroleum engineers, the current recession and the industry’s response could reinforce negative impressions on university campuses, he says. But an expected spike in demand, driven largely by China, will require a bigger workforce, Kopits says. “My guess is, we’re going to need all the people we can get.”
Historical perspective
Kopits and others are quick to point out that current conditions are not the same as they were a generation ago, and that analogies to the severe oil slump of the 1980s don’t hold up. “Previous downturns did not include demand from rapidly growing economies like Asia,” says Volker Rathmann, president of Collarini Energy Staffing in Houston. “The forecast for energy demand for the developing middle classes in China and India is huge. Whatever momentary hiccup we’re experiencing – and I truly think that’s what is – demand over the next ten, twenty years is so big that hydrocarbons will continue to play a very large role. Today hydrocarbons still make up about 70% of the world’s energy supply base. Alternative energy will play a growing roles, but not in the short term.”
The recent spate of layoffs is not all that unusual, Rathmann says. “Well managed companies tend to take advantage of a downturn in the industry, and that usually results in a cut in the workforce of 10-15%. This affects, commonly, poorer performing employees. It is not something people like to talk about, but it’s kind of a cold fact. It’s a prudent business practice.”
Rathmann says his firm is witnessing an uptick in the number of engineers seeking work, but remains bullish on the profession. “We are seeing an increased inflow of resumes,” he says, as layoffs reach the ranks of highly skilled technical workers. “The good news for these individuals is, I have no doubt that they will land again. There are enough players in the Gulf of Mexico, and the individual engineer who may have been affected should not have trouble finding another situation for him or herself.”
Companies can afford to be more selective in the current environment. “Finding the right person is never the easiest job,” says Richard Kirwan, an account executive at the technical staffing service Talascend. “Companies are being a great deal more selective, careful in who they actually choose to hire.” That’s a break with the recent past, he says, when companies were willing to take more risks with new hires. “In the current climate, people cannot afford to take on anyone without knowing that that person is going to be excellent. And they can afford to choose that now.”
Talascend, working with the state of Michigan, this year launched a program to retrain displaced automotive engineers in businesses, such as pipeline engineering, that offer the chance at a second career. Along with oilfield related industries, the Global Training Academy, in Troy, Michigan, is also steering enrollees toward renewable energy businesses and those that stand to benefit from economic stimulus funds targeted to infrastructure. “A lot of technology is the same,” he says of the switch from auto engineering to pipelines. “It just has a difference application.”
Those just getting started in an engineering career could be at a greater disadvantage, Kirwan says, as companies scale back or shelve recruitment plans for new graduates. “I’m not sure the exploration and production companies felt the pinch as much as companies that contract out to. But I’ve spoken with a number of major engineering companies that have scaled back, or even not had an intake this year of new grads.”
Paul Bommer, senior lecturer in the department of petroleum and geosystems engineering at the University of Texas, said the university’s record of full placement for graduates appeared to slip this past year, although students are not required to report on whether or not they received an offer. “I don’t know the final statistic, but early on, we were probably flirting with about an 80% placement rate,” he says. “I think we did better than that in the end, but I’m fairly convinced that we had people leave here without a job.”
Michael Boedewig, a principal at Deloitte Consulting, believes that petroleum engineering is among the ‘critical workforce segments’ that will remain viable throughout the global recession, in part because of the rise of national oil companies. “You have a growing need around national oil companies,” he says. “These companies are continuing their expansion and creating needs that haven’t been filled.” Enrollment in engineering programs in the US remains low even as the aging workforce nears retirement, Boedewig says; at the same time, oil and gas exploration in more challenging environments will require more highly trained specialists. “All those factors would still say that, for certain segments, that there’s still a critical talent shortage,” he says.
The recent layoffs, and those still to come, may have little effect on the most valuable technical workers. “Oil service companies are not letting go of the scientific, technical part of their workforce,” Boedewig says. “Historically, they know how tough it’s been to recruit these people and to retain them.”
The downturn could in fact be an opportunity for the industry to enhance its image among the upcoming workforce, he says. As other industries scale back hiring (or worse, renege on offers made to undergraduates, as some financial services companies have been forced to do), oilfield companies have an opportunity to differentiate themselves – to say “we’re still going to campuses, we’re still hiring, ‘we’re still looking for those skill sets. You can make a rewarding career with us. And it’s going to be even better when things improve.”
Bommer, of the University of Texas, isn’t betting on it. “My suspicions are, it’s the same old saw: companies are going to live or die by the bottom line, and they’re going to do whatever is necessary to keep the bottom line looking as best it can in good times or bad. From a personal point of view – from and engineering manpower point of view – I would hate to think that we would go back to a layoff scheme. But I don’t doubt for a minute that that’s exactly what will happen should the price of oil and gas get to some critical level and stay there.”
Still, he says: “I think petroleum engineering and geosciences are going to hold their position better than some of the other disciplines, simply because the oil price has sort of held up.”
