TM in Oil & Gas Industry

The oil and gas industry is in the midst of aperiod of rapid global expansion. However, willit have the qualified people it needs to supportthat growth? Recent research by Oliver Wyman(formerly Mercer Management Consulting) in-dicates that over the next decade, attracting andretaining skilled workers will be one of thebiggest risks to industry success.

over the next decade, attracting and retainingskilled workers will be one of the biggest risks toindustry success.

Upstream and midstream business are ex-pected to be the most affected, as large numbersof experienced workers retire and competitionfor new talent heats up. This is not just an HRissue: Knowledge, not assets, will be the sourceof future value growth in the sector, and a short-age of well-qualified professionals will constrainthe abilities both to grow in scale and to com-pete in an ever more crowded field.

Oliver Wymans recent global survey on oiland gas employment trends indicates that indi-

Workforce Issues

Talent Management Challenge in the Oiland Gas Industry

Bob Orr and Bridget McVerry

vidual oil gas companies interviewed as part ofthat study expect to face significant talent chal-lenges over the next five to ten years. The surveyrevealed a number of key issues that need to beaddressed to improve the future talent outlook.

While the aging workforce is a valid andgrowing issue, particularly in the WesternHemisphere, the more prevalent concernacross the global oil and gas industry is theability to find and retain qualified talent (Ex-hibit 1). Companies are facing an experiencegap, which could significantly impact theirability to compete in the global market.

As one independent oil company representativestated, The people are just not there.

The ability to find experienced candidateswith the skills needed to meet anticipated de-mand emerged as the top challenge facing thesample group of companies. As one independ-ent oil company representative stated, Thepeople are just not there. Approximately 70percent of participating companies indicatedthis challenge as their highest-priority issuea third of all respondents cite this issue as crit-ical to solve. Because the business model ofservice firms is to offer oil and gas companiesa high-quality workforce with specialized in-dustry knowledge, a shortage of experiencedworkers in the labor market will challengetheir ability to deliver value to customers.

Attrition and retirement are expected to in-tensify the demand for experienced resources.

Bob Orr ([email protected]) is a di-rector and head of the Oil and Gas Practice forOliver Wyman, in Houston. Bridget McVerry([email protected]) is a prin-cipal in the firms Oil and Gas Practice.

18 2007 Wiley Periodicals, Inc. / DOI 10.1002/gas NATURAL GAS & ELECTRICITY DECEMBER 2007

Two-thirds of survey participants specificallyhighlighted attrition among employees withover ten years of tenure as a high-/critical pri-ority issue. Once again, the issue is of greatestconcern to service companies, which provideda substantially higher ranking than independ-ents in this category.

Company concerns regarding the inadequatesupply of experienced talent, coupled with in-creasing demand, is likely to intensify the cur-rent level of competition for workers. As a re-sult, companies feel increased pressure to retaintheir experienced employees. The importance ofretention is reflected in the survey results. How-ever, the industry is beginning to realize that tra-ditional approaches to retention are not enough.While developing a strong corporate culture andwork environment are important, additionalprofessional opportunities and financial rewardsare expected to be a more successful strategy forretaining experienced talent.

Competitive compensation is widely recog-nized as a foundation for retention. In the cur-rent growth environment, there are a number oflucrative opportunities available to experiencedworkers. As competitive offers are increasing,according to the representative of one nationaloil company (NOC), so are the opportunitiesfor employees to change their employer. Al-

though most companies do not aspire to be thehighest payer in the market, most recognize thenecessity to offer a competitive package to theircurrent and potential employees.

Although most companies do not aspire to bethe highest payer in the market, most recognizethe necessity to offer a competitive package.

However, it is becoming clear that compen-sation alone is not a sustainable solution to re-tain talent. Instead, the importance of provid-ing clear and challenging career opportunitiesis beginning to emerge as a higher priority.Over 85 percent of survey respondents citedproviding opportunities for career progres-sion and personal development as a high-/critical priority issue to address. Exhibit 2shows a number of such strategies that compa-nies are employing to address the issues.

The survey results indicate that too manycompanies have yet to realize the scope of theproblem.

For example, when addressing regional tal-ent gaps, oil and gas companies tend to focuson internal solutions. However, this approachwill not be sustainable in the long term, and

DECEMBER 2007 NATURAL GAS & ELECTRICITY DOI 10.1002/gas / 2007 Wiley Periodicals, Inc. 19

Exhibit 1. Oil and Gas Industry Talent Management: Highest-Priority Challenge


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strategies focused on developing local pools oftalent are expected to have the greatest impact.Rather than current piecemeal approaches,what will be needed to address this challengeeffectively is an integrated, top-down talentmanagement strategy that ensures that a com-pany can maintain and grow its workforce inline with its long-term business goals.

WHERE HAS ALL THE TALENT GONE?The pressures to find and hold on to quali-

fied people are expected to intensify as the oiland gas industry expands over the next decade.Exhibit 3 shows the percentage losses ex-pected, by skill area. The looming talent chal-lenge is the result of a number of different,colliding factors.

1. An aging workforce. The average oil and gasindustry workers across the value chain arein their mid-40s, with more than a thirdexpected to retire by 2012. Companies inmore mature geographies, such as NorthAmerica and Europe, will be especially hard

hit by this loss of experienced workers. SeeExhibit 4.

2. Fewer experienced candidates. Competitionis increasing for an insufficient supply ofexperienced workers. Integration across thevalue chain is driving the need for more


Exhibit 3. Expected Talent Gaps

Exhibit 4. Average Age Distribution

specialized (and, hence, scarcer) skill sets.Other trends contributing to this shortageinclude the slashing of industry workforcestwo decades ago, the replacement oftenured employees with entry-level work-ers, and training reductions due to operat-ing margin pressures.

3. Industry globalization. NOCs are expand-ing operations into new geographies, whilethe international oil companies are lookingto build local workforces and rely less onflown-in talent. In many countries, how-ever, fewer people have the requisite skills;thus, those that do are highly sought after.

4. Difficulty attracting entry-level talent. Al-though there is expected to be an adequatesupply of entry-level workers with basicskills and knowledge, these workers havemany employment options both inside andoutside the energy space. Harsh, remote ex-ploration and production (E&P) locationsand oil and gas industry reputation alsohave an impact on attracting new talent.

WANTED: TOP-DOWN TALENTMANAGEMENT

There are some positive trends in terms oftalent availabilityan increase in college gradu-ates with usable skill sets, a move toward local-ized workforces, and the use of creative retire-

ment strategies to keep experienced workers inplace. However, most oil and gas companies donot appear to be well positioned to take advan-tage of these trends. They are still focused on thescramble for a small pool of top candidates(or, in the case of NOCs, on hire and hold foran employees professional lifetime), and haveyet to develop broader and more innovative ap-proaches to sourcing workers.

Most oil and gas companies are still focused onthe scramble for a small pool of top candidates.

Most important, most oil and gas compa-nies lack an integrated talent managementstrategy that simultaneously focuses at a highlevel on attracting, developing, and retainingemployees with the knowledge and capabili-ties required for success. Exhibit 5 offers onesuch approach.

Source and RecruitOil and gas companies must get ahead of the

curve in terms of knowing what their talentneeds will be tomorrow and developing an over-all approach to sourcing. This starts with an as-sessment of operational plans, growth targets,and the existing workforce to identify potential


Exhibit 5. Key Levers in Talent Management

gaps. Developing new, nontraditional talentpools to address evolving needs is the next criti-cal piece of the puzzle, as competition for candi-dates intensifies. To get prospects in the door,the company will need to ensure that its brandimage helps differentiate it and will appeal tocandidates values. Finally, a structured recruit-ing process must be developed that assesses can-didates from the perspective of capabilities,knowledge, and cultural fit.

Develop and ManageKnowledge transfer and investment in staff

training and development will be essential tolong-term business success, particularly if acompany recruits talent with more generalizedskills or from other industries. Structured pro-grams should be put in place to ensure knowl-edge transfer from older, more experiencedemployees to newer employees. In some cases,a mentoring or journeyman approach maybe useful for developing very specialized skills.

High-quality employees also value formal ca-reer management and leadership developmentopportunities. Challenging roles and career pathopportunities can help retain the best employ-ees, while there is certainly a competitive advan-tage to be had from proactively building a com-panys next generation of leaders.

Reward and RetainCompetition for talent and the prolifera-

tion of other opportunities increase the im-

portance of a well-defined plan for retentionand employee recognition. Failure to invest inretention also can lead to a prohibitively ex-pensive cycle of recruitment and training, notto mention jeopardizing a companys perform-ance. Retention plans should be targeted basedon the demographics of the talent pool, withspecific efforts focused on retaining workersnearing retirement age. Also important arebenefits programs that enhance a companysreputation for taking care of its own.

OLIVER WYMANS APPROACH TOTALENT MANAGEMENT

In the face of the coming talent crisis, alloil and gas companies will likely need to ad-just their talent management strategies to sup-port shifting business requirements and coun-teract increased competition for their mostvaluable employees.

Through recent work for energy compa-nies, Oliver Wyman has developed an ap-proach to assessing current talent managementefforts, identifying gaps and opportunities,and developing integrated action plans that isresults-oriented and that can be aligned witheach companys unique structure and long-term goals. Wymans approach is shown graph-ically in Exhibit 6.

If you would be interested in discussing OliverWymans perspectives on talent managementchallenges in the oil and gas industry, please con-tact one of the authors of this article.


Exhibit 6. Oliver Wyman Talent Management Strategy Approach

TM in Oil & Gas Industry

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