Layoffs are a recurring nightmare for both employees and employers
Layoffs: oil and gas companies have cut some 350,000 jobs in the downturn, but what happens when oil prices tick up and demand for talent outstrips supply? It’s a recurring nightmare.
The crash in oil prices has led to a rash of layoffs that started in early 2015. More than 350,000 jobs worldwide have been cut in the oil and gas industry, according to a 2016 report by Houston-based consultant Graves & Co. The loss of talent from the industry will present major challenges moving forward, according to London Business School Sloan Fellow Ghassan Mirdad who spoke at the school’s Global Energy Summit.
“The biggest problem right now is that the industry has lost talent,” said Mirdad, M&A portfolio manager at the world’s largest oilfield services company Schlumberger (ticker: SLB). “Businesses will try to buy back the talent they’ve lost, or to recruit and train new workers once the oil price improves, but that will ultimately drive costs up.”
He asked: “How can we motivate gas and oil organizations to address this problem?”
The first practical tip was to nurture an existing workforce, he said. “Despite job cuts, there are thousands of people working in the energy industry. We need to keep them motivated. When times are tough we consider sending people away for a year or two to receive an education before cutting jobs. It means we don’t lose talent, and our employees have an opportunity to develop,” he said speaking about Schlumberger.
A headline last week over a story by CBC News spelled out exactly what Schlumberger’s Mirdad was warning of: “After Massive Layoffs, Calgary Oilfield Company Struggles to Find Staff,” the article reported.
“An oilfield services company that laid off almost two-thirds of its workers during the darkest days of the two-year-old energy slump is now warning it can’t find enough staff as its customers react to improvements in commodity prices,” the story said. CBC News reported that the oilfield service company—one of the companies that supplies rigs, machinery, drilling and completion services using experienced personnel—had cut its staff to 343 from almost 1,000 in the downturn. But lately demand in Western Canada for well completion and production services has been rising, leaving the company in a tough situation.
Essential Energy Services CEO Garnet Amundson said on a conference call that his company was hiring but he was worried that if the increase in activity continues, “… due to staffing reductions early in the year, we could become constrained in our ability to supply equipment in the short term,” CBC reported.
A subhead in the story pointed out what a downturn can do to the workforce: “People have moved on.” People leaving the industry during downturns leaves companies in dire straits when it comes to fulfilling the needs of E&P operators who are ready to resume drilling and completing wells when global oil prices begin to show some support. Higher prices spur activity: the activation of more rigs, which demands more qualified technical people to work them, as well as more engineers and other energy professionals.
Upgrading employees’ skills in a downturn
One way companies can retain employees and one way for employees to beef up skills in a downturn is through programs that focus on upgrading employee skill sets.
The University of Colorado Denver Business School offers a program for energy professionals called Global Energy Management (GEM). It’s an 18-month Master of Science program focused exclusively on the business side of the energy industry.
Students in the online program come from all around the globe. In January and July, when each new GEM “cohort” begins, the GEM students come to Denver to meet their fellow students and their professors during four days of concentrated classroom learning at the University of Colorado Denver Business School campus.
Afterward, they return home to complete the remainder of their GEM degree from a distance, doing a lot of project-focused work, working in teams with fellow students who might be located in different states or on different continents. The GEM program consists of 12 classes overall, and students are graduated in 18 months. Thirty to forty percent of the program consists of team projects, managed and completed by the student teams spread over several locations—just like in a geographically spread energy firm.
Getting positioned to be ahead of the market when the industry picks up
“You will position yourself to be ahead of the market when the industry picks up again,” explained Catherine Steffek, GEM’s director of external affairs. “In 18 months, you’ll have a graduate business degree from an accredited institution that is focused on the energy industry. You’ll be able to understand how the leaders of a company work and think, and how and why decisions are made.”
“It has definitely been a help for me,” Sean Howley, Development Planning Team leader at Noble Energy (ticker: NBL), and a graduate of the GEM program, told Oil & Gas360®. “I have actually had three different positions since I graduated from the program,” Howley said, referring to some moves up the ladder at his company.
Advice from a pro
In the early days of the 2014-2016 price downturn that took the price of oil from above $100 to below $30 per barrel, Oil & Gas 360® interviewed John Hofmeister, former President of Shell Oil Company.
At Shell, Hofmeister was responsible for overseeing all of Shell’s U.S. operations and its thousands of U.S. employees. Hofmeister was head of HR for Shell in company’s headquarters at The Hague before being tapped to lead the U.S. arm of the global oil giant.
Oil & Gas 360: Up and down price swings are nothing new to the energy business, but from a human resources perspective, what do these cycles do to the talent pool?
John Hofmeister, former President, Shell Oil Company: In some respects the talent pool is disenfranchised by volatility in the oil price. In other words, as prices of oil drop, tenure or job security becomes a much bigger issue in the minds of companies and employees. And there is a cost structure that has to be adjusted when prices drop or prices rise, and so there is a sense among many people that every time we go through a down cycle we lose talented staff, which we do, and that disenfranchises employees of the future. I’ve read stories of [companies] rescinding job offers to outgoing graduates from major universities, so this is an issue that the industry has to face square-on.
It somewhat relates to the skill and operating requirements of various companies—some occupations are more vulnerable than others, and some companies are more vulnerable than others. And so it’s not a uniform, across the board, dilution of the workforce or dilution of the skill base. It’s rather more selective.
With so many rigs being set down, yes, there is a major current de-emphasis on drilling—not necessarily drilling skills. Drilling skills are still being developed and drilling technology is still being developed, but those who are more or less hands on in the drilling arena are finding huge job insecurity right now and massive layoffs. That’s a fact of life.
There are other geosciences that are critically important to the future, whether it’s offshore, whether it’s onshore, whether it’s deep wells, enhanced oil recovery, or more specific geo-specific knowledge and awareness of fracing, water management, or a variety of other skill sets that remain in demand. So companies that are on one hand laying off in certain areas, they may actually be adding to their skill base in others.
It’s important therefore for people who aspire to work in the oil and gas industry to watch carefully where their skill development is occurring. There is also the skill development of management roles, commercial roles, contracting roles, and so on—so there are lots of career opportunities in the industry, but, yes, in a down cycle for the oil price, costs are being watched carefully and it does cause insecurity in the workforce. The best thing the industry could do for itself is manage its costs on an ongoing basis, so that as the price cycles come and go there is less direct impact on the workforce, particularly the skilled workforce.