Maintain the talent pool: long-term labour for long-term results22 June 2015
Short-term attitudes to labour are often a crime attributed to hydrocarbon companies, and industry experts worry that a lack of long-term planning could cripple the sector in years to come. Chris Godfrey speaks with OPITO’s David Doig and John McDonald, to discuss the future impact of short-sighted redundancies.
"There isn't a skills shortage as of now, that's for sure; it's a supply and demand scenario, and right now the demand is low. But it's just round the corner. It always is," says David Doig, group CEO of OPITO International, an organisation promoting the development of skills, learning and workforce across the sector. As an aging population and the upcoming flurry of retirements begin to take their toll, its work could be crucial in the coming years.
Tumbling oil prices may have eased the pressure on the sector's shrinking pool of qualified professionals but in reality it could be about to make things much worse.
Rather than the continued desperate and expensive scramble for qualified engineers, energy companies are finally experiencing some relief from the growing shortage of skilled labour, but this relief will likely only to be a short-term one; without careful planning, this fleeting respite may lead to a more intense worker crisis in the future.
As the industry corrects itself and adapts to its current environment, thousands of jobs have been lost, with many more predicted. BP, Shell, Petrofac and Amec Foster Wheeler are just some of the companies that have announced cuts since oil prices started to fall. Schlumberger, the world's largest oilfield services company, indicated that 11,000 jobs would be removed globally, but while these redundancies may be deemed necessary to balance the books, they are set to the tune of a relatively short-term fall in demand. However, they will likely cause havoc in the long run.
"What I'm seeing and hearing now is that there a lot of really highly skilled people unemployed. That's quite alarming," says Doig. "They won't all come back and that exacerbates the skills shortage.
Once you've been made redundant, changed your life and got another job in another industry, it's unlikely you'll come back when the good times arrive again. So you lose that knowledge and expertise in a downturn; that wisdom of 'we've been here before; I understand this project'. It feeds into the skills shortage."
The first cut is the deepest
At the end of last year, there were reports that as many as 35,000 jobs could be lost in the next half decade in the UK alone, representing a 9% decline in workforce. Though this is the natural reaction to a heavily reduced demand for oil, bodies in the UK's energy sector have been guilty of extremely short-term thinking in the past. Without intervention, it could be jeopardising the future profitability of extraction from its national energy fields.
"All too often the industry sits on its hands and doesn't think about the future in terms of skills until the business is on the door knocking," says Doig. "Or they struggle to do it well and safely, and there's a skills shortage.
The worse the skills shortage becomes, the more qualified professionals can demand in remuneration. Energy companies, engaged in intense competition for this finite pool of talent, have to increase salary packages and benefits on offer - bringing significant cost to the business. But even when oil prices drop and the demand for labour falls as a result, the issues aren't solved.
"This is what's killing the UK: the cost inflation is still there," says Doig. "When things change, it remains in the business. You cannot remove all of that when the product price is low like it is just now and you become a very high cost province to invest in. Energy companies will look at it and think 'if we lift from the North Sea it would cost us $25 a barrel; if we lift from the Middle East it will cost us $8, so where do we want to make our investment?' It becomes a vicious circle."
Problems on the horizon
Without careful planning for the future, the North Sea's problems - expensive cost of production, a contract-heavy workforce, the lack of domestic labour - will only exacerbate. OPITO is an organisation that aims to support the sector with skills, training and workforce development.
"If you're not taking a long-term strategic view then you're not going to be investing down the people's supply chain," says Doig. "It's not just a bit of training; it's about a real long-term investment, but who's going to fund that? The UK doesn't and the contracting nature of the North Sea doesn't allow the contractors to fund long-term skill development."
OPITO is currently working with the Oman Government to ensure that its long-term plan is one that can overcome the eventual return of the sector's skills shortage. Doig is hopeful the government will invest millions to develop a strategy that would take people from the schools all the way through to further higher education.
"We need to build an infrastructure that points towards the business and we need some help on that," he says. "That's what we're doing with them, they see that as a long-term game and they put the money where their mouth is, as a comprehensive government and industry coalition. We see the same in places like Malaysia. They've invested hundreds of millions in developing this skills base, even at $50 a barrel. They don't get affected by that; they just see it as something they have to deal with."
It's not just the workers that need to be trained; many of the energy companies too require education in just how important more long-term strategies are.
"When times are tough, and there's pressure on employers and on the bottom line, it takes a special kind of leader, I think, to continue to see the necessity of training and apprenticeships," says John McDonald, managing director at OPITO. "We see a lot of that but we want to see more of it, especially to ensure we keep young people in the industry for times when things will pick up again. Our labour market intelligence tells us that despite the downturn, we're going to require 12,000 new jobs between now and 2020. There will be a lot around decommissioning and subsea, and as that starts to kick off we need to be proactive."
Age of ultimatums
With a heavily aging workforce expected to have a significant impact on the future labour shortage, enticing the younger generation into the industry is critical. As well as running an apprentice programme for more than 400 young people, placing them on site with the likes of Shell and BP, the team at OPITO is helping to develop an internationally recognised qualification with its partners. It's also working with governments to ensure they have policies in place to stop younger employees leaving the sector.
"In Scotland, there's a body called Skills Development Scotland and, at the present time, if any apprentice is threatened with losing their job in their industry, the government is offering £5,000 to other companies as an incentive to take them on," says McDonald. "We also have people who have been on our work experience programmes becoming OPITO ambassadors. They go to talk to young people about opportunities in the industry."
This drive to encourage younger people to enter the industry is just one of the many interventions that OPITO is engaged in. The knowledge that it has gathered from its work across the UK could prove extremely beneficial to emerging markets hoping to avoid similar issues with their workforce.
"I think certainly the Middle Eastern countries want to learn from areas like the North Sea and customise that to their own particular context," says McDonald. "If we take work that's going on with the government in Oman, in the North Sea we have corrosion from wind and water, but over there it's mostly onshore, and the concerns are around sand and heat. So while there is potential to learn from more developed industries, you can't just import workers and practices."
Learn and grow
While emerging economies are happy to learn and adapt from more established sectors, there are many developed markets that stubbornly refuse to reform.
"Sadly, the UK never learns; [the industry] just reacts to demand and only ever about the current contracts. It never takes a strategic view," says Doig. "There's never a comprehensive long-term strategy because nobody looks that far ahead. What harms the UK in particular is its contracting nature. Probably at least 70% of the workforce are contractors, but who's going to invest in their skill development?
"It isn't in their contract, so the operator won't pay for it and the contractor isn't going to either, so that actually feeds into the skills shortage model: there's no investment in the existing workforce so they can't develop the existing one."
Technical workers and maintenance engineers are critical to the safety and running of plants and platforms, yet they are also in shortest supply. Considering they are often responsible for ensuring the safety of the extraction process, their absence represents a significant issue to the on-site operation. "You can't just pick these people from anywhere because they need a decent level of education," says Doig. "Producing hydrocarbons is a hazardous occupation. If you get something wrong then it's catastrophic, in business terms, to the environment, and with regard to health and safety. So it takes anything up to four years for you to develop them and put them on the plant."
For Doig, until energy companies start acting collectively to address the industry's long-term problems, the issues will likely only get worse. They may be enjoying respite from the labour market now, but if action isn't put into place soon such periods will become a rarity. Failure to do so could see certain energy fields cease to exist altogether.
"It's very difficult to do that so businesses will just saunter along, do what they need to do and deal with all the issues that come with it," says Doig. "They're still doing the same old things. It's harming the North Sea in particular because it's too costly and it's harder to compete for the investment. It may not seem like a big issue at the time because it's never been addressed but it probably will bring earlier closure to the North Sea because they've not addressed the skills issue."