MATTHEW HILLER, IBM, USA, INVESTIGATES

THE HUMAN CAPITAL CHALLENGES THAT

STILL FACE THE OIL INDUSTRY DESPITE

A RECENT REDUCTION IN HIRING RATES.

CAPITALISING

ON HUMAN

C A P I TA L

T he oilfield is facing a number of challenges as 2015 begins. Lower oil prices, regulatory issues and uncertainty in the market are wreaking havoc in almost every part of the business. Strangely enough, even

though many companies are facing layoffs or hiring fewer people, the industry still faces a shortage of critical talent.

The two most pressing issues in ‘Human Capital’ today are attrition and a shortage of qualified staff. The first is attrition. Even in a down market, attrition continues to represent one of the highest costs faced in oil and gas. Here is an interesting fact about talent in the energy market: The average cost of attrition in oil and gas in North America is roughly US$26 750 per employee. This number increases to a figure averaging 9 to 12 month’s salary for professional engineering

| Oilfield Technology Reprinted from March 2015

and senior operations roles. When the cost of projects being delayed or lost due to manpower issues is added in, this figure climbs rapidly.

The second issue is the shortage of qualified talent. This shortage is continuing in spite of lower prices and layoffs. In 2014, there were roughly 4 to 5 open positions for each professional level candidate working in the oilfield. Even if one was to assume an extraordinarily high reduction of 50% in demand in 2015, there are still 2 - 3 open roles per candidate. As mid-career professionals move into retirement with fewer people to replace them, this problem will grow dramatically over the next 5 to 10 years. The problem is not going away. Even with an increase in recent engineering graduates, it will be years before most of them are experienced enough to assume the responsibilities held by those currently in management and leadership roles. Most companies have established ‘Fast Track’ and succession planning strategies over the past few years in an attempt to transfer knowledge and experience from one generation to another before time runs out. While these efforts are successful in many cases, they will not be able to fully compensate for the inevitable shortage of experienced staff over the next few years. Of more concern, is the fact that no fast tracking programme can make up for real world experience acquired over years in the oilfield.

Industry voicesTo get clear picture of the market, different perspectives were gathered to see how each sector was being affected, how they are meeting these challenges and how they view the industry in the current market.

Oilfield service companies in North America are currently among the most threatened in this environment. The common view of operations and HR leaders of several companies was that downsizing over the next few months is a regrettable but unavoidable reality. Service companies typically run lean by nature, traditionally having to do ‘more with less.’ Most of the people questioned are focused on improving efficiency and holding onto as many employees as possible until production returns to normal levels. Companies know that they will not be able to reacquire many of those who were laid off when the market returns. These companies will suffer significant costs to rebuild their staff. In some job categories, the overall cost of attrition and reacquiring staff will be up to three times the cost of having kept an employee. With the market expected

to rebound by Q3, demand for staff will cause a mad scramble and drive costs up even further.

One of the best ways companies can hope to reacquire their staff is by setting up an internal programme to keep in touch with those that were laid off. This accomplishes a few things, it improves a company’s standing in the eyes of the employee, enhances how the company is perceived by future candidates and greatly reduces the time needed to reacquire staff when the market normalises. Cultural branding is oftentimes overlooked, but it is a crucial tool in any talent acquisition plan and will be covered in the last section of this article.

For a global view regarding E&P, the author spoke with David Vinton, Global Resourcing Team Lead at Eni Petroleum. David manages a dedicated team within Eni Petroleum’s Centre of Excellence focused on hiring for local nationals for all subsidiaries in the Eni group worldwide as well as defining and managing their global recruitment strategy. This includes substantial hiring projects and nationalisation programmes in Angola, Mozambique, Congo, Ghana, Gabon, Indonesia and Venezuela. David has been a key

part of Eni’s development and evolution of their Talent Acquisition strategy over the past few years. When asked about this evolution, he said that “Eni are looking to identify cost savings wherever possible and looking for ways to get the most out of their existing workforce.” He went on to explain that “Eni are being much more selective in hiring and trying their best to identify the candidates that will best match Eni’s culture, rather than hiring purely on technical qualifications. Eni have a set of competencies, values and beliefs that are applied across the globe while at the same time being inclusive of each region’s unique culture.” Recognising and valuing the unique cultures of Eni’s different regions is a challenge, but it is one that will pay dividends over the years.

Like everyone else, lowering ‘Cost per Hire’ is a goal for Eni, but what they are doing with front end assessments of candidates is not only lowering costs, it is also greatly improving efficiencies in all areas. The evolution that David is part of leading, will lower attrition rates and help to create a much more cohesive and effective workforce.

The responses received from a few major E&P companies in the US summarised the views of everyone interviewed: “With the uncertainty of knowing whether this will last 2 - 3 months, or 12 - 18 months, it is anyone’s guess as to how things will shake out. My ‘unofficial’ opinion is that in the industry, there will be a good number of quality people that will be on the market, if their company has not properly planned for these slow times. That will be good for other O&G companies as we will be selective in hiring top quality candidates that might not have been available this time last year. Companies that were looking at large marketing/advertising campaigns for 2015 to attract talent will not need to be so vigorous now, as more external candidates will be applying to positions. We will be recruiting on fewer positions, as some projects will likely be slowed down or cancelled to be mindful of budgets. It will most likely be a time of optimisation for many company and departmental projects for 2015 and many organisations will reassess at the end of Q1, Q2 to see how the market looks.”

The author also spoke with Abid Hamid, Global Business Development Director with SThree/Progressive Global Energy. Abid’s view is that “We’ve seen this kind of cycle previously and it should not come as a surprise to many in the industry. We’ve had a consistent growth run based on the high price for oil and this has led to ever more adventurous exploration and

Figure 1. Strangely enough, even though many companies are facing layoffs or hiring fewer people, the industry still faces a shortage of critical talent. (Image courtesy of Eni.)

Reprinted from March 2015 Oilfield Technology |

therefore a hike in terms of demand for skills. The expectation in Q1 and Q2 is that most organisations will take a hard look at their projects and thereafter the suppliers to these projects. There is no doubt that there will be a cull in the market as projects do not pass FID or there is not enough in the new business pipeline to retain skills.”

As for his view on the current market and the near term future, Abid explained that “The market will adjust itself and this will mean some of the following trends: Salary and day rate expectations will come in line with normality, which is good for all concerned. Some senior candidates that would not have considered moving to smaller firms will look at this as an option, and smaller firms will now have a pool of potentially very experienced candidates that would not have considered them previously.”

Midstream is largely unaffected by the recent price drops. Amy Grace, Head of Talent at Spectra Energy, a Houston based pipeline company has a positive outlook on hiring trends in Midstream said that “While producers and suppliers are experiencing volatility in their need to recruit, the midstream recruiting demand remains in full swing. With the race to build North American pipeline infrastructure to support energy demands, we are still in a highly competitive, active recruiting scene. In highest demand are engineers and supply chain experts, but virtually all support areas are also in play.”

Although the oilfield is experiencing some difficult times, there are some bright spots and hiring continues in many areas. Demand is still strong for critical roles and improving the efficiency of workforces continues to be a top priority.

The solutionsAcross every region and sector in oil and gas, there is a concerted effort to increase workforce efficiency, improve retention, address issues that cause attrition and effectively assess prospective hires. There are solutions for each of these challenges but they must be customised to fit an individual company’s unique identity and specific needs. Any tool used to address human capital must factor in the human element rather than just technical qualifications.

There are three basic flavours of ‘Talent Acquisition’: internal recruitment, external recruitment and recruitment process optimisation (RPO). What has been learned over the years is that no single method will be completely successful as a standalone approach. The very best talent acquisition strategies employ at least two of these methods while some will utilise all three. The types of solutions used will vary by company size, volume of hiring and cost considerations.

Most companies have some form of internal recruitment programme. Traditionally, they rely heavily on job listings posted to their website or internet job boards to attract talent. In some cases, internal recruiters have headhunting skills and can go outside to source talent, but this is the exception rather than the rule. Approximately 97% of publicly traded companies utilise some form of external recruitment, showing that internal recruitment alone cannot meet the needs of most companies.

Agency recruitment is the most common form of external recruitment and is a viable solution for most companies when used with their own internal teams. Agency recruiters only collect a fee if a candidate is hired. These fees vary by region, but in the US market the average is between 18 and 25% of base salary. Many agency recruiters also supply contract labour, which is a very popular resource in oil and gas. A percentage-based fee is charged on top of the hourly rate to cover insurance, payrolling and profit. This particular solution (contract labour) is a great choice for project based staffing, but is much more expensive over time than hiring a candidate directly.

There are some important considerations when selecting an agency. First, is the level of experience in oil and gas, hiring a firm that has little or no experience in the oilfield will only result in wasted time and effort. Another consideration should be a firm’s presence in and around major oil

centres. There is no substitute for an ‘on the ground’ presence with local market knowledge. Agency recruiting is the most popular form of external recruitment and the most expensive. Companies hiring in smaller numbers will be well served by this type of recruitment. For companies hiring in the thousands, RPO will most likely be the best and most cost-effective solution.

RPO is a blend of services designed not only to supply staff but also to also shape culture, provide customised assessments to ensure proper candidate fit and to optimise a company’s existing workforce. RPO is a relatively new solution and it is making significant changes to how people work, cutting attrition and improving efficiency almost everywhere it is deployed. The RPO model is designed for companies that have needs for 1000 up to tens of thousands of employees in any given year.

RPO begins with an examination of a company’s culture. IBM has employed over 100 ‘Industrial Organisation’ psychologists to assess a company’s true cultural identity. Companies may have a perception of their culture that is very different from how they are perceived by employees or others in the market. Determining true cultural identity is the first step in creating effective assessments for a client. These assessments utilise a variety of factors including the qualities of top performers when they are being designed. Assessments can also be used to measure and identify the best internal candidates for promotion or reorganisation to improve a company’s existing workforce.

The second stage of the RPO process is creating teams of recruiters who focus solely on the client and become integrated with the client’s organisation. RPO recruiters are not driven by commissions, as they are salaried. These teams are built around a client’s needs and can be deployed anywhere across the globe. They are trained on the client’s culture, industry and specific job families. In effect, they become employees of the client and are better able to represent the client than outside agencies.

The science of sourcing is constantly evolving. IBM has worked to pioneer ‘Sourcing Sciences’ by harnessing the power of big data, predictive analytics and other technologies that are years ahead of anything else in the market. Most recruiters search for candidates through Boolean searches on LinkedIn and internet job boards. These are outdated methodologies. The Sourcing Sciences group within IBM have created solutions using technology unavailable anywhere else, to identify and capture hard to find talent. These solutions have helped the company’s RPO recruiters fill an average of over 100 jobs per recruiter per year for oil and gas clients. This average is 7 times more effective than average agency recruitment and comes at a much lower cost.

One of the key features of RPO is the ability to flex up or down based on hiring volumes. For one of IBM’s oil and gas clients, their needs varied from 750 jobs in one month to over 1500 the next month. The ability to instantly accommodate swings in hiring is unique to the RPO solution.

All of these services combined create optimisation. The role of a quality RPO provider is not to outsource a client’s recruitment or to take it over. Instead, the goal is to help a client optimise their operations by becoming a true partner with a client. In these challenging times, it is not enough to focus solely on staffing people within an organisation. The focus must be on creating a smarter, happier and more efficient workforce.

There is no doubt that the business faces several challenges in 2015. It will be a tough year for most in the oilfield. The good news is that the technology is better than it was just a few years ago; technology has increased the efficiency of wells, reduced drilling costs, allowed drilling in deeper waters, provided a safer work environment and is helping to create a smarter workforce.

No single solution can stand alone and be successful. The best answer is almost always a blend of solutions and to remember that human capital is... human.