tackling the talent gap

Running Head: TACKLING THE OIL & GAS TALENT GAP

Tackling the Oil & Gas Talent Gap

Brendan Nealon, Zeerak Abbas, Luke Blaylock

The University of Texas at Austin

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Abstract

Human capital is the most valuable asset a company or industry can have.

Companies that realize this and invest in their human capital usually show long-

term success. The oil & gas industry is currently facing a human capital talent gap

caused by the downturns in the 1980s and 2000s. With over 50% of energy

employees reaching the age of retirement, it has become more imperative than ever

to address and solve this problem.

There are many factors that can be attributed to the current talent gap that

exists in the industry. While the gap itself was created by the financial downturns

decades ago, companies failed to implement workforce techniques in the times of

success. One of the biggest reasons the talent gap exists is due to the lack of

investment that companies put in their interns, apprentices, and young

professionals. Instead, these companies simply hire talent away from other

companies. One of the reasons for this is the large amount of time is takes for a

recent graduate engineer to attain expertise in a particular skill. Instead of waiting

close to a decade, companies imply buy away already developed talent. For obvious

reasons, this practice is unsustainable and will only lead to a larger talent gap in the

future. Another cause of the talent gap is the lack of soft skills in young

professionals. Due to the lack of development programs offered by companies,

young engineers lack the non-technical skills and competence to attain management

positions. Lastly, there are fewer students pursuing engineering disciplines relevant

to the oil and gas industry.

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All of these factors considered, along with the looming retirement of Baby

Boomer generation has faced current oil and gas executives with a predicament. The

long term success and growth of established oil companies is going to be put in the

hands of a much younger generation of talented engineers, how effectively can these

executives orchestrate the transition?

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Table of Contents

Abstract 2

Executive Summary 5

Tackling the Oil & Gas Talent Gap 7

Causes 8

Solution 9

Encourage the Next Generation 11

Youth Programs 11

Education 12

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Casting a Wider Net 12

Implement Training Programs 14

Retain Skilled Employees 15

Conclusion 15

Executive Summary

Human capital is the most valuable asset a company or industry can have.

Companies that realize this and invest in their human capital usually show long-term

success. The oil & gas industry is currently facing a human capital talent gap caused by

the downturns in the 1980s and 2000s. With over 50% of energy employees reaching the

age of retirement, it has become more imperative than ever to address and solve this

problem.

There are many factors that can be attributed to the current talent gap that exists in

the industry. While the gap itself was created by the financial downturns decades ago,

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companies failed to implement workforce techniques in the times of success. One of the

biggest reasons the talent gap exists is due to the lack of investment that companies put in

their interns, apprentices, and young professionals. Instead, these companies simply hire

talent away from other companies. One of the reasons for this is the large amount of time

is takes for a recent graduate engineer to attain expertise in a particular skill. Instead of

waiting close to a decade, companies imply buy away already developed talent. For

obvious reasons, this practice is unsustainable and will only lead to a larger talent gap in

the future. Another cause of the talent gap is the lack of soft skills in young professionals.

Due to the lack of development programs offered by companies, young engineers lack the

non-technical skills and competence to attain management positions. Lastly, there are

fewer students pursuing engineering disciplines relevant to the oil and gas industry.

Simply put, the oil and gas industry lacks appeal for recent graduates. There is

little stability, a difficult work-life balance, and the off-chance of traveling to a politically

unstable area. Therefore, it is important to change the image of the industry by recruiting

even before college. Sponsoring STEM programs in high schools will encourage youth to

pursue positions in oil & gas upon graduation. Furthermore, it is imperative for

companies to improve their training programs or to create new programs for apprentices.

This will shorten the time required for a young professional to attain expertise. Another

solution companies can implement is to provide matching offers and greater benefits to

their current employees in order to retain them. This will keep employees within the

industry and force other companies to develop young professionals.

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Overall, it is incredibly important for companies to develop and retain their young

professionals. With impending retirement from Baby Boomers and the downturn in

prices, it is more important than ever to invest in human capital.

Tackling the Oil & Gas Talent Gap

Arguably the greatest challenge faced by any industry is the shortage in supply of

talent. Without a stream of talented individuals to grow a company, success will slowly

dwindle. Nearly 90% of senior human resource executives have stated that talent

management issues are the single greatest challenge and threat to a companies’ financial

success (ReliablePlant, 2015). Currently talent in the oil and gas industry is top heavy,

with a majority of expertise being concentrated in senior employees, aged 55 and older.

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The current talent gap was carved from multiple downturns in the 1980s and 2000s,

which caused young graduates to pursue employment in other industries. Low oil prices

are churning a similar cycle, forcing young professionals to look to other sectors. With

the impending retirement of the baby boomers and growing demand of energy

worldwide, the shortage of recently-graduated human capital is becoming a glaring issue

(Halle, 2013). This paper will discuss the causes of the current talent gap, solutions

companies can implement to fix this problem and the cost for implementing these

solutions.

One of the positives with the talent gap problem is that companies and employers

have been aware of the issue for at least a decade. Often times, the industry isn’t aware of

the problem until it directly affects profits. Over 58% of energy employers state that they

are having trouble finding college graduates and other individuals with the right skills for

the job. Furthermore, 74% of the same employers believe that the talent gap problem

must be addressed in the next 5 years (Ram & den Berj, 2015). According to Dan

Heitzelman, CEO of GE Oil & Gas, over 50% of employees in the oil & gas industry are

eligible for retirement (Mainwaring, 2013). Mercer’s survey of 151 energy companies

shows that the largest gap in skill set occurs in technical skills, with over 74% of

companies stating that they lack employees with sufficient technical knowledge (2014b).

Having a younger employee base with expertise will allow a company to be prepared for

robust and pioneering operations, as well as a pipeline towards future leadership while

facing an ever-changing industry.

Causes

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Similar to other industry-wide problems, the talent gap in the oil and gas business

is the product of a decade of recruiting neglect by companies. For the past ten years,

companies have steadily invested less and less in their new hires, interns, and recruits.

The lack of investment in younger employees has lead to an increased time in attaining

expertise in a skill (Mercer, 2014a). Younger employees also lack important soft skills,

including management and financial competence, creating a larger gap in capable hires

for upper-level management positions. Another cause for the lack of talent in the industry

is the current hiring strategy in the industry. A vast majority of companies try to hire top

talent away from other companies, creating a tug-and-war situation and resulting in a net

loss in talent (Mercer, 2014a). The difficulty in keeping employees away from competing

companies is recognized as the leading recruiting and attrition risk by over 2,000

operation managers (Wesselman, Visser, de Bruin, & van Zessen, 2014). Often times,

the largest talent gap exists in the roles that have the highest rate of retirement.

Furthermore, there are fewer students pursuing engineering and science disciplines

relevant to the oil & gas industry.

While the largest gap in talent exists for petroleum engineers, similarly large

talent gaps exist for blue-collar jobs such as plant operators, technicians, and welders.

The greatest cause for this is the lack of apprentice programs by oil companies. Most

companies fail to setup apprenticeship programs that allow young individuals aged 18 to

24, to pursue vocational skills without attending college. Furthermore, tough work

schedules and difficult working conditions have prompted many vocational workers to

leave the energy industry for other industries requiring similar skills, such as automotive

and construction. Another reason vocational workers and young engineers are leaving the

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industry is due to security concerns in the Middle East. Countries like Algeria and Iraq

pose significant safety concerns due to domestic terrorism and political instability.

Finding workers to complete jobs in hotspots is becoming increasingly difficult.

Furthermore, it is becoming tougher for companies to provide security for employees in

these areas.

Solution

A solution needs to be comprised to account for the lack of future talent in the

petroleum industry. Most major oil and gas companies see an issue with it and find it a

threat to their future success. According to a study completed by Ernst & Young LLP,

“Nearly 90% of senior human resources (HR) executives at 22 top international oil and

gas companies believe their industry faces a talent shortage and call the problem one of

the top five business issues facing their companies” (ReliablePlant, 2015). As petroleum

engineering students, we may not see the potential lack of talent as an issue, but major

executives do. Despite the fact that the annual starting salary for petroleum engineering

students is roughly $20,000 more than the next engineering discipline, there is still a

notable lack of youth talent. With the compensation for professionals in the petroleum

industry being so high, oil and gas executives are trying to find solutions to solve the

problem. As petroleum engineering students in the supposed talentless category, we have

come up with some way to fix the talent gap. Some of the solutions to combat the lack of

talent are to focus on the next generation, recruit new hires in bulk, and improve and

create new training programs.

With demand for oil and gas steadily mounting, and prices steadily

decreasing, the industry is looking at young geologists and engineers to solve the

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world’s future energy problems. The Energy Information Administration (EIA)

reported that the international energy outlook for worldwide consumption of fossil

fuels is expected to nearly double from 2005 to 2030, this means that despite the

current downturn of gas and oil prices there is going to continue to be a high

demand for petroleum engineers. The problem is that the industry is bracing itself

for a large portion of current senior-level employees (the Baby Boomer generation)

to retire, and many companies have not installed sufficient training and mentoring

programs to compensate for this looming loss (ReliablePlant, 2015). Some of these

current Baby Boomer executives may have lost sight of the long term health and

growth of their companies and may have difficulties initially meeting increasing

production demands with the future generation of talented but inexperienced

industry employees.

Current industry common practice when attempting to fill a staff or replace

executives is to outbid other companies for in house top talent. Instead of cultivating

new young talent, oil and gas companies attempt to lure away employees from

competitors by offering higher salaries and more benefits. The industry as a whole

needs to look up and learn from other industries such as the ever changing and

cutting edge industry of technology. Technology powerhouses such as Google, Uber,

and Air Bnb are filling their intern pool with the sharpest young minds from

universities such as Stanford, Princeton, MIT and preparing them to excel in

executive positions at a young age. Why should the oil and gas industry not do the

same (Mercer, 2014a)?

Encourage the Next Generation

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One of the most obvious and most important ways to fill the talent gap is to focus

on the next generations: Generation X and Generation Y. If younger minds are introduced

to the oil and gas industry, there is a good possibility that they will want to pursue a

future in the industry. A few ways to engage said youth are by the introduction of youth

programs, involving youth in organizations, and increasing opportunities for petroleum

education.

Youth Programs. Developing more youth educational programs that give youth

both a fun and intriguing experience can turn their minds onto the oil and gas industry.

On a broader scale just developing more youth STEM programs can help. Marathon

Petroleum has developed a youth education series that is specifically designed to increase

interest in the industry. If more oil and gas companies were to follow suit and create

similar programs to generate the interest of younger students, the industry would start to

see movement in the right direction.

Another way to encourage youth participation is to encourage those who already

have an interest in oil and gas to join STEM organizations and programs. The more kids

exposed to the world of engineering, the more kids wish to pursue a life in oil and gas.

More specifically, joining petroleum groups would help as well. The US Youth

Committee (USYC) to the World Petroleum Council (WPC) is an organization designed

to do just that. Their aim is to “strengthen the impact both young professionals and

university students can have in developing solutions to global energy issues” (API, p.2).

Encouraging youth who already have an interest in oil and gas to join a group like the

USYC can increase their knowledge and interest and hopefully push them towards

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following a career in oil and gas. Improvements like these will help the industry fill the

talent gap.

Education. One final way to fix the talent gap by focusing on the next generation

is to increase the opportunities for education. As of 2012, only 24 universities in the U.S.

offered undergraduate degrees in petroleum engineering (Cappex, 2012). The small

number of schools can make it tough on students who wish to major in petroleum

engineering, as some personal restrictions may prevent them from doing what they would

like. For example, if a promising student from New York wished to major in petroleum

engineering but did not have the physical or financial means to go to school out of state

for school, that means one less person is able to help fill the talent gap. If a larger number

of schools adopted petroleum engineering programs, high school students and college

applicants may have better opportunities to pursue futures in oil and gas. An increase in

students in the major would lead to an increase in the number of talented graduates that

leave the programs, helping alleviate some of the problem.

Casting a Wider Net. Another important method that can help fill the talent

void is a change in recruitment for oil and gas companies. Expanding and

diversifying recruiting methods can be a possible solution to finding more talent. If

companies were to recruit a wider variety of talent and put these new hires through

training programs that cover multiple areas in the industry, there is a strong chance

that the companies’ talent pools would be improved and diversified. The trend at

large recruiting expos is companies typically interview students who stand out the

most on paper. This could contribute to the stigma that engineers do not have as

developed soft skills as students of other disciplines. Often times engineers that

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have the most developed soft skills do not have as impressive of grades or resumes

on paper. If tweaks were made in the recruitment process to not let as many of these

types of engineers to fall through the cracks, this could help the long term transition

of the Baby Boomer executives. If more young engineers are brought in to go

through diversified training programs, there is a higher probability that the new

hires are placed in a position in which they can excel. A potential solution to this

recruiting dilemma is to take more advantage of modern social technologies. Along

with traditional recruiting expos, social data technology can help any size of

company more effectively and efficiently narrow down candidates based on soft

skill related characteristics such as temperament, and behavioral characteristics

Alternative options could involve installing diversified apprenticeship programs

(Mercer, 2014a). Even within smaller independent operating companies, if geologist,

landman, reservoir engineer and drilling engineer apprenticeship programs became

more common practice, the youth movement of a smaller successful operating

company could become much more streamlined. Lastly, it would be in the best

interest of companies to somehow compile the unwritten knowledge of this Baby

Boomer generation readying themselves for retirement. Either in some type of

document or in the field or even in a classroom, this great generations “tricks of the

trade” should not go forgotten (Mercer, 2014a).

Implement Training Programs

One more solution that could help fill the void of talent in the industry is to create

and improve new hire training programs. While many companies already have rotation

training programs in place, some may not be beneficial to the newly hired individuals. As

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stated in the preceding section, some new hires may be placed in positions where they are

unable to excel. In a 2013 study conducted by the Society of Petroleum Engineers and

sponsored by BP, 53% of the participants surveyed who had a for lack of training and

development opportunities at their current company said they would consider moving to a

different company. Often times, after completing their employer’s rotation program,

newly hired employees are placed in roles where they are most needed, not where they

most excel or find the most satisfaction. This can hurt the success, talent, and morale of

the employee as they are forced into a role in which they are unfamiliar. There are also

oil and gas companies that do not have very well developed and implemented training

programs. This contributes to the talent void because many people are brought into the

industry without the proper training and development. In the same study conducted by the

Society of Petroleum Engineers, 25% of those surveyed believe a lack of proper training

has hurt their career. These are people that could be great at their jobs but are not given

the opportunity to do so. Introducing and improving training programs can help

employers find where new hires can excel and in turn help alleviate the lack of talent

(Enzer, 2014).

Retain Skilled Employees

One last solution that can aid in filling the talent gap is to retain the skilled

employees that companies are losing. These can be experienced, older or younger, skilled

employees that might have found a new calling in life that steers them away from the oil

and gas industry. Retaining these professionals is key because it immediately works to

close the talent gap. These employees can be kept on board with such incentives as

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competitive compensation and benefits structure. However, monetary compensation

should be considered as only one part of the solution. Other possible benefits include

more time off, improved health benefits, better work environment, stock options, and

much more. This solution, paired with the before mentioned solutions, can aid in

diminishing the talent gap, as retaining the older experienced employees for a few years

gives just enough time to train new hires and inspire the minds of the youth (Enzer,

2014).

Conclusion

The oil and gas industry is a very important one for the planet. These companies

are responsible for powering the world. However, it can be tough when many of the

experienced individuals in the industry are growing old and retiring and many of the

younger professionals are not adequately prepared for the more important roles they now

have to fill. For these reasons, it is crucial to help fill the talent gap as efficiently and

effectively as possible. This can be achieved a few different ways. By encouraging the

younger minds of today to pursue a career in oil and gas, the industry is paving the way

for more determined and driven minds to fill the large shoes left for them. There are also

more immediate solutions that are more dependent on the companies themselves, such as

recruiting new employees in bulk and improving or creating training programs to ensure

that new hires are more prepared for the roles they must fill.

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References

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gas-industry.html

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Enzer, G. (2014, March 17). Oil & gas is facing a severe talent shortage. Retrieved

November 23, 2015, from http://www.arabianoilandgas.com/article-12091-oil-

gas-is-facing-a-severe-talent-shortage/1/

Halle, M. (2013, August 7). Recruiting and Retaining Oil and Gas Talent in a Skills

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https://www.oilonline.com/industry-news/workforce-trends/recruiting-and-

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November 23, 2015, from

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nt_Gap

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784891#p=full

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Talent void major concern for oil and gas companies. (n.d.). Retrieved November 23,

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Running Head: TACKLING THE OIL & GAS TALENT GAP 19

tackling the talent gap

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