“Oil and Gas Talent Search, Where’s the Beef?”


The world economy is rebounding from the recent Great Contraction, and as it does, the demand for energy has increased, prompting a search for talent, not only in the areas of geology, geosciences, and engineering, but also for many ancillary jobs that spider-web out from the core of the energy industry.  In a recent article from the Oil & Gas Monitor, Simon Kho with BP1, it was pointed out that not only do exploration and production companies seek talent from individuals with STEM (science, technology, engineering, and math) backgrounds, but there is also significant demand “from banks, consulting firms and other Fortune 100 companies who value” individuals with these technical backgrounds.  Additionally, we have seen material increases in demand for graduates in many employment categories for “Oil and Gas Extraction,” including, but not limited to, finance, accounting, marketing, human resources and management.2

This article addresses the shortage of “hard to find” talent, the nature of boom and bust in the oil and natural gas industry, the priority of human capital, and suggests solutions to meet the needs of the industry with regard to labor supply.
 
The oil and natural gas industry has historically been one of boom and bust.  In boom times, the industry typically faces a shortage of labor, at all levels, and in bust times there can, and has been, material layoffs that adversely impact the industry and attitudes of the employees affected.  Since the Arab oil embargo of the early 1970’s, we have seen this cycle in the United States.

Perhaps the most devastating impact came in the 1980’s, when oil and natural gas prices plunged, and employment within the oil and natural gas industry fell precipitously.  The graph below shows “Oil and Gas Employment: Extraction and Supporting Activities” for the period from 1972 to 2012.

Agee-OklahomaCityUniversitychart

The graph illustrates the peak in “Extraction Employment” occurred in 1982, at 264,500 workers, and declined throughout the remainder of the next twenty years (part of what I call the “lost generation”) to a low of 120,200 workers in 2003, a drop of 55%.  Collection of data on “Supporting Activities,” which would include service company operations, began in 1990, and remained relatively flat until the mid-2000’s, but showed little sign of material growth until 2006-2008.

As further evidence, in examining bachelor’s degrees conferred by degree-granting institutions, by field of study, from 1980-81 through 2009-103, degrees in the physical sciences (including geology) peaked in 1980-81, at 23,936; and fell to a low of 16,334 in 1990-91, a drop of 32%.  It was not until 2009-10 that we returned to a period of degree’s granted in this field of study reached the 23,000+ level, or a period of nearly thirty years.  Degrees in engineering took a similar nosedive, although the peak was lagged (likely due to those students already enrolled in the program desired to finish) and occurred in 1985-86, at 77,391 engineering students; and fell to a low of 58,209 in 2000-01, a drop of 25%.  Through the period of available data, 2009-10, the number of graduating engineering students has never returned to the peak that occurred in 1985-86.

Compounding this problem is the most recent run-up in employment in the oil and natural gas industry occurring during the sudden upsurge in oil and gas prices from January 2007 to June/July 2008.  Oil prices rose during this period from $53.40 per barrel to $132.55 per barrel, an increase of 148%!  Similarly, natural gas prices rose from a price of $235.05 per thousand cubic meters to $456.57 per thousand cubic meters in June 2008, an increase of 94%.  Energy companies were hiring as fast as they could find qualified (and perhaps not so qualified) personnel, particularly in new “hot plays” like the Bakken Oil field in North Dakota.

So, not only is there a looming shortage of professional labor due to declining graduates over the past thirty years, but the demand for quality oil and natural gas workers has intensified due to the run-up in prices, the new “shale” discoveries, and the race to develop and produce these reserves.

Given the fact that the industry nearly lost an entire generation of “new entrants” into the oil and gas industry labor supply between 1984 and 2004, and the fact that many employees in the industry are approaching sixty years of age (or perhaps have already passed that milestone), the industry faces a very challenging period with upcoming retirements coupled with insufficiently experienced personnel to fill these soon-to-be vacant senior management positions.

The solution is obviously education.  It is not an accident that many universities and colleges have ramped up their programs in energy management, geology, engineering and geophysics.  Having served as the president for an independent oil and gas company for twenty-four years, from 1982-2005, I witnessed the bust of the eighties and then the start of the uptick in the early 2000’s.  I was able to bring that knowledge to Oklahoma City University (OCU), where we started two new energy programs; one, a Master’s degree in Energy Management; and the other was a unique program; a Master’s degree in “Energy Legal Studies.”

We did this in response to energy industry demand.  In conversations I had with leaders of several of the large oil and gas companies headquartered in Oklahoma City, it became apparent that there were shortages of management personnel, related directly to the issues of the “lost generation” discussed above.  The Legal Studies Program was designed to provide specific coursework in law related to the oil and gas business (property, contract, oil & gas, environment, etc.).  Since this is not a juris doctorate program, we intentionally left out any coursework related to criminal law and constitutional law, and geared it mostly to land personnel in an effort to elevate their level of understanding of the importance of legal contracts, rights and obligations pursuant to those contracts; and to enhance their ability to make presentations to senior level managers in either written or oral formats.

These two new energy Master’s programs have been very successful, and OCU has an additional 95 graduate students over the past year simply due to these two programs.  Given that this is a two-year program, taught one night a week, it should generate a quick return on investment; since most of the energy companies provide tuition assistance to their employees and we expect the graduates to work their way into higher-level supervisory or management positions within their companies.

Many other universities have started specialty programs in energy or have added a specialized energy component to their existing programs.  This education process will take time, but given the sizeable salaries and bonuses being paid to managers and executives in the industry, the labor market will adjust and the demand for high quality workers will eventually be met because of an increasing number of highly educated professionals coming out of both undergraduate and graduate programs, and into the workforce.

1Oil & Gas Monitor, February 18, 2013, Simon Kho, “STEM – Science, Technology, Engineering and Math Talent.

2Employment categories in Oil and Gas Extraction may be found at: http://www.bls.gov/oes/current/naics4_211100.htm

3U.S. Department of Education, National Center for Education Statistics, Higher Education General Information Survey (HEGIS), “Degrees and Other Formal Awards Conferred” surveys, 1970-71 through 1985-86; Integrated Post Secondary Education Data System (IPEDS), “Completions Survey” (IPEDS-C:91-99); and IPEDS Fall 2000 through Fall 2010, Completions component.