As Oil Industry Booms, Past Bust Rears Its Head

Workers remove a large clamp from a section of pipe during construction of the Gulf Coast Project pipeline in Prague, Oklahoma, U.S., on Monday, March 11, 2013. The Gulf Coast Project, a 485-mile crude oil pipeline being constructed by TransCanada Corp., is part of the Keystone XL Pipeline Project and will run from Cushing, Oklahoma to Nederland, Texas. 
Bloomberg via Getty Images
Jason Plautz
June 13, 2014, 1 a.m.

Just as the en­ergy in­dustry ap­pears ready to ride the gas boom to suc­cess, a col­lapse from three dec­ades ago is com­ing back to haunt it.

When oil prices dropped in the 1980s, most com­pan­ies im­posed an ef­fect­ive hir­ing freeze, and many star­ted shed­ding em­ploy­ees. That cre­ated a gap in work­ers of a cer­tain age that, now that mem­bers of the baby-boom gen­er­a­tion head­ing for the doors, is leav­ing the in­dustry with nobody to take their places.

And this “shift change,” as some are call­ing it, is threat­en­ing to leave com­pan­ies without the ex­per­i­ence and labor they need — from weld­ers to white-col­lar work­ers — as pro­duc­tion ramps up.

“It’s a prob­lem that has been brew­ing for some time,” said Dav­id Dis­mukes, ex­ec­ut­ive dir­ect­or of the Cen­ter for En­ergy Stud­ies at Louisi­ana State Uni­versity. “You’re see­ing a lot of com­pan­ies scram­bling for people, from pro­fes­sion­al entry-level jobs up to middle and seni­or man­age­ment. People just didn’t move through this in­dustry for a num­ber of years, and that’s com­ing home to roost.”

Schlum­ber­ger Busi­ness Con­sult­ing has pro­jec­ted that by 2016, re­tire­ments of baby boomers would mean a de­fi­cit of 15,300 “ex­per­i­enced pet­ro­tech­nic­al pro­fes­sion­als,” about 19 per­cent of the work­force.

Job open­ings are an odd prob­lem to have at a time when mil­lions of Amer­ic­ans are des­per­ately seek­ing work, but the prob­lem isn’t bod­ies — it’s skill.The tech­nic­al jobs re­quire train­ing and ex­per­i­ence, and with so many con­struc­tion and drilling pro­jects com­ing on line at the same time, com­pan­ies are cau­tion­ing that there just aren’t enough work­ers to go around. The de­mand is driv­ing up wages as well.

So how ex­actly did the in­dustry find it­self with such a massive labor gap?

It’s the product of one drilling boom and one drilling bust.

Cur­rently, the in­dustry is tak­ing off, snap­ping up all the laborers it can to build up and main­tain in­fra­struc­ture, from rigs to ex­port ter­min­als. It would seem that with high un­em­ploy­ment coupled with the gas boom would be a simple sup­ply-de­mand equa­tion. In the Gulf Coast, for ex­ample, the con­struc­tion of nat­ur­al-gas li­que­fac­tion ter­min­als is ex­pec­ted to cre­ated thou­sands of con­struc­tion and tech­nic­al jobs. (That’s helped Gulf states defy the na­tion­al un­em­ploy­ment pic­ture — Louisi­ana’s un­em­ploy­ment rate of 4.5 per­cent ranks 10th in the na­tion.)

But new work­ers can’t re­place ex­per­i­ence, and that’s where the 1980s bust is com­ing back to haunt Gulf Coast drillers.

When oil prices dropped from $35 a bar­rel to as low as $10, com­pan­ies re­spon­ded with hir­ing freezes and lay­offs that stretched through the end of the dec­ade. An in­dustry that had a peak of 860,000 jobs in 1982, ac­cord­ing to the Bur­eau of Labor Stat­ist­ics, shed more than a half-mil­lion of them by 2000.

As the in­dustry grew less at­tract­ive, col­leges shed train­ing pro­grams, and few­er stu­dents chose en­gin­eer­ing or pet­ro­chem­ic­al ma­jors, mean­ing a slower trickle of new entries.

And so, a gen­er­a­tion gap emerged. A new ana­lys­is from re­cruit­ing firm Rus­sell Reyn­olds and As­so­ci­ates gathered in­put from 30 of the top oil, gas, and power com­pan­ies and found that 61 per­cent of ex­ec­ut­ives in those com­pan­ies are older than 52 and eye­ing re­tire­ment. Twenty-sev­en per­cent are between 44 and 52, while 13 per­cent are young­er than 44.

In short, there are more ex­ec­ut­ives ready to re­tire than there are those to take their places. And the ones who are step­ping in don’t have as much ex­per­i­ence.

“What we hear is that the his­tor­ic­al base of tal­ent has been di­min­ished,” said Steph­en Morse, who heads the Rus­sell Reyn­olds’ glob­al en­ergy and nat­ur­al-re­sources prac­tice. “And you have this massive dis­rup­tion of tech­no­logy, which is mak­ing people less qual­i­fied for seni­or roles.”

Ahead of the cur­rent gas boom, the Amer­ic­an Pet­ro­leum In­sti­tute was even warn­ing that the em­ploy­ment is­sues could put a damper on the sec­tor’s “op­tim­ist­ic fu­ture pro­spects.”

“It is hu­man re­sources that of­fer a po­ten­tially more bind­ing threat to in­dustry ex­pan­sion than phys­ic­al re­sources or their char­ac­ter­ist­ics,” the group wrote in a 2005 in­dustry sur­vey.

And while the skilled labor short­age has drawn plenty of at­ten­tion be­cause of the need for con­struc­tion work­ers, elec­tri­cians, and oth­er work­ers to build and staff en­ergy in­fra­struc­ture, the up­per-level gap could also im­per­il the sec­tor as it deals with in­creas­ingly more dif­fi­cult and dan­ger­ous tech­niques.

To fill the gap, com­pany lead­ers have been pro­mot­ing skilled labor train­ing (and pet­ro­chem­ic­al and en­gin­eer­ing ma­jors are grow­ing), and com­pan­ies are look­ing to in­centiv­ize the jobs. API on Thursday launched a web­site meant to con­nect people with jobs and train­ing in the in­dustry in a bid to fix the short­age on all levels.

But that won’t do much to re­place dec­ades of in­dustry ex­per­i­ence among ex­ec­ut­ives, which has com­pan­ies look­ing for new ways to fill their man­age­ment short­ages. Morse’s firm sur­veyed a vari­ety of meth­ods ex­ec­ut­ives have used to ad­dress the prob­lem, in­clud­ing us­ing more ro­ta­tion­al as­sign­ments to give em­ploy­ees ex­per­i­ence across the field and groom­ing em­ploy­ees for long-term roles. Morse said a “game-chan­ging” ap­proach has been cre­at­ing “stretch roles” that divvy up a seni­or-level ex­ec­ut­ive’s re­spons­ib­il­ity among mul­tiple po­s­i­tions.

It has also forced a tra­di­tion­ally in­su­lar in­dustry to start look­ing to oth­er sec­tors, like aerospace or the mil­it­ary, to fill the open­ings.

Mi­chael Nasche, a vet­er­ans’ out­reach and en­gage­ment spe­cial­ist with oil­field-ser­vices com­pany Baker Hughes, said his com­pany sees vet­er­ans as a fit for “mech­an­ic­al as­sembly, field op­er­a­tions, ma­chin­ing, re­pair and main­ten­ance, and lo­gist­ic­al co­ordin­a­tion,” but is ex­pand­ing to put vet­er­ans in cor­por­ate po­s­i­tions as well.

Him­self a vet­er­an, Nasche said in testi­mony be­fore the House Nat­ur­al Re­sources Com­mit­tee that when he re­turned from Ir­aq he felt he had the repu­ta­tion of be­ing “just a door-kick­er with post-trau­mat­ic stress and a broken-down body from the phys­ic­al toll of be­ing an air­borne in­fan­try­man,” but found an open­ing with the com­pany as it placed a premi­um on hir­ing vet­er­ans.

But even with an in­flux of out­side help and newly trained work­ers, Dis­mukes warned that the ef­fects of the 1980s bust will con­tin­ue to re­ver­ber­ate.

“You can’t re­place ex­per­i­ence,” he said.

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