The Price of Oil and Talent

Blog 29 Apr 2015 . josie littek

Oil prices are not the only numbers falling.

The price of crude oil has everyone talking; after reaching a peak of $115/b (barrel) in mid-June 2014, oil prices dropped by 60% to $46/b (barrel) in January of this year. The oil price slump has been attributed primarily to oversupply, OPEC’s decision to keep production rolling, and reduced demand from a weak EU economy. Those countries exporting will pay the price and those importing will benefit, but it’s not so simple actually.

To what extent lower oil prices will affect the entire energy value chain is difficult to predict, but upstream companies are jumping on the bandwagon with some mass employee layoffs. In the last six-to-eight months more than 70,000 employees have lost their jobs; around 58,000 employees by oilfield service companies, more than 8,000 employees by exploration and production companies and around 7,000 by manufacturers (oil-drilling pipe and others). While certain large integrated companies were already on their way to cut down on capital and operating expenses to beef up efficiencies, the reduced oil price is forcing them to consider sizing another key asset i.e. human capital.

Economists at the Federal Reserve Bank of Dallas have concluded that a drop of about 50% in oil prices would cause 0.7% to as high as a 4.3% drop in employment in some of the U.S. states. For instance – Wyoming and Texas will face a more significant drop because of the higher concentration of oil and gas related employment. Worldwide, one can only imagine that a significant number of jobs will be shed.

But, is it time to shift the talent cog?

The shortage of talent is a widespread concern globally and is causing company leaders and HR executives to lose sleep at night.

The oil and gas industry is no exception. In Mercer’s recent oil and gas talent outlook survey of more than 100 oil and gas managers in 50 countries, it was revealed, “most energy industry managers anticipate a significant, and growing, talent gap in the next five years.” It was also pointed out by Mercer that within the next five years, oil and gas companies could lose 50 to 80% of workers age 55 and older, which equates to 150,000 years of experience.

The notion that layoffs are the only way out for companies to sustain themselves during crises is layman thinking. Today, companies hard hit by talent shortages have to focus on employee retention. While maintaining a mix of permanent and contingent employees, employers could consider, part time or reduced work hours, temporary breaks-in-service (or bench employees), or freelancers to offset some of the revenue loss.

It is a shortsighted approach for oil and gas companies to lay off employees in hordes given the talent predicament at hand. Moreover, this industry is cyclical with history and predictions from leading minds forecasting that prices will recover sooner rather than later. Talented employees are crucial to corporate performance and growth, oil and gas companies should instead focus on a workforce roadmap that is less vulnerable to their business environment and issues thereof.

Sources: Robert Silvas (Pontoon), Economist, Rigzone, Oilstrategies, Mercer, OPEC, Oliverwyman

Related Post
Similar Resources