I’ve long been a sceptic as far as the oil and gas recruiting problem goes because I think it’s almost unbelievable the industry can’t find enough qualified and experienced people to satisfy its demand.
What’s more, I think the ongoing whinging from the sector about this issue is simply an excuse, a cover if you like, for the fact that the problem is the industry’s fault and nobody else’s but they don’t really want to admit it.
In fact, the problem is two-fold. Firstly, there is a recruitment problem. I recognise that. Secondly, the much bigger problem is the cost of employing the people the industry needs.
According to a study undertaken by the Bank of Scotland the oil and gas industry could potentially create up to 39,000 jobs over the next couple of years.
That’s a bizarre number and whether you should trust these sorts of forecasts or not is a moot point. If they’d said “between 35,000 and 40,000 jobs” I’d have found that a lot more believable. But I digress.
Oil and Gas UK’s “employment and skills issue manager” Alix Thom says that despite the record amount of capital investment – £14.4billion or so – going into offshore projects there is an “undeniable skills shortage”.
I don’t doubt this is true but putting my old management hat back on I think I would not have been overly pleased with any of my team if they’d proposed committing huge amounts of money to new projects without actually having the human resources – or personnel as we used to call them – to actually carry them out.
Not that I’m a football fan – in fact I can’t stand the game, but imagine if Scotland’s manager proposed playing a match without a full team. You’d assume he was either incompetent or mad wouldn’t you?
Well, I wouldn’t because I’d be too busy watching motor racing somewhere but you know what I mean.
But then of course he wouldn’t actually do that, would he? He will have had sufficient players fully fit and ready to go and still be on the outlook for new talent to bring in and train.
That’s how they work. They plan ahead and they invest in their people and so as it happens do motor racing teams.
Lewis Hamilton was on McLaren’s books at a very early age. They supported him when he was GoKart racing and right through the various series right up to Formula One. That’s how organisations that want to win do these things.
Instead though, the industry is scrabbling around trying to find people from wherever it can. A good source of motivated and well trained personnel has always been the armed forces.
In fact, the UK Government may have done the oil and gas industry a favour by making so many servicemen and women redundant.
It’s even persuading retirees to come back to work to try to fill the gaps and help train up younger and less experienced personnel. In reality though, a lot of those retirees are coming back to do their old jobs.
Of course, the industry is also still taking on graduates but these obviously come with little or no experience and so take a year or more before they can contribute properly.
Whichever way you look at this though the simple fact is that the major oil companies’ decision in the 1990s to outsource as much as they could has now backfired on them.
At the time many people – and not just those that lost their jobs – recognised that this would happen. Sadly though “outsourcing” was the management buzzword of the day and there was no stopping the trend, particularly in the UK and US.
I’m sure share prices rose, director’s bonuses went up and so did dividends but it never occurred to those that implemented this nonsense that it could ever come back to bite them on the rear end as badly as it has.
It was an appalling short-termist decision in what is a very long-term industry.
The recruitment problem, apart from the fact that companies – operators and contractors – are chasing mainly experienced people, creates a different type of problem and it’s one of cost.
Simple truth is that the scarcity of skills is causing companies to poach from each other or other companies outside the industry using the only bait they can and that’s money.
The main consequence of that is that project costs are going through the roof and this is contributing to the UKCS’s increasing lack of competitiveness.
It also contributes to a lack of company loyalty as people who know their knowledge and skills are valuable assets are using them to jump from company to company improving their income as they go.
Wood Group PSN and others have now decided to cut their contractor rates by a rumoured 10%. Although this is welcome, the important question is whether this cost reduction will be passed on to their customers – the operators. There is little point in cutting contractor rates if this isn’t reflected in a reduction in overall “basin costs”.
We all know UKCS costs are too high. Labour costs are one aspect of the problem and I’ve no doubt that it’s self-inflicted.
It’s encouraging though that some on the contracting side are trying to reduce their costs by moving away from high cost areas to lower cost areas notably, from Aberdeen to Newcastle. But that’s nothing new.
However, talking around the bazaars, I’m being told one of the other consequences of the decision by the operators to outsource most of the work that was once done internally is that the contractors are taking advantage of their now dominant position in the industry by making sure that they profit accordingly.
To put it a little more bluntly the suspicion is some might be charging excessive prices in order to boost their income.
Of course, there’s nothing wrong with this because we operate in a free market. However, it may well be a little short sighted because if excess contracting costs damage the overall industry by making projects less competitive or even completely uncompetitive then the UKCS will suffer and so will its supply chain.
As the original outsourcing decision has shown, the oil and gas industry is very adept at shooting itself in the foot. What’s surprising though is that it keeps doing it.
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