Monday, April 25, 2005

Where Have All the Engineers Gone?
A recent article in the Financial Times (subscription may be required) highlighted the human resource challenge facing the western oil and gas firms. In the same decade in which they must gear up production to meet growing demand, or find new alternative energy sources, they stand to lose a large portion of their experienced technical staffs. This story resonates deeply for me, having watched wave after wave of downsizing sweep through the industry, and then getting caught up in another one, myself. I don't think the situation is as bleak as the article suggests, because globalization will resolve much of it. But the result will be an industry as transformed as any other on the planet.

When I joined Texaco in 1979, the company had approximately 75,000 employees, operating worldwide. This figure fell after an early retirement package was offered, but ballooned again after the purchase of Getty Oil in 1984. At one point there were well over 80,000 people on the payroll. By 1992, following a series of asset sales, new joint ventures and various downsizing initiatives, the "headcount" had shrunk to 38,000. Texaco was down to about 25,000 employees, excluding joint ventures, when it was acquired by Chevron (35,000 pre-merger employees) in 2001. Today, the combined ChevronTexaco has 47,265 employees.

The picture is similar across the industry. Oil and gas employment in the US peaked at just under 1.9 million in 1981 and was at 1.3 million as of 2002. Of this, the "upstream" sector (exploration and production) has suffered the most losses, about 400,000. Refining and transportation are also down, though retail (gas station workers) is actually up by 100,000, presumably reflecting the shift from old-style service stations to convenience stores.

Sheer numbers aren't everything, though. Technology, productivity and processes have all improved dramatically in the last 25 years. But the same demographics underlying the debate Social Security are taking a toll on the technical workforce of the oil companies. As the FT article indicates, these companies have a big bulge of workers centered on age 50. I was a few years behind that peak, joining the industry at the tail end of the big hiring boom, which was followed by years hiring freezes; for a long time, I was the youngest professional in every work group I joined. The closer that peak gets to retirement, the bigger the challenge for the companies becomes.

Of course the problem isn't entirely due to demography. Attractive early retirement options--in the form of lump-sum pension payouts in a period of low interest rates--have steadily depleted the over-55 ranks, while weak hiring has made anyone under 30 a rarity. The industry's demographic bulge has thus been exacerbated by the unintended consequences of long-standing human resource practices.

It must be a great time to be a chemical or petroleum engineering graduate. Salaries are high, and these skills are in demand. However, it's pretty clear that the key to meeting the ongoing technical needs of the international oil and gas companies won't be found in US or European universities, but rather in the same aspects of globalization that are transforming other industries. Tom Friedman's recent article in the New York Times Magazine talks about a "flat earth," where natural barriers of distance and borders are being erased. Because engineering is focused on the universals of math and science, language is no barrier, either. An Indian engineer sitting in Mumbai or a Chinese geoscientist in Daching can analyze reservoirs and interpret seismic data as well as an American in New Orleans.

For at least the last decade, the leadership of the industry has understood that the international oil companies would have to change to align with the location of the world's remaining oil reserves in the Middle East, Africa and the former Soviet Union. But with the center of gravity of their US and European workforces approaching retirement age, it's a good bet that the shift will happen in ways no one sitting in London, Paris, or Houston would have imagined a few years ago.

No comments: