The New Landscape
The exploration and production (E&P) world has been turned upside down in the last few years, due to an increasingly uncertain and volatile industry landscape. As oil prices dropped starting in the second half of 2014, industry players saw their returns on investment plummet to unsustainable levels. Hence, operators took drastic steps to reduce costs and improve efficiency. Several companies were forced to implement staff reduction programs. The industry faced similar dilemmas during oil price crashes in the mid-1980s when the headcount was reduced severely, only for oil prices to recover and companies scrambling to replenish their talent pool.
However, today’s situation is even more challenging. OPEC-led production cuts followed by the recent upturn in US shale activity pose a challenge to E&P players—should they hire, wait it out, or lay off more people? How do they manage their talent pool in this world of volatile, but range-bound, oil prices?
As E&P companies develop their talent management strategies and lay out the new talent pipeline, they need to be cognizant of three major changes in the industry landscape:
New Asset Classes. US LTO (light tight oil) has fundamentally transformed the crude supply curve and pushed higher-cost producers out of the money. Production from LTO has grown from around 0.4 million B/D in 2010 to 4.2 million B/D today, and we expect it to nearly double over the next 10 years to approximately 8.3 million B/D by 2027. These assets are very attractive due to their risk-return profile—a combination of moderate break-evens and rapid payback. However, LTO requires a new operating model with short development cycles, nimble decision making, and tremendous focus on standardization and efficiency. As operators apply lessons from LTO to other assets and their portfolios evolve, they must align their talent base with this new asset mix.
Increased Focus on Efficacy and Efficiency. The days when investors rewarded oil companies for growth alone are long gone. Today, operators are under pressure to become more efficient and productive. This has implications for technical talent, as the focus shifts from exploration of frontier plays to squeezing the maximum amount of hydrocarbon from existing assets at the lowest possible cost. To achieve these objectives, companies need to rethink how their asset teams are organized, and how they collaborate.
Emergence of Digital Technologies. Technological innovation has opened new horizons for efficiency, collaboration, and decision-quality across industries. Driven by demands of the industry, oil and gas companies are exploring new ways of collecting and analyzing data, and generating insights to improve productivity, reduce costs, and accelerate time to first oil. This shift has implications for the future workforce.
Laying the New Talent Pipeline
Companies are being forced to rethink how they supply talent to asset teams, what talent mix is needed, and how teams should be configured. We believe three broad themes will shape the future E&P talent management.
Theme 1. Asset-Specific Talent Planning. The talent mix required for a conventional asset across its life cycle is well understood. Typically, more geoscience work happens early in the life cycle, drilling and completions and facilities are in focus during the development phase, and production and reservoir management are key functions thereafter. Companies adjust the competency mix in teams as the assets mature.
New assets such as US LTO, however, have very different requirements, given the shorter exploration cycles, unique subsurface challenges, large numbers of wells, and the relative importance of completions design and facilities infrastructure to economics. Furthermore, these assets require greater emphasis on operations and logistics, with thousands of tons of sand, chemicals, and other material moved to the wellsite to support fracture operations. Hence, they need a different talent mix compared to conventional assets. As other assets apply lessons from LTO, they too will require a different mix of technical expertise.
Operators must account for this evolving talent demand through systematic planning using analytical techniques. Analytics can enable companies to forecast activity and use it to estimate demand for technical personnel, and adjust their talent acquisition and deployment accordingly.
The foundation of this talent planning process is a granular understanding of the number and types of technical personnel needed to manage an asset type (e.g., deep water, shelf, LTO) at each stage of its life cycle.
Next, operators must assess the impact of the capital program on the relative activity in each asset, and determine the required headcount and talent mix. Companies are increasingly becoming more agile as they rapidly reprioritize capital across assets; they must continuously monitor concurrent changes in the technical talent requirement and reorganize themselves.
Theme 2. Increased Integration. E&P asset teams often face the issue of organizational silos. This is true not only across the asset life cycle, where data gathered during one phase may not be effectively utilized in later phases, but is also true in cross-functional decisions. With digitally enabled collaboration, companies can integrate not only their disciplines, but also commercially focused functions such as supply chain and finance.
Technical professionals of the future will not only be more adept at working across functional silos, but will also understand a broad range of business issues. Tools such as data management platforms, advanced analytics, and data visualization software will enable teams to understand the data at their disposal and develop a cross-functional perspective with other teams and make better decisions.
Theme 3. Beyond “Petrotechnical.” As upstream companies adopt emerging digital technologies and analytics, they will supplement talent from traditional petrotechnical disciplines with experts in fields such as analytics, computer science, application development, electronics, instrumentation, and cybersecurity. Hiring and retaining these professionals will be a challenge as the oil and gas industry will compete with other industries such as financial services and healthcare, which are also well-positioned to attract such talent. Hence, E&P companies will also develop partnerships with technology providers who have access to these capabilities to supplement their in-house talent pool. They will also enhance the competency of their petrotechnical professionals in such areas through focused training programs.
We believe that ultimately E&P players will rely on all three sources of talent—hiring technical professionals in digital disciplines, partnering with technology providers, and developing analytics expertise among their petrotechnical professionals.
Keeping the E&P Talent Pipeline Flowing
The traditional E&P jobs rewarded tenure and experience. This worked well when oil prices were high, which masked inefficiencies in the development and production portions of the E&P life cycle. Given the paradigm shift from peak oil supply to peak oil demand, and the volatile and range-bound price regime we have entered, the old way of managing talent is no longer tenable.
Akin to laying an oil or gas pipeline in a tortuous landscape and strategically locating pump stations to boost pressure and keep the pipeline flowing, the E&P talent pipeline has to take into account the new topography and be flexible, nimble, and provide the right incentives to attract, train, and retain talent.
Going forward, we envision the industry’s talent to be of a very different kind—one that embraces change readily, is multidisciplinary, digitally inclined, does not want to stick to the same job for too long, and finally, is made up of individuals who see themselves as energy professionals as opposed to being employed in the oil and gas industry.
The new talent will have transferable skill sets and a high degree of mobility, within and across industries. It will prove to be a boon for those companies that see this coming, adapt quickly, and leverage it wisely. However, for those companies that try to force the new talent pool through old and corroded pipelines, without the right environment and incentives, it will likely be a bane—after all, what good is a pipeline that doesn’t flow?
Manas Satapathy is a managing director with Accenture Strategy–Energy based in Houston, where he leads the North America Digital Practice. He has more than 18 years of experience working with large energy, mining, and oilfield services companies to formulate and implement strategies. Most recently, he supported oilfield services clients across a broad range of topics, including supply chain, asset management, strategy, merger and acquisition, and digital transformation. Satapathy has authored several thought pieces on exploration and production topics. He holds an MBA from University of Chicago’s Booth School of Business, MSME from Purdue University, and BSME from Indian Institute of Technology.
Prashant Mehrotra is a manager with Accenture Strategy–Energy, based in Houston. He started his career as a reservoir engineer at Shell, and transitioned to strategy consulting, where he has focused on North American unconventional resources across topics such as portfolio planning and capital allocation, supply/demand modeling, technology and innovation management, and digital transformation. Mehrotra has worked in the oil and gas industry across technical and consulting roles in exploration and production and oilfield services. He holds a bachelor of technology degree from Indian School of Mines and an MBA from Harvard Business School.