The expertise crunch in the oil and gas industry
I am writing this from Denver, Colorado, where I am presenting a paper at the SPE's Annual Technical Conference and Exhibition, on the worrying decrease in experienced engineers and other knowledge workers in the Oil & Gas industry.
A recent report published by Ernst & Young, in conjunction with Oxford Analytica, gives a snapshot of the ten highest strategic business risks for the oil and gas industry, as identified by the authors after structured consultations with industry leaders and subject matter professionals from around the world. I have constructed the diagram below from a more complex diagram in their report; it illustrates the relative risks of ten major threats to the oil and gas industry:
An increasing human capital deficit is considered the highest strategic risk to the sector. I would add that the human capital deficit we are talking about here is a capability deficit. It is the industry's longest serving and most experienced experts—the knowledge workers—that are retiring in large numbers, causing the so-called “big crew change”.
The result is insufficient personnel with the experience to make autonomous decisions on critical projects and operations in key areas like exploration, development, and production. Exacerbating this is that it is happening at the same time as E&P operations are becoming increasingly challenging. New graduates must solve far more complex recovery problems than the industry has faced previously, and with less experience.
These problems cannot be solved on short notice and may have an effect on oil production. The imbalance in supply and demand of knowledge workers is of such proportions that it is considered a threat to the industry's ability to execute on its planned E&P projects for the next few years, and thus on its ability to meet the demand in the market. In essence, oil field developments may be delayed because of this situation. According to CERA, the shortfall in the industry is already taking hold, with insufficient expertise to meet 2008 exploration and production project demand.
This poses important questions on how to preserve institutional knowledge and increase the productivity of the remaining human capital in order to maintain the industry's capability and productivity levels. The strategies followed by the various industry players involve increased investment in Information and Communication Technology (ICT). Indeed, ICT is recognized as a significant contributor to productivity.
However, while ICT is considered to be a key enabler of performance, it is applied quite unevenly. In particular, automation drops as we move up the information value chain. At the decision level, knowledge workers are still often left to themselves in the last critical piece, the decision making itself. Most decision support tools do not assist in sorting through the many options, weighing the options against each other, and proposing a course of action: they do not have problem solving capabilities. This is unfortunate since it is at the analysis and decision levels that reasoning and industry expertise is in short supply.
The argument I propose in my SPE paper is that the Oil & Gas industry may be able to dampen the effect of the expertise crunch by providing its knowledge workers with software that actively enhances human decision making under complex and changing conditions.
More reading
My colleague Owen Plowman wrote about this topic from an Actenum perspective a month ago. Two articles that are also worth reading on this topic are David Buczek's “Brain Drain: Retaining Intellectual Capital in the Energy Industry” (Journal of Petroleum Technology ISSN 0149-2136, 002, vol. 54, no 1, pp. 26-30) and Christine A. Resler's “Quantifying the Workforce Crisis in Upstream Oil and Gas“ (Talent & Technology, Vol. 1, No 3. 2007).
