While this challenge demands immediate actions, the industry cannot ignore another looming issue: “The Big Crew Change.” As the baby boomer generation makes the transition to retirement, the industry must find ways to rapidly hire replacements, evolve its workforce, and prepare for the impact on operational effectiveness caused by major changes in experience levels.
The demographics within the oil and gas industry are alarming. According to the research firm IHS, the average age of the industry’s professional workers rose from 43-years-old in 2000 to nearly sixty by the year 2012. Further evidence is found from the Independent Petroleum Association of America, where its surveys confirm the aging workforce:
• 71% are 50-years-old or older
• 50% will retire in the next ten years
Even for companies that aren’t experiencing the impact of the Big Crew Change yet, the writing is on the wall, and there is plenty of evidence that the industry is attempting to respond.
• Over a three-month period in 2014, Texas added over four thousand positions.
• In states with strong oil production – including the top two, Texas and North Dakota – unemployment levels remain well under five percent.
Yet despite the frenetic hiring pace, the industry is still falling behind.
How Did This Happen?
Before we consider the consequences of this change and the opportunities it presents, let’s briefly explore how we got here.
The overarching issue is that the oil and gas industry is extremely reliant upon baby boomers. Defined as those born between 1946 and 1964, this generation is in the process of retiring, a trend that is impacting all industries. As this generation retires, companies must find employees to pass their knowledge and to nurture to accept new responsibilities. However, since baby boomers account for a majority of employees in the industry, oil and gas companies are especially affected.
Further complicating this transition, there is a shortage of employees in that next generation ready to assume these responsibilities. As oil production was reduced during the 1980s and 1990s due to lower oil prices and dwindling oil output levels, the industry cut over half of its workforce. These cuts directly impacted younger oil and gas professionals already in the workforce, but they also affected the perception of the industry, deterring many young professionals from entering the industry.
To drive interest in the oil and gas industry and education future professionals, new programs have been added at universities – and even in targeted high schools. Despite these efforts, two major challenges remain: the pace of recruitment is not matching the rate with which baby boomers are retiring, and the gap in middle-aged professionals means that there are not enough experienced professionals ready to step up and replace the retiring professionals.
The Impact on the Industry
Since the staffing of experienced professionals is expected to decline over the next several years, oil and gas companies are under pressure from multiple fronts. The most obvious is each company’s ability to take advantage of current opportunities; if their workforce is reduced and their skill set is diminished, companies will lose the ability to take meet market demand and investor expectations.
Some companies are aggressively working to alleviate – or perhaps just delay – the impact of the Big Crew Change. One relatively common tactic is to offer higher salaries and retention bonuses to potential retirees, retaining their experience to ensure that projects stay on track and productivity remains high. This is not without its own set of risks, however. Especially in light of the financial pressures brought on by lower oil prices, operational costs are under increased pressure and higher salaries directly impact profitability.
Despite the grim situation, forward-thinking companies are focusing not only on recruiting and educating new professionals but also developing strong operational excellence programs and well-documented procedures to improve efficiency and profitability during this transition period – and position themselves for future growth.
In part two of this article, we will explore the changes that need to be made to support the next generation of oil and gas professionals, how to navigate this transition, and how information technology and operational excellence strategies can impact your bottom line.