ConocoPhillips (COP) has grand plans. With demand for oil soaring, the company announced on Dec. 7 that it will boost its exploration and production budget by 8%, to $11 billion, a war chest intended to fund massive projects from Canada to China to the Caspian Sea.
But there's a potential obstacle to the company's vision: not enough people to get the work done. Half of Conoco's employees are eligible for retirement within five years. Unless older workers can be replaced, Conoco's expansion could be costlier and slower than planned. In an interview with BusinessWeek, CEO James J. Mulva said that the lack of talent is one of the most dangerous threats to his company's long-term health. "People are a big concern," he said.
Mulva is not the only oil industry CEO who is worried. Increased worldwide exploration and drilling means a greater need for workers at every level, from construction laborers and project managers to petroleum engineers to geoscientists. Nearly all are in short supply. So Conoco and other companies have started looking for help in some novel places, including the auto industry and academia.
But at the moment, supply does not equal demand. And things may stay that way for a while. A study released in October by Cambridge Energy Research Associates (CERA), a Cambridge (Mass.)-based energy consulting firm, concluded there could be a 10% to 15% "people deficit" in the oil industry globally by 2010.
If that prediction turns out to be correct, it could lead to widespread delays on big projects, supply shortages, and potentially even higher prices. One mega-project currently suffering because of worker scarcity is the Kashagan oil field in Kazakhstan, jointly owned by a consortium including ENI, ExxonMobil (XOM), Total, and Royal Dutch/Shell (RDSA). It is one of the largest oil fields in the world, with an estimated 13 billion recoverable barrels. But in part because of worker shortages, its completion date has been extended from 2008 to 2010 or 2011.
The oil industry is suffering from massive layoffs that took place during the oil bust. More than 500,000 petroleum-related jobs were lost between 1982 and 2000 in the U.S. During that period, young people concluded that the industry was a professional dead end. Enrollment in petroleum-related undergraduate programs fell 85% from 1982 to 2003. "We skipped an entire generation of workers," says Michael Killalea, vice-president of the International Association of Drilling Contractors.
Today, nearly 40% of U.S. petroleum engineers are over 50, says Margaret Watson, a spokesperson for the Society of Petroleum Engineers. That compares with only 30% in 1997. "It's a graying profession, and we're just not ready for transition," says Watson.
To replenish the ranks, companies are doing all the traditional things. Salaries are going up, and benefits are improving. From May, 2003, to May, 2006, U.S. petroleum engineers enjoyed a 17% pay increase, compared with 9% for electrical engineers and 11% for civil engineers, according to the Bureau of Labor Statistics.
But in the scramble for talent, companies have also begun looking for help in some unconventional places. One of them is the auto industry. On June 8, the International Association of Drilling Contractors teamed up with Ford Motor (F) for the first time, holding a career fair in Brook Park, Ohio, at a United Auto Workers union hall. It targeted employees subject to buyouts. About 400 engineers and skilled tradespeople—including welders, electricians, and repair people—attended the event to learn about jobs with Transocean (RIG), Noble Energy (NBL), Ensco (ESV), and Pride Oil (PDE). At least five have been signed up thus far, and more hires are planned.
Devon Energy (DVN) has been prospecting in another nontraditional area: academia. With a BS, MA, and PhD in geology, Erik Kvale had worked 19 years at Indiana University as a researcher and adjunct professor. He enjoyed his job, but saw opportunities in oil as the industry had revived in the past several years. "I needed a new intellectual challenge," says Kvale, 51, who joined the Oklahoma City-based company as a senior geologist in July, 2006. "Obviously salaries were another draw; I wanted to be able to retire at some point." Kvale says that he has boosted his $60,000 salary at Indiana University by more than 50%. Devon has also recruited engineers from paper mills in Canada to work at its oil shale facility in Eastern Alberta.
While it won't immediately fill the workforce gap, there is a resurgence of interest in petroleum engineering. One reason is that salaries are up. Last year it was among the highest-paid fields for college graduates at $68,000 per year on average. Nearly 3,700 undergraduate students nationwide enrolled in petroleum engineering programs for the 2007-08 academic year—the largest enrollment since 1986, though far from the 1983 peak of more than 11,000. At Texas Tech University, undergrad enrollment jumped from 60 students in 1991 to 406 today, says Lloyd Heinze, chairman of the school's Department of Petroleum Engineering. The average salary of Tech's 2007 graduates was just over $100,000. They have "the highest starting salary of any students on campus for the past five years," says Heinze.