Big Oil's Talent Hunt

Business is booming, but the workforce is graying. That has oil companies seeking help in unusual places

by Moira Herbst

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.