Big Oil has a novel problem that could easily be called fifty shades of grey. Nearly half of all petroleum engineers probably will be ready to retire in the next decade, leaving a skill shortage. If the last such occurrence is any guide, the lack of experience could lead to a big drop in productivity for an industry already struggling to drill ever more challenging wells. It’s a hidden risk in the price of crude.
The median age of the sector’s special breed of scientists has climbed from 43 in 2000 to around 58 in 2012, according to IHS analysts. Oil companies kept new recruiting to a minimum for much of the 1980s and into the 1990s, when the price of oil languished between $10 (U.S.) and $20 a barrel.
The worry is that newcomers will make more expensive errors, take longer to plumb wells and extract lower yields from tricky deposits. When the industry ran short of such workers 30 years ago, drilling efficiency dipped by about 20 per cent, says Texas-based PetroSkills, a training academy for the industry. With oil companies on track to spend over $600-billion exploring and developing in 2013, that could translate into $120-billion of cost overruns and other losses.
The estimate could be conservative, too. Expert drillers are more essential today. With easy-to-access oil in the Middle East largely off limits to outsiders, the likes of Exxon Mobil and BP must now extract from harder-to-reach sources like rock formations, the ocean depths and the Arctic.
The looming brain drain has accelerated the hiring process. This has pushed up the starting salaries of oil engineers, who now command a higher starting salary than any other discipline, according to data from Washington-based wage researcher PayScale. That means even if some of the talent can be replaced, it will be at a much higher cost.
What’s more, in a profession where experience matters more than a sheepskin, it may be years before the new entrants can match skills with their departing mentors. This story could soon make for some depressing reading on the industry’s financial statements.