Oil and gas contractors, including those with broader IT and engineering skills, can turn the current oil industry downturn to their advantage through carefully targeting their clients and ensuring their skills match the changing needs of the industry.
A report by consultants DNV GL, A Balancing Act: The Outlook for the Oil and Gas Industry in 2015, highlights that many oil and gas sector clients remain optimistic and plan to sustain investment despite the downturn, seeking to re-engineer processes and adopt IT solutions to control costs.
“Tight schedules, high activity and complex projects have driven costs up over the last few years,” explains DNV GL Oil & Gas CEO Elisabeth Tørstad, “but it is interesting to see that the most confident industry players are forging a different path to their less confident peers.
“They are showing counter-cyclical behaviour by investing during the downturn, which is positive for the long-term health of the industry.”
Contractors need to target ‘profit confidents’ for new contracts
According to the report, oil and gas sector clients can be split into two camps: those that are ‘profit confident’ and plan on sustaining investment, exploration, hiring and research and development; and those that are ‘profit pessimists’, of which only a third plan to adopt a long-term view and maintain investment.
Contractors seeking to maintain their contracting career need to identify those clients in the ‘profit confident’ camp that will be seeking cost effective solutions to their investment challenges.
The ‘profit confidents’ are also seeking innovative ways of managing costs, such as through improved processes, collaboration and by using IT. As a result, they are also likely to welcome contractors with broad experience who can offer creative solutions that introduce process and cost efficiencies.
Skills shortages are no longer the number one threat to growth
Oil and gas firms have identified skills shortages as the greatest barrier to growth for the last two surveys conducted by DNV GL, and oil and gas contractors have enjoyed several years of intense demand and elevated rates as a result.
Not surprisingly, 68% of survey respondents now believe oil prices are the greatest barrier to growth. Skills shortages have fallen to tenth place in the growth barrier list, with only 14% of clients citing the issue as their greatest growth barrier
However, although skills shortages have fallen down the priority list for many organisations, 71% of the profit confident clients are planning to increase or maintain their current headcount. This suggests that contractors remain very much in demand, despite the downturn.
Contractors must evolve to survive headcount reductions
Despite the positive intentions of the profit confident clients, DNV GL highlights that 47% of oil and gas firms do intend to reduce headcount and hiring. “Contractors are often most at risk,” says David Messina, managing director of Hutton Energy and one of the report’s contributors.
But encouragingly for contractors, the report goes on to say: “The reality is that, while many of the job reductions will be focused on support staff, many specialist technical roles will remain challenging to fill.
“And, while short-term skills pressures may have abated for many, the problem will persist in the long term, and even worsen if the industry does not learn the lessons of the past, and fails to continue to proactively maintain its roster of skills.”
Another contributor, WorleyParsons’ Paul Sullivan, highlights that contracting has become embedded within some sub-sectors of the industry, such as engineering services providers: “There are very few long-term employees any more – it’s basically an employment-at-will type of arrangement.”
So, demand for contractors with niche and hard to sources skills looks set to continue, although those in support roles with transferable skills should consider looking at other sectors that have need of their capabilities.
Oil and gas clients must not forget the lessons of the past
When the oil price has fallen sharply in the past, the reaction by oil and gas firms has been to cut investment and hiring. The inevitable outcome has been insufficient capacity and crippling skills shortages.
Tørstad warns that the lessons of past oil industry slumps must be learned: “While the strong correlation between the oil price and confidence is expected, we need to take heed of lessons learned from previous downturns. The oil and gas sector faces a dilemma over balancing long-term growth or cutting back more sharply in response to short-term pressures.
Tørstad concludes: “By taking a broader view, reducing complexity and standardising processes, materials and documentation, industry players can develop a long-term sustainable cost base to adjust to this lower-margin environment.”