Mr Maxime Le Floch, AXA Investment Managers
This study shows that the oil and gas (O&G) industry is facing a significant shortage of skilled workers in the segment between 35 and 44 years old and is more exposed than other sectors such as chemicals or IT. Overall, we find that 80% of O&G companies studied (43% of the MSCI energy index) are exposed or highly exposed to the risks stemming from poor human capital management linked to the incoming pressures on skilled labour.
Investment policies and recruitment in the upstream are closely linked to oil prices in the market. Due to the volatility displayed by oil markets over the last decade, O&G companies have adopted so-called “stop & go” recruitment practices particularly in the upstream, generating a skill shortage also described as a “mid-career gap.”
However, skill shortage is not only cyclical; it has become a long-term structural issue in the industry for 3 reasons.
Firstly, oil demand will remain strong for a long time and require significant capital expenditures in exploration and production.
Secondly, in order to find and increase the oil supply, the projects are growing increasingly complex and risky.
Finally, skill shortage is accentuated by a demographic shift with many experienced technicians planning to retire over the next 10 years.
Moreover, regional disparities further increase the pressure on human capital, particularly in terms of resource allocation between the different projects to manage.
Our analysis reveals that this lack of long-term human capital planning now threatens firms’ financial performance through two main channels: damages to process safety, therefore leading to a higher risk of major accidents; and higher capital expenditures, in particular with costly project delays.
Companies’ exposure can be analysed according to three key factors. Firstly, we found that companies’ exposure to countries with insufficient qualified labour is significant, making up roughly 50% of overall 2015 capital expenditure. Secondly, we noted the industry-wide shift to highly complex “frontier” O&G projects (e.g. heavy oil or deepwater). Lastly, we observed that the level of disclosure on the management of skill shortage remains low.
The study concludes with some areas where improvements could be made: diversity, education & training, and succession planning. We encourage investors and companies to improve transparency on human capital management in order to safely lead future developments and prevent major accidents.