Workers Play Increasingly Prominent Role in Oil Success
In certain parts of the U.S., there is no recession right now. In certain towns, the "housing crisis" refers to the fact that homes can't be built fast enough. It is a foreign reality driven by the best-known, most talked-about commodity in the world: oil.
The oil patch is where it's at, and the current domestic energy boom is changing things for workers and employers alike. The competition for workers is so intense it could have an effect on your investments.
The boom is no joke. In 2011, U.S. crude oil production increased by 120,000 barrels per day over 2010. Our current production rate of 5.6 million barrels a day is the highest since 2003. The most recent Baker Hughes (NYSE: BHI) rig count shows that there are nearly 150 more rigs drilling in the U.S. this year than there were last year.
It doesn't look like things will calm down anytime soon, either. The Energy Information Administration just increased its crude oil production forecast to hit 6.4 million barrels per day by 2025.
As production increases, the oil workforce increases along with it. The national unemployment rate is about 8% right now. In North Dakota, home to the Bakken shale, it's about 3%. The state produces around 560,000 barrels of oil a day, and is second only to Texas in total production.
Drilling has spared that state much of the recession-linked misery that much of the rest of the country is still suffering through. The population in Williston, the state's ninth-largest city, which is located smack in the middle of the oil patch, shot up to 20,000 in 2012. It was an increase of 7,500 people in four years. In the last two years, there were 14,000 jobs created there. In Williston, even the local McDonald's offers signing bonuses.
It's an unfathomable growth rate that has the city bursting at the seams. Though almost everyone has a job, there are not enough places to live despite record-breaking construction. So many workers live in campers scattered throughout the city that the three RV parks opening this summer won't be able to provide enough capacity for everyone.
The flip side
Though things are great for job seekers, employers are having a rougher go of it. Our current oil and gas boom has sharply increased the competition for skilled employees.
Schlumberger's (NYSE: SLB) business consulting arm produces an annual survey report on trends and developments in technical staffing within the exploration and production industry. Thirty-seven companies responded from all over the world for this year's survey, including independents, majors, and national oil companies.
Not surprisingly, the report found that E&P is in major transition right now. What is surprising is that human resources is now the main driver of production growth. So often we think of reserves, technology, and capital programs as the keys to production, and though they certainly matter, right now employees matter more.
Perhaps the most pressing issue for E&Ps right now is negotiating the retirement of many of the most highly skilled workers. The survey estimates that more than 22,000 senior petrotechnical professionals will leave their positions over the course of the next three years.
In response, companies are increasing their recruitment initiatives. The demand for these experienced professionals only increases the attrition rate in the industry, however. Turnover rates for geoscientists have increased to 4% to 5% in 2011 from 2.6% to 4% in 2010. Similarly, turnover for petroleum engineers ranged from 4.5% to 7% in 2011, up from 3.5% to 6% in 2010.
Turnover, and a general inability to staff qualified workers, can be crippling. All told, 70% of national oil companies, 60% of majors, and 45% of independents responding reported project delays because of staffing issues. Additionally, 67% of independents and 57% of NOCs reported taking more risk because of tight staffing.
Though hiring and retaining top employees is one of the most crucial components of successful production, companies don't tend to report on it often. It is easy for investors to track production rates and capital spending, but we often don't get any indication about the make-up of a company's workforce. Even when we know a company has added employees (typically when it explains why its general and administrative expenses increase) we likely don't know who they are or what their experience level is.
There are two ways of gaining insight. First, and most direct, request information from investor relations at the company. Second, pay attention to your company's hometown paper. Sometimes searching the archives is the best way to turn up information regarding hiring practices and HR trends.
For example, earlier this year the Calgary Herald addressed the industry's staffing woes by focusing specifically on Encana (NYSE: ECA) . A spokesman for the company relayed to the paper that Encana saw increased departures and responded by changing its bonus structure to increase retention.
It has long been preached that superior management is crucial to success, but in the oil and gas business, employees reporting to that management are just as important. The industry has been a positive disruption for the American workforce. To read about the next big disruption, check out three companies changing the manufacturing scene in the Fool's special free report "The Future is Made in America."