The oil & gas industry is one of the six key industries in India and has a significant influence on the economy. The talent landscape of this industry is highly dependent on the stability of this sector, both globally and in India. Mobility of talent continues to be high in this sector and this high churn has led to organizations finding the need to identify key talent & skills and subsequently, adopting ring fencing strategies for such talent.
An important factor to be kept in mind is that while PSUs have traditionally ruled this sector, their salaries are ruled not by cash, but rather by benefits, whereas the private sector generally does the opposite. In mobility of talent from the public sector to the private sector, abnormal cash salary hikes are prominent. The support and sales talent for this sector is fungible across sectors such as retail, FMCG and marketing making retention a major challenge.
With the falling price of crude oil and subsequent rise in demand, downstream organizations have continued to grow.
Upstream organizations, however, have their work cut out for them, since their profitability is inevitably linked to the prices of crude oil. Companies have started to look towards cost cutting, through upskilling local talent to take up key technical and managerial positions and rationalizing costs. In the past 10 years, the number of expats and the expenditure per employee for organizations has gone down. With the requirement of niche skills in technical roles, an aging workforce and attrition at the middle management levels due to availability of better paying prospects outside the country will only compound these talent issues.
The following key trends have been observed with regards to the oil & gas sector around the globe:
1. Increase in Energy Demand: Oil & gas demand indicates a consistent positive slope in the past two decades (except for slowdown of 2009), buttressed by the steady increase in population to the tune of 0.8%.
2. Technological Innovations Leading to Increase in Energy Efficiency: Growing environmental awareness amongst consumers, rising cost of petroleum and natural gas, and scarcity of available reserves contribute to the increased emphasis on optimum utilization of natural resources.
3. Increased Cost of Oil Extraction: Oil reserves other than Middle East exist mainly in Venezuela followed by Canada and Russia, which are reserves of difficult extraction.
India is the third largest importer of crude oil in the world. Per capita oil consumption in India has been on the rise at a rate of 8.3% last year as compared to 1.5% globally (CAGR – 3.5%). Following are the key influencers of this industry on India:
1. Contribution to the Business Landscape: India is the second largest refiner in Asia. By the end of 2018, the oil refining capacity of India is expected to rise to 350+ million tons. Private companies own about 37% of the total refining capacity.
2. Market Dependencies: India roughly imports 83% of its domestic crude consumption and around 28% of its domestic gas consumption thereby making it heavily dependent to market volatilities.
3. Market Size: In terms of market size, India is expected to be one of the largest contributors to non OECD petroleum consumption growth globally. While GST and demonetization impacted this cash-driven industry, however, the effects didn’t last long and the total oil consumption in India grew at the rate of 6-7%.
While the sector sees a lot of potential, the talent scenario in this sector is fraught with challenges, and in these times the role of HR professionals becomes even more imperative in ensuring the survival, and eventually prosperity of the sector at large.
Talent Scenario in the Oil & Gas Industry
Talent Scarcity and Mobility
There exists a large gap in the talent availability globally since large number of countries have invested in developing capabilities in exploration and refining of oil and gas, but not in the development of technical talent required to run the operations on that scale.
On the whole, organizations are becoming cost-sensitive due to the pressure of falling crude prices on their top line. Globally, the industry saw over 250,000 layoffs in 2015-17. While the production levels in India are going to stay consistent, retaining the highly specialized skill set would continue to remain a key concern for organizations. With the economic scenario being highly volatile, the scarce technical talent must be retained and new talent must be encouraged to enter this sector. An aging workforce further adds to this problem of a potential talent shortage.
HR professionals often highlight upskilling of talent and recruiting the right talent as the key challenges in the sector. The key capability issues are highlighted:
While both downstream and upstream organizations face different challenges in terms of talent, globally organizations have been seen to have reduced hiring as well as talent development programs, as a direct outcome of the fluctuating crude oil prices. In India, however, downstream organizations have been observed to be bullish in terms of talent approach, as certain organizations continue to expand their installed capacity in the wake of the declining crude oil prices.
Sector-wise Talent Scenario in Oil & Gas
The downstream industry, primarily comprising refining and marketing of oil and gas, has a much lower demand supply gap as compared to upstream. The jobs that make up the value chain in the downstream segment are mostly available in the process industry, and there is a significant cross-industry movement of talent, and fertilizers, chemical, etc. are often exporters of talent to the oil and gas organizations.
Deregulation of petrol and diesel prices has motivated private players to re-enter the industry and we see them hiring from other industries like FMCG, telecom, quick service restaurants, etc. In the larger picture we see graduates with qualified non-traditional degrees being employed by this industry. With a commodity based product, logistics, supply chain and operational efficiency were the key to success and the workforce capabilities were sufficient to execute this core strategy well. However, now there are more management graduates, information technology graduates, etc. and the organizations are looking at diversifying the workforce.
The upstream segment is involved in the exploration and production of oil and gas. This is highly capital-intensive sector and organizations that thrive in this sector typically have a high risk appetite.
Post the induction of the private sector into the Indian upstream industry, there has been a higher talent influx both – at entry levels as well as laterally. The average compensation and employee benefits provided by the upstream industry are significantly higher than downstream and are competitive with respect to most of the other industries. The primary reasons for the salary premiums in the sector are:
- High Global Mobility: The movement of niche talent in the upstream sector is global in nature. There is high pay parity for this category of workforce across different countries
- Low Availability of Talent Locally: Some of the jobs, particularly pertaining to sub-surface, drilling, etc., are low on availability, hence command a premium
- Highly Capital-intensive Industry: The upstream industry requires significant capital investment at high risk. Returns on these investments have a direct correlation to the quality of workforce managing this capital. Hence, the E&P (Exploration and Production) organizations typically do not compromise on the quality of talent in these critical roles, leading to competition for the best available manpower. The manpower cost being negligible compared to the total operating expenditure, further eases the process of inflating the salaries.The below graph shows the expense pattern in the E&P sector:
From a salary increase perspective, while the energy sector, which includes oil and gas, power, and renewable sources of energy has remained relatively stable (due to the aggressive nature of expansion and salary increments philosophy of renewable organizations), the oil & gas sector has not fared so well, with salary increments going down across the board. Multiple OEM and upstream companies aligned to this sector have suffered due to fluctuating oil prices, while the India story continues to show a positive outlook. This sentiment is reflected in the power sector, which continues to be stable in its approach to providing increments to employees.
In a summary, What’s in a Barrel? – is about the key to India’s sustenance both in terms of the economy and talent landscape. India has the potential to do both – expand its upstream base while continuing to cater to the downstream demand (thereby contributing significantly to the economy) and to utilize its demographic dividend to fuel the talent requirements of this sector. For this industry, its stability lies in the volatility (of crude prices). Many oil & gas organizations had freezes on salaries as well as hiring and now they indicate signs of positivity, especially for their talent – albeit slow though. We expect that the extent of technological upgradation will have a strong impact on the job scenario in the oil and gas function and the extent of specialization is expected to increase. Along with premium salaries for certain skills, a blend of tech-savviness would be the critical mantra of success for talent in this sector.
Neelesh K Gupta
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