Personnel managers tick off reasons for the industry’s failure to attract, develop, and retain young talent: uncertain employment, the lack of formal career paths, and the greater likelihood that engineers would have to move to frontier regions — a lifestyle many reject because it creates hardship for their families. It doesn’t help that oil and gas extraction, despite its importance to the economy, is seen as a “sunset industry” in the United States, a view backed by Department of Labor projections that employment in the industry will decline by 6 percent through the year 2014.
• Risk Mitigation: As projects have become more complex and expensive (Jack 2 could ultimately cost more than $3 billion), even major corporations cannot afford to miscalculate the risks. Most oil and natural gas company executives say they believe they have a good sense of the risks involved, but they do not always know how to mitigate them, for instance, how best to deal with joint-venture partners and host governments. Suppliers and contractors express even greater concern, with a heightened sense of urgency: They believe oil and gas companies do not fully recognize, evaluate, and manage the risks, and consequently are not addressing them effectively.
Unless companies make quantum shifts in their management practices, they may not be able to manage a significant wave of capital investment and meet the future energy needs of the global economy. The survey as well as our own observations suggest that there are four vital agenda items for both owners and contractors who want to ensure the future well-being of the industry and thus of the world’s oil supply:
• Adopt a global project-management framework to increase performance. Some of the companies that responded to the survey have adopted central management of key functions; they report significantly improved performance, particularly in megaprojects. They have done this in several arenas: human resources, where more formal career paths can help junior staff members assume new, challenging, and more rewarding roles; knowledge management, including on-the-job mentoring, structured training, and other ways to capture and spread in-depth technical knowledge; and supply chain management. The leading companies have learned to forecast their needs across several projects, looking for opportunities to aggregate and possibly standardize the demand for specific components, such as pumps, or raw material, such as steel, and share this information with the supply base. In turn, this helps contractors better manage their resources, anticipate needs, and plan their production and procurement activities. Costs can be reduced by as much as 15 percent by centralizing operations and purchasing in bulk.
• Train and tap into local talent. To address the talent gap, some EPC companies have established engineering centers in developing nations such as India and Indonesia. This benefits a company’s bottom line, and also builds goodwill with the host government and a public eager for jobs. In a period of increasing sophistication and activism on the part of host governments and civic groups, and in some regions, civil unrest targeting the oil industry, it helps companies gain recognition as good corporate citizens.
• Balance technology innovation with cost and schedule. By leveraging design similarities across projects, companies can reduce capital costs and cycle time while improving operations and engineering productivity. Leading oil and gas companies are following the lead of automotive companies that use the concept of “platform” and “subassembly” for new model introduction. Recently, the CEO of ExxonMobil promoted the concept of “design one, build many” as a means to allow his company to execute megaprojects more effectively. Supply-base companies have already aggressively moved to a modular approach to design and manufacture complex engineering equipment, providing quick turnaround time. A leading manufacturer currently starts assembly of gas compression engines even before their design is finalized. This flexible production system allows the supplier to respond to last-minute changes.