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80’s Oil and Gas Part 2

The end result of most (oil and gas) recessions as people bring themselves and their companies out of the abyss is the industry is smaller. Genesis opened its doors in June 1983 when there were 34-36 senior oil and gas companies in Calgary. These corporations held the majority of the assets and the people. Approximately one third of the people worked for junior and intermediate sized companies. A smaller workforce, improved technology and efficiency makes the oil and gas business more profitable, at least in the short term. BigOil downsized in the mid ‘80’s to spawn the Junior community as we know it today. A “crumb” from a Major company like Shell or Chevron manifested into a very profitable Junior. At its peak, 400 Junior companies operated in industry. Today, with depressed oil prices, there are less than 100.

Longer term thinking appears to be difficult for the North American oil and gas industry due to price volatility. Internationally, however, it doesn’t seem to be as big of an issue. Partly that is due to state intervention. Many oil and gas regimes are government owned or influenced. We are not in North America. As Suzanne West of Imaginea so succinctly pointed out – “When the price falls, there is no pity party for oil and gas”. No government handout when things turn down also means lots of financial upside for the individual contributor when things are up. Transfer payments and carbon tax aside.

In the past 15 months the Canadian oil and gas industry has seen greater layoff than in the mid 80’s. It is not hiring many new graduates. The 0-5 year person is also re-considering commitment to the industry, even if they did get hired. Unfortunately, history is setting up to repeat itself. In 10 years we should have astronomical labour costs. If you recall there was very little hiring of new graduates from 1982 -1992. We paid for that from 2002-2008, 10-20 years later. If the market had not recessed in 2008 the demand and subsequent compensation packages would have continued to go up aggressively. The difference we will experience 2025 -2035 is the “Baby Boomer” will indeed be retired! We were able to lean on the 50-60 year old to fill the last gap in hiring for senior technical roles. Our leadership ranks will be sorely lacking – the Boomers are leaving the industry and there are very few young people coming up behind them. Talk about low supply! However, perhaps we are wrong – perhaps the demand will not be there or the Canadian oil industry will be dead because we cannot get our product to market.  Exxon thinks demand will be there, and they have a lot of very clever people. Its prediction is by 2040 oil and gas will account for 57 per cent of the world’s energy, up from 56 per cent in 2014. Renewables, (wind and solar), in their forecasts by 2040 will triple to capture 4% of the world’s energy (Financial Post, David Koenig, Feb 2016). In the case of Alberta getting its product to Tidewater– who knows?

The paradigm of a full time job for life with one company has been shattered in North America. Contract work is more common as is working remotely. That is an obvious quick fix to theoretically lower labour costs in the oil and gas business, however, managing contractors has always been difficult. Partly that is due to the confidentiality and continuity required for the industry, and partly because of the level of expertise needed in many positions.  We have a finite number of people with expertise, and when this industry recovers, they will be in demand, so companies will want to capture them as best they can with security of employment (full time) and great benefits. If the day of fossil fuels is not over yet, and the Canadian oil industry is able to get its product to market, the industry is going to have some real challenges going forward to staff these positions. I hope they keep our phone number. This next round of hiring will be like recruiting hockey players rather than engineers and geoscientists.

Trish Hines, President

Genesis Executive Search

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