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The Energy Talent Wedge

Scott W. TinkerBureau of Economic Geology

Jackson School of GeosciencesThe University of Texas at Austin

International Petroleum Technology ConferenceDoha, Qatar November, 2005

Session: Education, Training, and Cultural Diversity

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Outline

The talent wedge—the gap between demand and supply of

talented people—that is developing in our industry today

is as great an issue, than the demand-supply wedge for

conventional oil.

Coordinated, international action is required.

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Outline

Trends

An IOC Trilemma

Reserves

Technology

Talent

Towards a Solution

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Global Energy Consumption Trends

Energy Information Administration

International Energy Annual 2003

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Year

% T

ota

l C

on

su

mp

tio

n

% Coal % Gas% Oil

% Hydro % Nuclear % Geothermal, Biomass, Solar & Wind

91% 86%

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QAd3931xExxonMobil, 2005. http://www.exxonmobil.com/Corporate/Citizenship/Corp_citizenship_energy_outlook.asp

The Conventional Liquids “Wedge”

UnconventionalLiquids

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1,800

1,000

600

tho

us

an

ds

1978 19981994199019861974Year

1982

1,400

The Talent Wedge

Decline is enabled by

technology. Logical floor?

Top 25 IOCsNumber of employees

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Employees are Aging just like our Giant Oil Fields!

0

50

100

150

200

250

300

>25 26-29 30-34 35-39 40-44 45-49 50-54 55-59 60+

Age (YRS)

Age Brackets for Geoscientists Worldwide (2008*)

As with aging fieldswe need to discover

New Talent!

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Outline

Trends

An IOC Trilemma

Reserves

Technology

Talent

Towards a Solution

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The IOC Trilemma• The international oil companies (IOCs)

face a significant trilemma.

• Although high oil and natural gas prices in recent years have helped the bottom line, the numbers may mask an unsettling reality.

• The greatest assets of the IOCs

• reserves

• technology

• talent

are all at risk.

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Reserves

• The International Oil Companies (IOCs) combined own only a few percent of the world’s conventional oil reserves.

• National oil companies own well over 90% of the world’s conventional oil gas reserves.

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0

0.05

0.1

0.15

0.2

0.25

0.3

Aram

co (S

audi)

NIOC (I

ran)

INOC (I

raq)

KPC (Kuwai

t)

PDV (Ven

ezuel

a)

Adnoc (U

AE)

Libya

NOC

NNPC (Nig

eria

)

Pemex

(Mex

ico)

Lukoil

(Russ

ia)

Gazpro

m (R

ussia

)

ExxonM

obil

Yukos

(Russ

ia)

Petro

China

Qatar

Sonatra

ch (A

lger

ia)

BP

Petro

bras

(Bra

zil)

Chevro

nTota

l

Reserves(2004 %)

% IOCs

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Reserves

•This helps to explain why many IOCs continue to merge; too many companies competing for limited access to reserves.

•In order to replace reserves, IOCs are forced to explore on Wall Street via acquisitions and mergers. Wall Street has become a mature province.

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Technology• There was a time when the IOCs

conducted breakthrough research.

• In part owing to ever-greater pressure from Wall Street to focus on short-term performance, private sector investment in breakthrough research has been reduced substantially.

• US research labs have closed.

• Service companies now account for an ever-greater percentage of the research and technology investment, but much of it is incremental.

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QAc8962c

NJ

Ma

Washington

Oregon

Nevada

California

Idaho

Montana

Wyoming

Utah

Arizona

Colorado

New Mexico

Texas

Oklahoma

Kansas

Nebraska

South Dakota

North Dakota

Illinois

Louisiana

Arkansas

Missouri

Flor

Maine

Mich

Minnesota

Iowa

Miss AlaGeorgia

Tennessee

Kentucky

S Carol

N Carolina

VirginiaWV

Wisc

IndOhio

Pennsyl

New York

VtNH

CtRI

DelawareMd

Hawaii

Alaska

Unocal

Conoco

TexacoShell

Phillips

ARCO

Marathon

Amoco

Mobil

Chevron

Exxon Prod. Res.

ARCO

Marathon

Amoco

Mobil

Chevron

Conoco

Texaco

Phillips

Unocal

Technology

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* US E&P firms and the US R&D investments of international E&P firms; source Department of Energy, EIA, CERA analysis.** Traditional Oil Field Service companies (Baker Hughes, Halliburton, Schlumberger, Smith, Weatherford); source, company annual reports, CERA analysis.

Source: Cambridge Energy Research Associates, 2005

R&D InvestmentsUpstream Sector ($2004)

0

200

400

600

800

1,000

1,200

1,400

1977 1982 1987 1992 1997 2002

R&

D In

vest

men

t

($, m

illio

ns)

E&P Firms*

Service Companies**

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Technology

• Can a company--or industry--be successful long-term based upon incremental improvement alone?

• Is breakthrough research required to remain relevant?

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Talent• Prior to 1973, oil and natural gas

prices were stable.

• Kids saw energy as a viable career option and enrollments in US geoscience and petroleum engineering programs grew steadily.

• Following the supply embargo of 1973, demand for talent was fierce. The industry, price markets, and universities overreacted; the result was excessive growth until 1982.

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TalentOil and Gas Prices

Historical Oil & Gas Prices2000 Dollars

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

Year

Oil

Pri

ce in

Yr

2000

$U

S

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Gas

Pri

ce in

Yr

2000

$U

S

Crude Oil Wellhead Price(Inflation Adjusted)Natural Gas Wellhead Price

(Inflation Adjusted)

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1,800

1,000

600Nu

mb

er

of

emp

loy

ees

(th

ou

sa

nd

s)

1978 19981994199019861974Year

1982

1,400

Largest 25 Oil Companies

TalentOil Company Employment

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5

AGI, 2003

PetroleumEngineering

TalentEnrollment

GeoscienceUndergraduate

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TalentWhat goes up….• From 1982 through 1999, the industry

and markets again overreacted, but in the opposite direction.

• One million energy industry jobs were lost in the US.

• US Universities enrollments in geoscience and engineering plummeted to 40-year lows and some US engineering and geoscience departments closed their doors.

• In US Schools, an ever-increasing percentage of student enrollments are non-US.

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TalentOil and Gas Prices

Historical Oil & Gas Prices2000 Dollars

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

Year

Oil

Pri

ce in

Yr

2000

$U

S

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Gas

Pri

ce in

Yr

2000

$U

S

Crude Oil Wellhead Price(Inflation Adjusted)Natural Gas Wellhead Price

(Inflation Adjusted)

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1,800

1,000

600Nu

mb

er

of

emp

loy

ees

(th

ou

sa

nd

s)

1978 19981994199019861974Year

1982

1,400

TalentOil Company Employment

Largest 25 Oil Companies

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5

AGI, 2003

PetroleumEngineering

TalentUniversity Enrollment

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000China Natural Sciences

Enrollments

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The IOC Trilemma•One scenario would see IOCs disappearing in a generation because they no longer control the reserves, technology or talent.

•I doubt this will happen.•IOCs will focus on unconventional resources

•Liquids: shale oil, heavy oil, tar sands, coal liquefaction

•Gases: coalbed methane, shale gas, tight gas, hydrates, coal gasification, and beyond

•Unconventionals will represent a substantial component of the fossil fuel future.

•Talent needed!

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QAc9841c

100

80

60

40

20

0

Per

cen

tag

e o

f to

tal

mar

ket

Year

1850 1900 1950 2000

H/C>4 (Natural Gas, Hydrogen, Nuclear, Sustainables)

H/C<1 (Wood, Coal)

H/C~2 (Oil)

U.S. Data: Annual Energy Review 1999 (EIA, 2000)World Data: International Energy Annual 1999 (EIA, 2000)

Global Consumption Trends

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Outline

Trends

An IOC Trilemma

Reserves

Technology

Talent

Towards a Solution

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• We must address the global energy talent pool. Industry, governments, and universities must “align”.

• Annual company investment of < 0.1% (of gross revenue) in upstream research and…

• Continually declining US government investments in energy sciences and engineering…

• …will not attract the most talented students.

Towards a Solution

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Towards a Solution• Students today are bombarded with

“semi-facts” that lead them to believe that the oil and gas industry is dirty, low tech and mature.

• Students interpret mergers, oil and natural gas price fluctuations, decline in research investment, and off-shoring of jobs as an unstable industry.

• Students believe “renewable” sources can replace fossil fuels in the next decade. Much of this “information” is misleading and even wrong. But perception is reality.

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6 00 km0

2 0 0 4 0 0 m i0

Emerging Mitigation Options

Solar (0.2%)

Biomass (3.0%)

1 million kg biomass/km2*16,000 BTU/kg =

.02 Q/4000km2 after loss

To produce 20 Q/yr (20% U.S. Energy with today’s technology)

Pimentel, D. and others (BioScience, September 1994)

1 MW Turbines20% Efficiency20 ac spacing

Wind (0.01%)

Weitz, Physics Today, 2004

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•Establish global partnership that are long term and research based.

•Two way street; balance US and international student enrollments and company employment

•Do not overreact to talent demands (learn from the 1970s)

•Tougher (not easier) enrollment and retention standards

•Break out of the discipline silos: well-designed, integrated research programs

Towards a SolutionUniversities

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• Act for the long term in terms of research (and have the resolve to ignore the Wall Street reaction!)

• Invest substantially in universities in good and bad times. Universities are your seed crop.

•Do not expect impact on quarterly strategies

•Seek to develop research partnerships outside of the standard faculty/student models

Towards a SolutionIndustry

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•Invest in long-term, high risk research

•Support programs that drive commercialization

•Recognize the global nature of the industry in terms of policy (taxes, incentives, etc.)

•Work hard to bring allure and respect back to science and engineering.

Towards a SolutionGovernments

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•Develop a coordinated, accurate, and interesting global message about energy

•The story should include contributions from universities, government and industry

•Find a credible storyteller; there is a good story to tell!

Towards a SolutionProfessional Societies

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SummaryOil and Gas Prices

Historical Oil & Gas Prices2000 Dollars

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

Year

Oil

Pri

ce in

Yr

2000

$U

S

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Gas

Pri

ce in

Yr

2000

$U

S

Crude Oil Wellhead Price(Inflation Adjusted)Natural Gas Wellhead Price

(Inflation Adjusted)

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5

Summary

AAPG Website

Supply Push Demand Pull

US Undergraduate Geosciences AGI, 2003

1.1 mil

1.7 mil

0.7 mil

Employees Large O&G Co

$10

$80

Oil Price: 2003 Dollars BP Website

US Upstream R&D 2004 Dollars CERA

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Summary

•The best way to build bridges between cultures is to share a common goal.

•Energy is vital to global health.

•Top talent is critical to success.

•We have an opportunity to take a coordinated, global approach to address the energy talent issue.

•The IPTC is a good start!

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From our Gulf to Yours…

Many Thanks!

From our Gulf to Yours…

Many Thanks!

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