Oil and natural gas prices are near record levels and global excess production capacity is near historical lows, which in turn has raised demand for petroleum professionals. But the new workforce is nowhere in sight, according to Raymond James & Associates Inc.
In a Stat of the Week, Raymond James energy analysts J. Marshall Adkins and Pavel Molchanov last week put more weight on a belief within the industry that the supply of petroleum professionals continues to decline. They noted that more energy professionals are retiring, and fewer are entering the field -- comments that echoed statements at the recent Cambridge Energy Research Associates meeting in Houston (see NGI, Feb. 18).
"To the many challenges facing the future of oil and natural gas exploration in the United States, add the following: Soon, the country will not have anyone left to do the exploring. That is an exaggeration, of course, but only slightly," wrote the Raymond James duo. "Beyond the absolute numerical decline in the ranks of U.S. petroleum engineers (PE) over the past 25 years...the demographics of the oil patch are not looking good."
The Society of Petroleum Engineers (SPE) estimates that the average age of its members currently is about 47. About 55% are 45 or older (compared to 45% in 1997) and only 21% are under 35. "The percentage of younger SPE members bottomed in 2004 and has rebounded slightly since then -- thanks to the huge financial incentives now being offered for young professionals to enter this industry," but "these are still worrisome statistics," wrote the duo.
"The data implies that within 15 years, at least half of this vital group of industry professionals will be retiring, depriving the industry of a huge pool of technological talent and expertise. In fact, given the robust out-performance of energy stocks over the past several years, massively boosting the investment portfolios of many of these professionals, the prospect of early retirement for at least some of them must be considered. The key question therefore becomes: Where will the future PEs come from?"
Adkins and Molchanov noted that the "PEs of the future will certainly not come from America's petroleum engineering departments -- at least not in the numbers required to sustain the current level of domestic oil and gas exploration. Enrollment in these university programs peaked at the same time as industry wide employment did. In 1983, roughly 11,000 U.S. students were studying to become a PE. Today, the number is about 3,700. This is a staggering drop of 66%."
Today there are more students drawn to a PE career compared with the 1990s and the early part of this decade, in part because of the financial incentives now offered.
"These include generous scholarships, paid internships, and of course, hefty salaries," said the analysts. "In other words, the labor market is responding to the personnel shortage, with typical starting salaries for petroleum engineering graduates now up to $80,000 to $110,000 (plus bonus), according to The Wall Street Journal. Geologist pay is similarly up sharply, currently averaging $81,000 (up 48% in five years)."
The analysts suggested three key reasons why there is a decline in the number of U.S. PEs:
"Eventually, it may well be that rising salaries and perks for petroleum professionals will offset the ingrained pessimism about future oil prices and the negative perception of the industry," said the Raymond James team. "Until then, companies will find other ways of maintaining their talent pool, such as hiring from abroad (especially Russia and the Middle East) and keeping some retirees as consultants. The fact remains, though, that the dearth of new entrants into the industry does not bode well for the future of U.S. oil and gas exploration."
©Copyright 2008 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.