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'Graying' of Oil Patch Spells Trouble for Producers

'Graying' of Oil Patch Spells Trouble for Producers

Further fueling concerns that there may not be enough domestic gas supply to meet a 30 Tcf demand market down the road, a new study warns the industry likely will face a shortage of production personnel to explore and drill for natural gas if the current trend towards consolidation, divestiture and downsizing continues.

Since 1982, the employee count at the top public oil and gas companies has dropped 61% to 640,000 from 1.65 million, according to a study by John S. Herold Inc., a global energy information company based in Stamford, CT.

"On average, the largest oil [and gas] companies have shed an astonishing 5.2% of their work force every year for the past dozen years. Our analysis found that the ten largest oil companies again wielded the 'human hatchet' in 1999, axing 38,811 workers," the study, entitled "Downsizing's Downside: Energy Industry Facing Severe Personnel Crunch," revealed.

Despite the fact that oil now hovers at around $30 per barrel and delivered natural gas has exceeded $4 per Mcf, the major producers "continue a 'downsizing momentum' that is inconsistent with today's upbeat energy market," it said. "With crude oil and natural gas pricing and demand fundamentals extremely solid today, energy sector employment should be expanding."

With its depleted work force, Herold questions whether the industry will be able to "ramp up" activity to develop new energy resources, said CEO Arthur L. Smith. With only a "trickle of new blood" flowing into the energy sector - less than 600 petroleum engineers are currently enrolled in U.S. colleges --- and with the experienced production employee pool drying up, Herold fears the aggressive upstream growth goals of many large energy companies may prove unattainable.

There is a noticeable "graying of the energy work force" from the drilling rig to the boardroom, according to the Herold study. A Labor Department study found that more than 65% of workers in the oil and gas industry are between 35 and 54, while just a small percentage are in their twenties. A recent survey revealed that 70% of the members of the Houston Geological Society are age 40 or older.

Meanwhile, recent trends suggest that a personnel shortage in oil field service already is becoming evident. In fact, well operators contend the lack of experienced personnel is much more of an issue now than equipment availability, the study said.

Looking to the future, the Herold study believes the oil and gas industry may have a difficult time overcoming its tarnished image. "At best, the energy industry is tarred with being a mature, low-growth, 'old economy' sector, making it unattractive to bright new talent. At worst, energy companies can be charged with brutal and short-sighted treatment of their people --- their greatest asset."

The Labor Department forecasts that employment opportunities in the energy industry will remain bleak in the years ahead. It projects employment in the oil and gas sector will decline 6% between 1998 and 2008, giving the energy sector the "dubious distinction" of offering the worst employment prospects of any segment in the U.S. economy.

But Herold is more sanguine about the industry's job prospects. "For the first time in many years, the energy business is firing on all eight cylinders. Supply/demand/inventory fundamentals for the oil and natural gas markets are very strong. And despite a two-decade long bear market in the energy sector, we take exception with the Labor Department's dreary forecast which merely extrapolates the past."

Susan Parker

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