After completing 27 mergers and acquisitions in 15 years, Devon Energy Corp. always thought it had a surplus of people, but those coming in the door masked the exodus of early retirees and others. Now, with 10% of Devon’s workforce eligible for early retirement and nearly 60% eligible to leave within 10 years, the producer is joining its peers to step up recruiting and retention efforts.

Devon’s Dave Bozeman, who manages project support, spoke about the graying energy workforce last Wednesday at CERAWeek 2008 in Houston.

“We face a difficult task,” Bozeman said. “We basically have 10 years to hire an entire workforce.” With a plethora of long-term projects on its plate, it “will take a new type of skill and technology and a lot more people.”

Hess Corp. CEO John Hess said the energy industry has to invest to counter the looming manpower shortage. He noted that there were about 700,000 people working in the industry in the 1980s; today it’s closer to 400,000. Even though enrollment in college engineering programs is up, “we are replacing our 30- and 40-year veterans with recent graduates.”

Judson Jacobs, the research director of Upstream Technology for Cambridge Energy Research Associates (CERA), said the aging energy workforce has been “headline grabbing, but now we are beginning to see very real impacts. It is having an impact on performance, on operations within assets as well.” Devon’s workforce dilemma, he said, is one faced by energy companies around the world.

According to Michael Wynne, CERA’s associate director for Digital Exploration and Production Strategies, around half of the industry’s professionals will be eligible to retire within 10 years.

“The exodus is imminent,” he said, and the boardrooms are taking notice. “We are starting to see, particularly in the downstream, delays to major projects. We also see questions in the upstream about the future ability to deliver major projects on time…”

The methods may differ, but across the world energy firms are attempting to retain employees in different ways. At Devon, for instance, employees are eligible to retire at age 55, but the company has been able to convince some of the early retirees to “remain” at the company by offering inducements that include not only more pay but flexible schedules, the ability to work from home and fewer hours.

These types of incentives provide security, especially at a time when many new college graduates aren’t looking at the energy industry for employment.

“We certainly need to increase the rate of hire in the industry,” Wynne said. “Only one or two companies have had any success in the last four or five years. What we’re left with is that all the expertise leaves, and the remaining resources are overstretched.”

Overall oil and natural gas production may be declining, but lower-volume wells and smaller fields still require the same amount of people. “We still have the same need as to workovers…and the number of projects on the plate has increased,” Wynne noted. “The industry is resource-intensive, but the risk of execution is much higher because there are fewer people having to deliver on the same schedule on workovers.”

Trying to convince new graduates to join the industry is a “big challenge,” said Wynne. The “so-called ‘millennials’ are emerging technology-ready from college; but we don’t have time to teach them and we’re not engaging them at the university cycle.”

Once they do come aboard, energy companies have to keep the good employees they have. Retention success is a “financial process at the moment,” said Wynne. “We are inducing people to not take the ‘package’ and walk. Some are taking the inducement and working longer, others can have their cake and eat it. They are retiring and coming back as consultants. We will see a much higher utilization of external consultants in time.”

The energy industry also is “reequipping” by helping fewer people to do more, said Wynne. “A lot of technology is involved in that, bringing people up.” As a final option, companies are considering “redistributing,” which means outsourcing. “We see some lower-level tasks going to developing countries, moving work elsewhere. This is not what people want to do, and it’s not the most popular option right now. But it may come sooner than we think. If we can’t get enough people on board, this may be the next option we face.”

Energy companies take from five to nine years to train an unskilled college recruit; the average is about seven and a half years. To effectively deal with the disappearing workforce, the average time to train has to be reduced to five years, said Wynne.

Devon’s Bozeman also suggested that the industry broaden the scope of the college recruits it targets.

“One of Devon’s weaknesses was that we were only targeting petrochemical engineers,” said Bozeman. “We know we have to change that and target all of the engineering graduates. When I got out of college all that I knew how to do was to learn.”

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