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Top risk for oil and gas industry

Easily-recoverable oil reserves are a thing of the past, and oil and gas companies have little choice but to turn to unconventional sources of fuel such as shale oil and ‘fracked’ gas; and to look in places where a few decades ago oilmen would never have contemplated.

The majors are now drilling for oil at incredible depths and in extremely difficult physical environments such as the Arctic, hoping to make the next big find, making use of the latest advances in engineering and no little cunning. But the search for hidden treasure comes with a litany of risks.

The main reason there isn’t more deep-water drilling right now is not risk-averseness but the economic barrier that comes with lower oil prices.

In April 2010, an explosion on the deep water drilling rig Deepwater Horizon precipitated the largest oil spill in the history of the industry at the Macondo field, just off the U.S. Gulf Coast. The ensuing oil spill was the largest in history, and led many countries to tighten regulation on deep water drilling.

Memories of the Macondo spill still loom large over C-Suite executives. When we polled top executives from across the energy sector earlier this year on the risks they see defining the coming decade, business leaders from the oil and gas industry overwhelmingly pointed in the direction of operating in difficult physical environments.

In time, the Macondo spill will likely come to be seen as an unfortunate accident and an important learning experience for the industry. And, in fact, the main reason why there isn’t more deep-water drilling happening right now is not risk-averseness but the economic barrier that comes with lower oil prices. The cost of drilling and building permanent infrastructure at huge depths, and the cost of transporting hydrocarbons from remote locations, means that a sub-$50 barrel of oil makes deep water projects difficult to justify, especially given the current regulatory environment in many countries.

Natural Resources-Risk-Index 2016

Read the entire Natural Resources Risk Index

With a higher oil price, deep water drilling is likely to become more attractive, even in incredibly difficult environments such as the Arctic. In doing so, they are going to have to be incredibly careful, especially given that many oil majors often self-insure a proportion of their projects. That means the focus will be on risk mitigation, as well as risk transfer.

There is good reason to be optimistic about the future of deep-water drilling and exploration, in places like the Arctic. The industry has learned from Macondo with some firms even deploying two rigs at a time in tricky deep water plays.

Oil and gas firms are also incredibly innovative. The industry’s ability to overcome problems and work in new environments never ceases to amaze. A decade ago, deep-water drilling meant working in 1,000 meters of water. Today, it means drilling subsurfaces at a depth of 3,000 meters. In another decade, that’s likely to be commonplace.

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Control your company’s destiny with a work strategy

In many ways Brexit news hit like a splash of cold water – a shocking surprise. In the weeks that have followed, many organizations are now experiencing a constant, sprinkler-like flow of information and activities needed to manage internal and external stakeholders with preparedness during business as usual (BAU). But BAU this is not.

As this period of uncertainty continues, organizations need to think about alternative strategies for deploying its future workforce to manage potential risk exposure.  Rather than start from scratch, organizations can leverage existing principles and methods for workforce planning to be more agile through the Brexit process. Whether Brexit impacts your business or not, workforce planning can be a lynchpin for delivering on strategic goals and driving greater workforce performance.

Whether Brexit impacts your business or not, workforce planning can be a lynchpin for delivering on strategic goals and driving greater workforce performance

An unsettled and potentially divided workforce

One of the benefits of the E.U. has been free movement of labor and access to a single market for talent. An unintended (or perhaps intended?) consequence of Brexit could be the loss of easily accessible, highly skilled talent beyond the local market, like those in technology who are critical for building out and scaling key capabilities.

Not only is this is an opportunity to think of alternative strategies for talent deployment, but it also can be a strategic pivot point in how an organization makes talent sourcing decisions overall.  To what degree do we need to “own” our talent going forward, and how might that differ for critical or hard-to-fill roles?  How important is it that we are in a “center of innovation” (like London) or is there something to be gained by following a non-traditional route to work?

Triage the work

Given the magnitude and lasting impact of these potential decisions, organizations need to work through some key steps to determine the best approach for themselves:

1. Work strategy

What are the business priorities and what is the critical work that needs to get done?  When thinking about critical work, organizations should step away from a job mindset to one of “work models” to determine needs and priorities. A work model lays the foundation for how work flows through the organization:

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With work and work flow defined, now some of the alternatives for getting work done may be considered. If our premier work, as outlined in the level one descriptor above, is currently based in London, we can look to alternative strategies such as basing the work in another labor market, evaluating the benefits of co-location with the work found in level two, and so on.

2. Workforce planning

With defined work requirements and prioritization, the data review and scenario planning aspect of workforce planning can occur. How many people will we need by work model or role in the future?  How many people will we have based on our historical workforce dynamics?  How will external market factors and potential Brexit activities and timing influence labor supply and demand projections and what talent gaps (shortfalls and surpluses) could be created?

3. Action planning

With both strategy and evidence in mind, the organization is better positioned to understand the trade-offs for moving high-value or high-volume work from London to Paris or Frankfurt. In addition, this same approach allows for more effective decisions on where to keep the work intact in these markets, or conversely, automate some of the work and change the roles at the same time.

While the degree of uncertainty may lead some organizations to “wait and see,” those that are more proactive in planning their future will likely end up with a significant strategic advantage.  In essence, they are managing the flow of talent intentionally and systematically vs. making bigger, more dramatic shifts later in the transition.  To come back to our analogy, they are watering through a drip irrigation system – with ongoing attention to the nature of work and action planning that provides for an efficient and effective outcome.