G&G For A&D

The oil and gas industry’s well-recognized human-resource crisis is worsening as an acute shortage of geoscientists intersects with a growing demand for geologists and geophysicists. Without sufficient geoscientific staff experienced in acquisition and divestiture (A&D), independents that either want to acquire new properties or divest potential producing assets may not have the right team to make the most profitable decisions. The long-term solution remains rooted in increased education and training.

A global recession, dwindling hydrocarbon resources and rising E&P costs are cyclical issues that pale in comparison with the oil and gas industry’s longstanding crisis of an exponentially shrinking pool of skilled and experienced professionals.

This predicament will be exacerbated by the world’s continuing insatiable demand for oil and gas, a demand that may go unmet for the seemingly simple reason that the industry’s human resources are at capacity.

At a time when natural resources are at a premium, and the need for geoscientists could not be greater, there are not enough geoscience graduates to meet demands during the next decade. This growing shortage requires action now, warns University of Akron geology professor Dave Steer, newly elected president of the National Association of Geology Teachers. Steer took up the topic during his keynote address at the 2008 American Geological Institute Member Society Council meeting in Houston.

The shortage of geoscientists comes at a time when demand for them will be increasing.

Not only is the oil and gas industry clamoring for geoscientists, there is an emergent need for geoscientists in the growing climate-change arena, says Steer. U.S. Bureau of Labor Statistics (BLS) research predicts a 25% increase in employment among environmental scientists and a 24% increase for hydrologists from 2006 to 2016.

In addition, environmental scientists will be needed to help develop and construct buildings, transportation corridors and utilities that protect water resources and reflect efficient and beneficial land use, according to the most recent BLS Occupational Outlook Handbook. The demand for geoscientists is growing exponentially, although the majority of geoscientists in today’s workforce are within 15 years of reaching retirement age.

According to a recent American Geological Institute (AGI) publication, the percentage of 31- to 35-year-old geoscientists is less than half as many as in the 51- to 55-year-old bracket, demonstrating a marked imbalance in age among professional geoscientists.

This recent imbalance has slowed, in part due to the economic downturn, with some professionals delaying retirement because of retirement-savings losses. But even before the recession, national labor trends from 2000-06 indicated that the proportion of 65- to 74-year- olds who remained in the labor force increased from nearly one in five to one in four, according to U.S. Census figures.

Even if there were enough junior geoscientists or recent graduates to immediately replace retiring geoscientists, however, it could take seven to 10 years to close the knowledge gap that would result from the loss of seasoned professionals. There is no substitute for experience. Despite computer advances, errors can easily be made if a program is used improperly or the data are misinterpreted, potentially resulting in costly dry holes. The experienced human eye is far more capable of solving puzzles, including the complex search for oil and gas.

Geoscientists for A&D

The economic credit crisis and lower crude prices are setting the stage for an oil and gas industry consolidation in North America, in which cash-rich energy companies are predicted to continue growth by purchasing smaller, cash-constrained companies unable or unwilling to borrow. This consolidation will increase A&D activity, for which geological services are a necessity. Cash-strapped companies often lack the internal expertise to adequately handle the process.

And, a seasoned geoscience evaluation is especially important to the seller, assuring due diligence “beyond the sale” by overviewing the total portfolio to determine which assets to sell and which have significant remaining upside potential. Geological and geophysical interpretation experts also staff data rooms, both virtual and physical, to ensure documentation is collected in a single place/space, aid in seamless communications with potential buyers (and sellers), and reduce overhead costs.

Additionally, this expertise is needed to review resources and identify opportunities to leverage more assets and work with prospective buyers throughout due diligence.

The pool of skilled and experienced professionals in the oil and gas industry is shrinking.

Geoscientists are also key to the buyer’s success. Here, their expertise is needed to help identify geologic trends and targets, as well as to classify target fields and analog fields prior to data-room review. They also provide scientific risk and reserve analysis.

The lack of invaluable senior-level oil and gas professionals is blamed frequently on the industry’s feast-or-famine cycles. Alex Mills, president of the Texas Alliance of Energy Producers, notes that the industry’s extreme swings have also brought waves of consolidationsThe relatively few experienced geoscientists available are retiring in record numbers, while recent graduates are being lured into emerging environmental fields.

The 2008-09 economic recession has one redeeming value: it has spared the oil and gas industry the loss of some of its most experienced geoscientists, who have chosen to stay employed to recoup some retirement-savings losses. Many of these senior-level geoscientists are spending some of their delayed-retirement time as resident experts at geological and geophysical interpretation consulting firms.

The slumping economy is another reason that G&G interpretation services are in high demand. The cash and credit crunch will usher in a wave of A&D activity, for which geological services are necessary. The lack of qualified, experienced geoscientists equates, however, to a lack of internal support for A&D activity.

Craig Davis is president of Inexs (pronounced “in-x-sis”), Houston, which he co-founded in 1990. It provides geophysical and geological consulting services worldwide, including on major field evaluations, packaging and selling producing assets, and major acquisitions.