The Challenges in the Oil and Gas Industry through the HR Lens

The Challenges in the Oil and Gas Industry through the HR Lens Darwin, Australia 19 July, 2012 Presenter: Philip Askew Vice President, Australasia 0

By 2015, E&P industry will have achieved its crew change transition PETRO TECHNICAL PROFESSIONALS PER AGE BRACKET ON A GLOBAL BASIS % 25% 20% 15% 2010 2015 10% 5% 0% 20y - 24y 25y - 29y 30y - 34y 35y - 39y 40y - 44y 45y - 49y 50y - 54y 55y - 59y 60y - 64y 65y+ Note: Retirement rate: 20% for 55y-59y, 90% for 60y-64y, 100% for 65y+ Recruitment targeted inputted in the demographic profiles as follows: 40% in 20y-24y, 60% in 25y-29y Attrition at 1.4% (people leaving the E&P industry) Source: SBC O&G HR Benchmark 2011; SBC analysis 1

Australia is poised to be the No.1 LNG exporter AUSTRALIAN LNG EXPORTS Million Tonnes 70 60 50 40 Australian World Export Ranking 2008 2011 2017 4 6 1-2 30 20 10 0 1996-1997 2006-2007 2016-2017 Source: Australian Bureau of Statistics, http://www.indexmundi.com/commodities/?commodity=metals-price-index&months=180, http://www.theaustralian.com.au/business/economics/capital-spending-is-on-the-rise-despite-headwinds/story-e6frg926-1226289889256, Australian Bureau of Agricultural and Resource Economics and Science List of major minerals and energy projects April 2011, Company websites, The Australian, SBC Analysis 2

This growth in Australia has serious implications on the workforce THE GROWTH THE CONSEQUENCES Capex will increase by 8% by 2014, from 2011 level of $21bil Shortage: Expected shortage of skilled workers will reach 36,000 by 2015 LNG output is expected to grow by around 250% between 2011 and 2018 Salary cost: Average Australian oil & gas worker earned US$140,000 last year vs. global industry average of $76,000 Source: Factiva; Working in Australia 3

Workforce shortages can have serious consequences on projects SBC HR BENCHMARK RESULTS WHAT ARE THE CONSEQUENCES OF STAFFING DIFFICULTIES? % of respondents Western Independents Majors NOCs Delay projects 0% 100% 44 % 0% 100% 60 % 0% 100% 71 % Take more risk because of tight staffing 67 % 20 % 57 % Increase non-operated assets 0% 0% 43 % Note: No companies have indicated that they abandon projects when facing staffing difficulties Source: SBC O&G HR Benchmark 2011 4

Effective planning for different skills is required both current and future AUSTRALIA MAJOR ENERGY PROJECTS AND ACTIVITIES NT LNG Gas with Shale potential West Australia - Conventional LNG & Oil, Getting Deeper Western Australia Northern Australia Central Australia Mature Gas & Oil with Shale potential East Coast Unconventional & Mature Oil Do you have the right people with the right skills to deliver current and future projects? Source: Australian Bureau of Agricultural and Resource Economics and Sciences, Major development projects April 2011, Reuters 5

Australian and global companies are pushing forward with mid-career hiring to fill workforce gaps MID CAREER GLOBAL RECRUITMENT TARGETS Normalized, 2010-2013 200 180 160 140 Majors International NOCs Company hiring gaps given lack of home market talent: Mid-Careers: 10-60% Graduates: 3-10% 120 Independents 100 NOCs 80 2010 2011 2012e 2013e Source: SBC O&G HR Benchmarks 2010 & 2011. Identical panel of respondents 6

Attrition is increasing globally and with Australian companies 2011 ANNUAL VOLUNTARY ATTRITION GEOSCIENCES AND PETROLEUM ENGINEERING GEOSCIENTISTS 2010 2011 PETROLEUM ENGINEERS 7.2% 4.2% 5% 4.9% 4% 5.8% 3.5% 5.1% 3.9% 4.6% 2.6% 2.6% Independents Majors NOCs Independents Majors NOCs Source: SBC O&G HR Benchmark 2011 7

While mid-careers are crucial, the consequences of a mid-career hiring strategy needs to be managed CONSEQUENCES OF A MID-CAREER HIRE STRATEGY Lack of or no company culture Incoherent or many ways of working Inconsistent salary structure, perceived inequality Real skills and application need to be verified Hard to fill positions 8

High Growth companies need to review old-rules of thumb High Growth Companies: Require higher manpower intensity Use technology for productivity Have pragmatic approaches to HR Reduce time-to-autonomy of recruits 9

High growth companies have more Petro-Technical Professionals per unit of production higher PTP intensity OPERATED PRODUCTION Average CAGR 06-10 High Growth Companies Low Growth Companies 5% ~0% PETRO-TECHNICAL PROFESSIONAL INTENSITIES # PTPs per unit of operated production 1-2 Petroleum Engineering 0.5-1 Geosciences High growth companies need more professionals, and they need them faster then ever before Source: SBC O&G HR Benchmark 2011 10

High growth companies use technology to improve productivity of staff HOW DO YOU MITIGATE PROJECT STAFFING DIFFICULTIES? % of respondents High Growth Low Growth 50% 50% 50% 57% 55% 36% 36% 27% Use virtual team technologies Use productivity enhancing technologies Outsource Standardize projects to staff more juniors Source: SBC O&G HR Benchmark 2011 11

High growth companies have pragmatic approaches to HR EXPATRIATES RECRUITMENT PROCESS CYCLE TIME Average months per peer group 4.0 3.4 3.2 2.6 DO YOU INTEND TO BRING BACK RETIREES? % of respondents 76% 43% % OF TIME SPENT PER TRAINING TYPE FOR JUNIOR PTPS? Average % per respondents 52% 38% High Growth Low Growth 17% 13% Mid Careers - NATIONALS* Mid Careers - EXPATRIATES Note: Process is understood from sourcing to acceptance * from company s home country Source: SBC O&G HR Benchmark 2011 High Growth Low Growth On-the-Job Training Coaching 12

High growth companies promote people faster and are more gender diverse IS SENIORITY TAKEN INTO ACCOUNT TO GENDER DIVERSITY AMONG PTP REACH A POSITION OF AUTONOMY? DISCIPLINES % of respondents Average % of females PTPs in total PTP Headcount 57% High Growth Low Growth 29% 27% 18% 19% 11% High Growth Low Growth Geosciences Petroleum Engineering Source: SBC O&G HR Benchmark 2011 13

Higher Growth companies continue to pursue reduction of time to autonomy TIME TO AUTONOMY 2008-2011 In years, Identical panel 13.5 2008 2011 COMMON HR PRACTICES ADOPTED BY SHORT TIME-TO-AUTONOMY COMPANIES Accelerated development program 11.2 8.5 11.5 10 10 Formal competency development program for all new grad with less than 5 years in technical function Structured career path and promotion criteria 5.7 5.7 Rotations Blended learning with on-the-job training Mentoring Western Independent Major International NOC NOC Technical academy Coaching programs Source: SBC O&G HR Benchmark 2008 ; SBC O&G HR Benchmark 2011 14

Most Majors and NOCs now have a competency management system DO YOU HAVE AN E&P COMPETENCY MANAGEMENT SYSTEM DEFINING ALL THE COMPETENCIES REQUIRED BY PROFICIENCY LEVEL AND POSITION? % of positive respondents 2006 2011 NO NO NO NO NO 27% 50% 58% 75% 18% 73% 100% 82% 25% 42% 50% Independents Majors NOCs Independents Majors NOCs In Australia, there are varying levels of coverage and implementation Source: SBC O&G HR Benchmark 2011 15

The industry needs to manage its Supply chain of Talent TM SUPPLY CHAIN OF TALENT TM Plan future needs Quantifying the competency gap Manage inflow Recruiting from new areas Integrate & develop Accelerating development Allocate & utilize Leveraging new technology and process Manage outflow Fighting attrition TM Business Consulting 16

Conclusion: HR Management is the main driver of long-term growth E&P industry is going through a major transition with Australia at the forefront of a broad capability challenge Australia s high growth companies will require more technical people and pragmatic HR policies: no barriers to promotion, higher diversity, on the job training Companies are focusing on reducing time to autonomy and putting in place the programs to drive this Managing the complete Supply Chain of Talent TM will be critical 17