Technical Directors Outlook: Engineers Need To Learn From History Because the Industry Tends To Repeat It
In the 2 years since oil prices plunged, job cuts and retirements have changed the face of petroleum engineering. SPE’s membership mix has shifted to younger, with the biggest numbers in their 20s and 30s.
“We have seen most of the older generation wiped out. It is pretty scary seeing the people being asked to leave” who have so much knowledge, said Tom Blasingame, the technical director for reservoir description and dynamics.
There are still Baby Boomers left in the ranks, and they want to pass on what they have learned from experience. The seven SPE directors interviewed for this story began their careers during the long-lasting funk that began in the early 1980s and lingered through the 1990s. At last year’s SPE Annual Technical Conference and Exhibition (ATCE) in Dubai, they offered their perspectives in a discussion titled “The Way to Move Forward is to Look Back.”
While the oil market seems to have settled into a narrow range and the pace of layoffs slowed later in the year, these are still hard times.
“Unfortunately a lot of people are losing their jobs; that is happening across the world and across the industry, even in national oil companies,” said Hisham Saadawi, technical director for production and facilities. “The perception is prices will remain like this now.”
The pressure to cut costs remains intense, including personnel budgets. Even some top students from Texas A&M University are hearing from companies that “we do not have the budget to hire now,” said Blasingame, a petroleum engineering professor at Texas A&M, adding that for many, “the anxiety meter is off the scale.”
Fewer students are enrolling in petroleum engineering programs in the US and elsewhere because it no longer ensures a good-paying job, with some schools seeing declines of 50% or more in their incoming classes.
“There is no panic. I am sensing the biggest concern is the job situation for graduates. That is pretty tough in many places,” said Dan Hill, director for academia. For the faculty in many programs, there is a positive side to the declines in enrollment: the lowering of class sizes to more desirable levels.
A hiring drought also has its costs. “In previous downturns, there were companies that spent years without any significant hiring or training strategy,” said J.C. Cunha, technical director for management and information. “Without injecting new ideas, new people, and new blood, organizations tend to stagnate.”
While the working professionals have to plan for oil to linger around USD 50/bbl, experience shows bad times are not forever. Oil companies are in a world where demand is growing, older fields produce less every year, and the remaining oil is in formations that are harder to develop and produce. All point to the need for more and better petroleum engineers.
“The big thing now with undergraduates is we really need to make sure they believe in the future of petroleum engineering,” Blasingame said. Faith is required because becoming a petroleum engineer requires a large investment of time and money to prepare for a job in an industry where hiring varies unpredictably.
Long-term thinking matters, but saying “no” to cost-cutting is not an option. Cunha covered lower-cost ways of sustaining hiring, training, and mentoring, while Jeff Moss, technical director for drilling, is pushing for seeking out sustainable cost reductions.
While companies are reporting lower costs per barrel to investors, a significant part of those gains was the product of deep discounts squeezed out of suppliers, who will claw back those losses when the market allows. Finding a way to use drill bits longer will offer a lasting saving that discounts cannot.
Hard times also force buyers to distinguish between wants and needs, and eliminate things that do not clearly add value, such as highly customized equipment specifications.
“They are looking at the specifications used during the era of high oil prices,” Saadawi said. There is talk about going back to the day when the industry kept costs down by ordering industry-standard equipment and simplified designs. But with more fields in harsh environments and more regulations, sometimes simple is not an option.
Cost-cutting has also added responsibilities for those managing operations while reducing the number of corporate support specialists in areas such as health, safety, and the environment (HSE). “Now we are increasingly seeing operational leaders moving into the top spot for HSE,” said Trey Shaffer, technical director for health, safety, security, environment, and social responsibility. He has been looking for ways to ensure those multitasking professionals can get the range of information they need to cover all that ground.
Many of the students graduating this year are looking at jobs that take them in unexpected directions, which is a familiar experience for those who graduated during the 1980s.
During his career, Blasingame said he has met a lot of “people who came in the back door, taking jobs they didn’t want and working into mainstream engineering.” He added, “If you find your niche, someone will find value in it.”
And what seems like a small job today may become an essential skill 20 years from now. When Jennifer Miskimins, technical director for completions, started out in that area, it was an offshoot of production engineering. Now, fracturing during completion is the factor making production from unconventional plays possible.
Her career choice was guided by what she enjoyed doing, and that needs to be a motivation for those choosing an oil industry major when the rewards are uncertain. The associate professor at the Colorado School of Mines said she has noticed that “with the young students, I am seeing a passion again.”
In a brutal job market, petroleum engineering students seeking jobs are looking for an edge. “Most are hunkered down. The only way to get noticed is to get the best grades” plus involvement in internships and strong projects, said Blasingame, who has been considering what else they could do.
“I agonized over that. I really tried to think of what a student could do to make them more valuable in this environment,” he said.
But based on his experience and those he has known who got into the business during bad times, those who are persistent and flexible are likely to find a roundabout journey to a career.
Blasingame’s path began with a detour at the start of his senior year as the oil boom was sliding into a bust in 1983. “I thought I would get a job with Amoco. I had a fantastic internship. But like many others, I ended up getting the wrong envelope,” he said. The letter said the company had no job to offer.
While considering “what do I do now?”, he addressed a pressing problem—finding a topic for his senior research paper—by asking Professor John Lee, who returned in the past year to teach at Texas A&M University.
“He didn’t say anything. He walked over to his bookshelf, pulled out a book, stuck a Post-it into it to mark the pages and told me to make a copy,” he said. That section laid out a method for calculations related to a pressure buildup test. Lee seemed to have doubts about those equations and instructed the undergraduate to “figure out everything about this.”
When Blasingame returned around Christmas time, with his analysis using math he had learned in an effort to impress, the discussion took an unexpected turn.
“He asked, ‘Have you ever thought of grad school?’”, Blasingame said, adding, “I said no. He said you ought to think about grad school.”]
That was not in the plan, which was to work in the oil fields like his father who had owned a drilling company when he was a child. But he followed that advice, even though graduate school looked like a wrong turn to some of his peers.
“I was willing to do things others were not willing to do. People were laughing about it, who would be stupid enough to do that,” he said. But in his case, he had stumbled onto the right path after all.
In the space of a career, Miskimins has seen how a little-noticed specialty can evolve into a critical skill.
When she started doing completions in the late 1980s, it was a well construction job handled by a production engineer. “They were in charge from when they finished up [drilling] to perforation and stimulation to putting in the right producing equipment,” she said. Some fracturing was required, but “there would be one stimulation or fracturing stage on a well vs. 40, 50, or 100 now.”
That difference helps explain why completions now play a critical role in well performance, expanding the universe of rock that can be developed. This big change was recognized in the past year when Miskimins became the first SPE director for completions, with a goal of creating completions engineers capable of pushing this trend further.
The associate professor at the Colorado School of Mines is just beginning to see universities offering advanced classes in completions, as well as more attention being paid to it in related courses such as drilling and stimulation design.
“It is mind-boggling to me, especially in the US and Canada, how important fracturing is, and there is not a [specific] course on stimulation,” at some schools, Miskimins said, adding, “It is so much more important. A lot more people specialize in it and work in it.”
What has been a North American obsession is growing globally. “We have a couple of PhD students from Saudi Aramco in fracturing and we haven’t seen that in the past,” she said. These students are coming to the US at a time when the Saudi Arabia national oil company is recruiting fracturing talent to aid in its effort to tap tight and unconventional gas fields, and has presented papers on using it to maximize conventional production.
Currently she sees companies with teams of completions engineers in the field relying on a few experts’ multidisciplinary skills that draw from reservoir modeling to rock mechanics. In the future she sees more skilled completions engineers using the growing array of diagnostic tools to maximize fracturing results.
“We do not have people specializing in it,” in school, she said. “We do not have a lot of people that can get down into the detail and that are experts in it.”
The average cost of drilling is down a lot since oil prices crashed, but that could quickly change. There needs to be more focus on “sustainable cost reduction,” said Moss. Experience shows that the downside of savings squeezed out of a supplier or service supplier is that they will raise prices as soon as the market allows.
Even now with the price breaks, many onshore producers are struggling to turn a profit and those considering offshore development are even further from break-even.
“You need to be lopping decimal points off” the costs, Moss said. “They will have to compete with unconventionals, and that means they cannot drill a well producing 10,000 B/D for USD 200 million and expect to make money.”
Many little savings are not likely to be enough. “In deepwater, a lot of opportunities will require some serious mindset changes,” said Moss. While R&D budgets are squeezed, history shows that during periods when cost pressures are extreme, some operators will try new things rather than abandon projects.
In the 1980s Moss worked on early uses of horizontal drilling. It was an emerging technology, but it proved to be a better alternative than vertical wells and fracturing tight gas formations in the North Sea.
“It was desperation as much as anything else. It paid its way,” Moss said. Over time, he said they were “able to define niches to apply it appropriately to more effect, and later learned how to fracture those horizontals.”
Obvious targets for deepwater cost reductions now are the many casing strings required to stabilize wellbores in challenging wells where drillers are working in a narrow window between the pressure required to control the pore pressure in the well and the level that could damage the reservoir.
There are tools available aimed at the problems that lead to costly, complex well designs—more accurate pressure predictions, managed pressure drilling (MPD), and wellbore strengthening.
“It we can do managed pressure drilling and eliminate casing string, things start getting really attractive,” Moss said.
The available tools include established methods—MPD has been widely used offshore—but accepted workflows must be developed to increase the comfort level for users and regulators.
Lowering the cost of offshore to make it a sustainable option long-term, requires answering the question: “Can you eliminate significant chunks of cost without incurring added risk?”
The booms and busts of Texas’ oil-driven economy have redirected the career of Shaffer in environmental consulting.
It includes three busts over 3 decades, starting with graduating from Texas A&M with a degree in architecture in 1989 during one slump, to running a group of 250 workers doing oilfield cleanup and hazardous materials emergency response at Boots and Coots until the 2003 downturn pushed him out of that job to ERM Group, where he rode a boom in oilfield environmental planning from 2009 to the latest slump.
His position as a partner at ERM has not changed, but as the health, safety, security, environment, and social responsibility director, he is seeing how deep staff cuts since 2014 have altered the discipline. “My estimate of what has happened is 30–40% of the professionals in the HSE [health, safety, and environment] discipline were repurposed,” he said. Some have gone into other roles, been laid off or retired, he said, adding, “It has been a dramatic shift.”
The focus on safety and the environment needs to remain constant, but after the job cuts, the responsibility is increasingly added to the job descriptions of those in other roles.
On the plus side, the change recognizes that decision makers need to consider both the operational and environmental criteria when making decisions on problems, such as handling produced water, managing emissions, or improving safety performance.
The days when the HSE professionals were there to identify the problem for an operations person to solve has passed. Now, “if you identify a problem, you have to marry it with a solution.”
Those all-purpose professionals are feeling pressure to produce more with less, leaving them little time to learn more about the HSE aspects of their job at a time when spending on training and conferences is down.
“Younger professionals are in leadership roles,” he said. “They are rising into leadership roles much more rapidly with amazing responsibilities for big parts of the business.”
Shaffer said SPE needs to figure out “how to find these people and bring them into” programs to expand their knowledge of the HSE issues they face on the job.
One obstacle is their primary professional focus is often in another discipline, making them less likely to attend an SPE HSE event. The HSE content needs to be better integrated into SPE conference programs, with topics tied to the areas of the most interest. He said, “We need to make the HSE content very relevant.”
Companies have an obligation to their shareholders to control costs, and to do so in a way that does not reduce their long-term performance. It is an especially difficult balancing act when the pressure to cut costs is far greater than preparing for the day when this industry finally rebounds.
“Companies that are not hiring anybody, that have let tens of thousands of workers go,” have reduced their ability to bounce back, Cunha said. In a recovering market good hires are costly, as companies compete for candidates in a pool reduced by retirements and people leaving the business.
Continued hiring of younger workers will add lower-wage talent and avoid a future workforce that is again dominated by key people about to retire.
The downturn speeded that generational change and increased the workload of those managing complex, multimillion projects. Those new hires need mentors and training at a time when many experienced workers are leaving and training budgets have been slashed.
Experienced managers are not likely to argue with the importance of hiring, but in this market, “it is clearly not a priority,” Cunha said. His presentation at the ATCE in Dubai offered advice on hiring and training on a shoestring, beginning with “keeping a sensible hiring policy is better than no hiring at all.”
Cunha said companies need to find ways of holding on to experienced workers to fill those gaps and provide continuity on long-term projects. Low-cost options could include looking for people willing to work limited hours with jobs that would include mentoring and training.
“With young engineers coming into industry, you use them to pass on the culture and pass on experience to help form teams for the future,” Cunha said. “It is a better way to prepare for the bounce back.”
Today’s oil prices take Saadawi back to 2004. Back then, the price of a barrel of oil was roughly what is now, and “oil companies were making profits. Everybody was happy, if you can use that term.”
The consultant from Abu Dhabi is thinking there are lessons to be learned from how things were done back when the specifications for a crude oil export pump may simply refer to the data sheet in the API Standard 610. During the boom years, specifications became increasingly complex and costly to deliver.
“I had discussions with many people at ATCE thinking about trimming out specifications,” he said. They need to simplify the process to reduce the hours, manpower, and cost, while ensuring what is ordered is fit-for-purpose.
Over time, there have been more complex developments requiring special attention, such as sour reservoirs and deep offshore fields, where special orders are required. But when possible, the industry should use “functional specifications” based on API standards.
The need to simplify is changing the look of the offshore projects that are still on the books, with simpler shallow-water production platforms designed for Middle East and Asia developments.
To keep developments alive, others are looking to advance the day when production begins by tying back the early wells to nearby facilities until a production platform is completed.
The position Saadawi occupies on the board represents some rethinking as well. The post combines areas once covered by two directors: production and operations with project, facilities, and construction. The change is in keeping with the times when many within those disciplines are seeing their responsibilities expand.
“I think for those that survive, they end up doing more multitasking,” said Saadawi. Even at larger companies, “you get production and facilities commingled together.”
There has been a sharp decline in the number of students enrolling in petroleum engineering programs as they see that graduates are now having trouble finding jobs.
It is reminiscent of the plunge in the early 1980s, when enrollment dropped by 90% in 4 years said Hill, the Texas A&M petroleum engineering department chair.
But he does not see things getting as bad as they were when he was starting his academic career at the University of Texas at Austin in 1982, the year oil prices had peaked and enrollment there totaled 1,100 students. Five years later oil, prices had plunged and there were 100 students.
Hill said that “if the slump lasts long enough, it could be a pretty dramatic drop in enrollment.” But adds, “I am optimistic it is going to pick up before long.”
This is a global problem. As a director, Hill has learned through his contacts that programs in Europe and China are also feeling the downturn. Those in the Middle East are steadied by hiring commitments made by national oil companies.
In the US, the declines in incoming students range from a few percent at programs that limited their enrollments during the boom to more than 50%. Texas A&M is seeing only a small drop. It capped its enrollment in 2010 after seeing it triple from 2003.
US graduation rates are expected to decline, from about 2,100 petroleum engineers for the 2015–2016 academic year to 1,400 for the 2018–2019 year, according to a study by Lloyd Heinze, a petroleum engineering professor at Texas Tech University, who surveys US programs.
Enrolling in petroleum engineering when hiring is down looks like a risky bet. But many of the small number of Generation X engineers hired during the last bust are now in senior positions.
“Those folks that came out of those small classes, a lot of them are now leaders in our industry,” Hill said.
Technical Directors Outlook: Engineers Need To Learn From History Because the Industry Tends To Repeat It
Stephen Rassenfoss, JPT Emerging Technology Senior Editor
10 December 2016
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