Energy evolution

With Andy Inglis, CEO of BP Exploration & Production

With the days of ‘easy oil’ long gone and crude prices plummeting, the oil and gas companies are facing a myriad of challenges. Andy Inglis, CEO of BP Exploration & Production, outlines how the oil major plans to plug the capability gap and why beating the talent crisis will be key for our future energy security.

“Contrary to what you may hear, there are more than enough resources to meet demand ... At today’s consumption rates, we have around 40 years of proven oil reserves, 60 years of natural gas and 130 years of coal”
-Andy Inglis, CEO, BP Exploration & Production

In our industry, strategic challenges come and go and we usually conquer them in the end. That is what we do: we manage risks, whether they be technical, geological, commercial or political. And today, near the top of that list is capability.

The really big strategic issue for all oil and gas companies is matching the earth’s resource endowment on the one hand, with the capability – technology, skills and know-how – required to bring those resources to market on the other. The days of ‘easy oil’ are well behind us. For international oil companies (IOCs), and increasingly national oil companies (NOCs) too, new resources are harder to reach and tougher to produce. Resources are now found in reservoirs that lie at greater water depths, at higher temperatures and pressures and require complex drilling and completion designs. Bringing them into production is going to be difficult. It will require that capability gap to be filled.

The global context

Recent developments in financial and commodity markets are just the latest reminder that we are definitely living in interesting and changing times. In the current chaos, it is easy to focus on the short term, but I want to maintain a longer-term perspective. Despite recent falls, the oil price remains high and volatile by historical standards, and prices are not being driven by a lack of resource because there is plenty of oil and gas around. In fact, prices are being driven by a confluence of factors. The first of these is the recent period of exceptional worldwide economic growth. Although the short-term outlook for worldwide economic growth is evidently deteriorating, the fundamental drivers of long-term growth in demand for energy remain in place.

We have entered a new phase in global industrialisation, led by China and India. When Europe industrialised, it involved 50-100 million people moving from a rural to an urban way of life. The US industrialisation involved 150-200 million people. And those changes took centuries. But in the next decade, in China and India alone, over one billion people will be moving from a rural to an urban way of life. This will result in a dramatic increase in energy consumption to provide light, heat and mobility.

According to the IEA, by 2030, world energy demand will be 50 percent higher than today and non-OECD countries are expected to contribute 85 percent of the total world energy demand growth between 2005 and 2030. Contrary to what you may hear from some quarters, there are more than enough resources to meet that demand. At the end of 2007, total remaining proved oil reserves stood at around 2.3 trillion barrels of oil equivalent. At today’s consumption rates, we believe we have around 40 years of proven oil reserves, 60 years of natural gas and 130 years of coal.

And let us not forget that enhanced capability would improve that resource-to-production ratio further. For instance, the worldwide average recovery factor for conventional oil reservoirs is around 35 percent of oil in place. If, as an industry, we can raise that by just five percent, it would add around 170 billion barrels to world reserves – enough for five years supply.

The task facing the industry is to ensure supply rises adequately to meet demand by bringing this oil and gas endowment to market. These resources are found in increasingly challenging environments – in the deserts of the Middle East and North Africa; in the deepest waters of the Gulf of Mexico, West Africa and Brazil; and in the Alaskan and Russian Arctic. Furthermore, many of these resources are controlled by NOCs that do not always have the same capability at their disposal as IOCs.

Our industry needs the smartest engineers and geoscientists. Increased computing power and better technology will also make a huge contribution, but they are not a magic bullet. State-of-the-art software programs and seabed monitors are fantastic – but I’m not expecting them to walk into my office with a solution to the problem. Technology is only as good as the people who design and operate it. With capability, it is people who make the difference. Turning these resources into reserves and then production is going to require leadership, ingenuity and innovation as well as technology. That is the capability challenge.

The capability challenge

The first point to consider is the demographic pressures of our industry. Looking specifically at averages, the average employee working for a major operator or service company is 46-49 years old. However, this is a problem we have been aware of for several years and which we have been addressing. The good news is that we see an increase in the 20-34 year old bracket – reflecting more intensive recruiting in the last 10 years. The fall in the percentage of 35-49 year olds reflects a lack of recruiting during the years of lower prices, when the industry saw the main strategic challenge to be increasing efficiency through consolidation and mergers as opposed to building organizational capability.

I’m approaching 50 myself, so I am in that age group. And in some ways my own experiences are typical. I joined BP in 1980, and in 1990 was told that Mechanical Engineering was not considered core to BP’s strategy, that we would follow a track of outsourcing and use of the contracting industry. This caused me to broaden into other disciplines and areas. I’m happy to be now back in the core of E&P. I have kept my technical roots, I’m a chartered engineer, very proud of it, and very passionate about ensuring we do not repeat the mistakes of 20 years ago.

The second point is that despite our best efforts, we have to admit that we are not attracting enough graduates from traditional recruiting areas such as the US and Europe. Even when people enroll on engineering degree courses intending to join the engineering ranks, this does not mean they will follow through. One recent study found that of the 90 percent of students who originally aspire to work in the sector when they began their degrees, only 65 percent actually do so.

The overall impact of these pressures has been estimated by CERA as a potential 10-15 percent ‘people deficit’ by 2010, compared with the estimated number of staff needed to deliver projects. This is being felt across the industry – in oil and service companies alike. The issue is leading to project delays or deferral. Goldman Sachs’s study of the top industry projects shows that more than 40 percent have experienced a delay of a year or more.

I believe the oil and gas industry is suffering from a number of what I would regard as misconceptions. Some of these misconceptions were true, but are now outdated. The industry suffered a boom and bust in the 1980s and early 1990s that left many with an impression of instability and a sense that there was no prospect here of a ‘career for life’. My earlier story regarding the outsourcing of engineering is evidence of that. The industry is also perceived as low-tech and out of date when set against other hi-tech areas such as IT, media and pharmaceuticals. Nothing could be further from the truth. Historically, this was also a very white and very male industry so it has been perceived as lacking in diversity. As an industry we must address and correct these unhelpful and old-fashioned misconceptions, so that we can be competitive with the other opportunities graduates have in consulting, pharmaceuticals and the media.

Attracting and retaining talent

First we need to retain the talent of our experienced employees. People are working later in life today – certainly later than the traditional industry retirement age of 55 – but this cadre of employees also demands more flexibility. At BP we have a scheme in place to access the skills of our retired staff for specific challenges and projects of interest to them. We offer flexi-hours and part-time working to encourage individuals to work beyond the statutory retirement age. We have to be accommodating to continue to access this talent.

Then, looking at the other end of the age spectrum, we also need to be sensitive to the aspirations of people in their mid-20s – often described as Generation Y. From our own interviews with new graduate entrants, we know that their top motivations are quite distinctive and in many ways different from past generations. For example, there is much less emphasis on having a job for life and much more on the quality of experiences and the chance to make a difference.

To attract and retain the top graduate talent, BP offers a development program called the Challenge Program. This began in 1993 with 30 people from the UK and US. Today the program has graduated over 3200 people and we currently have 1200 Challengers from all over the world in the program. Challenge is about building deep petrotechnical skills through a combination of on-the-job work experience, dedicated mentoring from experienced employees, clearly defined training and course curriculum, and field and operational experience. Graduation and intermediate reviews are based on competency assessment. This creates self-standing individuals, carefully placed into the right next roles with access to further learning offerings such as accelerated development programs.

We also need to get closer to talented students, earlier, as they make their way through university. That’s the time at which we need to be there to correct misapprehensions and ensure the full attractions of a career in energy are made clear. We do that through partnerships with major academic institutions, but also by raising our profile on campus. To be honest, I think we have more work to do here.

Secondly, we need to correct some of those outdated misconceptions by continuing to diversify our workforce and celebrating that process. After all, that is simply a reflection of globalization in action. By 2020, over 50 percent of BP’s operated production will come from non-OECD countries, giving us much more geographical breadth and depth than in the past.

Many governments want to see greater local participation in the development of their country’s resources and we fully support their aims. Over the last decade or so our operations have grown rapidly in countries such as Angola, Colombia, Egypt and Trinidad. In all of these countries and many others, we have made an early priority of developing local leaders as well as local frontline workers. We adopted an approach of developing local talent, using the global capabilities of the firm.

Improved efficiency through technology

Thirdly, let me move to technology as a means to plug the capability gap. Technology improves productivity by enabling us to perform tasks faster and with greater effectiveness and efficiency. Let’s start with the basics in my own business. Historically our production engineers have spent up to 40 percent of their time looking for data. A quick win for us was to create a web-based information management system that allows our PEs to quickly access the data they need to do their jobs. Piloted in Alaska and now available across our operations, this tool has allowed us to reduce the amount of time spent on accessing data to less than 10 percent of the time, releasing our PEs to spend more time managing our wellstock and operations, increasing their ‘wrench time’.

Go back not too many years and our reservoir engineers would spend a week doing one history match; it may have taken six months to run 25 cases to find the one deterministic answer that matched. Now, with improved workflows and computing power, we can do well over 1000 history matches a week, a huge step change in efficiency, and importantly allowing multiple solutions to be found – which in turn has greatly improved our understanding of risk and uncertainty.

Remote monitoring is another technique that enables us to achieve better performance with less labor-intensive processes. For instance, we are using remote monitoring on a number of our turbines in the Gulf of Mexico. Our vendor, who is located in California, monitors the operations 24 hours a day. Through remote monitoring, we have been able to increase the intervals between service shutdowns and push the operational limits of the machines. Benefits include real-time troubleshooting of the equipment by internal and external subject matter experts from around the world; production loss avoidance due to sustained equipment uptime; and deferred costs by extending the equipment lifetime through increased monitoring.

In the past, one individual was able to monitor 40 engines. Today that person can monitor 4000 – a 100-fold increase – because the system works by exception, flagging up potential problems, rather than by constant surveillance of all the equipment. As an industry we are beginning to understand the full potential of predictive analysis as the next evolution of this technology. Anticipating events and hazards ahead of time, creating intelligent software to advise of, and in some cases make, corrective actions and adjustments.

These are early days for many of these technologies and we are learning more all the time, finding ways to increase further the productivity of our scarce human capability.

Learning partnerships

The fourth part of our strategy is to underpin the development of our staff with a world-class learning offer for all levels and ages of our organization. I talked earlier about one aspect of this, our Challenge entry program for graduates, and our goal is to provide the same learning opportunity at every stage of a career. To deliver this strategy we have chosen to partner with the best educational institutions in the world. We all benefit from these partnerships. BP gets to teach the ‘BP Way’, in partnership with world-class educators. Our staff get the chance to develop as individuals. And I hope our academic partners benefit too. At BP we are addressing this challenge in four ways: Attracting and retaining talent; developing a diverse workforce; leveraging technology to increase the efficiency of our organization; and offering a powerful learning culture, notably through partnerships with some of the world’s leading academic institutions. There is always more to do, but we know that building organizational capability goes right to the heart of our competitive advantage.

BP in the Middle East

Staff development in action
In Azerbaijan, development of local talent has been achieved through a number of BP initiatives:
• Special entrance and development programs for graduate recruits: This is through the Challenge program; 50 Azeri graduates completed the program last year
• The Caspian Technical Training Centre: A $12 million world-class training centre dedicated to training technicians to work in BP’s Caspian operations – to date it has trained over 1000 technicians, with a steady state now of 100 per year
• Professional development of national staff: In 2007, more than 100 employees were supported by BP in their professional education, whether attaining chartership accreditation, or advanced degrees at UK and US universities
• Overseas assignment in other BP operations: Where Azeri staff can learn best practices from other operations to bring back to Azerbaijan