Benefits in the oil and gas sector

Despite oil prices hovering at an all-time high, the oil and gas sector is facing a talent shortage which it is looking to perks to solve, says Jenny Keefe

Imagine outer space. A huge asteroid comes into view. Craggy, menacing, and bigger than Texas; it’s on a collision course for Earth. To avert disaster it is decided someone must rocket up to the asteroid, drill into it and plant a nuclear device at its core. In this scene from the film Armageddon there’s only one man for the job: Bruce Willis, “the best oil driller in the world”. The director of NASA promptly summons Willis by helicopter, agreeing to his fee of $70 million to complete the mission.

Cut to the UK in the present day, and HR managers in the oil and gas sector are similarly willing to pay big money for people with the right skills. The sector is currently facing a recruitment crisis, with fierce competition for specialist workers, especially engineers and geologists. Jim Babb, international director of energy at recruitment consultancy Norman Broadbent, says: “There is a need for every single job out there. Back at the end of the 1980s there was an exodus from oil and gas because of a downturn, and all the specialists left to go into the water, nuclear and construction industries. Now is the heyday of oil with a barrel costing [over] $100 [but] the huge swathe of people who left the sector has not been replaced [and] there’s not a lot of new blood coming into the industry.”

This scramble for staff comes just as firms are starting new projects to take advantage of soaring energy prices. “To actually take on a project or a new development, you have to have people in place. So they are offering sizable salaries; there are a lot of golden handshakes and golden hellos. People are stealing staff from other companies and then they are getting stolen back again,” says Babb.

To stop rivals poaching their staff, energy firms commonly offer bundles of share options to senior and middle management, tying them in for at least three years at a time. “To extract someone from Exxon Mobile, for example, you would really have to make it worth their while. I was talking to one senior manager [from a different international oil company] who was on a base salary of £120,000, but [their] overall package including shares and options came to £350,000,” says Babb.

Future of final salary
Thanks to the boom, oil and gas workers also have the enviable position of working in one of the few sectors where defined benefit (DB) pensions are still the norm. But this could soon change, says Ian Milton, a strategic reward consultant at Watson Wyatt. “In the current climate of record oil prices, companies are managing to maintain their liabilities with relative ease. However, as the generation of engineers who joined the industry in the 1970s starts moving en masse towards retirement, the liabilities of the companies can only grow,” he explains.

The sector is slowly edging away from DB schemes, adds Steve Munday, a compensation and benefits consultant at Hewitt Associates. “For new employees in the oil and gas sector, there is a definite trend towards offering defined contribution (DC) schemes rather than DB schemes. Existing [staff] can usually remain in a DB scheme although some companies may offer existing employees the option to switch to a DC scheme going forward, sometimes involving a potential cash release as an incentive,” he explainsHowever, it is not all share options and champagne. Skilled workers, such as engineers and geologists, are usually expected to be posted overseas for three or four-year stints, and life on oil rigs and gas fields can be hard going. The big oil and gas producing countries include Saudi Arabia, Russia, Venezuela and Iran, which are not necessarily places your families would like you to go on holiday.

Before employers dispatch staff to work in foreign climes, they must have the right benefits in place, says Andrew Matthews, a director in the reward team at PricewaterhouseCoopers. “If you were in the UK and you were asked to go to Kazakhstan, you would need some kind of comfort in terms of your package. You’d want to know that your family would be looked after and that you’d get help with housing and education. Companies try to make it as easy a process as possible for staff.”

Insurance is a crucial plank of any relocation package, especially for staff based in risky locations. “Generally, employees working in another country would have private health insurance. If you live on an oil rig or near a mine in a harsh country, life insurance is also an important consideration. A lot of these people have to work under quite harsh regimes and companies feel it’s only right their families are compensated fairly if anything happens,” explains Matthews.

Holiday disputes
Holiday entitlement for offshore workers, however, has become contentious. Several trade unions have brought a claim against oil companies but the Offshore Contractors’ Association (OCA) has argued Britain’s offshore employment practices do not violate the Working Time Directive. Because oil rigs are so far from land, workers spend two weeks onboard, then return for a fortnight ashore. Yet under the terms of the directive, workers are guaranteed 11 hours of rest in every 24, and are entitled to 20 days holiday a year. Oil companies argue that, because staff work for two weeks on, followed by two weeks off, this meets the requirement to provide four weeks’ paid annual leave.

The unions, however, argue that even when they have rest periods on the rigs, employees cannot spend their time as they wish. So they can only properly relax when ashore, and should therefore receive four weeks’ extra holiday, in addition to the time they already spend onshore. “This is a big issue that is at the forefront of many organisations’ thoughts and continues to be an area of concern raised by many,” says Munday.

In mid-August 2007, the OCA reached a settlement with Amicus, conceding the extra holiday entitlement in negotiations covering pay and conditions. However, other cases in which the OCA is not involved are ongoing. In February this year, for example, the Offshore Industry Liaison Committee (OILC), which is part of the RMT union, secured a decision from the Employment Tribunal for two weeks paid leave for staff during the time when they would normally be working offshore. The employers involved, however, appealed against the decision on 1 April, which was subsequently countered by OILC/RMT, and has yet to be resolved.

When looking to the future, Munday believes flexible benefits schemes will be the next big thing to hit the industry. “Full flex remains uncommon within the UK oil industry although interest has increased recently. The first full flex implementation in the oil sector would potentially signal a market-leading position to employees,” he explains.

Statistics

Industry body Oil & Gas UK’s 2007 Economic report shows that, in 2006, the oil and gas sector in the UK employed 480,000 people, of which 380,000 were involved in domestic production. Up to an additional 100,000 people are employed in export activities by supply chain companies.

Research by Cambridge Energy Research Associates (CERA), The engineering talent squeeze 2007, showed that there are not enough engineers to meet the demand from current oil and gas projects, and a shortfall of 10%-15% is likely by 2010.

The same CERA report predicted that more than 50% of today’s engineers, who have an average age of 51 years, will retire by 2015.

Some 70% of people in the oil and gas sector believe there is not sufficient leadership talent within the industry to meet the challenges ahead, according to a 2006 survey conducted by the Energy Institute, recruitment consultancy Norman Broadbent and Deloitte.

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Case study: Premier oils retention process

Premier Oil, which employs 65 workers in the UK, runs a long-term bonus scheme designed to encourage employees to stay.

Cieran Dymond, HR adviser at the oil and gas producer, says: “This scheme was introduced in 2004 and is a long-term incentive payment scheme, which runs for three years.

Providing that the company meets certain targets, including significant share price growth, the employee will receive a payment at the end of the period.”

All staff are eligible to participate in the scheme, but the level of payment they receive is dependent on their job grade. “A new plan is rolled out each year, which means that employees have the opportunity to receive payments on an annual basis,” explains Dymond.

The company also offers a defined contribution pension scheme, where the employee pays 5% of salary and the company pays in between 10% and 15%, depending on age.

Its other benefits include a sharesave scheme, Bupa private medical insurance and 25 days holiday.

Employees also receive £250 a year to put towards gym membership “Salaries and other benefits are regularly reviewed as we participate in a number of oil industry surveys,” says Dymond.