SPEEDY HR DEVELOPMENT A MUST TO CHECK OIL PRICES

Shortage of skilled stff hits oil projects

Oct 08 - 21, 2007

Rising drilling and riggings costs, combined with shortages of skilled staff and equipment, are affecting hydrocarbon projects throughout the Middle East, with some being delayed and other contracts being renegotiated.

Producers in the region, from Libya to Saudi Arabia, have embarked on ambitious plans to increase production and capacity to meet growing global demand and take advantage of record oil prices. But many will struggle to meet their schedules, experts say, and can expect to pay exorbitant prices if they are to ensure they have the material and personnel in a market suffering severe constraints.

"It's having an impact and that impact is going to increase over the next few years. We are seeing projects being delayed simply because they can't get the equipment delivered on the timescale they used to," says Candida Scott, an analyst at Cambridge Energy Research Associates (Cera).

Experts say a critical bottleneck is the shortage of skilled staff, with an industry workforce dominated by people close to retirement and inexperienced graduates.

The issues affect producers worldwide, with the Middle East and Libya accounting for 20 per cent of world projects adding productive capacity between 2007 and 2011, according to Cera. Significantly, it is also the region requiring the most manpower over the same period, with 35 per cent of the world's projected total, the institute says.

One of the most high-profile examples of a project affected is in Algeria, where Sonatrach, the state oil company, cancelled the contract of Repsol YPF and Gas Natural to develop the 5tcf (trillion cubic feet) Gassi Touil project, citing development delays and cost overruns.

When the consortium won the contract in 2004 the deal's economics were "marginal", according to Wood Mackenzie analysis. Since then, the project's overall costs have risen by 127 per cent from $3bn to $6.8bn, say the energy consultants. "A lot of people have suggested Sonatrach's decision to cancel the project was nationalism, but we would disagree with that; the fact is it was based on simple economics," says Craig Mc-Mahon, at Wood Mackenzie. At best, the project will start producing in mid-2012, at least 2Ω years later than expected, he adds.

6,000 MORE ENGINEERS NEEDED

The global oil and gas industry is expected to face a 15 per cent shortage of qualified engineers by 2010-a shortfall of 5,500 to 6,000, writes Sheila McNulty in Houston.

Already there are too few engineers to meet 2007 exploration and production project demand, according to Pritesh Patel of consultants Cambridge Energy Research Associates and co-author of a report on the skills shortage.

The FT reported last month that BP had indefinitely postponed several deepwater developments in the Gulf of Mexico, including Tubular Bells, Dorado, and Puma. BP partly blamed "resource constraints" for its decision.

Mr Patel said the shortage of engineers had been building up over the past few decades.

In Abu Dhabi, which produces about 95 per cent of the United Arab Emirate's hydrocarbons, the completion of some larger projects is being put back by between nine and 12 months, an industry source said. Development of the on-shore Bab field has also been delayed, mainly because of the scarcity of specialized equipment needed.

Officials had put the development of the Bab and Shah fields out to a joint tender. However, the authorities chose to retender just for Shah, which is less complex and has higher liquid yields, analysts say. Abu Dhabi is also taking a more "stringent" approach than others, such as Saudi Arabia, the industry source says.

"My understanding is they are taking a more liberal view of the market, they will pay top dollar to secure resources, while here we are more prudent and not willing to be bullied by the market," the source says.

Saudi Arabia maintains the world's largest crude oil production capacity, estimated to be 10.5m to 11m barrels a day. In 2006 Aramco, the state oil company, announced an $18bn plan to increase capacity to 12.5m bbl/d by 2009 and 15m by 2020, according to the US's Energy Information Administration. Experts say the kingdom seems on track, but will pay high prices.

"The Saudis have been adept at ordering equipment and rigs; their project management skills are fairly honed getting access to the equipment they need. But in doing that they are paying much more than they would have five years ago," says David Fyfe, at the International Energy Agency.

About 270 rigs operate in the Middle East, compared with 158 in September 2000, according to Baker Hughes, the oil services company, with Saudi Arabia estimated to be employing about 130. But even as costs rise, Saudi Arabia has the advantage of scale, says Colin Lothian, a Gulf specialist at Wood Mackenzie.

For smaller producers it means having to compete with large producers who can offer longer contracts and pay top rates. Difficult operating environments can exacerbate the issues. In Libya, attractions for international oil companies include the nation's unexplored status and its proximity to Europe. But one expert says there has already been a decline? in? oil? majors' interest.

"If there were no shortage globally the Libyan program would be challenging simply because of the time taken to get permission to get the necessary people and equipment into Libya, which raises costs significantly [and] slows everything? down," the expert says.