The world of energy has changed drastically in a few years. As the world’s appetite for energy grows exponentially, this, coupled with growing attention to climate change, is seeing the oil and gas industry go through an important reconfiguration that is affecting executives and their careers.
High oil prices have justified the exploration of assets previously deemed uneconomical by oil majors. This has spawned myriad start-up companies as well as a flurry of acquisitions of companies and assets.
In the space of only a couple of years, the world’s national oil companies have asserted their wish to retain ownership of their reserves.
This activity, coupled with the similarly unexpected growth of the renewables sector, has caused a seismic shift in the energy industry landscape.
With the growth in the number of organisations comes the need for executives to manage them.
There is increased demand for seasoned oil and gas executives precisely as their numbers are dwindling, because of previous downturns and the demographic profile of the sector.
This human capital crisis is often referred to as the looming issue of the “big crew change”. With the typical retirement age of 55 in the oil and gas industry, and an average employee age of between 46 and 49 years, a significant proportion of senior executives will retire in the next few years.
This is going to continue to create a huge capability shortage of experienced senior executives with technical backgrounds encompassing senior geophysicists, geologists and similar expert roles.
With such simple supply and demand factors at work in the marketplace for experienced people, the effect is that oil and gas executives’ compensation packages have increased markedly over the past three years.
The truly global executives cost the same wherever they happen to be located in the world, precisely because they are in such short supply.
There is almost a “Brent crude” marker for oil and gas executive compensation, with London being the benchmark.
We have all heard the warning that companies need to prioritise their succession planning if they are to head off this impending shortage of top talent, but how many companies have strategies in place to really address this?
Most are doing no more than play musical chairs, where the same small group of talented individuals who are the potential successors of today’s leaders, move between roles.
The problem is that the numbers are too small; there is one potential successor for each retiring executive.
Best practice in succession planning calls for two or three potential successors to be assessed for each key executive.
So can the leading companies really be without a solution for this succession challenge?
Thankfully not. The best-in-class are now adopting a “pre-search shortlist” strategy, a move pioneered by the private equity industry.
Until recently, in the boom years for private equity, companies would take the trouble to know who was active in the market before they even needed to hire a new leader.
This meant that when a deal presented itself, they would already know who they wanted to run that company.
So, for every top position in a company, two external candidates would be identified, screened and “tagged” alongside an internal candidate put forward by the company itself.
For existing upstream executives, you may find that you are so much in demand that you will find it difficult to retire.
The opportunities will be so many, and the incentives so high, that the oil and gas sector might end up the most “progressive” in its rejection of ageism.
Conversely, if you are just starting out, choose the energy sector because your career progression will be rapid and you could be an active player in the reconfiguration of the industry.
Our global team is seeing the same trends, whether they are located in London, Houston, Melbourne, Dubai or Moscow.
Anita Hoffmann is a Partner in Heidrick & Struggles’ London office, where her focus is on senior-level search in the Oil & Gas, Clean Technologies/ Alternative Energy and Chemicals areas
