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The COVID-19 pandemic wiped out nearly 40 million jobs dating back to mid-February. It didn’t matter which industry, as millions of workers were either sent home, let go or furloughed until further notice. In March and April, employers eliminated roughly 22 million jobs and, by April, the jobless rate hit 14.7 percent, a post-World War II high. Oil and gas industry jobs were affected significantly, as many were sent home to avoid getting sick.

According to The Wall Street Journal, the unemployment rate was just 3.5 percent in early February, matching a half-century low.

Even with some jobs returning in the summer, the jobless rate reached one of the highest levels since the Great Depression. By comparison, the U.S. shed about nine million jobs between December 2007 and February 2010, a period that encompassed the 18-month recession triggered by the financial crisis.

Keeping America Moving When Workers Are Home

Some industry employees, such as those working in an office, were able to move to a remote home-office location to continue their duties. While the quick transition was abrupt for many, today’s digital workplace environment actually caters to a work from home (WFH) environment. In fact, according to a scholarly NPR interview, it is estimated that 37 percent of American jobs could plausibly be done from the home office, compared to an estimated four percent of people who worked from home before the virus.

However, many oil and gas industry jobs must be handled from the field, and these cannot be relocated to a home office environment. As the industry slowly begins to recover, a percentage of these jobs will need to undergo additional training or re-training.

Using Virtual Technology to Re-train Employees

Social distancing rules will apply in the near term, and it is not known how long they will persist. Because of this, virtual technologies will play an increasing role, not only in helping some perform their jobs, but also in re-training construction industry workers.

Virtual technologies such as Augmented Reality (AR), Virtual Reality (VR) and Mixed Reality (MR) allow for an interactive experience between people and a real-world environment where objects from the actual setting are presented and enhanced by perceptual information from a computer.

Recent survey data published in TechRepublic illustrates the increased utilization of AR/VR across the enterprise. Companies within construction, technology, manufacturing, automotive, and aerospace and defense are prime examples of increased AR/VR use, and employee training and re-training are areas where AR/VR is expected to play a growing role.

The application and use of AR/VR in corporate training can increase engagement and knowledge retention levels. What’s more, employees can receive proper training in a safer, more cost-efficient format.

AR/VR enables oil and gas workers to receive instruction through practical and virtual experiences. In fact, this method is gaining momentum for many large companies, and it offers an effective way to learn a variety of skill sets, or even sharpen existing skill sets. This is important especially for manufacturing workers who have been idle from plants for two or three months and are now being called back to their jobs. Studies have even shown that learning through virtual experience increases the quality of learning and even retention rates by 75 to 90 percent.

In addition to business and soft-skills training, such as company protocols and procedures, and public speaking skills, AR/VR can offer training in high-risk areas such as safety and materials handling in a safer environment. For example, the oil and gas company, BP, used virtual training technologies to teach its employees start-up and exit procedures at a refinery in England.

As more oil and gas companies bring back employees, virtual technologies such as AR/VR will be utilized more frequently to re-train the critical skill sets they need in order to do their jobs effectively, efficiently and safely.

August 27, 1859, was a defining moment for America when the first oil well was drilled near Titusville, Pennsylvania. It set the course for industry and innovation for the next 161 years, which has led us to today, a period where the oil industry has reached its apex.

The COVID-19 pandemic has altered the way the world works. Demand has fallen for the last time, leaving industry unable to get back up and fight, like it has done so many times before, through the ups and downs those in the oil and gas industry have come to know.

No Demand, No Man’s Land

Andrew Inkpen, professor of management and J. Kenneth and the Jeanette Seward Chair in Global Strategy at the Arizona State University, says, “The only thing that changed in 2014 was price and that was part of the natural cycle of commodity prices – they go up and down.” While 2014 wasn’t that long ago, it’s important to “remember that the Great Recession had only a short-term impact on price and demand. The pandemic is different,” says Inkpen. “Travel, and jet fuel, could take five years to recover. Or perhaps it won’t recover. Commuter travel will never come back to the way it was. The result will be a permanent drop in demand.”

Small and mid-size companies in the oil and gas industry face many challenges to remain in operation. The ones that are not competitive will meet certain failure; others may be acquired by larger firms. While the industry is usually flush with cash, that has not been the case for the past six years. Smaller companies borrowed lots of money and now demand is gone and the supply tank is filled to the brim. It will be a hard market to survive in.

Peak Oil was Feared, but Peak Demand is Shocking

Inkpen agrees that “BP’s latest Energy Outlook predicts that peak demand will occur in the next decade. The world will continue to use oil for many decades, but the oil and gas industry will not occupy as central a role in the energy landscape as it once did.” We are in the dawn of the Electric Age. Battery cells and capacitors have evolved to the point that Tesla CEO Elon Musk says he will have electric airplanes in the not too distant future.

Oil and gas will still be there, but they just will not have the presence they once did. They will cede power to the alternatives of today and many companies, such as Shell and BP, are diversifying their energy sources. There is a good chance the majors will still be around but will diversify their energy offerings to meet the needs and the markets of the future.

Global Outlook

While OILMAN Magazine focuses predominantly on the U.S. sector, it sometimes takes into account the global industry. In the quote below, Inkpen brings up an astute observation about how the U.S. and Canada will fare in the long run compared to government-controlled industries.

The U.S. oil industry and Canada, to a lesser degree, are the only real competitive oil sectors in the world, where property rights allow private capital to own the oil. The U.S. industry has had an amazing ability to reinvent itself through innovation and private investment. In contrast, the OPEC nations and Russia are stuck in an environment where government entities dominate. The U.S. industry will innovate itself out of the current challenges. For some firms that means great success in the future. It also means some firms will fail. That is the nature of the U.S. private sector-oriented oil industry – a great example over the past 150 years of constant creative destruction.

Possible Post-pandemic Small Surge

While the pandemic is still hard to predict, it’s the author’s point of view that, at least in his own observations, life is trying to come back to normal in some cases, and that demand will ramp up a bit. Once a vaccine is in place, there could be pent-up demand for travel that could push prices higher in the near term, but probably will be unsustainable in the longer term as the world embraces many of the things we are now calling the “new normal.” This temporary surge will offer relief for many of the smaller and mid-sized companies, if they can hold on long enough to see a vaccine breakthrough in the coming months. The industry is relying on life returning to normal, which seems, at this point in time, like a pipe dream.

Bankruptcies Abound

While there could be a small surge for the ones who hang on, the Haynes and Boone Oil Patch Bankruptcy Monitor paints a dire picture. In the past three quarters, 36 companies in oil and gas have filed for bankruptcy, the majority of which are in Texas. In the second quarter alone, producers filing for bankruptcy held over $29 billion in debt, with shale pioneer Chesapeake Energy accounting for $9 billion of that. Overall, the total for the amount of debt owed by bankrupt companies in 2020 is $50 billion, which by the end of fourth quarter 2020 will easily surpass the $56 billion of debt owed in 2016. Analysts agree that the number will only continue to increase through the end of this year and into the next.

Demand Down, Prices Down

Between Q1 and Q2, oil demand fell by about ten million barrels per day. Crude oil prices dipped below $20 per barrel in April, then moved up steadily, resulting in an average crude oil price of $29 per barrel for the quarter. However, this is still well below the Q1 average of $48 per barrel. Reduced demand worsened existing oversupply conditions in the gas markets, pushing prices to historic lows. The refining environment was also extremely challenging as U.S. and Europe crack spreads fell to nearly 50 percent of their year-to-date levels.

Way of the World

The cards are on the table, the industry is showing its hand, while fate smiles and draws from the deck of possibilities. The near-term is not looking good for anyone right now – not oil and gas or many other industries – but one thing is sure, compared to other countries of the world, the U.S. will continue to innovate and come out with new ideas on how the oil and gas industry, relived of its kingship over the energy industry, will continue to operate at a reduced capacity and the alternative energy sources of today become the majors of tomorrow.

The world is going through a reckoning, and accelerated changes that we were not ready for, but have had them thrust upon us. Tomorrow we will wake up reborn, stronger and wiser than we were yesterday. While things might not be what they once were, we will adapt, change and move on. It is the only thing to do.

Headline photo courtesy of Nakisa

With operational disruptions, supply chain lags, and reductions in consumer spending, the coronavirus pandemic continues to impact business globally.

Stalled or stopped business activities, combined with a slowed demand for oil, are particularly affecting the energy sector. The oil and gas industry is used to whiplash reactions to market changes and, consequently, can take downsizing, restructuring, and mergers and acquisitions (M&A) in stride. After all, our current economic landscape marks the sector’s third price collapse in 12 years. In some ways, this downshift is no different to prior cycles.

The fact that the demand side of the supply-demand imbalance is due to a global pandemic is a considerable wrinkle. From full-time staff to offshore workers, pipeline personnel, and local and global contract workers, the pandemic impacts the way each position in the industry is both executed and managed.

In addition to the breakeven price point of a given field, a further consideration for business leaders will be their response to any international and regional outbreaks. Has COVID-19 prevention training been added to health and safety policies? Have employee and contractor testing been taken into account?

These concerns are critical for any company and they are only compounded when adding a new group of employees and contractual arrangements to their own over the course of an M&A, a practice that may become more common in the energy sector moving forward, given that over 30 oil companies have already declared bankruptcy this year. According to Business Insider, experts predict more will follow.

M&A and Reorganizations

In July 2020, Chevron announced its acquisition of Noble Energy in an all-stock transaction, targeted to close in Q4 2020, and breaking the ice on M&A in the current cycle. While significant, the deal is a fraction of what Chevron was considering paying for Anadarko (acquired by Occidental) just a few quarters ago. From an activity perspective, the M&A represents an important pivot from otherwise cost-controlled measures across the industry. Chevron has stated that its latest acquisition will add $300 million in cost synergies to the organization post-merger.

For Chevron, Occidental and Marathon Petroleum, integrating their workforces requires the same level of execution expected under normal circumstances, which includes planning for such variables as cultural fit. After all, up to a third of integrations that fail are due to an organizational mismatch, according to research by McKinsey. “In this industry,” the report states, “the importance of culture is magnified by its impact on safety and operational risk.”

A recent survey of the energy industry workforce conducted by the University of Houston supports this assessment, with 55 percent of respondents suggesting the energy industry should invest even more in employee health and wellbeing in light of the pandemic.

How can organizations simultaneously track such essential health and safety concerns, gain insights about the impact on business operations in real time, and plan for business continuity?

The answer may be technology.

The Business Impacts of Modernizing IT

In 2017, during an uptick in the oil and gas industry, energy giant Phillips 66 chose to invest in company-wide, enterprise resource planning (ERP) technology. With 80 percent of Philipps 66’s workload now hosted in the cloud, the organization’s digital transformation has proven to be a game-changer, revealing the critical value of leveraging IT to both improve global workforce visualization and streamline business operations. The company was one of the first of its kind to announce a $700 million cut in spending in 2020 and has credited the speed at which it could make such an important decision to its digital transformation. As early adopters in the sector, Phillips 66 led the way for other companies in the industry to follow suit.

While it may seem counterintuitive, with spending under scrutiny and a freeze on IT budgets, now is an ideal time for players in the energy sector to consider a human capital management (HCM) solution to support a true business transformation able to sustain long-term business operations.

Digital HCM solutions support data-based decision-making and as a result – seen in the Phillips 66 example – can accelerate an organization’s desired action plan by enabling data conversion and reporting, offering modeling and visualization of data across multiple organizational structures, and by measuring the impact of any potential and implemented changes including workforce realignment, reduction in force and more.

Human Capital Management Technology for 2020

It’s no surprise that Gartner’s latest Hype Cycle for Human Capital Management analysis confirms that the pandemic has sparked significant demand in the evaluation and redesign of workforce management processes and technologies.

When all the relevant stakeholders are able to access a single source of organizational truth in a purpose-built, secure, and cloud-based collaborative solution, an organization moving through the COVID-19 crisis can accelerate value delivery. While managing potentially new remote work mandates, all the while considering performance management, scheduling, activity tracking, and health and safety precautions for a diverse and international workforce. Real time access to accurate, reliable HR data makes this possible.

With the help of technology, HR professionals and business leaders can easily visualize their team members in the Permian Basin or the North Sea on the global map and quickly drill down into each population. Furthermore, they can apply filters for critical employees and high performers or other diversity and inclusion (D&I) metrics to learn how a divestiture or reorganization might affect performance on an individual or company-wide level.

An HCM solution like Nakisa Hanelly can also help shape a tailored communication and retention plan for key talent (an unforeseen by-blow of many reorgs or M&A), ensure effective succession planning, and allow stakeholders to understand instantly how their new business model might impact company demographics or diversity metrics.

Likewise, aggregating salary and benefit information in a single solution allows business leaders and HR professionals to quickly test and determine the financial impacts of different scenarios and provide the concrete data – the dollars and cents – needed for those realized savings, whether they add up to $300 or $700 million.

All of this is possible while avoiding the churn of spreadsheets and staffing of manual workloads still prevalent in most organizations in the energy sector, which means an organization can achieve its target Key Performance Indicators (KPI) more quickly and at less cost.

The pandemic has increased the need for business agility in the oil and gas industry. Leveraging the benefits of technology to align goals and drive organizational transformation can unlock competitive leadership, distinguishing those who simply survive the current disruption from those able to reinvent themselves and thrive.

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