Wednesday, October 22, 2008

Second National Oil Company

Recently, the Malaysia Malay Chamber of Commerce (Dewan Perniagaan Melayu Malaysia) suggested the creation of a second national oil company to meet the soaring demand in the middle east and other hot spots for oil exploration, development and production. The demand for manpower in the oil patch is not new. It is a worldwide phenomena especially with the coming 'change of guards', whereby the crew with more than 25 years of experience would soon retire. This would leave a big gap for people with between 10-25 years of experience in the field. The gap was developed immensely when a severe downturn in the business in the 80's forced companies to use attrition to lower down operating cost.

Now that oil price is in a very profitable range between USD60-80 per bbl, projects that were deemed uneconomic are now being reactivated and reassessed by hordes of reservoir and drilling engineers. 3rd party services such as Schlumberger are getting their feet wet in field development projects, something unheard of 10 years ago (field development are normally conducted by oil operators, not service providers).

The creation of a second national oil company would not solve the problem of manpower shortage as it would only create a new vacuum. Pinching from other companies would be required to get operations started up and the only incentives it could throw at new prospects is higher salary. Eventually, a higher operating cost would make projects uneconomic if oil companies indulge in a 'bidding' exercise for expertise.

Several new setups like coiled tubing services are being formed locally. The challenge is the same: shortage of manpower. Consultants are celebrating with champaigne and caviar, as their demand for astronomical pay as much as USD2000 per day for an engineer with 20 years of experience is being met without opposition from major operators.

The hysterical hype of oil price surge which started a couple of years ago initiated a massive effort to manufacture rigs and vessels at every yard available. This created another problem. We realized that experienced manpower cannot be manufactured. Because of that, companies pinch manpower from each other and this was rampant. Some rigs are even being supervised by inexperienced personnel. When hiring from manpower companies, some operators unluckily get the bad apples from the crop (anyone with horrendous work ethics and zero initiative but with experience is taking advantage of the situation).

The short term solution is to reprioritize opportunities. It is impossible to evaluate and develop everything under the sun. Management must prioritize opportunities and refocus effort to the most profitable projects. The long term solution is obviously to start educating university students about the industry and recruit more students on campus.

So to the Malay Chamber of Commerce, I really think it's a bad idea.

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