In recent months with the reduction and partial recovery of crude prices, a number of premier companies in the oil and gas industry, both on and offshore, have announced reductions in spending on capital projects, in some cases, and in others, reductions in staffing.
This article addresses the staffing reductions, and not only the implications (if any) of these reductions but also the questions that will be raised and some of the answers to those questions.
As any large corporation grows, there will be areas where economies can (and should) be made and in tough times, there is more of an urgency to conduct those studies, and implement the findings. The fact that it is people and their livelihoods should not be ignored and good staff can just be in the wrong place and time, if cutbacks are made.
The concern for insurers is that the key functions of operational and technical safety, maintenance and inspection are compromised by significant reductions in staffing. Most companies are working out how to do more work with less staff by efficiency improvement, but it is how it is done that is important.
Energy insurers and their engineers put a strong focus on ‘management of change’ and management of organisational change is as fundamental a part of that as any other. It is important to benchmark the current position so that the impact of any changes can be measured in terms of what is lost (and gained). It means that for a fixed asset (such as a refinery, platform, gas plant or terminal), there is an understanding of the establishment levels (headcount) and the skillsets needed. For E&P operations the view is similar but oriented to look, find, exploit, maintain, and protect asset integrity and eventually shut in.
Let’s consider some hypothetical examples:-
Corporation A is an International Oil Corporation and has been selling off assets to focus on a redefined core business. The business plan involves a 5% reduction of stall overall which includes its headquarters research, engineering and design locations. If there are less projects and a change in focus, how do the skillsets in-house match up?
Corporation B is carrying out exploration and production. Overall it is cutting back on its exploration and shutting in some of its less productive wells. If it reduces the staff that directly worked on these, then is that unreasonable?
Company C is a limited company operating a refinery in a country and proposes to reduce staffing levels by 15% by a combination of forced retirements for staff above age 50 and no recruiting to fill spaces created by resignations. In practice, the site brings back the experienced staff as contractors to provide the experience and training. How does that affect the risk potential?
Site D is relatively new, and allows its training department to downsize by not replacing staff and decreasing the budget for allowing control panel training from the control systems supplier at site or overseas, and no simulator is on site. Operators are trained by own staff but there is a question over the overall levels of experience at the site and while a ‘train the trainer’ approach is logical, it presumes the training materials and systems are adequate to provide the correct level of training. Is this a step too far?
Company E is shutting down the refining section of the site and turning the refinery into a terminal. It then becomes logical to reassign staff and ‘right size’ to match the staffing needs for the new occupancy, but the period before shutting down the refining units needs thought and care and adequate staff to implement the plan.
Corporation F is changing the balance of the platforms operated that are unmanned, including by installing new subsea facilities. On that basis, more remote monitoring and control will be used, and the balance of staffing changes from platform operations staff to maintenance and control.
In each of these cases there is a reduction in staff but numbers are not the only issue, it is the role and responsibility for those staff. A bigger staff reduction may have less impact on the risk issues if the company is walking away from a class of business. At the same time, a reduction in the training effort, while small in numbers could have a much more severe impact if the change is not managed properly.
It is also not what you do but how you do it. Right at the start, the issue of management of organisational change should be raised and this process (with thought, planning, consultation and full implementation of the identified corrections and action items needed), is key to making change work.
What brokers’ and insurers’ engineers do, on behalf of the underwriters, is seek to determine how the change is implemented at the ‘sharp end’, in the design (including for maintainability, reliability and integrity, on the site and in the control room. That will include looking at the process and full implementation of the change, and how what is lost is mitigated, without increasing risk or compromising safety
Whilst most well run companies will clearly have safety as a priority and have plans in place to ensure safety is not compromised in any way when downsizing staff numbers, this will clearly be a concern of insurers. JLT are able assist insureds in articulating their safety planning and business change processes to their insurers - for more details please contact Paul Clarke at Paul_S_Clarke@jltgroup.com .