Airswift: coronavirus, energy and the future of work
Airswift takes part in a roundtable Q&A with three other leading experts in the energy sector, discussing trends, COVID-19 and the future of work
Airswift takes part in a roundtable Q&A with three other leading experts in the energy sector, discussing trends, COVID-19 and the future of work
How does a global industry respond to a global pandemic? In this roundtable, four experts with four different perspectives look beyond the economic impacts and consider how the experience of COVID-19 could change attitudes to work, technology, the environmental agenda and the future of the energy sector itself.
In your view, is the current experience substantially different from previous downturns?
MD: Yes – and no. A downturn is a downturn, whatever the cause and effects. The oil and gas industry is pretty used to this, for better or worse, and it’s not that long since 2015, so it’s all quite fresh in people’s minds. On the service side, the initial stages are all really about survival. Most companies we are involved in have brought out the usual playbook – open a cash runway, try to get to a situation where the cost base matches current demand. What’s different is COVID, which has made the normal way of working more challenging.
JM: I do think that this one is substantially different. It is much deeper. This is much more of a targeted hit on different service industries. We haven’t told people to stay home or turned off whole economies since the Spanish flu. Unemployment numbers around the world have already skyrocketed – and that is really going to impact the global economy.
RN: I experienced the mid-80s downturn and there are a lot of similarities – it’s dramatic in terms of employment levels and the disruption to people’s livelihoods. In the early ‘80s, a lot of people had just been hired in the oil and gas sector and then two years out of college they were laid off and many of them went into other businesses. When things started to pick up, it was very difficult to recruit. People had vivid memories and were nervous about coming back. The concern was whether this business is a good place to try to carve out a career.
MD: That’s my worry. There’s a drag on morale across the space. People feel uncertain, they’re not sure what’s going on. Will it affect them personally? Will it affect the family? There’s a lot of stress and anxiety. Those that are new to the sector and hoping for a longer career might think there’s not a lot of security and seek a job in a more stable sector.
RN: Yes. And because we went through a period of not hiring many people, we created a bubble: we were all either 60 or 30. There weren’t any 40- or 50-year olds. That’s not very healthy – especially when the 60 year-olds start to retire. It could very possibly happen again.
GR: For me, there’s two major differences to this downturn. One is the speed at which it happened. This was not a lingering supply-and-demand imbalance, this was a rapid shutdown of the global economy. It’s an external force that decimated demand overnight. Industries had to compress very, very fast. Onshore in the US, we’ve gone from 800 to under 300 rigs in just months.
Going into 2015, both service and operating companies had access to capital – that’s the second difference. Investors were willing to invest and many saw the downturn as an opportunity to buy low. This time it’s the total opposite. The industry has not recovered sufficiently to be attractive to investors and the Federal Reserve has identified oilfield services as a high-risk sector. That means companies will have to survive on their own.
JM: For companies who are short on cash this is really testing their resilience. And they did such a great job in cutting costs last time, there’s not a lot left to cut – that’s the really tough part.
How will the forced change to working practises influence work, talent and employee relations in the longer term?
JM: It’s already changed. Companies are hiring via video interviews. The format is the same – they’re asking all the right questions and going through the proper steps – but it’s changed to video conferencing. And they’re starting people as new hires when working from home. In the past you had a lot of push back to technology changes when it came to hiring and onboarding new employees, but this has opened people’s minds. They can adapt and they can change.
RN: We aren’t going to go back. This change we’re going through of people working remotely, I think that was coming anyway and COVID accelerated it. Personally, I think a lot of the folks who were office based in the past won’t be going back. I think it works. I think it has been shown to work.
MD: Employees are not missing the commute at all! This has given people extra time to do some proper creative thinking without the constant office interruptions. And on video, you can see a more rounded picture of your people – not just their office persona. Speaking personally, I’ve got to know some of my team a lot better than I knew them before because I’ve been able to see them in their own environment. The negative side, of course, is everybody misses the social interaction, although some people can deal with that better than others.
JM: I’ve seen new modules on learning-management systems like working safely from home or looking after your physical and mental safety to help people who feel isolated or are in quarantine. I’ve also seen a lot more kick-off coffees to start the day, and virtual happy hours at the end of the week. People are much more tolerant too. Someone sitting with their child on their lap is normal now. Our openness to a true family life has changed – and it’s okay. Also, people who previously couldn’t participate in extracurricular events for whatever reason are now on a more even playing field – and that could be good for building their relationships and careers in the future.
MD: That said, it does depend on the role. Video isn’t a substitute for everything. It works well in established relationships - it’s tougher for newer ones. As an investor, you do need to ‘feel’ the businesses you’re considering adding to your portfolio. You need to build relationships in a way you can’t really do remotely.
What about in the field?
GR: Onshore US, things change very quickly and it can get hit very hard and very fast. That’s happening now. Every company in our sector is getting smaller, and going through the unfortunate process of shedding jobs. Whether it’s 300,000 or 600,000, I’m not sure, but the workforce will definitely be smaller while having to remain as productive as before. So the first question is how to do that while preserving the talent that is critical to recovery?
RN: The demographic situation makes that harder. You’re going to have many people leaving.
GR: Yes and rigs generally have crews that stay together for years and work together as a unit. That takes a long time to develop, so when they are laid off it is difficult to re-staff them to be as efficient. A lot of companies are asking how to reduce the number of people and reduce spend at the same time as preserving enough key people to be able to reanimate and rebuild those crews quickly.
RN: I think people are going to coalesce around projects more than companies. I think they’re going to sign up to work for one- or two-year projects rather than working for 30 years for one company – it’ll be more of a hybrid contract. The hardest part will be managing those projects and creating temporary but functioning teams – that project manager is going to have a tough job and they’re going to have to be very good at creating teams. Companies that get really good at that will be the winners.
Will that affect company culture?
RN: I think it is going to be difficult to create a company culture going forward. We used to worry about it a lot, we were very proud of our culture, and we tried to make sure we ingrained it in the people we hired and get them to understand how we did things and what our company was all about. It builds up over time. But now companies will have to create a culture around an individual project, whatever that is. That’s much more difficult.
JM: And culture resonates more now than ever – in the worst times, it can really hold the company together, even if your vision pivots or evolves. A weak culture makes it much harder to survive times of uncertainty. The way people work has changed through this. People who were against remote working before have changed their minds. That’s going to be part of the culture now.
MD: After all, what is a business? It’s ideas, it’s capital and it’s people. We really focus on partnership in our portfolio so at the moment we can still sleep at night because we know we have really strong leaders in place who are working on all the right things to keep the business firing on all cylinders.
What new technology, services and solutions will come to the fore in the recovery?
JM: Technology is going to continue to advance, become more ingrained in the way we work and change the number and the skill level of people we need. We will interact and collaborate differently – and change again when holograms and virtual reality arrive. I think that will help develop stronger employment brands and it’s going to be key to overcoming that skills gap that we’ve talked about.
MD: I agree, I think people will be more likely to embrace technology than they have in the past. The energy sector has been a bit slow historically. But people have been forced into using technology to work in different ways. And it's proven to be effective, so they might be prepared to give technology a go in other areas.
RN: For me, the obvious ones are things like cloud computing. With cloud, multiple engineering centres around the world can work on a project together with real-time updates to models and documentation. Again, it was happening anyway, and is now accelerating.
GR: I think technology shifts are going to come from large companies that have longer planning cycles, and room for more thoughtful development. They’re going to focus on technologies that can simultaneously reduce cost, reduce risk and reduce environmental impact. It has to do all three.
JM: There’s already been a lot of innovation. There’s a ton more to come, especially when you look at renewables and alternative energies. That’s also going to help with that skills gap and employment brands. I think those are areas to watch.
GR: There are several technologies that I think will become more prominent. In my business, recycling-produced water is going to become more important provided its low cost and the logistics work. I think that one of the big things we’ll see on US land is pad or cube development: so technologies that improve that and make it even more efficient and more sustainable will become more important.
MD: We think that gas is a particularly interesting area for new technologies. For example, finding and taking stranded gas or gas that would usually be flared, and using small-scale cyroboxes to liquefy it for transportation. We’re finding that LNG is displacing some of the more traditional fuel sources like diesel and heavy fuel oil. So there are significant environmental benefits as well as being cheaper for end-users. We’ve got high hopes for this type of solution.
What are the less discussed but important consequences of the downturn? Investment and M&A, for example?
RN: Like the 1980s, the stronger, bigger companies will survive. Smaller ones won’t. Some will go out of business, some will get consolidated – to reduce or share overheads. We’re already starting to see it happening.
GR: But companies with significant debt will be almost untouchable. Those that are healthy enough to consolidate probably will – with stock deals rather than cash acquisitions. We expected that to happen in 2015 but too much capital went into companies that really shouldn’t have survived.
MD: Personally, I think there’s still a lot of excess capacity in the supply chain, particularly in the US. Chapter 11 means underperforming businesses don’t actually disappear and there’s no market shake-out. Maybe this time it will be different.
I also think that there could be casualties across the board – from investors to operators – who have a single-basin strategy. In the US in particular, this may be the point when people acknowledge that they’ve lost too much money and they’re not investing in this anymore. So some of those businesses might disappear.
JM: There isn’t a lot of ‘investment dollars’ in oil and gas right now. But this could be a time for more opportunistic M&A if there is something at a really good price or there is something creative that could be done to help accelerate the pace of change or strengthen core values and culture. Those that are internally focused will miss it.
What about the energy transition and decarbonisation agendas?
GR: I strongly believe that for the industry to recover and to access capital as well as attract younger talent it needs to improve its story about its environmental impacts.
RN: I agree. Oil and gas is lower cost now but I don’t think that is going to change long-term goals, as has happened before. I don’t think low prices will increase demand this time. The super majors are not backing off from their commitments.
GR: Yes, I was very happy to see them reaffirming or even doubling down on their environmental initiatives. Because of the downturn, their operational practices will dominate and for that to trickle down through some of the larger independents in the US as well will be good to see. So I think we will see much stronger, more responsible and thoughtful environmental practices overall – and a lot less environmental risk-taking.
MD: I do think decarbonization raises questions. Will governments go down the carbon tax or the renewable subsidy route? Or neither? History shows us that depressed economies don’t typically engage with renewable energy, but that too might be different this time round. It’s very hard to say what’s going to happen there.
What areas can expect to return to normal and what areas need a ‘new normal’ once the immediate crisis has abated?
MD: I don’t think we know what the new normal looks like yet. Should there really be a new normal at all? We ought to be constantly innovating, regardless of circumstance. We should always be striving to improve, to be more efficient, to deliver the next innovative technology, so we can meet market demand for more sustainable energy.
RN: Air travel isn’t going to return to normal. The cost, the two days of time instead of a two-hour video conference? We’re not going to do as much of that anymore. I also think workers will have more autonomy, picking and choosing what projects to work on. However, we will need a solution to find them and to bring them together. That’s something that is desperately needed.
JM: Our industry has always been safe first, so without a COVID vaccine, health and safety will be at the forefront throughout a company’s circle of influence – vendors, suppliers and clients as well as co-workers. So I agree that travel and in-person meetings will stay low for a while. Even when people do need to move from country to country, we’ll see changes. People going offshore may need to get tested or quarantined, which extends rotations – and they may not be able to get home afterwards. Adaptability will be a big part of our new normal.
GR: Refining and midstream are going to return to a recognizable ‘normal’ relatively quickly, but it’s going to take more time for that big stockpile of inventory to recede enough for the upstream industry to start to normalize. Planning cycles mean offshore and onshore are quite different. And although US onshore is the swing producer, it’ll be difficult to respond quickly when demand re-appears. Volatility is going to be normal for both E&P and oilfield services in the US for some time.
Finally, what are the opportunities that have come out of all this?
MD: It’s definitely demonstrated to me that we can cut down the number of flights we take every year. That’s going to be positive for our industry. More widely I think there’ll be a lot more creative thinking about how we solve future challenges.
GR: Well, immediate survival is key. But there’s too much capacity being taken out of the market. It’s coming down too hard, too fast. So companies that position themselves right, who figure out what it’s going to look like on the other side, and survive with the right processes and technologies to serve the bigger operators should do well.
RN: Sourcing the right talent, bringing people together around a common project – those are big opportunities. For employees themselves it’s going to be greater professional autonomy, and the ability to make better, technology-enabled life choices.
JM: Businesses have already looked at the productivity levels of their teams and seen that productivity can increase with workplace flexibility. One of the silver linings has been that people have risen to their task and shown that they actually do more. And that the future of how we work can quickly evolve as a result.