Boom-and-bust cycles can spell trouble for industry and insurers
As the oil industry cycles into a drilling boom, the shortage of experienced workers raises safety issues that smart companies are working hard to address.
Oil production has always been a boom-and-bust industry. At the peak of drilling activity, jobs are plentiful, salaries are high and workers pour into the labor market. But when the pace slackens, companies cut back and their crews are forced to find other opportunities. Because those new jobs are often more stable, less dangerous and easier on family lives, the workers don’t always come back when the cycle begins to rev up again.
The labor shortage that is so typical at the beginning of a boom can spell trouble — not only for oil drilling companies desperate for manpower, but also for insurers that know inexperienced workers are prone to the human errors that make oil drilling so dangerous. Thus it is critical for insurers and their customers to work together to make safety a priority at every step — in the selection of workers, in the training process, and in the field.
Today, the industry is on the leading edge of the latest oil drilling boom. Insurers that have watched their underwriting activity soar don’t need to see the official statistics, but they are compelling. The federal Energy Information Administration has documented that drilling activity peaked in the early 1980s at 70,000-plus wells per year. The number bottomed out at about 19,000 in 1999. In sharp contrast, about 40,000 wells were drilled in 2005, followed by almost 50,000 in 2006.
The mad scramble to find experienced workers has been in headlines in Colorado, Wyoming, Texas — almost everywhere that wells are being drilled. One newspaper told the story of a drilling company so desperate that it hired away the help at a fast food restaurant, and others have reported so many job openings that local unemployment figures are well below state and national averages wherever there is drilling activity.
The scarcity of both crews and equipment has brought changes to the field. For the first time, the industry is seeing the arrival of crews from China and Eastern Europe to run drilling rigs that have been imported. In addition, immigrants with little or no ability to speak English are often eager to take jobs when companies cannot find seasoned workers.
Another long-time industry problem is worsened by the labor shortage. Oil drilling operations have such high fixed costs that companies often run long shifts, or even operate around the clock, to shorten the time between drilling for oil and producing revenue. With short-handed crews, many workers are taking on extra shifts that push them beyond endurance and into a state of fatigue that invites mistakes and mishaps.
Lack of experience, language barriers and mental fogginess — with issues like these becoming more common, companies that understand the high cost of failure are tightening up their procedures to manage risk more aggressively.
Focus on safety
In one example of how badly things can go wrong, an oil operation hired an eager worker who had just arrived in the United States and who spoke no English. He was sent out into the field with a hard hat — but with none of the training that would help him understand how to avoid danger. He didn’t survive his first day.
There is no doubt that the company wishes it had handled things differently; no matter how many corners a business tries to cut, no one wants to see workers injured or killed. But there are at least three points at which the company could have done a better job of protecting that employee, managing risk and staying productive: selection, training and safety.
Selection. A company that just hires warm bodies quickly finds that a novice worker is a danger to himself and others — and usually not very productive. Even in times of a labor shortage, companies should strive to establish and maintain hiring standards. Look for experience, physical capability and a clean record on alcohol and drugs. Rather than relaxing high standards, turn to other incentives to attract the best workers. Higher pay, better shifts, and a reputation for safety can all attract and retain good employees.
Training. Establish a training program and then be sure to use it. Arrange for all employees to take appropriate training, and provide refresher courses as needed. Pair up novices with experienced workers so they can learn the ropes. Make sure training materials are accessible for all workers. The best manual in the world won’t be very effective if it is in English but the newest hire only understands Spanish.
Safety. Start every day with a meeting to share what work is going to be done, where hazards may arise, and what special precautions need to be taken. Evaluate all equipment. Is it in proper working order? Is it the right equipment for the specific job? Make sure that all employees know what their role is that day and what they should do if something goes wrong. Avoid the mistakes that can occur from fatigue by limiting work schedules and rotating people out for rest periods.
Most of the problems that occur in oil drilling operations are the result of human error. Insurers can help companies avoid those human errors by reminding them that following good safety procedures and investing in risk management pays off. Employees stay safe. Work is productive. And costs from mistakes are kept to a minimum.
Richard Gustafson is president of Travelers Oil & Gas. He joined Travelers in 1969 and has served in a variety of management positions. He has been involved with insurance coverage for the oil and gas industry since 1983.