When oil prices first plunged in the summer of 2014, no one expected them to continue to be at rock bottom two years later. But “lower for longer” is exactly what happened.
As a consequence, tens of thousands of jobs have been lost across the industry and on a global scale, while capital expenditure has been cut back dramatically, if not halted altogether.
In recent months we have seen the price of oil start to improve slightly, and whilst this gives the industry some hope of a more sustained recovery, particularly into 2017, most remain cautious.
Whilst it may seem like the perfect time to continue to hold back on increasing headcount, in fact the opposite is true, particularly when it comes to executive hiring.
An ageing population
The oil industry has an ageing population. Those with only a few years until retirement have taken the downturn and used it as an opportunity to take early retirement. Often, this comes with the blessing of their employers, who will offer incentives, such as vesting their stock early, to encourage their departure. What this means is that there are gaps within senior management that need filling with fresh talent.
An employer’s market
In contrast to the pre-downturn environment, it’s now an employer’s market. On the one hand there is a wealth of talent available, and on the other, that talent is driving compensation packages downwards. The total compensation package that companies need to offer is significantly lower than in previous years. Even where executives expect a new employer to buy out their unvested positions, the prospect of doing so is a lot more achievable than previously.
The competition for jobs is fierce, thus companies can set the bar very high in terms of their expectations of calibre - and find people who can meet it. The bottom line is that companies can afford the sorts of senior executives that, two years ago, they wouldn’t have been able to attract.
Out of work doesn’t mean out of talent
We hear some companies assuming that if an executive is out of work, then he or she may not be at the top of their game. Whilst in many cases this can be correct, we don’t feel this logic should be applied in all circumstances. For many, the fact of being out of work is simply a question of circumstance. Hundreds of companies have gone bankrupt in the wake of lower oil, and many others have merged with other companies or drastically reduced their workforce in order to survive.These circumstances are out of the control of the vast majority of the workforce.
Candidates see the upside
Senior level candidates are well aware of the economic position in which they find themselves. Many are well versed in the cyclical nature of the industry, and are likely to have experienced a downturn previously. Whilst their initial packages may be lower than they would like, for them the upside is the opportunity to lead the company through challenging times – and come out the other side.
Taking a long-term view
As prices start to recover, some companies can now start operating in an area of profitability. Whilst capex is still unlikely to rise by very much if at all, hiring in senior positions can be the start of a strategy of future growth of the company. Those that take a long-term view will find themselves perfectly positioned to capitalise on the eventual upturn in prices.
An investment environment
In an era of scarcity of funding options for oil and gas companies, private equity is plugging the gap. Whist private equity has always had an interest in this industry, in the last year there has been an exponential rise in private equity investment. For their part, private equity firms can acquire company assets at reduced prices. This represents an opportunity for them to bring about key changes to the companies they buy in order to turn them into profitable players in the long term. By integrating experienced senior oil executives into the workforce they are perfectly positioned to drive the growth and success of these companies.
Talented leadership team
It has always been our view that having the most talented leadership team is one of the single most important factors in a company’s success. Based on the current commodity price environment, we feel this could be an excellent opportunity to strengthen the leadership team. The current environment heralds a unique opportunity to access a calibre of talent that, two years ago, would have been much more difficult.
Executive hire, as part of a carefully considered strategy, can drive a company forward at a time when costs need to continue to be kept low.
Please contact Allister Graham, Progressive Global Energy’s Head of Executive Search for more information on executive hiring at [email protected]