SI Review: July 2012


Expert's Corner

Pumped Up

The oil & gas industry offers growth but tread carefully

By Chris Sutton

The oil and gas industry is strong and experiencing significant workforce growth, making it an attractive target for staffing companies. However, there are complexities within this industry that staffing firms should be aware of. This article addresses briefly four key areas.

Health, safety, security and environment. The inherent nature of the industry mandates a safety culture be adopted by all parties at all locations.

Staffing providers must verify contractors have the required training and certifications. As an example, United States federal law requires that all contractors working in the waters of the Outer Continental Shelf be compliant with a Safety and Environmental Management System (SEMS). There is no exception for staffing firms. This may place a large administrative, human resources personnel plus ongoing training cost burden for firms not already performing to this standard in order to be able to enter the market or continue to provide contractors for offshore client projects.

Workforce dynamics. The industry relies heavily on independent contractors, so staffing firms must be able to ensure any independent contractors they supply are compliant with state and federal requirements. A determination of misclassification can be costly to the client company, including fines, penalties, back tax assessments, interest and retroactive employee benefits. A staffing firm must develop significant expertise and a standard vetting process in order to mitigate such risk for its clients. Furthermore, independent contractors must meet the client’s requirements such as insurance, safety training or extended payment terms.

Further complicating the workforce dynamic issue is a skills shortage. Low demand for petroleum engineers and other professional/technical personnel in the ’80s to mid-’90s led to fewer college graduates pursuing careers in the industry for a number of years. This has led to a gap between the current retiring workforce and their intended replacements.

As a result, staffing firms must have strong connections to well-qualified contractors and employees in order to gain referrals when needed to meet client project needs. Retirees are a critical resource. When considering re-engagement with their employer they are naturally attracted to a staffing firm that has already earned a reputation in the industry for engaging these workers.

Then there is a lack of uniformity with respect to roles and job titles in the industry. Successful staffing firms have the personnel who can easily translate these common skills, competencies and experience needs and also recognize the differences between client requirements. It takes a significant amount of time for new recruiters to master this. Successfully implementing a VMS/MSP solution requires such expertise.

Capitalization. Serving this industry requires significant operating capital. Increased market demand and ultra- specialization within the industry has driven up pay rates. It is not uncommon for a contractor to command pay of $1,500 to $2,000 per day. In addition, the large oil and gas companies “Super Majors” may have multiple buying channels (purchase orders, MSPs, master service agreement) within the same client. It’s not uncommon for invoices to be paid 45 to 60 days after the staffing firm has already paid its workers.

Insurance. Insurance in the industry is federally mandated — and expensive. Staffing firms must maintain insurance specific to the industry in order to provide contractors for onshore, nearshore and offshore client projects. Master service agreements with a client operator will contain language such as “insurance coverage shall have adequate territorial limits for the location of the work.” Lacking industry experience can dramatically increase the liability of staffing vendors who assume they otherwise have proper coverages. And this type of insurance is not only very expensive, it is now almost impossible for most staffing firms to obtain on a commercial underwriting basis.

Staffing firms that fully comprehend the nature of doing business within the oil and gas industry can be richly rewarded, if they can meet these challenges. Those that cannot meet the rigorous requirements on their own can still meet some level of success by partnering with firm(s) that can meet these requirements.

Chris Sutton is a partner at Clover Global Solutions, specializing in professional payrolling, recruiting and staffing for the energy industry.


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