Executive Compensation

By Jamie Ferguson, Vice President US and Latin America, Maxwell Drummond

Executive compensation has been the subject of many, often negative, headlines in the last five years. Almost three quarters of non-executive directors recently agreed with the popular view that remuneration is too high.

Research by GMI Ratings revealed that the average compensation package in the US in 2011 totalled $5.8 million. This increase is on the back of a 28% pay rise the year before. This boom time contrasts sharply with the wider economy, where average wages have been little better than flat.

Investors are demanding more disclosure and recognition of shareholders resulting in increased investor activism. In the U.S, the Dodd-Frank financial reform law of 2010 requires a shareholder vote on pay at least once every three years, but those votes are nonbinding. Known as the say-on-pay movement, it will take effect in the UK in 2013. It would require all listed companies to publish a single figure for each director’s compensation, as well as chart comparing the company’s performance and CEO’s pay.

Shareholders in 44 U.S. companies have voted this year against proposed compensation plans, according to data collected by Semler Brossy. One company facing shareholder rebellion, Chesapeake Energy, said last month that it had made “significant” changes to compensation for its board and CEO. In April, Citigroup shareholders refused to endorse CEO Vikram Pandit’s $14.8 million package after the stock fell more than 44 percent in 2011.

It is the role of chief executive officers (CEOs) and other executives to oversee the company’s strategy and operations and these individuals require compensation for their work. The ‘right’ amount to pay an executive is the minimum amount it takes to attract and retain a qualified individual.

Executive compensation packages generally include a mix of short-term incentives (including salary, annual bonus, benefits, and perquisites) and long-term incentives (including stock options and restricted shares). The package may also include guarantees such as a severance agreement, change in control provision (if the company is bought out), and pension. A good program is targeted at motivating and driving desired behaviours.

Previously, companies in the energy sector were using stock options as the only vehicle to attract, retain and motivate and to align the executives interests with those of their shareholders. Now, it is more common to see companies choosing a mix of long-term incentives to provide a better balance in the overall program design and to better align pay with mid- and long-term performance.

Companies may also choose to move to operational and financial measures that tie into the strategic business plan as compensation to executives. In the cyclical energy industry, a company’s share price can rise and fall due to factors that a CEO has little to no control over. By shifting incentives to company-specific issues like safety performance, production targets and capital program performance, executives can also feel they have more control over the outcomes. Those long-term incentives tied to company-specific performance also help the company to execute its business strategy.

Today’s boards and compensation committees must strike a delicate balance — between developing a program that keeps executives motivated and appropriately compensated on the one hand, and shareholders’ interests and the company’s business strategy on the other. Those with the skills, experience and ambition to take on a president or chief executive officer role are scarce. Compensation should drive a business strategy.

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 to focus on executive search in the energy sector. In 2007 he was promoted to General Manager in Aberdeen and in 2009 Jamie relocated to Houston as Vice President of Maxwell Drummond’s USA and Latin America business.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

Strategies for the Oil and Gas Talent Crunch

By Jamie Ferguson, VP Business Development, Maxwell Drummond

One of the most talked-about topics in the oil and gas industry today is the ever-present talent crunch. How can it be overcome? Who is responsible for implementing changes and initiatives? It is a topic we as executive search consultants frequently discuss, but, as the industry continues to boom creating an even greater demand for talented and experienced leaders, it is certainly a topic to revisit. Initiatives by both the industry as whole and individual companies must be made to continue attracting and developing talent from entry-level workers to the most senior leadership roles.

The industry must be more proactive in marketing itself to the younger generation. The negative perception so many young people possess about the oil and gas industry could be remedied if the industry better communicated the vast opportunities available to those entering the workforce and countered claims of environmentally unsound practices. Students should also be educated on the investment the made in research and development, the opportunity to work in diverse geographic locations and the challenging technical advances they could be on the forefront of. Partnering with universities may not be enough-young adults should be reached before entering university to plant the idea of the opportunities available early on.

Companies must turn their attention to the talents of international personnel and cultivate “global sourcing” for the health of the industry. Currently, there is a trend in upstream recruitment to create a globally mobile workforce. For example, in India, there is a large market of skilled engineers which North Sea companies can tap in to in order to fill their current engineering needs; companies operating in countries with rich shale plays look to the experience of the US unconventionals workforce to drive their efforts. The creation of an internationally mobile workforce is ideal for the short-term and implementing this strategy into long term talent development and acquisition plans will be crucial in driving future industry growth. Utilizing global talent will unlock business opportunities on an international scale and give companies access to the talent they need to overcome the current deficits.

In addition, it will be critical that companies put a solid strategy in place to steer their organizations through the imminent transitions in corporate leadership and senior management. Succession planning and knowledge transfer are key components to ensure there will not be any gap or shortage of qualified leadership in the industry.

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 to focus on executive search in the energy sector. In 2007 he was promoted to General Manager in Aberdeen and in 2009 Jamie relocated to Houston as Vice President of Maxwell Drummond’s USA and Latin America business.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

Australia Subsea

By Philip de Waal, Vice President Asia Pacific, Maxwell Drummond International

Australia is one of the most important emerging markets in the global energy industry. With an increased focus on offshore exploration and production, its energy sector has grown aggressively and quickly from a relatively small market to a booming, competitive oil and gas arena. Though the surge in activity is welcome, it is problematic in terms of qualified talent available to man the projects coming on stream. The skills gap being faced by most major oil and gas provinces also plagues Australia’s market, with specific challenges in the subsea sector. As Australia’s oil and gas industry continues to prosper, the industry must be proactive in recruiting and attracting subsea specialists to the region.

The subsea skills shortage is nothing new for the oil and gas industry. These highly technical and niche positions are coveted globally and considered vital to the development and efficiency of the industry. As Australia’s offshore oil and gas industry matures and moves into deeper waters, its subsea market will continue to expand at an ever increasing rate, squeezing the already tight talent pool. In order to rectify the situation, old problems need new and creative solutions. The Federal Government predicts that the oil and gas sector will need approximately 90,000 workers over the next few years to meet demands being created by Australia’s uptick in activity, a large percentage of which will be senior subsea specialists. Global sourcing will be a critical component of the industry’s strategy to mind the skills gap and these practices must be adopted into long-term talent development and acquisition plans to drive future growth in the sector. Between Maxwell Drummond’s Asia/Pacific and Aberdeen offices, we have seen a surge in Australian companies looking to recruit senior individuals from Aberdeen and Norway where there is a high concentration of subsea and offshore expertise.

With the demand of senior leadership positions, project engineers, project managers and niche technical roles such as flow assurance specialists at all-time high, aging generations are remaining in high level jobs for longer. Attractive retention packages are encouraging seasoned industry leaders to stay within the oil and gas sector past the typical retirement age. This gives these skilled professionals the opportunity to share their expertise with the younger generation of leaders rising through the ranks. This transfer of knowledge must continue, as it is inevitable that critical skills will retire along with this generation of workers.

The benefits of life in Australia will be a component of attracting talent to the region. By offering an attractive lifestyle package and competitive salaries, Australia is an enticing prospect for internationally based personnel. That said, more could be done by energy companies in Australia to promote the region as an attractive place to live and work. Raising a company’s profile in these markets of the future will be intrinsic to business success, and ultimately bring experienced employees to the region.

As with all sectors of the oil and gas industry’s skill shortages, the subsea quandary lies in smart thinking. Global sourcing will be of the utmost importance for Australian companies to bring in the critical talent needed to drive the subsea sector’s future projects. Knowledge transfer and talent development will also play a key role in the successful training and on boarding of the next generation of the subsea workforce. Australia undoubtedly has the tools in the form of resources to emerge as a heavy hitting oil and gas country, but proper steps must be taken to fill its subsea sector with accomplished personnel to drive its growth.

About the author
Philip de Waal was appointed as Vice President Asia Pacific for Maxwell Drummond in September 2011. He joined the Houston office of Maxwell Drummond in 2007 as Business Development Manager. From September 2007 until August 2011 he established a presence for Maxwell Drummond in Africa by opening an office in Johannesburg.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

North Sea Oil and Gas Sector

By Sean Buchan, Vice President Europe, Middle East and Africa, Maxwell Drummond

It is more than forty years since oil and gas was first discovered in the North Sea and the region is now recognised as one of the world’s most successful exploration and production reserves. The North Sea’s oil and gas sector, which has played a major role the UK economy since the early 1970s, has effectively doubled its life span, compared to original estimates. Potentially there are still tapped oil supplies equivalent to the 32 billion barrels already extracted.

Today the industry is characterised by a few big firms like Shell and BP and a host of small independent oil companies and employs over 100,000 people in oil and gas related jobs, the majority in the North East of Scotland.

Despite the projections, the North Sea is still an increasingly mature basin. What next? Decommissioning North Sea oil and gas facilities is projected to cost between $48 – 54 billion between 2010 and 2040. Decommissioning is a relatively new business in the North Sea but the expansion of local rig decommissioning brings job opportunities and the potential to develop new technology.

The UK’s March 2012 budget included proposals to create a contractual approach to decommissioning tax relief. The announcement provided a set level of relief for operators which will assist the whole industry – and particularly the smaller breed of operators working in the North Sea – and will encourage more asset sales with prospective buyers now being assured of Government support when the assets reach the decommissioning phase.

The UK sector is at an early stage of its development, with only a small percentage of the North Sea rig structure having been decommissioned to date. In the future, opportunities will exist in Norwegian, Danish and Dutch oil and gas facilities. There will be huge demand for contractors, consultants, service specialists, equipment providers, technology developers and professional service companies from around the North Sea. Increased tax stability will help to reassure the hundreds of supply chain companies and encourage them to consider investment in attracting new staff.

The challenge to overcome is timescales. Constant changes to the predicted timings of decommissioning projects creates difficulties in planning, meaning that no company can rely on just decommissioning work to survive. Ever-changing plans can create problems for contractors unable to make necessary arrangements or plan for a strong workforce and technical support, which can delay the development and implementation of new technology.

As the years go on, with continued fiscal stability and government support, the decommissioning sector will be a large employer in the North Sea and beyond.

About the author
Sean Buchan joined Maxwell Drummond as a Research Consultant in 2006 and was quickly promoted to Consultant where he worked on a range of senior projects across the Oil and Gas value chain for positions in Europe, the Middle East, West Africa, Southeast Asia and the Americas. In January 2009 Sean was promoted to General Manager for the UK and in 2011 became Vice President Europe, Middle East and Africa. He is now responsible for leading these regional teams and driving the consistent delivery of the firm's executive search projects.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

China’s Investment in North American Oil & Gas

By Jamie Ferguson, VP of U.S. Business Development, Maxwell Drummond

According to the International Monetary Fund (IMF), over the next five years, Asian economies will account for about 50% of the worlds growth. The world’s most populated country, China is the world’s second largest consumer of oil and it’s demand for a stable energy supply has made it a serious player in global oil markets. As pipeline and liquefied natural gas (LNG) infrastructure has developed, consumption of natural gas has also increased.

Chinese investment in North America’s oil and gas industry is expected to hit an all time high in 2012, beating the $5.7 billion record set in 2010. Since 2010, Chinese companies have invested more than $17 billion into the US and Canada’s oil and gas industries. The energy hungry nation’s latest push in North American energy is part a wave of investment money from Chinese state-owned companies and private enterprises into the U.S. and other Western nations. This report comes off the announcement of the Chinese oil giant, Chinese National Offshore Oil Company (CNOOC)’s intent to buy one of Canada’s largest energy companies, Nexen.

This type of investment in North American operators is just the beginning. There has been a rise in joint ventures where Chinese firms pay upfront for a stake of an oil or gas field and cover drilling costs. These investments give these firms exposure to technology, management techniques and skills they desperately need in China.

The recent spate of investments from China into North America can bring mutual benefits. North American operators require the Chinese investment to bring projects on stream, while Chinese companies require North America’s technology and expertise to begin developing the vast unconventional resources beneath China’s surface. The increase in investment gives Chinese companies access to the talent that drives North America’s unconventionals success, closing the knowledge gap that exists between the two regions’ industries. The US’s unconventionals expertise will become increasingly important in the next decade as China prepares to exploit its estimated 1,275 trillion cubic feet of gas.

Skills shortages are an ongoing issue in China. According to a recent survey of employers across Asia, almost all (95 per cent) believe that skills shortages have the potential to hamper the effective operation of their business or department. Leading companies and operators in China have a number of new projects coming up which is fuelling strong demand for oil and gas professionals across the board. This will lead to an increase in salaries locally, particularly for candidates who can demonstrate capacity and logical thinking, good communication skills in Mandarin and English and leadership skills. Additionally, there may be opportunities for Chinese workers to visit American acquisitions.

China alone will account for approximately 30% of the world’s economic growth over the next five years so it is widely acknowledged that the Nexen deal is one of many expected in the future.

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 and by July 2011 was promoted to Vice President of U.S. Business Development. Jamie has extensive experience managing executive level searches for clients spanning the oil and gas value chain and has deep industry networks developed from working on assignments in over 20 countries on 6 continents.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.