Contractors Cautiously Optimistic About Renaissance of Oil Markets

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--"Cautious optimism" was the watchword for a dozen companies that supply equipment and services to the Oil & Gas Industry that were interviewed last week at the 28th annual Rocky Mountain Energy Summit (RMES) in Denver, Colorado.

Industrial Info interviewed a wide range of company representatives exhibiting at the conference, ranging from Waste Management Incorporated (NYSE:WM) (Houston, Texas) to geoscience service company RETTEW (Golden, Colorado), construction company Wood Group (Aberdeen, Scotland) and McAda Fluids Heating Services (Bay City, Texas).

"We were expecting the industry to recover by late-2017, but the recent price trends suggest maybe a recovery will happen later this year," a representative of McAda said in a booth-side interview. The company has introduced what it calls "hot frac" fluids, where the water temperature is about 140 degrees, nearly double that of traditional frac fluids, which range from 60 degrees to 80 degrees. "The hot frac fluids result in greater production," the representative added.

Many exhibitors and speakers at the conference, organized by the Colorado Oil & Gas Association (COGA) (Denver), have noted the sharp increases in productivity and reductions in cost the industry has achieved, particularly during the last two years, when crude oil tumbled from over $100 per barrel to as low as $30 per barrel before settling into its recent range of $40 to $50 per barrel. Greater per-well productivity and lowered costs will help the industry compete when prices fall, several exhibitors and speakers pointed out.

"Increasing well productivity and declining costs" were the two biggest reasons for the success of companies operating in Colorado's Denver-Julesburg (D-J) Basin, according to one conference speaker, Bart Brookman, president and chief executive at PDC Energy Incorporated (NASDAQ: PDCE) (Denver, Colorado).

One way overall costs can come down is for service providers to slash their fees. Several companies interviewed here said they have lowered prices 20% to 30% over the last year to retain or acquire business. Many firms have had to let employees go.

"Sometimes you need to take a punch in the nose to keep a good client," a representative from RETTEW said in an interview. The company has had to cut prices by 20% to 30%, the representative said. But it is trying to offset that revenue decline by offering safety audits to steelmakers, food manufacturers and other industrial companies. "The Oil & Gas industry has very good safety practices," he said, and the firm is hoping it can apply lessons learned in that industry to others that may need help improving its safety performance.

A representative from another exhibitor, who asked his company not be identified, said one of the bright spots of the industry's downturn is that it no longer had to pay workers a per diem, in addition to their salary. Those per diems ranged from $85 to $110 per employee per day. "Back when oil was selling for $100 per barrel, it was so hard to attract people that we had to pay out-of-market workers a per diem." The company paid the highest per diems in North Dakota, he said. Over the last two years, as employees were let go from other firms, this company was able to hire experienced workers while also lowering its costs. This company is discounting its services by about 25% in the Bakken, but smaller discounts are available in Colorado and Texas.

One company not lowering its prices is Waste Management. "We're already the price leader, and we've seen no reason to cut prices," a company representative said in an interview. "Volumes are down, but they haven't really hurt our earnings."

The conference drew about 1,100 attendees, down from about 1,300 last year, a COGA official told Industrial Info.

"I think the worst of the shakeouts are behind us, but we really don't have an outlook on when prices will recover," said a representative of a financial service company that lends to Oil & Gas service companies.

Several environmental compliance companies exhibited at the COGA event. One, CGRS Incorporated (Fort Collins, Colorado), said business was "slow," but Colorado's strict environmental regulation of the Oil & Gas Industry meant that any time a well is producing, no matter its volume, it needs to comply with regulations that several speakers and exhibitors said are the toughest in the nation. "We're encouraged that oil is now about $50 per barrel -- that's a lot better than $30 a barrel."

There were several young companies exhibiting at the event, including Kordata (Boise, Idaho), a Big Data software firm launched in April 2016. "Revenues at Oil & Gas companies, and Metals & Minerals companies, are down, but they're still investing in technology, particularly technology that can streamline process or enhance logistics," a Kordata official told Industrial Info.

Some exhibitors at the COGA event said they have used the downturn over the last two years to develop new services that respond to the industry's needs. One such service is noise suppression, which has become particularly important as drilling takes place closer to urban and suburban areas. One company, Liberty Oilfield Services (Denver, Colorado), showed a video of its noise-suppression equipment that lowered drilling sounds to the point where they were indistinguishable from ambient noise levels. Its chief executive, Chris Wright, spoke on a conference panel, and his company was lauded by other speakers for its technology.

In the same vein, one Colorado university, the Colorado School of Mines (Golden, Colorado), has used the downturn to develop a new undergraduate major, humanitarian engineering, which combines rigorous engineering training with courses on corporate social responsibility (CSR), sustainable operations and a company's social license to operate (SLTO), topics that have risen in importance for industrial concerns in recent years. For more on that, see February 15, 2015, article - Industry Executives Discuss the Mine of the Future at SME Conference and October 22, 2014, article - Texas City to Vote on Hydraulic Fracturing Ban Nov. 4.

Since the Summer Olympics had recently concluded, it was not surprising that some speakers invoked those games in their remarks. One panel moderator, a reporter for The Wall Street Journal, lauded PDC and Synergy Resources as the Usain Bolt and Simone Biles of the oil industry. But Olympic athletes, no less than Oil & Gas companies, also have their share of Ryan Lochtes in their midst, the moderator noted. Speakers recognized their industry has some "bad apples," but no one was willing to name names. However, one speaker did say one bad apple could turn the public against the industry, so he urged continued all companies to continue their vigilance on safety, operations and citizenship.

Given that Colorado is one of the few states in the country that permits sale of marijuana for "recreational" purposes, as opposed to medical need, several exhibitors cracked wise about whether sale of marijuana was connected with citizen initiatives that would effectively ban Oil & Gas drilling in the state. "Colorado's the only state where some people want to ban fracking," said one exhibitor. "Smoking pot is legal here. Do you think that's a coincidence?"

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