Despite Downturn, Some Suppliers to Oil & Gas Industry are Growing

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Researched by Industrial Info Resources (Sugar Land, Texas)--Companies that supply equipment or services to the Oil & Gas Industry have shared the pain of their exploration and production clients during the last 12 months as crude oil prices have plunged and natural gas prices have remained soft. Suppliers to the industry have enacted many of the same tactics as their clients in the Oil Patch: discounted prices, closed offices, reduced staff, scaled back new initiatives and renegotiated bank loans.

But not every exhibitor at the 27th Annual Rocky Mountain Energy Summit, held August 25-27 in Denver by the Colorado Oil & Gas Association (COGA) (Denver, Colorado), was singing the blues. Many of the 100 exhibitors here were optimistic about their industry's future, despite its current difficulties. In that way, they echoed recommendations made by several conference speakers: commodity industries have down cycles as well as up cycles, and the industry's best days lay ahead. For more on that, see September 2, 2015, article - Speakers Urge Companies to Invest Today for Comeback of Oil & Gas Markets.

Some service providers exhibiting at the COGA event, which drew an estimated 1,200 attendees, are actually growing in the current downturn. For example, an official with Oilfield Water Logistics (Dallas, Texas) said its parent was making "tens of millions of dollars of new investments" in infrastructure, including new water ponds, to be ready for when oil prices and oil drilling come back.

Another exhibitor, Crestmark Bank Company (Troy, Michigan), is experiencing growth in demand for loans against receivables. "When oil prices collapsed, companies began delaying paying their accounts payable," explained a Crestmark official at the booth. "When a company delivers its goods or finishes an Oil & Gas project, it bills the client, but some clients are taking up to 60 days to pay invoices. In the meantime, the services company still has to pay its suppliers and its employees. We provide loans against accounts receivables and for working capital purposes."

The bank also makes asset-backed loans to companies in the Oil & Gas Industry. "We don't do investment banking or retail banking--just business to business. And business these days is good," the Crestmark official said.

Another exhibitor, McAda Fluids Heating Company (Bay City, Texas), said his company has resisted client requests for discounts--and that hasn't hurt business. "We're family-owned, we've been in the market for over 25 years and we don't have any debt, so we're holding up OK," a McAda official said in an interview. "Some of the firms that came late are being forced to exit the market because their funding has run out and their clients have laid down their rigs. Some lenders are charging junk-bonds interest rates to lend today."

Another private, debt-free, family-owned business that is flourishing is Samuel Engineering Incorporated (Greenwood Village, Colorado), a global engineering, procurement and construction (EPC) firm serving the Oil & Gas, Metals & Minerals, and other heavy industries.

"We're hiring right now," said Josh Maida, a manager of project development. The company recently won an Oil & Gas Industry "Engineering Company of the Year" award in the Rocky Mountain region. "This is a good time to be debt-free," he said in an interview at his booth. "Customers typically ask for discounts, but we can create more value for them by deploying best practices from other companies and other industries."

Several exhibitors agreed that the current market turbulence underscored the need to keep debt to a minimum. Representatives of privately held companies seemed to be more upbeat than representatives of publicly held ones. But being privately held and debt-free did not guarantee a smooth ride in today's market. One frac sand representative is discounting the price of its product by up to 40% for its best customers; other customers were getting discounts of 10% to 20%. Despite the discounts, sales volumes are down about 15% compared to 2014. Compared to the company's best year, 2011, sales volumes are off about 25%.

A representative from the frac sand company said more drillers were using frac sand he described as "lower quality," which cost about 50% less than his sand. This company's sand was mined in the Upper Midwest, but some companies in Texas and elsewhere were using locally mined sand with no evident negative effects. The company was trying to highlight the superior quality of its product, but some customers were opting to go with the lower-priced sand.

More than a few exhibitors at the COGA conference said they were coping with turbulence in the industry by broadening the range of services they offered to the industry. One company, a civil engineering firm, is going beyond staking wellsites to surveying land for clients' infrastructure projects. "Companies may not be drilling, but they are digging," building gathering systems and compressor stations to be ready for the industry's recovery, one company official told Industrial Info. "We can stake a wellsite but we can also survey a field."

Many exhibitors said they had reduced staff earlier this year as well as either lowered their prices or gave up planned increases of 8% to 10% in order to keep their business. No one wanted to venture a guess as to whether--or when--crude oil prices would once again reach the $100 per barrel price that prevailed a year ago, at the last Rocky Mountain Energy Summit. But more than a dozen company representatives who were interviewed by Industrial Info on the exhibit floor shared the same "glass is half full" optimistic outlook about the future of their industry.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.