The oil industry crash that started at the end of 2014…
… Doesn’t seem to have finished yet as the jobs outlook around the world has yet to improve. There are a few exceptions and anomalies such as the difficulties in finding frack crews, or the resilience of some of the Middle Eastern countries, due to production costs at or around $10 Bbl.
What we’re seeing are similar dynamics to past busts, not just in oil and gas, but in many industries.
Here are a few observations:
The largest companies are resilient due to the long term view they take of the market, and almost unlimited access to capital. For them, surviving a downturn involves adjustments such as accounting tweaks, bond sales, project deferments and job cuts.
Medium sized companies are selling off weaker assets, focusing on cash flow and becoming leaner. One example might include negotiating faster settlements for receivables and delaying payments to suppliers. The focus will be to look at under-performing assets that could be sold, rather than getting taken over by those higher up the food chain.
Small companies find out how valuable their business model really is. In good times, budget can be allocated by medium to larger companies with less caution and/or oversight. Of course, all companies do their best to be efficient at all times, but invariably there will be waste and frivolous expenses during booms. Small companies and start-ups that can survive during good times, might find that their goods or service is not needed when belts start to tighten.
We see daily reports of mergers, acquisitions, discoveries and project news for mid to large scale companies. This article will look at how a couple of smaller companies are riding the storm.
We got feedback from 2 very different companies…
… Then see how the lessons learned might help others who are also in the same position.
Relentless Pursuit of Perfection Ltd (rp²) are a leading wells consultancy company. They work with majors to facilitate seminars such as DWOPs, CWOPs and other performance/efficiency based workshops.
2015 and 2016 were fairly standard years for their main workshops, although they saw a drop off for interest in drilling coaching and other lower level services. 2017 is looking to be one of the busiest years ever.
We reached out for a quote from Dave Taylor, the Managing Director at rp²:
“We’ve seen a complete drop off for coaching services which is to be expected as many people have dropped down to perform roles that would normally be beneath their pay grade.
The first half of 2017 was one of our best 6 months ever for the larger workshops. We’ve been very busy performing DWOP’s for mid to deep water projects. This might seem counter intuitive since deep water has been hit hardest by the crash.
In a $40-$60 price range, efficiency and cost cutting becomes not just a preference, but a necessity in order for a deep water project to be viable. The majors know about the new exploration crash, and the lead times to get a new project online.
They need future production, but it needs to be profitable. This is where rp² come in, we help major oil companies secure future supply, with minimal risk to their balance sheets by keeping efficiency high, and costs down.”
So the lesson here, is that companies need products and services that help them survive. If you can help increase efficiency, and/or lower costs, then you’ll be needed as long as the industry itself survives.
Quality, health, safety and environment are facets of exactly the same approach to the business. We can add efficiency and cost saving to the list.
Location, location location…
Another way that a small company can survive, is to be placed in a location that is not being hit by the bust.
The oil and gas industry has always had a large transient sector. This applies to companies of all sizes, as well as the workforce themselves. In every oil country around the world, you’ll find satellite offices, and an expat workforce.
Why are there expat oil workers all over the world? The reasons are partly personal such as a love of travel or adventure. The main reason is financial, people and companies move to fertile locations based on economic opportunity. Sometimes these opportunities appear on your doorstep!
We spoke to Josh Munro the CEO at FROutlet, an e-commerce company who sells fire resistant clothing and equipment to oil and gas companies and workers.
Based in Texas, they’ve seen a steady increase in business in the past couple of years, although not without challenges.
“The boom in the US onshore oil business has definitely helped us increase turnover. Through feedback from our customer support, as well as seeing patterns in customer addresses, we know that increased drilling activity has helped us.
We send a lot of packages to the Permian Basin, and Eagle Ford for example. We still have our own challenges such as competing with some of the huge national and international e-commerce retailers.
Being based in a booming area (Texas) and offering the same high quality brands, free delivery and money back guarantees has allowed us to do well. We realize how the global oil industry is doing, and we’re thankful that we’ve seemed to have stayed in the eye of the storm so far. One thing that is interesting, is that we tend to sell high end products such as those from Ariat, during good times and bad. Safety is something that should never be compromised on.”
Whilst these two companies featured provide only anecdotal evidence, and there are no guarantees in the oil business, there are a couple of takeaways:
Whether you’re an individual worker, or part of a company, are there services and products that you can focus on, that are suited to a bad market? There are likely to be some ways that you could pivot, to allow yourself to thrive the way that Dave has done?
Are you based in the best place for the professional product or service that you’re offering? Now might be the time to consider a re-location of you’re an individual, or an expansion or satellite office into a more fertile area?