Oilfield service companies come in all shapes and sizes. While competition is most certainly fierce, it may also be fair to say that no two service companies are exactly alike. They are far-ranging in size, in scope, and in their offerings. Separate from active drilling operations, but practically indispensible to the practice of drilling, service companies are inextricably tied to the industry. No level of diverse specialization can completely insulate these companies from the effects of an industry-wide crisis. We are most certainly experiencing an oil and gas crisis today, and here are three snapshots of how pipe companies with Permian ties are dealing with it.
Providence Pipe Supply is a nimble three-man operation based in Tuscola, Texas, just south of Abilene. They occupy a very specific niche that has allowed them to absorb the impact of the oil and gas downturn.
“Obviously, the market is slow,” said Troy Limbaugh, owner of Providence Pipe Supply, LLC. “This is not unusual. I’ve probably been through this five or six different times. There are always ups and down. This is one of the downs.”
Limbaugh isn’t so worried about fluctuation in business since he has built a sustainable model designed to weather just such storms in the cyclical and volatile world of oil and gas service companies.
“I diversify by dealing with downhole, but also structural. We work with both, and it seems to work out pretty well,” he said. “When things are going well, that’s probably fifty-fifty. Now it’s probably 80 percent structural, 20 percent downhole, just because of the nature of the market.”
Providence’s key to staying above the fray has been embracing the world of surplus and reject pipe in addition to prime pipe. Pipe in the surplus or reject categories is still considered “new” pipe, as it is unused, though it may have been produced outside of specified tolerances, or simply leftover after an order has been fulfilled by a production mill.
“We’re not the ones determining what the mill runs. That’s the big oil companies determining that,” said Will Doran, at Providence. “What’s selling in prime, then that’s what the mills are making. Right now, there’s not much being sold.”
“The price of oil determines the new material being run in the mills. Oil is king in Texas,” said Jeff Callaway, at Providence.
“What keeps us going is we have the ability to find the material,” said Doran. “When inventories are tighter, at this point we still have ability to find the material. The buying process is just as important as the selling process.
“Our biggest challenge with educating our customers is on the inventory side. They see prices going down, but [they don’t always realize] supply is also low,” said Doran.
“In the oilfield, there’s almost no demand, but in the structural market—more of a steel market, or a scrap market—that’s where the low demand is irrelevant, because the supply is keeping the price high.”
Providence’s ability to reliably source surplus and reject pipe has allowed their business partnerships to extend well beyond the oilfield. Common applications of reject pipe are fence posts and structural support for a wide variety of projects.
“We have good ties to the agricultural market, fencing and things like that,” said Doran. “Structural is driving our business right now. Fencing, barns, corrals, and stuff like that.”
Providence has even seen some overlap develop between their oilfield and agricultural connections.
“A lot of people in the cattle business are in the oil business,” said Callaway.
“They run hand in hand a lot. People with lots of land tend to have both cattle and oil,” added Doran.
Resourcefulness may be Providence’s trump card, but the team is quick to point out that they have gone to great lengths to establish themselves as a hard-working and trustworthy company.
“We’ve got the reputation that if we say we’re going to do it, then we’re going to do it. That goes a long way, because there’s a lot of people in reject and surplus pipe who don’t pay their bills on time, don’t transport product when they say they’re going to, and don’t take as good care of their customers,” said Doran.
Despite Providence’s secondary pipe market savvy, they remain acutely aware of the effect oil and gas is having on their competitors.
“Lots of businesses are closing,” said Callaway.
“I’ve been in the pipe business for 40 years. We’ll survive this, we’ll come back, and we’ll be okay,” said Limbaugh. “There will be those who won’t make it, and I hate that. But we know there’s going to be ups and downs, and we’ll make it through.”
“Does [oil and gas] matter?” asked Doran. “Absolutely. We’d love to have it back. Business is better when it’s good. Hopefully we’ve set ourselves up good… Our goal is that when it comes back we’ll be ready for it, and we’ll be strategic about it.”
National Oilwell Varco (NOV) is Houston-based, but operates in the Permian Basin and internationally. NOV specializes in drilling rig systems, wellbore technologies (oilfield services), and well-completion systems. Tuboscope, a service company under NOV’s Wellbore Technologies umbrella, serves many diverse functions within the pipe business.
“The downturn has had a major impact on our business,” said Les Massoletti, vice president of sales for Tuboscope. “Our business is down 30-to-50 percent with most of the services we provide.”
“Oilfield related pipe and sucker rod services make up 95-to-97 percent of our business. The other three-to-five percent is tied to custom coating and components,” said Massoletti.
“Most recently, decreasing workover activity has had a significant impact on our business,” he said.
In addition to all things related to oilfield pipe, Tuboscope offers services such as wear mitigation, corrosion control, hardbanding and tool refurbishment, and comprehensive inspection services. Fortunately for Tuboscope, even in the face of the downturn, their products are still in demand.
“There has been some impact on our line pipe business, but we service primarily steel line pipe, which still seems to be the product of choice,” said Massoletti.
Tuboscope has certainly felt the sting, just as any other service company does when oil and gas face hard times. While Providence has encountered a pinched supply of secondary pipe—a side effect of the downturn—Tuboscope has not experienced quite the same circumstances.
“I don’t quite agree with the shift to a low supply scenario,” said Massoletti. “I don’t think we’re there yet. There’s still a lot of pipe in inventory with lower demand due to lower activity. Therefore the pipe prices and associated services pricing have trended lower.”
This difference in interpretation could be seen as the difference between the primary and secondary pipe markets, and between international and regional business.
“The Oil and Gas industry is in ‘correction’ mode and is reacting to global oversupply,” said Massoletti. “We also have a lot of oil in storage inventory in the U.S. that is presently growing and doesn’t appear to be decreasing anytime soon. In this country, we’ve actually gotten very good at producing oil and gas in the past several years, and will have to rein in production for a period of time. I believe any sustained ‘upswing’ will happen in mid-2017 at the earliest.”
Milford Pipe and Supply, headquartered in Midland, deals primarily in construction and in the sale and installation of horizontal pipe (pipelines, gathering lines, storage batteries, etc.).
“Probably about 80 percent of our business, in some form or fashion, is related to pipe,” said Shawn Beard, president of Milford Pipe and Supply.
“Our business… has been affected just like every one of them out there. I mean, it’s no different, but at least [horizontal] is not as critical as vertical,” he said. “There’s still maintenance. There’s still lines that need to be put in. One thing that we’re seeing a lot of… has to do with water. You know, trucking has a huge cost, still, and it still makes sense from a return on investment standpoint to go ahead and put the pipe in to transfer the water—in or out—[rather] than trucking it.”
Being able to tackle large construction products has clearly aided Milford in keeping busy.
“We’ve had to make cuts just like every other company out there, but right now we’re extremely busy with the people that we have,” said Beard. “We’ve got probably three or four major projects going on right now, and then a lot of [smaller projects, installing] little flow lines here and there, and water lines.”
When oil and gas hits an extended rough patch, the story begins to sound familiar. Every company has to evaluate its business model, and make cuts. The stories all start the same way. What makes each case unique, is how the companies choose to respond. Milford chose to address its issues by revamping its sales force.
“We’ve slowed down considerably,” said Beard. “What we did… we had ‘farmers’ and we had ‘hunters’ in our sales staff. Farmers, when the business is good… [t]hey grow a crop [of sales]… [We needed] hunters to go out there and get the business, so we restructured our sales force to be hunters. Some didn’t make it through that transition.
“We have a total of about 18 sales people now, so with that it’s harder on the competition to cover the area that we cover,” he said. “That has really done well for us. Now we are as busy as we can be with the amount of people that we have, and we’re starting to gain more this year.”
In times like these, companies must commit themselves to a long, uncomfortable gaze into the mirror. Hard as it may be, a thorough self-evaluation is often the only way to move on from missteps, and reorient your business on a successful path.
“We’re not a complacent company, but you adapt to your surroundings at the time. When you have so much business that you’re just trying to handle it all, you don’t make a whole lot of improvements,” said Beard.
“The biggest thing we saw was we weren’t giving enough training to our people. We failed on that,” he said. “You add twenty dollar oil to it, it’s really bad… Not to wish ill on anybody, but unfortunately, it’s a fight out there, so anybody that doesn’t survive through [this] time, we’ll gain more market share”
“Now that the demand is down considerably, it’s starting to affect the manufacturers, because the way the manufacturer does pipe is it’s in a large facility, with what they call ‘extruders’. That’s what melts the resin, the plastic, to convert it into pipe. Now that the demand is down, [the pipe manufacturers are] having to shrink their infrastructure, so they’re shutting down those lines. I’ve seen some here recently, locally, that have quit manufacturing pipe, and [are] just using their space [for] distribution… Now they’re starting to consolidate.”
Low demand and low prices have caused Milford to lose business, but they do not intend to acquiesce to the changes. Beard fully expects to win back business, and they have already seen the beginnings of it.
“Your smaller companies are doing projects ‘at cost’ or less than cost, just so [they] can pay payroll and equipment, just to keep everybody off their back. You can only do that for so long,” he said. “In the meantime, everybody’s got to continue, because the oil companies will take that [lower price…] whether they had the confidence in you or not, they’re going to take that low price and gamble it.
“I don’t know how many times they can do that,” he said. “Because even though the demand is down now and business is down… safety has become more of a hot topic than it ever has been before.”
“We’ve gotten business back that we had lost to low prices, because they’ve come back and said, ‘Hey, we liked your quality, so we’re going to get you back in here.’ We’ve seen that. We hope more of it comes.”
“If everybody went down 70 percent, the way we looked at it is, there’s a lot of 30-percent buckets out there that we don’t have right now. We’ve got to go get those buckets. It’s the only way to survive.”
Downward cycles are always painful. With so many people, so many resources, and so much money involved, the gradual road to recovery can seem impossibly slow. That is why the importance of keeping one’s mind on the larger picture and an eye toward the future of oil and gas cannot be overstated.
“If you look at all the vehicles around you, they’re all still burning fossil fuels,” said Troy Limbaugh. “You can go up and down with all the pricing. Until they shut down all those vehicles, there’s still going to be a demand for oil, and that’s really kind of the bottom line.”
Pipe is merely one segment of the impossibly intricate oil and gas industry, and yet in the current downturn we are experiencing, the broad strokes of their stories all start to sound the same. They are stories of lost business and cut-backs, yet they are also stories of determination, adaptation, and maintaining focus on the task at hand. There has even been a bit of inspiration.
“Fear will paralyze you. You can’t deal in fear, you’ve got to go out there every day and fight just like we did before, and you got to keep fighting and keep fighting,” said Shawn Beard. “And then it will come to you, and it has. We’ve gained market share. It’s just that positive attitude, because if you quit, you quit.”
Tony Burke is a freelance writer based in Abilene, and the assistant editor of Permian Basin Oil & Gas. He can be reached at email@example.com