As Analysts Note Impressive Peak, Locals Confirm Industry Uptick.
The day after Christmas 2017, IHS Markit, an economic analytics firm based in the United Kingdom, issued a press release referencing the Permian as a “super basin.” In fact, the headline and first few paragraphs made one think Christmas would last well into the New Year… and the next.
The article header read as follows: “Prolific Permian Basin Reaches Second Production Peak in 2017, Eclipsing 1973 Levels by More Than 25 Million Barrels, IHS Markit Says.” (More information at http://bit.ly/2loNnPQprolificpermian.) The story goes on as follows:
“The 2017 production milestone does not just crawl past the previous 1973 peak, but eclipses the 44-year-old previous production record by more than 25 million barrels, IHS Markit said. ‘The magnitude of the rebound in Permian Basin liquids production is unprecedented,’ said Reed Olmstead, director, energy research and analysis, IHS Markit.
“Not so long ago, many in the industry were saying the Permian was dead, but the Phoenix has again risen from the ashes and is soaring to new heights. The Permian Basin is on track to add more than two million barrels per day in new production since 2007, and after the final-year production count is in for 2017, we will see the previous all-time liquids-production peak of 2.16 million barrels per day during 1973 surpassed by a significant margin, with total Permian volumes at roughly 2.75 million barrels per day. In turn, this surge in Permian production is projected to push total U.S. liquids production to a new all-time high by the end of 2018. We see U.S. production exceeding 10.5 million barrels per day by the end of 2018.”
Is the picture really that positive? Yes, business is good—quite good, confirmed a handful of Permian Basin rental providers who are “on the ground” answering the call of industry customers. And even though personnel shortages remain a challenge, rental companies are proceeding with confidence while looking at new possibilities on the horizon.
Over the past year, the Warren CAT Rental Store has experienced a strong surge in rental business, confirmed Michael Wood, general manager-rental operations.
“In the Permian Basin alone, we have experienced an 84 percent increase in revenue from 2016 to 2017 and a 55 percent increase in total transaction count,” Wood reported. “With this growth, the Warren CAT Rental Store made significant investments in our overall rental fleet size, expanded our product offerings, increased our service capabilities, and added numerous jobs to the area.”
Warren CAT is a local, family owned Caterpillar dealership that is based in Midland and spans West Texas, the Texas Panhandle, and the state of Oklahoma. The Warren CAT Rental Store offers and rents a full range of equipment for the Permian Basin area, including general construction, pipeline, highway, or oilfield offerings. The wares include skid steer loaders, aerial equipment, pumps, power generation, air compressors, dozers, telehandlers, water equipment, trenching equipment, and more. Along with CAT brand items, Warren CAT deals in other OEM equipment, such as Genie, Atlas Copco, IRock, Pioneer, and more, Wood stated.
“The primary equipment we rent within the oil and gas industry includes dozers, excavators, telehandlers, wheel loaders, and rock crushing and screening equipment,” Wood added. (More information is available at http://www.warrencat.com/rent.)
“Over the past few years, the equipment rental business has increased due to job-specific equipment offerings, dealership serviceability, and the option of less overhead in equipment ownership by our customers,” Wood said.
While business has continued to expand, the employee pool has not kept up.
“As many businesses are aware, hiring in the Permian Basin can be challenging,” Wood continued. Warren CAT is using its state-of-the-art facilities, competitive pay, and benefits to continue to attract high-quality employees.
Specifically, Warren CAT has faced a shortage of technician availability.
“Technician demand continues to rise; however, over the past few years, the industry has experienced an overall decline in people attending trade schools for jobs within our industry,” Wood explained. “There is a huge need for these positions, especially in the Permian Basin.”
“We have seen a relatively stable market for the Permian Basin going back to 2016 with 2017 seeing the most growth,” confirmed Bryce Puckett, general rentals manager with Kirby-Smith Machinery, Inc. “The year 2016 seemed to be a time that many companies were just managing what they had in front of them with little opportunities for growth in new site development or reworks,” Puckett stated.
Kirby-Smith is a full-service construction equipment dealer with one of the largest rental fleets in the Permian Basin offering customers parts, rentals, sales, service financing, product support and training. (Information at http://www.kirby-smith.com).
“We offer a variety from heavy equipment to cranes with our primary lines being Komatsu, National Crane and the Wirtgen Group [Kleemann, Hamm, Vogele, and Wirtgen],” Puckett said. Kirby-Smith serves the construction, paving, industrial, quarry/aggregate, pipeline/oilfield service, and farming/ag industries, as well as other lines of work.
“With our primary line Komatsu, we rent dozers, excavators, wheel loaders, and motor graders,” Puckett continued.
One of the biggest challenges Kirby-Smith has faced in meeting the demands of a rebounding industry is a personnel shortage, the same challenge plaguing the oil industry itself.
“This is the Permian Basin, and the No. 1 challenge we have is finding and hiring good people,” Puckett noted. “It is probably magnified here more than any other location we hire [from Missouri to Texas].”
As far as recent rental demand is concerned, Puckett has noted a push for intelligent machine controls, which Komatsu has integrated into the system from the factory.
“This has allowed several of our customers the ability to move dirt once with little need for touch-up,” Puckett said. “This allows faster pad and site development.”
On a related note, Puckett has observed a slow revolution within the industry involving site mapping along with intelligent machine controls.
“In the next 10-20 years, I expect autonomous dozers and earthmoving equipment to take over jobsites,” Puckett declared. “Many large mines are already running large rigid-frame trucks autonomously with great success. The next step will be site development units.
“Just imagine unloading a small fleet of dozers, excavators, graders, and wheel loaders, punching a few buttons on a laptop and the equipment goes to work,” he continued. “Just keep it full of fuel, maintain them correctly, sit back, and watch them work!”
When it comes to the future of the industry, Puckett predicts a continued push for electrification of vehicles.
“I anticipate there will eventually be a government mandate for some form of hybrid or electric technology in many of our future cars,” Puckett shared. “This will likely shift [at least some of] the refinery output from direct consumer to larger [newly developed] cleaner burning powerplants to meet electrical grid needs.
“Wind and solar aren’t keeping up with the new demands that large fleets of electric vehicles will need, so at least for the foreseeable future oil and gas will power our way to the future, be it direct or indirect,” he concluded.
Renting = Good Business Sense
“More customers are seeing a need to rent construction equipment instead of buying it, including the opportunity to upgrade equipment as they see fit, which gets around maintenance costs and foregoes costly storage,” observed Todd Garrett, Yellowhouse Midland/Odessa manager. Renting also gives business and construction managers the opportunity to try out construction equipment before making a purchase, should they be considering that route.
Yellowhouse logged rental increases in 2016, with an even higher number in 2017, Garrett confirmed.
Established in 1958, Yellowhouse Machinery Company is the oldest John Deere construction equipment dealership west of the Mississippi. At the time of its founding, there were no John Deere dealerships that were strictly construction, although there were many John Deere combination agriculture and construction dealerships. Today, Yellowhouse Machinery has 10 locations in Texas and Oklahoma and carries a full line of construction and forestry equipment. (Information at www.yellowhouse.us.)
Yellowhouse sells, services, and rents the full line of John Deere Construction Equipment, which includes loaders, backhoes, motor graders, excavators, dozers, articulating dump trucks, landscape loaders, and skid steer loaders, Garrett remarked. Yellowhouse also sells, services, and rents excavators from Hitachi, telehandlers and high lift forklifts from JLG and Harlo, as well as Bomag Compaction Equipment and Etnyre asphalt distributors, chip spreaders, and trailers.
“We believe that there is going to be an increase in the rental business for the next several years to come due to increases in non-residential construction opportunities around the area,” Garrett predicted. “With this in mind, we believe renting enables individuals or companies to simply return the machine to us during slow periods to avoid unnecessary monthly rental fees and overhead expenditures for storage and upkeep.”
IHS Markit paints an exciting picture of the Permian Basin, touting its influence as a “global disrupter” as the following remark suggests:
“Since it first began producing in the 1920s from the famed Santa Rita #1 well, the legendary Permian Basin has produced more than 39 billion barrels [cumulative] of oil, reaching peak volumes in 1973. As conventional oil production in the play declined steadily during the following three decades, many in the industry thought the Permian’s best days were behind it, but unconventional drilling and completion technology changed the game in the 2000s. This advance made possible the extraction of unconventional shale resources that were previously uneconomic to produce, and changed the view of geologists, who, for decades, had bypassed these less desirable targets in favor of conventional reservoirs.
“‘The Permian is one of the most prolific basins in the history of oil production; with the onset of horizontal drilling and new completion technology during the past decade, the production decline in the Permian has been reversed, and the basin has eclipsed its previous peak,’ said Pete Stark, Ph.D., executive director, upstream research at IHS Markit. ‘The significance of this second production peak cannot be overstated, since it truly revived a basin, and in many ways, the U.S. E&P industry. When we consider the impact on the world’s crude markets, the Permian has to be considered a global disrupter.’ ”
As general manager for Warren CAT rental operations in Midland, Wood has a similar take on the Permian Basin oil industry, and he plans to mold his local business accordingly.
“Engine efficiency, grade control technology, and machine condition monitoring have all increased overall productivity,” Wood declared. “We believe the future of the industry looks bright. Future opportunity models point to the Permian Basin as one of the most productive and fastest-growing areas in the nation. We believe this growth will continue. We are seeing new and exciting opportunities every day. We will continue with our plans to expand our rental operations and overall capabilities to provide top quality service and solutions to our customers.”
Where to Find Rental Equipment:
- Aggreko 432-530-0041 aggreko.com
- ASCO 800-687-0008 ascoeq.com
- Boomtown Rentals 432-687-7035 boomtownrentals.com
- Kirby-Smith 888-861-0219 http://www.kirby-smith.com/
- Sunbelt Rentals 800-667-9328 com/oil-gas
- Warren CAT 866-288-4414 http://www.warrencat.com/rent
- Yellowhouse 432-580-3337 yellowhouse.us
- Yellowjacket 888-351-7779 http://www.yjosllc.com/locations/
Odessa-based Julie Anderson is a frequent contributor to Permian Basin Oil and Gas. Currently the editor of County Progress Magazine, she was at one time editor of this magazine.