by J. Chase Beakley
To make a living renting equipment in the Permian Basin, you have to be flexible. Companies that are too slow to mobilize their fleets when business is booming will get elbowed out of the industry, and when things slow down they have to help their customers find ways to save or get snuffed out by the competition. Instead of idly waiting for the storm to pass, the best equipment companies have been drawing up plans to help their customers adapt to this low-price environment and establish relationships that will benefit both themselves and the customer in the long run.
Not every rental company reacts in the same way. They all have different strengths to draw upon, but the size and structure of each business determines what competitive advantages they have and how they pass savings on to their customers. Family-owned companies can pursue a select niche and lean on local connections, while multinational corporations rely on their global expertise to provide the highest quality equipment at the best price, and midsize companies try to work out the best balance of the two. For local, regional, and global businesses, taking on the downturn means the same thing: reinforcing their core strengths and finding ways to adapt.
Local ownership, local values
Boomtown Rentals was started as a side project when Justin Bunch, a Midland police officer, saw a way to make a little more money for his family. When the horizontal drilling renaissance spiked the demand for rental equipment, what began as a family affair became a booming business and the aptly named Boomtown was renting light towers, generators, and trash trailers to customers all across West Texas. “When we first started, we never imagined we’d be competing with the big boys, but in the first couple years it really took off. It was amazing,” recalled Bunch.
Boomtown’s local attitude informs every decision they make as a business. They’re headquartered in Midland, almost all of their customers are in oil and gas, and they tackle every problem with the Spartan sense of practicality that the Basin is known for. For example, they rely almost exclusively on word-of-mouth referrals for advertising and when a few of their trailers were stolen, they didn’t buy expensive GPS locators or try to pass the losses on to their customers. No, they just painted the rims on the rest of the trailers bright blue to make them stick out. Old-fashioned padlocks and custom cages built to protect the batteries on their light towers are further evidence that Boomtown isn’t at all interested in glitz and glam, they just want provide tough equipment without all the pomp and circumstance.
“We really listen to our customers and try to tailor our services to them. Bigger companies have all kinds of fees attached for stuff like flat tires and cleaning, so we decided there’d be no nickel-and-dime charges with us. As long as you didn’t back over it with your truck, you’re good,” said Bunch.
Even though oil prices have dipped down and the calls aren’t flooding in like they used to, Boomtown isn’t changing its core principles. They’ve applied the same no-nonsense approach to their own balance sheet, cutting back on spending and working with customers to rent at prices that work for both parties. Bunch isn’t too worried. “We’re just going to play it by ear, and whatever we can do for a company, we will.”
Local companies like Boomtown may not be able to match the scale and options of the big boys, but they know that plenty of producers still want no-frills equipment and the least amount of renting hassle.
Both Big Enough and Small Enough
Ideally, regional businesses combine a local ethos with the scale and capability of larger corporations, and Warren Cat has used this model to great success for years. They provide generators, air compressors, and light towers as well as the complete range of Caterpillar equipment and machines to West Texas and Oklahoma, giving them strong ties to the oil industry. Having a long history in the oil business and close ties to knowledgeable customers helped them avoid making a key mistake during the most recent boom.
A lot of less-experienced rental startups did a lot of borrowing to bolster their fleets and increase market share, but now that things have slowed down they’re being forced to offer desperation deals just to service their debt. Warren Cat didn’t get over-leveraged and can therefore take a more measured approach.
Tommy Reynolds, vice president of machine sales at Warren Cat in Midland, said, “We’re here for the long haul so we don’t take big swings of desperation when the market turns down. We try to make decisions that are fair to our customers long-term.”
Instead of slashing prices to an unsustainable level just to poach business, Warren Cat is cultivating customer relationships that will last. They’re confident that when the market picks back up, companies that made those crazy offers will be forced to take them back just as fast as they put them out, and when they do, Warren Cat will be there as a vendor that customers can trust.
“We view our customers as partners, so when times get tough it’s in our best interest to look out for them. Relationships are paramount no matter what happens in the market,” said Reynolds.
One way Warren Cat is helping customers get more efficient in today’s market is through their connected assets program. Almost 100 percent of Warren Cat’s rental fleet is connected to their product link program, which helps their technicians remotely monitor the health and efficiency of the vehicle. If a machine needs to be serviced, a technician is notified and can use GPS to run out and fix it wherever it is in the field. It also helps them ensure that the machine is giving their customers the maximum amount of up time, and therefore the most bang for their buck.
They’ve also partnered with an app called Yard Club, which allows customers to order equipment, extend a rental, or request service right from their smartphone. When they first rolled out the program their goal was to have at least 50 customers using the app in two months, but they ended up surpassing that number by the end of the second week. This rapid adoption rate suggests that there’s still plenty of room for tech innovations in the oil field and provides further proof that the current market is pursuing efficiency as well as thrift.
Fellow regional equipment company Kirby Smith is changing the way they pursue business to make themselves competitive in this efficiency-craving economy. Odessa Operations Manager Shawn Ballard explained, “Now folks are renting for shorter periods, and not wanting to make big capital investments. Before, the challenge was keeping up with demand, but now we’re having to be proactive instead of waiting for business to fall into our lap.”
One way they’re pursuing business and helping their current customers increase efficiency is by offering onsite equipment consultations. A Kirby Smith salesmen will drive out to the job site, evaluate the way a machine is being used, and then make recommendations on how to use it, or even suggest a different machine that fits the task better. Like Warren Cat, they’re also using data collection and GPS to monitor the efficiency and health of a machine, and they’ll send a mechanic to service them in the field when there’s a problem.
Despite developing more efficient machines and embracing new technologies, regional equipment companies can’t fully rely on the oil and gas industry when rig counts fall to the level they have. Warren Cat is making up ground with solar and wind energy construction projects, and is getting contracts from the $305 billion highway repair bill that Congress passed in December. Kirby Smith is making inroads in the construction industry working with general contractor Reece Albert. Both are trying to diversify and maintain healthy relationships with their current customers so that when things do pick back up, their rental fleets will be nimble and ready to use.
A Global Perspective
Nimbleness is difficult to achieve when you’re a multinational corporation with a long chain of command and diverse fields of operation, especially in the Permian Basin, where the market can change quickly and there are a host of local companies built to seize small openings. That said, being big gives a company a different set of advantages that can provide major savings for customers.
Aggreko, the world’s largest temporary power supply company, is trying to do just that. Their pedigree includes supplying power to the Beijing Olympics in 2008, and setting up successful operations in over 200 locations across the globe, including the Permian Basin.
Despite their vast reach, David Dickert, Aggreko’s director of oil and gas for the Americas, realizes that a personal touch is important here. “We want to be local in every country and every area that we operate in, especially in the Permian. We’ve got very strong relationships with local customers there.”
Aggreko has invested a lot of resources in the area and is committed to serving the community in the long term. Dickert estimates that over 50 percent of Aggreko’s North American O&G revenue comes from the Basin, and that’s an investment they want to protect.
Protecting those assets is going to force them to adapt their business as the market changes. Last year a majority of producers were just trying to cut costs anywhere they could, but with $30 oil, both producers and equipment vendors have reached their break-even points and rental prices just can’t go much lower.
Dickert explains, “In 2015, a lot of producers just wanted to ratchet down and wait for the storm to pass, but cost-cutting is pretty much over now. The companies that were able to get more efficient are the ones that made it through. Efficiency is the name of the game.”
Aggreko relies on its global experience to help producers in the Basin squeeze every dollar out of a rental. They’re developing power sources that sync with automated wells so that the power source is never working when it isn’t needed, and they’re also collecting performance data from field and working with their customers to improve the efficiency of each piece of equipment they use. Technology is always marching forward, and if Aggreko sees a new piece of technology making an impact somewhere else in the world, they can put it to use in the Basin as well.
Another way that Aggreko is shifting strategy is by forging partnerships with their customers. “The word ‘partnership’ gets thrown around a lot, but you don’t have a partnership unless you have shared risk. So we’re sitting down with customers and trying to create a cost profile based on what you use, not just what you rented. If the well shuts down for a while, you don’t pay for energy during that time. Let us bear that burden,” said Dickert.
But creating tailored solutions is only possible if a producer is willing to call up his vendors and go over the numbers together. Aggreko is reaching out to their current customers as well as new ones and offering to take a look at balance sheets and find ways that their expertise could impact LOE (Lease Operating Expenses). Adding that personal touch helps Aggreko utilize its global experience here in the Basin.
With producers looking to minimize costs and maximize efficiency, rental companies of all sizes are being forced to push their competitive advantages to the limit. Local companies like Boomtown Rentals are slashing prices and getting rid of red tape, regional companies like Kirby Smith and Warren Cat are employing smart machine technologies and working with customers to maximize efficiency, and global brands like Aggreko are forging partnerships that will help them and their customers see the other side of this downturn.
Chase Beakley writes for various publications on business, travel, and literature. He can be reached at chasebeakley@gmail.com.