PBOG reached out to three oilfield pipe companies for their perspectives on the downturn. Here are their stories.
by Tony Burke
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.
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.”