Oilfield Services Struggle To Keep Up With Increase In Drilling

Source: Casper Star Tribune

In Wyoming, the bust rolled in as a blizzard of bad news. It’s lasted almost two years. And what started as a problem for producers slowly crept along to other sectors, those that serve production operations in the oil fields. From forklift rental agencies to hotshot crews, myriad businesses depend on oil producers doing what they do best – drilling for oil.

However, a company that drills for oil and gas can wait only so long for prices to climb before finding a way to return to work. It is not a high-prices-or-bust scenario, producers say. Norms change. Payrolls contract. Operations shrink. Eventually, producers must return to business or have no business.

Over the second half of 2016, the price of oil has remained steady, and cautious hope for a stronger price in 2017 is widespread. As a result, Wyoming companies are slowly increasing activity in the oil fields. But this small surge has revealed just how bad things were for the service industry.

The hollowed-out sector can’t yet meet the modest flow in demand, leaving some oil and gas companies waiting up to six months for service crews.

A gutted service sector

Nothing is done in Wyoming’s oil patches without the people, parts and equipment of service companies. There are a few larger firms, like Halliburton and Schlumberger, that are more present than not in Wyoming operations. Then there are hundreds of smaller operations, most based in Casper, Rock Springs and Gillette. Great and small were gutted in the bust.

“They are having a devil of a time,” said Peter Wold, CEO of his family company, Wold Oil Properties. “The fact of the matter is these companies don’t have much of an inventory.”

Since a high in 2014, Halliburton, the most prolific oil field service firm in Wyoming, has shed about 27,000 jobs as a result of the downturn. The Houston-based company cut 25 jobs in Casper in last year.

With producers across the U.S. making small gains, Halliburton has shifted, slightly, toward bringing workers back, even in Wyoming.

“At this point, we are hiring for a few positions in the Casper area, but the majority of our hiring is taking place in other areas of the U.S. where drilling activity is increasing more rapidly,” said Emily Hir, director of public relations for the company.

It will be a modest increase for Wyoming — likely fewer than 20 employees. The boost pales in comparison to the losses suffered across the sector in the state. Wyoming had 1,400 fewer oil and gas jobs this November compared with last year.

The challenge for these companies is re-flushing the ranks to keep up with demand.

Many of their former workers have likely left the state or found other employment, said Mark Watson, supervisor of the Wyoming Oil and Gas Conservation Commission.

They will have to hire and retrain a workforce.

“You lay that many people off — what happens when things get busy?” he said. “You can’t just call them up and say come back to work.”

Wold, the family oil man, brought two rigs down to drill east of Casper in the fall. The company intended to capitalize on the low costs in drilling, parts and personnel.

Since then, an international service company has reneged on a contract, unable to provide personnel. A search for a drill bit and a motor stretched across the country, ending many weeks later, in the case of the bit, in California.

It’s a hurdle that producers are eager to see their comrades overcome.

“It’s tough right now for the (producing) companies that do want to get busy,” said Timm Smith, vice president of engineering for Casper-based Nerd Gas. “I hate to say it, but you are somewhat at the mercy of the service company.”

An industry ‘on sale’

Smaller firms are fielding the calls, but they have their own challenges. The market has evolved since the bust, some say.

Trilliant Oilfield Services used to hire out roustabout teams of 10 to 15 guys along with rentals of dumb iron – equipment that doesn’t require employees to run. Now they are down to three guys, said sales manager Wolf Baldwin.

The way he sees it, the entire service industry is “on sale,” like a Black Friday event that’s lingered. The rollback of prices appeared to have no end.

Since the bust, rig companies have tried to become a one-stop shop. They are now buying the type of equipment Alliant used to rent, as well as hiring crews to do the job Trilliant’s employees once did, Baldwin said.

“We’re seeing an uptick, but there is a different business model,” he said.

Meanwhile, oil rig daily rates are so low that rigs are jumping from site to site the best they can to make up, Baldwin said.

“I think that service crunch will probably get worse before it gets better,” said Smith, the Nerd Gas engineer. “I do see a lot of companies starting to pick up and wanting to get a little more active.”

Even as evidence for a return to drilling emerges, the numbers remain grim.

This September, oil production was down by 22 percent from September 2015, said Watson, the state oil and gas regulator.

However, there are promising numbers as well. There were 6,487 application for permits to drill between January and November. Last year there were 5,314 in that span.

The APDs signal intentions to drill in the future, not necessarily an immediate uptick in production, Watson said.

“The question now is are they completing those wells,” said Jim Robinson, an economist for the state’s Economic Analysis Division. Completion requires crews, parts and construction — service sector work.

The trouble with finding service for the oil fields is unsurprising, producers say. It’s part of the commodity cycle.

When busts come along, the service sector in places like Casper holds on a little longer, said Smith, from Nerd Gas. On the other side, as a bust levels out, the sector lags again, he said.

Things will get better, most say, holding out hope in the rhythm of the boom and bust cycle. Ultimately, the demand for service jobs will bring in workers despite less than boom prices.

“People get used to it. Some of those companies, that’s all you do, drill and produce oil and gas,” Smith said. “At a certain point, you have to go back to doing it.”