EDITOR’S NOTE: In Part 1, we looked at oilfield supply houses as a barometer of conditions in the local oilfield, and determined that market forces have altered the way business is being done in the SCOOP STACK as well as in other plays in Oklahoma. Horizontal drilling, bigger fracs, and a concentrated move into unconventional resources (and away from conventional plays and vertical wells) were the main drivers there. In this concluding installment, we continue the discussion, but with more focus on how the changes fit into a historical perspective and what we might expect in coming times.
OKLAHOMA CITY, OKLA.—Summit Supply sits on S.E. 25th Street, just blocks from bustling Interstate 35, in what might be called Oklahoma City’s Oil Row. This district includes oil and gas-related businesses of every stripe. Summit, which has been here for about 25 years, is a stand-alone operation.
Sitting behind his desk, George Barnes, manager at Summit, spoke of having seen a lot of change in his career.
“The market has changed a lot, yes,” Barnes said. “Technology changes things. For instance, years ago, we sold a lot more pumping units. We sold a lot more poly pipe. We sold, back then, a lot more wellhead equipment. Now, we see a lot of downhole motors. We don’t sell as much poly pipe as we did 10 or 15 years ago. A lot of your poly manufacturers, instead of going through supply stores to sell their product, are just going direct [to the operator in the field].”
That sort of swing has caused businesses like Summit Supply to adapt their inventory and their processes. Large-scale shale development has changed the landscape for everyone. The challenge has been to either cater to the bigger players with their massive acreages, or to get more competitive in the ever-tighter marketplace that is the conventional oilfield, full of small independent drillers and stripper wells. The crunch comes, too, in the fact that big chains like DNOW (National Oilwell Varco) have come to dominate the supply store landscape, so holding one’s own against such size becomes a problem. And then that business of direct selling, where the manufacturers bypass the retail outlets and go direct to the end-users in the field—that practice has taken away much of the market share once held by the smaller independent supply stores.
So innovation and service have become the bywords for this niche of oilfield suppliers. They must know their local market, and local customers, better than do the bigger national chains, and they must find the product lines that give them an inside edge.
Not far from Summit Supply stands Braselton & Co., a business that finds itself in much the same situation as Summit. Braselton is not a supply house per se. They are a wholesaler who supplies the supply houses. Still, the same challenges that confront retail supply houses affect Braselton, and to the same degree if not more.
At Braselton, manager Dustin Anderson was asked what strategies he is trying to implement these days.
“I try to find better pricing and better product,” Anderson said. “We have always been 100 percent built on service. If someone, after say 3:00 in the afternoon, were to call [here he mentioned a couple of the large national chains], well, they’re not going to ship your parts. But if they call me at 5:30, I’ll ship them for them. So our customer service is better than most. Plus, I’ve been in this business about 12 years now and I know of a lot of places that other people don’t know of to get parts, so I’m getting called for my knowledge, too. Meanwhile, my boss has been in oil for 40 years.”
Braselton does much of its business in such product lines as mud pump expendables, swivel parts, float valves, drill pipe screens, rings, gaskets, gate valves, and the like. They’re also a Jet-Lube distributor.
“You try to find product lines that a distributor won’t sell directly to a rig or a [field operator],” he said. “You try to find new niches. Our main thing is that we keep everything in stock. Your bigger supply companies like National Oilwell, when they run out, it might be a week or so before they get stuff back in.”
Finding One’s Place
Just an hour down the road southwest from Oklahoma City on Interstate 44 lies Chickasha, smack in the heart of the SCOOP/STACK play that has done more to change the state’s oil and gas landscape than any other factor, stands WB Supply, an important supplier to this area.
Here, manager Justin Lowe took time on a busy day to talk about the region and his company’s place in it.
“The market’s constantly changing with improved technology,” Lowe said. “Products get outdated, and, along with changes [mandated by EPA and other regulatory bodies], the standards of quality and of allowable emissions and all of that changes, so our product line changes as well. It’s constantly evolving.”
This store is one of the top performers in a chain of 22 outlets operated by WB Supply, whose markets include Texas, Kansas, Colorado, New Mexico, and North Dakota, as well as Oklahoma.
Like Barnes and Anderson, Lowe cited service as being of supreme importance.
“I think it’s 100 percent relationships and service,” he said. “To me that’s all sales ever is, is relationships. When our end-user needs something, we usually drop what we’re doing to get it to them because not only are they waiting on us, but there’s other people down the line that can’t move on until we get there. So they’ve put a lot of trust put on us, and we have to maintain that.”
Maintaining trust is paramount also to Oilfield Specialty Distributors Inc. (OSD), a company that is similar to Braselton & Co. in the sense that OSD’s own customers are supply houses themselves, not end users. Phil Mock, Sales and Operations Manager for OSD, spoke about activity in this region and his own outlook on it.
Another Oklahoma City-based supplier, OSD is faced with changes and Mock says innovation is key.
“The biggest change in the Oklahoma oil field—and it hasn’t been recent—is the fact that horizontal drilling has transformed the industry here,” Mock said. “Conventional drilling is… well, it’s just going away. Up in Kansas, they still drill small conventional wells and they still drill a few around here, but obviously, just as Texas has been transformed, so are we, to a large degree.”
Mock said that conventional drilling never could recover the quantities of oil that the unconventional (shale) efforts are recovering.
“Now, you can go a mile down and a mile each way to recover a lot more oil,” he said. “They make these pads now and what used to take a drilling rig several holes to drill, now they can just scoot the rig over and drill [another wellbore] on the same pad. It takes fewer drilling rigs. The technology is so much greater. Used to be, they put everything on a conventional wellhead and a low pressure rod pump. Now, however, we have pressurized formations because we’re finding all these pockets of gas pressure in the shale wells that are producing oil. So what used to be a conventional pumping unit is now a flowing well. That will be temporary, as I’m sure everyone’s well aware. Everything is temporary in the oilfield, right? It will go back to rod pumps, but in the meanwhile it just changes the dynamics for everyone.”
Mock grew up in western Kansas, in a time when the major oil companies were all right there, developing the resources in the MidContinent field. “When I was a boy, the Conoco’s, the Phillips Petroleums, and several others, were all right there. Well, as those wells became stripper wells, they couldn’t make a profit there any more, and they sold those leases off to the independents. I watched them [the majors] leave as I grew up. The last one to go was Phillips. Then all these independents came in.”
And now, in the Oklahoma oil fields at least, the majors are back, and it is the independents who must bide their time. Eventually, when the pressure in the oil plays has diminished and the rate of flow has reduced, the majors will move on to something else and the independents will move back in and squeeze the last production out of the formations.
Then Mock related that process to oilfield supply houses.“The majors [major oil companies] have usually dealt with the majors [major oilfield supply chains],” Mock said. “The major supply stores used to be owned by steel companies. They were Bethlehem Steel Company, for instance. Armco Steel Company was another. Armco owned National [Oilfield] Supply, which today is [known as] DNOW. All those major supply stores disappeared over the years because the majors disappeared. Now you have all these independent supply stores because they’ve been dealing with the independents. In areas like the Permian Basin, I’m guessing that people like DNOW are doing the majority of business with the majors because that’s the way it’s always been. Not that the major oil companies aren’t doing some business with independent supply companies. But I’m guessing DNOW is getting their share of the work with the majors because they’re a major supply store [chain].”
Mock was asked if this phenomenon was going to have fallout, where the smaller supply stores are concerned.
“Some will get hurt,” he said, “and there will be a lot of survivors. In a place like the Permian Basin, there is so much business to be had, and there is only one major supplier today, and that is DNOW. They’re the only survivor of all the [former] major supply stores. They [DNOW] can’t possible handle all of that business in a play as big as the Permian.”
A similar evolution could unfold in the SCOOP/STACK and Oklahoma’s other plays, Mock indicated.
Sticking with the “Oil Row” performers, we turn next to OKY Investments, which maintains offices and a yard in the 1600 block of S.E. 25th Street, like a number of other suppliers and service outfits in this vicinity.
Bobby Partin is owner/manager of OKY Investments, which is neither a supply store or chain. Whereas those entities sell new manufactured goods, OKY deals almost exclusively in used and/or rebuilt or refurbished equipment.
Partin buys pumping units and other hardware all across the country, then sells them in Oklahoma, Texas, Kansas, and Illinois. “We bring it here, rebuild it, and resell it with warranty, and then we package it with whatever power they want,” Partin said.
Partin picks up the thread pretty much where Mock was taking it. Partin related the market gyrations that came back when rod pumping softened enough that a few players could control the inventory.
“Once everything went to Chinese units, I didn’t really want to get into the ‘new’ end of it because that was, as far as people like me are concerned, really something for the big boys to deal in,” he said. “It was a lot of volume, plus the quality wasn’t that good, and for a long time a lot of people didn’t want Chinese units. But like everything else in the world, now these end-users will accept Chinese units, and they have improved in quality a lot. At first, their quality was crappy, but now they have improved because a lot of our people with expertise went from here to over there and went into their plants, and set up plants, and oversaw the quality, and so that’s helped a bunch.”
That transition to Chinese units might have hurt for a time, but now Partin, dealing in refurbished used equipment, is selling against that trade.
“They [end-users] are having to pay a lot more for them—especially with the tariffs that have been applied,” he said. “And so my mine are becoming a little more attractive by comparison. And it’s sad, but the iconic pumping unit companies that were American-made left. They’re gone. GE, Schlumberger, Weatherford, and Kennedy brought up all of these companies and did away with the foundries, the manufacturing plants, everything. So now your GE, Weatherford, Schlumberger—those are the biggies—they’re nothing more than distributors of Chinese pumping units. That’s all they are. They manufacture nothing.
“But those big guys, they sell a lot of units because they can go into these big oil companies and offer them 100 new units at a time. That’s not my game. I’m out here with everybody else chasing the smaller guys, the smaller independents, and the people that drill vertical wells, of which there are not many nowadays.”
The Oil-Gas Dynamic
We give the last word to George Barnes, back at Summit Supply.
Barnes said that the drilling industry in Oklahoma has taken a dramatic hit in 2019.
“From what I’ve seen, and from what the drilling reports say, we are down [statewide] 25 rigs from last year,” Barnes said. “So, that’s around 20 percent—that’s quite of a bit of a drop in drilling activity. It looks like the nation as a whole has not dropped that much, but Oklahoma took a pretty good hit.”
Barnes said that the market is driven by price, and when the oil price goes up, Oklahoma companies drill for oil. When the oil price goes down, the natural gas price goes up, then those same companies go for the gas. “Oklahoma, I think, is more of a natural gas state than it is an oil state,” he added.
This time of year, in the summer months, the price of natural gas normally drops anyway, he said. “But there’s an overabundance of natural gas, and any time you have an overabundance of natural gas, there’s not demand, and it’s demand that drives the price. That’s all there is to it. But if natural gas prices rebound eventually, then we’ll see, probably, an upsurge in the drilling activity in Oklahoma.”
And what about oil? And what if oil drops further?
“Well, if it drops back down from where it is, I think a lot of your companies and investors are going to get skeptical. And they’ll be like, ‘Well, let’s hold off and see what it does. Is it gonna keep going down or is it gonna go back up?’”
Will it go down or will it go up? That’s the question today, and in a commodities market like oil and gas, that’s going to be the question tomorrow, too.