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Businesses in the oilfield and gas service industry continue to seek out any opportunity to gain a competitive edge. Upgraded technology is frequently becoming the target of many professionals' investment dollars. A new survey shows more businesses in this industry are in the market for IT initiatives – such as ERP software – that will improve operational efficiency and productivity.

Accenture, a management consulting firm, surveyed 200 national and international professionals in the oilfield and gas services industry. The company found that 74.5 percent of these individuals spent either as much or more financial resources and attention on IT investments in 2011 than they did the previous year.

By making these investments, most professionals are targeting more efficient operations and integrated systems. A number of respondents noted that workplace processes have become slower in recent years as more businesses attempt to implement newly mandated drilling regulations that emphasize risk reduction and improved workplace health standards.

While 75 percent of survey takers acknowledged a need for these regulations, 60.5 percent said the pace of work has slowed to accommodate these changes.

"An ongoing challenge for energy companies is the search for operational excellence. The results of the survey are evidence of this," said Dean Forrester, senior director at Accenture's Energy industry group. "We believe that these trends will support the continued drive toward optimizing production and mitigating risk."

Implementing updated oilfield services software is one way many oilfield services companies target improved productivity and operational efficiency. This technology can assist with several key responsibilities, including scheduling, deploying, and billing for equipment and personnel personnel, equipment maintenance and project cost-effective analyses to name a few.
 

Texas Energy Council’s24th Annual Energy Symposium

(Summation – Part 3)

Last week’s 24th Annual Energy Symposium, organized by the Texas Energy Council, had well-informed speakers supporting the theme:

“Energy in Transition:

This Ain’t Your Daddy’s Energy Industry”

“Energy in Transition:This Ain’t Your Daddy’s Energy Industry”

Followiwg Jason Wilcox’s presentation on “The Future of Oil and Gas Service Companies” in Part 2: was Kelly Lugar, Senior Managing Director in the Washington, D.C. office of SNR Denton LLP. Lugar served as the deputy assistant secretary for the Department of Energy under President George W. Bush and has been involved in government relations for over 15 years in D.C. She focuses on energy and environmental matters.

Lugar spoke about the regulations and bills in Washington affecting energy and business. She was particularly enthused about the bill: “Jump Start our Startup Businesses”. This bill is designed to increase small business access to capital, remove the advertising ban currently in place for some industries, and is expected to pass on a fast track through both the House and Senate.

Regarding the Keystone Pipeline, she mentioned that the authority of the pipeline license may be transferred to the Federal Energy Regulatory Commission, increasing its chances to become a reality, and referred to President Bill Clinton’s recent comments in favor of the pipeline.

Regarding the Department of Energy’s temporary ban on the exportation of liquefied natural gas, Lugar informed us that it resulted primarily from the DOE’s concern of the long term impact it would have on domestic price of natural gas and energy.

She explained jurisdictional issues enabling the EPA to require recapture of Methane and other gasses. Insightfully, she expects the legislation regarding fracturing will be left at the state level – since that enables Washington to avoid potential adverse political impacts resulting from rulings at the Federal level.

Our next speaker was Evan Smith, who spoke from an investment portfolio advisor perspective. Smith is co-manager of the Global Natural Resources Fund (PSPFX) in San Antonio Texas. This fund has a sterling record as the top performing fund in the natural resources category for the 10-year period ending December 31, 2011.

Smith points out that energy and basic metals comprise only 15% of the S&P 500 index and he therefore believes many investors are underweighted in this sector. He discussed the impact of Chindia (China and India) as a key driver for the growth in commodity demand and prices.

He believes that oil prices are not near the bubble, based in part, on the following statistics:

• Chindia currently consumes 15% of global oil production, yet comprises 1/3 of the world’s population, has a Gross Domestic Product(ion) per person equivalent to the U.S. in 1966 and still has room to grow (long term),
• Chindia, together with the remaining smaller E7 nations, totals ½ of the world’s population yet only currently comprises 21% of the world’s GDP, and
• The price of oil, as a multiple of the 1980 prices, has been higher than it is today.

The bottom line per Smith is that oil prices will be supported, long term, by inevitable higher demand from the E7 nations.

Andree French Griffin, Manager of Geology at XTO Energy spoke next. She has both a BS and Master’s Degree in Geology and her entire career has been in the energy industry. Andree managed the geological efforts at XTO for the Barnett Shale for almost 7 years through its peak production of 900 MMCFG/Day. She is currently managing the geological aspects of the Marcellus Shale and Utica for XTO Energy.

I had to miss most of Andree’s presentation, unfortunately; however, at the open Q&A forum after her speech, it was clear she is a very effective speaker, knowledgeable on her subject, and well respected by those attending.

At the end of the day the podium supported two great icons in the industry. The keynote, Mr. W. Herbert Hunt, was introduced by Mr. Albert Jaffe, honored TEC Board Representative. Of course, Mr. Jaffe is better known for his impact as President of Mobil Producing Oil Corporation (E&P) and President of Mobil Oil Corporation. He subsequently founded A.P. Jaffe & Associates and consults energy clients with his firm.

Mr. Hunt, who graciously appeared on his birthday, seemed to genuinely enjoy sharing his perspectives and insight. He currently advises management of Petro-Hunt, and is active in the oil service industry, mining, and real estate operations on behalf of various Hunt family companies.

Mr. Hunt is a strong, faithful American patriot. We know of his great contributions to the oil and gas industry from his ‘wildcat’ exploration days and involvement in the discovery of giant oil fields, to his involvement in the oil service industry and downstream sectors as well. He has served or been President or Board Chairman of many industry associations, but he has also given his time generously to serve on the boards of non-industry organizations including the Boy Scouts of America, Carter Blood Bank, and Presbyterian Hospital.

Mr. Hunt contends that “energy is the very life blood of this great nation” and the “dependable and efficient use of energy has enabled the creation of the ‘American Dream’” and fuels our Nation’s security. He truly believes the present and pending legislation in Washington is an “all-out campaign against the energy industry and betrayal of the American people”. He is genuinely concerned for America and requests us to make a difference with our vote.

Regarding natural gas, he calculated that at $2.50, gas is priced at about the same level (inflation adjusted) as the $.10 price back during the time gas was regulated for transporting across state borders. He can’t foresee when prices will recover.

When discussing oil demand he, like Evan Smith, points to growth in China. He used coal as an analogy for energy demand by pointing out that China currently uses 3.0 billion tons, almost three times the U.S. coal consumption of 1.1 billion tons. Then follows with the huge room for growth in vehicle use in China, with 50 million vehicles on the road compared to 250 million in the U.S.

Regarding the technological improvements the industry has made in recovering oil, he joyfully exclaims “we’ve cracked the code and it’s pouring down the pipe!”

However, Mr. Hunt foresees “real gigantic storm clouds” on the political horizon. He says “there is a trillion dollars or maybe several trillion dollars that wants to be invested, but it’s hard to invest when you don’t know the rules of the game” due to governmental regulations and restrictions.

He also foresees a world-wide liquefied natural gas market developing because “there is no way Europe will be held hostage by Russia’s $8.50-$10.50 natural gas versus our $2.50” and Mr. Hunt believes the United States will be “extremely competitive in exporting LNG and bring jobs back” to our country. BUT… regulation, he believes, could be a significant impediment, so he urged us to “go make a difference.”

After a standing ovation, it was time for the birthday cake, singing the birthday rounds, and Mr. Hunts’ song requests for Ed Bernet and the Levee Singers… for all to enjoy. At the exit table Mr. Hunt made available for everyone in attendance, a new Levee Singers CD: “America!!” which he and his wife Nancy were inspirational and instrumental in producing.

Then it seemed Jason Schumacher had carefully planned another event: impromptu networking, as we waited for our cars on a beautiful day on the SMU campus.

Texas Energy Council’s24th Annual Energy Symposium

(Summation – Part 2)

Last week’s 24th Annual Energy Symposium, organized by the Texas Energy Council, had well-informed speakers supporting the theme:

“Energy in Transition:

This Ain’t Your Daddy’s Energy Industry”

Continuing from Part 1: Following Mills’ and Carter’s presentations on the current state of affairs, was Jason Wilcox speaking on “The Future of Oil and Gas Service Companies”. Wilcox should have as knowledgeable of a perspective of any on this topic.

As founder and managing director of Wilcox Swartzwelder & Co. his primary focus is the energy sector of investment banking. He and his principals have completed over 100 transactions (business sales, mergers, acquisitions, recapitalizations, and public offerings) collectively valued over $3.6 billion. Wilcox is also part owner in multiple oil field service companies.

While Wilcox cautions against trying to predict the Oilfield Services Index (OSX), he says the North American Oil & Gas Services performance is strong and his expectations of its continued strength is just partly due to the industry’s direct relation to rig count.

Noting the low and decreasing level of gas prices below $2.50 and that oil prices are predicted to stay over the $100 level, he pointed to the transition in drilling rigs from 20% oil vs. 80% gas [2005-2006] to currently 65% oil. He showed a graph illustrating the “economic steady state” of gas is approximately $4.50. This means that when gas crosses the $4.50 price level, gas drilling activity increases or declines depending on whether the price is moving above or below the $4.50 “economic steady state” price. As a case in point, he noted Barnett Shale has 400 to 500 drilled gas wells that will remain unfinished until prices increase.

Wilcox’s prognosis for gas producers is a “slow recovery over the next few years” and a continued heightened focus on reducing costs.

Expecting oil prices to remain fairly firm, and given our technological advances in extracting oil from shale, Wilcox expects U.S. oil production in 5 years to exceed 9.0 million barrels per day, and, like other industry experts, also believes we are not too far off from being able to reduce imports of light-medium sweet crude to zero. The Eagle Ford and Bakken Shale formations will be major contributors to this increased production, along with the Permian Basin.

While production will be high, Oil and Gas Field Services companies will face increased cost of labor, materials, and transportation. Some are becoming landlords by default – buying houses, RV’s, and trailers to house employees near the drilling activities. Transportation cost will be impacted by higher fuel costs, as Wilcox points out, over 2,000 truck loads are needed to complete a single well, and 15 railcars of sand to fracture a well.

Wilson and his partners assist owners of Oil and Gas Field Services companies under $150 million in revenue. Generally these owners are in their 50’s and 60’s, and often stretched on capital, people, and equipment. Some are ready to sell and are attractive to integrators interested in either their geography or their service. When I asked the following question in the open forum:

“Other than having a specifically desired geography or service offering, what can all Oil and Gas Service companies do to be more attractive to investors?”

Wilcox answered verbatim:

“Management capability and how well documented is their back office: billing, payables, accounting. Back office sophistication is often more lacking in technology than the field. What buyers are looking for is assurance that they are getting what they are being told.”

Naturally, since that is the role filed by Computer Business Solutions’ Oil and Gas Field Services software built within Microsoft Dynamics NAV accounting modules, I was grinning from ear to ear.

TEC Energy Symposium Part 3 of 3 will include information and comments from an industry portfolio manager, and a perspective from Mr. W. Herbert Hunt himself.

Texas Energy Council’s24th Annual Energy Symposium

(Summation – Part 1)

Last week’s 24th Annual Energy Symposium, organized by the Texas Energy Council, had well-informed speakers supporting the theme:

“Energy in Transition:

This Ain’t Your Daddy’s Energy Industry”

Jason A. Schumacher, Oil and Gas and Corporate Finance Attorney at SNR Denton LLP, presided as VP over the well-organized event and emceed with calm and humor, after what I expect was the culmination of many tireless days of effort. His attention to detail was apparent throughout, from the selection and perfect timing of each speaker’s presentation to the closing keynote by Mr. W. Herbert Hunt on his birthday – along with a special cake, birthday rounds, and Ed Bernett and The Levee Singers performing Mr. Hunt’s favorite requests.

But to revert back to the beginning, Alex Mills, President and Chief of Staff of the Texas Alliance of Energy Producers, kicked off the speakers on a light note with his trademark political energy comic parodies. The Alliance’s status spoke for itself. With 3,300 members across 31 states; it is the largest state oil and gas association in the nation.

Mills confirmed the “Energy in Transition” theme by shedding light on the increased regulation the industry has faced. He mentioned Railroad Commission fees are up 150%, and road repair fees have also increased. Fortunately, the RRC-appointed Eagle Ford Task Force found that water supply is sufficient to meet the area’s drilling activities for oil and gas production, including hydraulic fracturing, and provide for all other projected water uses.

As a reflection of increasing anti-oil sentiment in the government compared to that experienced by our forefathers, Mills pointed out many increases to regulation including: the TRC’s recent Texas Chemical Disclosure requirements for fracking, the Texas Commission on Environmental Quality (TCEQ’s) air monitoring requirements, the SEC subpoenas to shale companies, and the Keystone Pipeline deferral. Mills mentioned the deferral of the Keystone Pipeline decision was especially frustrating as it would have created substantial jobs and economic activity.

Mills was followed by Teddy Carter, Director of Public Affairs for the Texas Independent Producers & Royalty Owners Association (TIPRO).

Carter’s presentation contained facts and statistics regarding the Energy industry in Transition. Notably, the average independent oil and gas producer has 11 employees, yet independents are responsible for producing 72% of U.S natural gas, and 44% of U.S. crude oil. According to Carter: “when these producers generate cash flow, they don’t sit on it. They reinvest it into the next well and into new American production, oftentimes reinvesting over 100 percent of generated cash… and keep generating economic benefit for this country.”

Carter also cited statistics pointing out the Oil and Gas Industry’s contribution to the U.S. economy, as well as to our national security. In the last reporting year:

• 1.84 million jobs were directly supported by Oil and Gas, or 9 million jobs when adding indirect and induced jobs.
• $2 trillion dollars were added to the U.S. economy as a result.
• The average salary of an oil and gas worker was $113,000 vs. the average U.S. private sector worker’s salary of $44,000.
• Oil and Gas taxes sent to the U.S. government were $85 million dollars, every day.

He then illustrated the significant contribution of Texas Oil and Gas to the economy:

• The Texas O&G industry paid $7.4 billion in taxes and royalties into State and local treasuries in 2010, which equates to $25,000 per paid employee.
• 24 of the top 50 crude oil and natural gas producing Congressional Districts are in Texas.
• The top state for natural gas wells drilled is Texas.
• The top state for natural gas production is Texas.
• The top state for crude oil wells drilled is Texas.
• The top state for crude oil production is Texas.
• Royalty payments are made to 570,000 Texas housholds.

Citing the U.S. Energy Information Administrations’ 2011 annual energy forecast, projecting in 2035, almost 60% of America’s energy use will still come from oil and natural gas, Carter concluded that even though “wind, solar, geothermal, and other non-hydrocarbon sources play an important role in diversifying our energy portfolio, the fact remains that they are not viable replacements for oil and natural gas and will not become viable any time in the near future.”

2012 TEC Energy Symposium – Parts 2 and 3 will include information and comments from an industry leading investment banker, an industry portfolio manager, and a perspective from Mr. W. Herbert Hunt himself.

North Dakota’s oil production hit an all-time record in January, rising by nearly 60 percent from the same time period last year, which was the result of record-setting output for the state’s Bakken shale.

Data from the North Dakota Industrial Commission (NDIC) indicated that daily oil production from the 6,330 producing wells in the state topped 546,000 barrels, an increase of 11,000 from the previous month and the highest monthly production output ever recorded since the state began tracking data in 1951.

Overall oil production in North Dakota has been on a steady rise since April 2011, led primarily by production from the Bakken shale, which itself produced more than 480,000 barrels of oil in January 2012, according to NDIC data.

North Dakota is now the country’s third largest producer of oil, outpacing California, which has long held that spot, according to Reuters. Experts say the state may soon even rival Alaska as the nation’s second-most significant producer of oil, as it already outproduces the country of Ecuador, a member of the Organization of Petroleum Exporting Countries (OPEC).

While skyrocketing oil production has brought an improved economic picture and contributed to the lowest unemployment rate of any state in the country – 3.3 percent in December 2011, according to the Bureau of Labor Statistics – it has also contributed to rising traffic and public concern over crime. Local law enforcement, however, says both challenges are natural given the area’s rising population, according to Reuters.

To manage the challenges for rising oil production, oilfield managers and supervisors may want to consider the benefits of oilfield services software. This technology can be a worthwhile investment for supervisors needing to more efficiently handle increased demand for their equipment and personnel, and further automate sales and billing departments.

Performance & profitability series

Top 7 Ways to increase the performance of

Oil & Gas Field Services Companies

Determined from our work with clients in the industry
and speaking with industry experts.

 

1)    Schedule equipment, vehicles and crews to maximize utilization. Software should provide for quick viewing of usage history and unused capacity, so gaps can be easily identified and filled when possible.

2)    Negotiate long term contracts where possible, show you are a trusted business partner by consistently meeting contract billing requirements. Assure invoices are accurate to speed approval and cash flow. Software should support:

• Level of detail required by operator,
• Accurate site, lease, well, rig, AFE information,
• Correct pricing specified in the contract,
• Proper sales tax and approved cost codes as needed,
• Electronic submission of invoices

3) Assure you can meet promises to customers and avoid double booking. Software should be able to track the availability schedule and location of your equipment, vehicles, and personnel at all times.

4)   Establish incentive pay compensation to motivate performance, reduce fuel costs, optimize routes, schedules, etc. Software should support:

• Timely performance feedback, with real time revenue, cost, & profit statements, throughout the month, and
• Itemized revenues, costs, and profits by location, yard, vehicle, equipment, crew, well, job, or other level, and accomplish this without dependence on a large, unwieldy chart of accounts.

5)   Vertically integrate where possible to reduce dependence on resources provided by vendors. If applicable, build your own specific equipment for use in the field, for sale, or for rent. Software should accommodate:

• Assembly,
• Unique serial numbers of equipment and components, and
• Manufacturing of equipment for sale or fixed assets for rent.

6)   Resist increasing overhead in sales, administration, and back office fuctions.

• Automate preparation of quotes, estimates, and price sheets where possible. Assure contract prices are stored and retrieved during quote preparation for existing customers. Develop a process to ensure products and ancillary services related to the primary function are not inadvertently ommitted from proposals.
• Provide staff with efficient (preferably single screen) entry of service tickets and invoices together rather than as two or more data entry steps.
• Allow entry of field services billing to automatically default the proper equipment and crews while providing the appropriate level billing to the customer.
• Eliminate re-keying time into payroll. Integrate with payroll module, separate payroll software, or outside payroll service.

7)   Keep vehicles and equipment maintained to maximize up-time. Software should enable:

• Setting realistic capacities allowing time for preventive maintenance, and
• Keeping accurate maintenance records.

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We hope we have provided performance ideas which you can quickly take advantage of.

Our company founder started his career designing software at Exxon and now his team helps small to mid-sized oil & gas field service providers improve their performance.

Responding to client needs we developed enhancements to Microsoft Dynamics NAV ERP software specifically for oil and gas field service providers.

If your back office software is holding you back, we should talk. A short call to one of our industry business analysts will best help us to address your specific questions.

 

The communities within the Eagle Ford Shale in South Texas are reaping the economic benefits of intense oil production, according to reports.

On March 2, Thomas Tunstall of the University of Texas at San Antonio presented an economic impact study to the Eagle Ford Shale Consortium that described how the shale has affected surrounding communities.

Tunstall noted that initially, skepticism was typical among locals, who questioned the oilfield's positive impact on the area economically. However, reports show local communities have benefited in ways that far exceeded their expectations. Some, for instance, have noted sales tax revenue increases of more than 500 percent over the past few years, the report found. By 2020, the Eagle Ford Shale drilling and suppporting activities will have generated $21.5 billion in economic activity, creating nearly 70,000 jobs in the area.

Production on the shale formation in South Texas – which is 50 miles wide and 400 miles long – has proved a logistical challenge – albeit a welcome one – for the small towns that must harbor personnel and equipment dedicated to the project. 

As observed by Mike Cohen, President of New EPI, Inc., a company providing design, furniture and fixtures for the hotel industry, nearly 10 new hotels have been constructed in the Eagle Ford Shale area in an attempt to accommodate the demand for oil field workers in the region. The influx of workers has even strained the infrastructure of some cities, as they have been challenged with providing water and sewage services for these new developments.

Meanwhile, drilling organizations have been tasked with the management of large populations of workers and machines. To stay productive and efficient in the face of large-scale oilfield projects, these professionals can rely on effective oilfield services software that can assist with critical worksite responsibilities.