• November 27, 2020

Mom and pop businesses feel ripple effect of downturn - Odessa American: Features

Mom and pop businesses feel ripple effect of downturn

Low oil means less work, equipment glut for well servicing business

Font Size:
Default font size
Larger font size

Posted: Sunday, September 20, 2015 6:45 am

Cat Well Service’s workover rigs drilled through a freshly cemented well north of Midland in September, the sort of well maintenance work that many of private oilfield businesses in Odessa and Midland rely on.

This work grows increasingly scarce and competitive in the ongoing downturn. As oil companies began idling drilling rigs this year, the amount of workover rigs plummeted, too. And companies in the well servicing industry increasingly began competing for jobs at already producing wells such as applying new cement or replacing pipe, amid a glut of equipment.

Bobcat, a small business that started work in 2013 in Odessa before moving to its current office in Midland, has idled two of its seven workover rigs, says co-owner Bobby Neatherlin, who founded the company with his wife.

Idling the two workover rigs also meant the loss of two crews, or about eight men, Neatherlin said. Most left through attrition after not making the money that the boom of recent years offered. But the loss still meant nearly a third of the company’s 30 employees.

“A lot of that work has gone away because the drilling rigs have gone away,” Neatherlin said. “That’s an effect a lot of people don’t think about.”

During the boom, businesses like Bobcat that own workover fleets sought jobs related to completing new wells, chasing the drilling rigs that abounded in the region. Neatherlin saw that work mostly disappear, as oil companies in the Permian Basin idled more than half of the drilling rigs that were active in the region at this time last year.

On Friday, 253 rigs drilled for oil and gas in the Permian Basin.

Chiefly, industry outsiders and energy analysts looking for measures of activity turn to indicators like the drilling rig count that is half of what it was in the Permian Basin last year and still growing crude production volumes. But workover rigs, also called pulling units, are much more plentiful than drilling rigs. These trucks, with small rigs attached, are used for an array of well maintenance jobs.

And the vast Permian Basin represents the biggest market in the country for workover jobs, home to more than 34 percent of the pulling units in the country. This demand through decades of booms and busts meant opportunity for local businessmen to find a niche and build companies.

One of these businessmen, John Sparkman, the head of Capitol Oil Well Service in Odessa, said his company is faring relatively well with just one of their four workover rigs sitting idle. Sparkman said he retained the workover’s crew by shifting their duties to work in the yard, lower paying but enough to keep them on hand if a customer calls with a job.

“You look in any of these yards — you see idled rigs cleaned up and ready to go,” Sparkman said. “That’s what I’m up against.”

The workover rig count in the Permian Basin fell by about 200 during the past year, according to data gathered by the oilfield services giant Weatherford International. The company’s tally showed 705 workover rigs operating in West Texas in July 2014, down to 509 in the same month of this year.

Further reports show additional declines.

As of August 15, 489 workover rigs operated in the Permian Basin, with another 297 rigs stacked and 116 idle, according to the oilfield engineering and manufacturing company Cameron. That represented a 51 percent utilization rate of workover rigs.

“Maintenance work is carrying me right now, and it’s hard to come by and it’s precious to keep,” Sparkman said.

A year ago, more than 71 percent of workover rigs were being used, with 691 in active operation, according to Cameron data.

“No doubt that it creates a surplus of rigs for pretty much everyone in this industry,” Neatherlin said. “The two effects we have in the well service industry are a reduction in available jobs, and the second is a reduction in income levels because the rates per hour have fallen drastically in relation to the price of oil.”

Oil prices hovering below $50 per barrel also lead some oil companies to delay maintenance work, according to interviews with local well servicing companies and a review of reporting by larger public companies.

Larger public companies that deal in well servicing work have reported similar struggles.

“It’s customer-by-customer, but sure, we’ve seen customers deferring maintenance projects since January, where a customer would have normally hung a well back on and done a little bit of maintenance work and got it back into producing condition,” said T.M. “Roe” Patterson, president and CEO of Basic Energy Services, in a July 31 investor call. “They just said ‘no, I’m not going to touch that till things turn around.’ So that started early. It continues today. It’s customer-by-customer. How much can they stomach of lost production, but it’s definitely something that we see in every market we’re in, gas or oil.”

On the lease north of Midland, 62-year-old safety coordinator Dusty Roach reflected on the present day slowdown, the sixth of his career.

“This one’s pretty hard,” Roach said. “I don’t think anybody anticipated it dropping off this fast and staying off this long.”

DAILY OIL PRICE: November 24

  • Crude Oil: 44.91   (+1.85).
  • Nymex MTD AVG:  40.2075.
  • Natural Gas: 2.775   (+0.064).
  • Gasoline: 1.2582   (+0.0542).
  • Spreads: January/February   (-0.20)   February/March   (-0.14).
  • Plains WTI Posting: 41.50   (+1.75).
Plains All American logo.jpg