Who is controlling your profits?

I recently had a meeting with a major operator that covered paraffin testing. At the end of a long 6-months of testing and evaluations we were told, “it just wasn’t enough to move the needle”.  What? We performed as well or better than what they were/are currently using. It just wasn’t good enough to get a real opportunity.

 

Sometimes, too much attention is placed on the cost and the solution continues to evade the operator. The test in a lab environment  matters because the laboratory testing will never be able to duplicate the system. The temperature, pressures, velocities, turbulent flow, waters, and all the other little factors affect performance. What matters is actual treatment ppm. A 500-ppm successful test in the lab may yield a 100-ppm treatment success in the production system. How can you ever know when you base your decisions off of assumptions and standard business practices?

 

Back to the real issue here, economics…

 

We have established how internal/external lab testing can affect profits and performance. Shall we entertain how procurement and field supervisors can also affect profits and performance?

 

Mr. Field Foreman is friends with Brand X chemical company, yet there are constantly little issues that arise and they are discussed at the monthly/quarterly reviews and changes are made; more times than not the problem doesn’t go away or is briefly alleviated. Brand Y is knocking on the door and says they have a solution. They aren’t friends with Mr. Field Foreman and they have a reputation for being “expensive”.  Mr. Field Foreman can manage the problem with Brand X so he is scared to take a chance on Brand Y for two reasons, the first is that there is no personal association and the second is that procurement will never allow him to purchase a “more expensive” chemical. All the while, it’s business as usual. But what if Mr. Field Foreman had 100 wells that Brand Y could have solved the problem AND saved him money? So let’s assume that Brand X has a $15/gallon chemical and treats at 500 ppm requiring each well to consume 5-gallon/day of chemical. We will also assume that Brand Y has a $25/gallon chemical and treats at 100 ppm requiring each well to consume only 1-gallon/day.

 

Consider these simple numbers for an economic illustration:

Brand X Treatment = $75 per day x 100 wells = $7,500 per day x 365 days = $2,737,500.00

 Brand Y Treatment = $25 per day x 100 wells = $2,500 per day x 365 days = $912,500.00

That’s a difference of $1,825,000.00!!! That doesn’t even consider associated costs because of LOE expenses, etc. At the end of the day, the operator LOST $1.8 million in revenue because of these three decisions:

  • Lab Testing says “as well as current program”
  • Procurement dictates purchasing based on price vs. performance
  • Field Foreman is content “managing” the problem which is directly attributed to upper-management

 

maxresdefault

 

 

The Solution vs. Cost Paradox

This article Sharing Challenges in the Eagle Ford Shale was posted in August of 2014, roughly the beginning of the end for the Eagle Ford Shale Boom and others like it across the United States. These problems have not gone away and I will wager that they are an afterthought these days.

What the industry is faced with is a solution vs. cost paradox. Operators and transport companies are faced with serious capital costs and tight budgets. “Chemicals” are a required yet, despised necessity in the oil & gas business. I joke all the time about how this business works, “Chemical companies are the first ones called, first ones blamed and always the last ones paid.” The reality is it’s a true statement.

For many in this industry, especially the major chemical companies and the private equity backed mid-sized chemical companies it is a constant struggle between finding a solution and generating revenue. Ask yourself how many times have we all heard of a problem that operators and producers share and how many conferences and expos are had to discuss these “problems”.

Now, analyze the capital expenditures associated with these and the economic impact. What we have is the classic “cancer” debate. Is there a solution? What if there is but there is too much money being made from the treatment rather than the cure?

Since 2010, I have personally witnessed operators switch chemical suppliers between the 3-4 “majors” in South Texas; only to have the same problems regardless of who the provider is. I witnessed one operator make a change and since that change has seen their chemical consumption/cost nearly triple while production has fell by 66%. WHY is this accepted and WHY hasn’t someone realized this?

“The oilfield has been built on the backs of the little guys.” I’ve heard this nearly my whole life from family members, friends, colleagues, mentors, etc. But today, the perception in many offices is that the only ones capable of solving the problem are the majors. This is not only wrong but it is tragic. What happened to the free-thinking wildcatter way that this industry was founded on?

That’s where MAKO Chemicals & Services, LLC comes in, our company was built upon the ashes of the Shale Bust, we took assets and clients from a business that was at the end of their desire to continue in a down market. We acquired their proven, successful formulations, their knowledge of the industry and their technical knowledge. Most importantly, we acquired the founders’ vision and his wildcatter attitude. To many it’s nothing more than a “damn, the torpedoes, full-steam ahead” mentality.

Mako is solutions driven and a service oriented company. We know that we are competing against multi-billion dollar, multi-national companies and multi-million-dollar private equity backed companies. But we also know and want to believe that there is still some common sense left in this industry. At the end of the day everyone, from the CEO to the grounds maintenance employee in any company, publicly traded or private should be focused on solutions and cost savings. It shouldn’t matter if you are a single employee company or a multi-national company. What matters is simple, I have a problem… Can you fix it?

Mako Chemicals & Services, LLC can fix it, when given the opportunity.