By: Jacob Sonsel & Tony Shurtleff
Drive a few miles along I-20 near Midland, TX and pay attention to vehicles traveling down the interstate. Chances are you will see a decal on the back of one of the many muddy pickup trucks on the road, declaring the driver’s pride in their daily work and, at the same time, recognizing the hardships of their chosen profession: “Oilfield Strong.” This phrase, also printed on t-shirts, embroidered on hats, and tattooed on arms, represents the toughness of oilfield workers to endure the heat, cold, flood, drought, boom and inevitable bust that comes with life in the patch. These workers embrace the challenges and benefits of oilfield life and continue driving forward no matter what. Resilience is an admired trait in an individual. Like the workers they employ, OFS companies need resilience in their operating model so that they can survive and win in this challenging industry.
Resilience Begins and Ends with Strategy
Building resiliency into a business model starts with the company’s strategy. Leaders in the oilfield are optimistic by nature. Tomorrow will be better than today, and demand is always going to go up eventually. However, the company’s strategy team needs to acknowledge that boom-and-bust cycles in the sector are as much tradition, as they are fact, and they must consider how to best position the business to cope with this inherent volatility.
For smaller companies, developing resiliency may require broadening the product portfolio to serve additional niches across the oil and gas value chain. It could also mean expanding geographically to hedge against risks present in a specific operating area. A unique area of concern for smaller OFS companies is chasing growth based on the business of only a single, or small number of clients. Becoming the preferred service provider of an active operator could be a huge win for a service company, but they need to be aware of the perennial risk of putting too many eggs in one basket. Drilling and completion schedules change with oil and gas prices that can behave like the wind, and the service company can be left holding stranded inventory and excess service capacity any time that the wind direction changes.
For larger more established OFS companies, resilience could mean refocusing on core strengths and shedding underperforming business units. Large companies want to become larger and in good times are often eager to acquire bolt-on businesses or product lines. These additions are always sound investments at the time and often based on optimistic forecasting, but a few hiccups with the integration of the new product line coupled with a market move in the wrong direction and the cashflow from this promising business can quickly turn negative.
After a strategy is developed, it should be stress-tested to see how well it holds up in the extremes of the business cycle. What does an ultra-low rig count do to our sales? What happens if a key client is acquired? An external, objective perspective can be invaluable when war-gaming the possible “what if?” scenarios to remove biases and challenging the leaders to think beyond what they believe is likely. Identifying blind spots in the strategy when there is still room to maneuver allows the management team to develop options and contingency plans that can build in resilience for any environment.
Innovation Breeds Resilience
Technologically advanced products and services provide a valuable competitive edge and being a technology leader also adds a measure of resilience to an OFS company’s offering. Like many industrial business sectors, oil and gas operators are looking for new ways to extract value out of the sector through ongoing digital transformation. Technology can enable products and services to be delivered faster, safer, more reliably, and be able to capture and process data. Remaining at the forefront of product technology requires a focused R&D strategy that aligns scientific capabilities to the practical applications in the field.
In addition to externally focused technology, resilient OFS companies should continuously improve their internal business processes with technology. Advanced digital technologies like RPA (Robotic Process Automation) and machine learning can reduce or eliminate the need for humans to perform specific tasks by automating manual processes enabling businesses to scale up and down without the need for significant headcount adjustments. The technology landscape is continually evolving, and resilient OFS companies incorporate the advances into their product offerings and business processes.
Perhaps most important of all, businesses cannot execute a perfectly crafted strategy with leading-edge business processes without capable, resilient leaders. Service companies require skilled leaders that can navigate through the inevitable twists and turns of the business cycle to sustain the business and carry it forward on a solid footing.
Resilient OFS leaders do these things in common:
- Confront the reality of the situation as it is and make the necessary, often complicated adjustments
- Can identify opportunities in the downturns
- Maintain a positive attitude and leadership presence when things are not going as initially planned and are decisive despite incomplete data
- Know how to overcome resistance to implemented changes
Companies should incorporate resiliency into their leadership development initiatives by teaching and reinforcing resilient behaviors. When selecting leaders for critical positions, companies should clearly look for individuals with the necessary knowledge and skill but should also value those that have the experience and appropriate perspective gained from internalizing the hard lessons of a volatile operating environment. The need for effective leaders with vision and perseverance is in constant demand today as much as it ever was and being able to lead the team forward despite the challenges we face in a volatile industry should be more highly valued that it perhaps is.
Rapid Response Requires Flexibility
Resiliency is about being flexible – bending without breaking and maintaining a business posture to be able to succeed at every opportunity. While less resilient competitors are can be rigid and may be forced to adjust quickly to the changing environment, the best OFS companies build flexibility into their business model. A resilient OFS business identifies the next threat that it faces, responds aggressively to minimize the impact, and quickly re-establishes a growth trajectory as the market improves. Winning in any environment is not easy, but by challenging their business strategy, incorporating technology, and enabling dynamic leadership, resilient OFS companies can become “Oilfield Strong.”
Carnrite’s wealth of knowledge and experience allow for a fresh perspective and pragmatic solutions designed to create inherent organizational and business resiliency.
About the Authors
Jacob Sonsel is a Director at The Carnrite Group. His recent engagements include field operations evaluation, development program process improvement, and organizational design. Prior to joining Carnrite, Jake was an operations manager with FMC Technologies managing Wellhead, Frac Rental Equipment and Fluid Control Services product lines. His responsibilities included P&L management, strategy development and implementation, material and labor planning, and capital budgeting.
Tony Shurtleff is a Consultant at The Carnrite Group and experienced in turnarounds and restructuring, enterprise risk management, IT strategy, project management, field operating practices, and process improvement.