Q1 tough for Permian Basin service companies, but future looks brighter

Permian Basin oil patch looking forward to recovery when price recovers to $45 or $50 and holds for 30 days

Mike Swihart was a bit surprised when some of his Permian Basin oil and gas customers called him in during the first quarter and asked him to sharpen his pencil.

Swihart’s Midland-based company, Production Lift Systems Inc., provides plunger lift, wireline, swabbing, and well automation products and services, many of which are counter-cyclical to oil prices. [Full disclosure: PLSI advertises with American Energy News] While other service companies have lost business since the bust started in late 2014, PLSI’s sales have increased because producers are looking to cut operating costs any way they can.

“Last year was a great year, we had a 40 per cent increase in sales,” he said. “This year, I don’t know if we can match that again.”

PLSI isn’t alone.

Alan Means is a petroleum engineer and CEO of Midland-based Cambrian Management, as well as 30-year veteran of the Permian Basin oil patch. He says the first quarter was difficult for the industry.

“Absolutely, the price of crude touched $25/b twice in Q1. We also started to see a lot of layoffs on the producing side. The number of bankruptcies increased also,” he said in an interview. “It will have to get to $50-plus to see any substantial increase in activity.”

A number of Texas-based oilfield companies reported Q1 activity was soft. For example, Basic Energy Services said its Q1 revenue declined 19 per cent to $130.4 million from $161.0 million, even though management had expected deferred projects from Q4 to be completed in early in the new year. By the end of Q1, Basic Energy had stacked 134,000 hydraulic horsepower and 127 well servicing rigs.

“I wouldn’t say [Permian Basin] people are pessimistic, but they are reserved,” said Stephen Robertson, executive VP of the Permian Basin Petroleum Association in an interview.

“To drill a hole in the ground and throw millions of dollars at it, you have to be an optimist about it. People who were here before the downturn have ridden through these kinds of economic cycles before. They know there will be an upswing, they just don’t know when it’s going to be.”

While Q1 was a disappointment, Swihart is optimistic the rest of the year is looking up.

“There’s every indication the remaining three quarters are going to have some life to them,” he said. “I don’t think anyone is going to hang their hat on anything until we get $45 or $50 and it stays there for 30 days.”

WTI CLc1 traded at $43.46 a barrel Monday morning, down about three per cent, though prices briefly rallied after Goldman Sachs said it held a long-term view of $50-$60 for WTI. EOG Resources said Friday it could post “strong returns” at $40 oil and other Permian Basin producers, such as Encana, have reported cost reductions of 3o to 40 per cent, putting them in a good position when prices recover.

 

Posted in: Markham on Energy

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