Permian Basin producer brings oilfield services in-house. Example of a new trend?

Permian Basin-based Amazing Energy Oil and Gas buys Jilpetco Inc., Gulf South Securities, Inc. to improve efficiencies, lower costs

American oil and gas producers are pulling out all the stops to drive down costs in a low-price environment, including using in-house staff and equipment to service their wells instead of contracting to service companies.

This sort of arrangement was once common in the oil patch, says energy economist Ed Hirs.

“Smaller producers, to keep staff employed, are bringing back in house services they would have contracted out just last year,” he said in an email.

“Senior management are handling the duties of field engineer and pumper, like they did 20 years when they were just starting out.  This trend will continue until cash flows at the field level begin to improve markedly. ”

Take the example of Amazing Energy Oil and Gas Co. (AMAZ) which operates in the Permian Basin on Pecos County, Texas property.

The company says it has closed  the acquisition of Jilpetco Inc., a local operator and service company, for $500,000.

Amazing Energy COO Reese Pinney says that Jilpetco, which will be operated as a wholly-owned subsidiary, “greatly improves operational and cost control over our leasehold.”

Within the next 60 days Amazing Energy will start a workover program on four wells, implementing the completion design that it says has delivered the best results to date.

“The last four wells that had this work done had an average reported IP of 80 barrels per day. Replication of this would add significantly to the company’s new cash flow, even at today’s product prices,” said Pinney.

Jilpetco will continue as a registered operator with the Texas Railroad Commission, with Pinney serving as its president.

Jilpetco’s equipment includes workover rigs and a drilling rig, which Pinney says “is perfectly sized for the shallow Queen Sand wells we are drilling, thereby providing further control over timing and costs.

“These moves by the company not only advance our plans immediately, but also serve to add a measure of protection when the industry rebounds and services become more costly or hard to obtain.”

Amazing Energy also bought Gulf South Securities, Inc., a SEC and FINRA registered broker-dealer specializing in raising drilling capital. Gulf South will also be operated as a wholly-owned subsidiary of Amazing Energy.