Executive viewpoint

Producers are seeing higher profits, and the companies supporting them are steadily raising prices for offerings once heavily discounted during the downturn, in an effort to remain competitive. Midstream companies are also burgeoning, in line with the increased production. The Permian is doubling other U.S. plays’ production each month (though other U.S. shales should not be discounted).

The Eagle Ford, which is like the Permian’s forgotten step-sibling, has seen an influx of private equity investment, as major players divest to concentrate their resources on the Gulf and the Permian. It is unclear whether this will steadily increase production, but with available infrastructure, proven rock, and eager investors, it appears likely. The Haynesville play that accelerated the shale movement is rising again, with laterals up to 10,000 ft and strong productivity per wellbore, making it worthwhile for producers to invest. The Bakken also should see a 10% output increase in the next year.

For producers, the main short-term concern is preparing for potentially constrained prices that could be a result of market oversupply. Pad drilling, longer laterals, and quicker completions help keep costs manageable and producers in the black, for the present. This is a difficult model for the smaller, more localized producers with less established production cashflow than the majors and large independents.

Yellowjacket Oilfield Services offers oilfield services, including fishing and rental, wireline and completion services from over 20 locations throughout the U.S., focusing on the Permian basin and in close proximity to thousands of producing wells and drilling rigs.

Low price effects. While lower prices impact the entire energy sector, service companies are hit the hardest. They are the only sector completely dependent on continued drilling. Excess supply, created during a downturn, was largely reduced through mergers and acquisitions, enabling a strong rebound. This should hold true, provided that drilling new wells remains profitable for producers. Service companies investing in R&D of new products and services, which allow producers to operate more efficiently, are best equipped to survive lower prices.

Many of Yellowjacket’s assets were purchased during the energy-cycle downturn. The executive team reviewed profit centers and services, as it integrated each acquisition. Management reduced overhead, discontinued unprofitable services and streamlined service lines offered to the industry. Now stabilized, Yellowjacket has turned its attention to expanding operations and services in a targeted approach. With a young, talented and disciplined executive team, Yellowjacket is uniquely positioned to take advantage of the current environment.

The bottom line is that times are good, and should be for the foreseeable future. Yet, there is another potential future: Depressed prices resulting from oversupply, economic and political uncertainties, or a number of other unforeseen events. To survive these uncertain times, businesses must remain disciplined—those with healthy balance sheets, a focus on optimizing operations, and strong company cultures, rise to the top.

Debt is necessary, but a load to bear in a highly volatile industry. Service companies must invest in, and maintain, equipment, but they should take care to avoid overextension during the boom. This prevents them from adjusting to the lower prices that producers will pay when the price-per-barrel drops and can reduce break-even cashflow levels. Leverage is a dangerous concept for oilfield service companies. It finances rapid growth in a rising commodity market but exposes service companies to excessive risk when the market turns, which it inevitably does. Steady organic growth, financed substantially by equity or long-term capital, will allow us to grow and prosper in a highly cyclical business.

As oil prices increase, so does demand for top talent. Without competitive compensation packages and a supportive, inviting culture, companies face high turnover and retention challenges. In the service sector, great equipment operators are scarce. When found, we strive to keep them, knowing the demand for them in this type of market. While Yellowjacket has an extensive inventory of specialized equipment, we take great pride in the experienced, highly skilled talent recruited and retained to support our service lines.

Finally, with Generation Z (the most technologically advanced, diverse group of people) entering the workforce, companies should be prepared to capitalize on these skills and spend more time and money on data mining and analytics. I believe the energy industry has barely scratched the surface of this new era, and the younger generations are already beginning to lead us in that direction.

John F. Kennedy said it best: “The time to mend the roof is when the sun is shining.” The companies with the greatest chance to weather the next storm are those not distracted by, or reveling in, rapid growth, but investing in honing their employees, operations and infrastructure to prepare for the future.

Yellowjacket Oilfield Services is certainly doing that. We recognize each market has different needs and opportunities, and we will continue to focus on the right blend of services to address those needs. Our vision and agile model provide for easy expansion and the ability to further cement our place in the market.