As Octane Energy turns 5 years old this month, I’m sitting down to consider some hard-won lessons from our time in the oilfield service space in the Permian Basin. I’m sure you’ve all heard that the Permian is the largest oil producing basin in the US and is projected to soon be the largest producing region in the world. Midlanders seem to talk about our elevated status everywhere we go…and I’m not sure anyone else is as impressed as we Midlanders are, ourselves.
At any rate, that’s what the data indicates: the Permian is the place to be for exploration and production in this new uptick in the market. Octane experienced our share of difficult economic times during the last downturn but we have successfully, by God’s grace, weathered the storm and lived to tell about it. My late father, Mark Merritt, used to tell me that the people who survive through the turmoil and sorrow of the busts would do well to remember those hard lessons when the next boom comes around…and so we are endeavoring to remember:
1.) Prices may rise…but they will definitely fall.
Octane has learned to plan our budgets and forecasts with an optimistic eye toward the economic future, while always keeping the other eye on the potential effects of the next bust. If our numbers don’t make sense when the bottom falls out, we know we will never make it until the cycle turns. My 35 years around this business tell me the next peak will always be shorter than anyone predicts and the next trough will dip lower and longer than we can imagine…so plan ahead.
2.) Safety First has to be more than a slogan.
Drilling, completions and production are all dangerous processes. Whether you are drilling ahead in a rank zone in the Delaware or pumping stage 65 in a two-mile lateral or just doing an acid job in the San Andres, things can always go badly on location. The right training and precautions are essential at the beginning of the program. If you wait until you see problems on the horizon, you’ve waited too long.
3.) You get what you pay for.
Is there a company man who is willing to work for a lower day rate? Definitely. Can we depend on that guy or ensure that your superintendent will be happy with him? Unfortunately, the answer is often “no.” A good company man is worth his weight in gold (and let’s be honest…some of ‘em are big dudes). We know you’ll be glad to have him when something twists off.
Can we get a cheaper rig for your next project? Yep. But we also know that the right rig for the right job will pay off in multiple days shaved off your AFE. We have learned it is almost always worth it to wait for or pay for the right iron.
Is it possible to reduce insurance premiums and cut those costs? It is possible…but the right coverage in place will inevitably pay for itself when a finger gets smashed or a well bore burps H2S. We always want to stand behind our consultants and our clients, to ensure we can care for people and projects well.
Can we find a tier 2 or 3 mud program or bit or BOP or *insert tool here*for your next well? We can…but we can almost guarantee you won’t end up happy. Doing things right the first time will pay off every single time and you will walk away with happy investors and a well bore you are proud of.
4.) Don’t count your chickens until…you are standing on the pad, spudding in or fracing your first stage.
Pardon my mixed metaphor – but it is true. If we had a nickel for every deal that never hatched, we would have already cashed out and moved to the lake. This business takes time and effort and patience through every single step of the process, all the way to the tank battery. If you make assumptions or push too hard, the outcome won’t be in your favor.
5.) Your Boom-Time reputation will follow you to the Bust
Octane is doing our level best to keep our integrity and level of excellence just as high when prices and production are climbing and the pace is frantic because we want to be the name at the top of your list to call when WTI takes a hit and you’ve still got lease hold obligations to meet. We know we can’t control everything or be perfect all the time but it is our goal to be consistent in our standards, regardless of price per barrel.
I’ll tell you this: when I was 16 years old, oil was trading at $10, Midland was rough and I was answering the phone in the living room to take down a message from Tommy Taylor on well log readings for my dad. This business was the very last one I wanted for my future. But sitting here today and looking back over it all, I have to admit oil is in my blood and I’m having fun.
Let’s keep turning to the right, y’all.
Lori Merritt Blong
Source:Lori Merritt Blong Blog