Service companies big and small have had a tough time over the past six quarters. The dramatic drop in the number of wells being drilled and the lower number of wells being completed have affected everyone who takes part in extracting oil out of the ground. This has forced tens of thousands of layoffs worldwide, and the Permian Basin has felt its fair share of pain. One company, however, says it’s having its best year so far.
Octane Energy is a well-site consultancy firm, filling the role best known in industry parlance as the “company man.” President and CEO Jared Blong said his company, which was established in 2013, provides a service in dire need in a low oil price environment: finding efficiencies. Blong’s firm connects operators big and small with service companies and oversees all aspects of the operation in hands-on fashion. Octane innovates and has been successful in the process. That’s not too bad for a company that originally wanted to drill wells..
MRT: How did you get into the consultancy business?
BLONG: We got into this business unintentionally. We had intended to build a Permian-based, Permian-focused high-tech drilling company, but our timing was terrible. Looking back on that, though, we're ecstatic that our timing was terrible because we don't owe people hundreds of millions of dollars for iron that's not working.
We started Octane Energy Consulting as a means to finance (other projects), and we captured the hearts of oil and gas companies here by doing things with integrity and excellence. We've just organically grown from there. We've done a tremendous amount of work in both the Delaware and Midland basins and the Central Basin Platform. We've been up in the Northwestern Shelf, where this San Andres renaissance has been underway, for almost three years now. We've helped operators transfer from vertical to horizontal life in the San Andres.
MRT: How has the downturn been for Octane Energy?
BLONG: It's been remarkably good. No windfall here, but as (CrownQuest CEO) Tim Dunn always says, "We've kept our name in the phone book." That's a good thing. We're working for some really great people and have a deeper bench than ever working for us and are ready to be put to work through our organization.
I think we're in a good spot and showing some resiliency — a lot of resiliency, depending on who you ask — in the midst of the biggest activity downturn since the late 1940s. It bodes well for us.
MRT: What changes has Octane made in the past seven quarters?
BLONG: We've always run very lean. We have a philosophy that nickels are manhole covers in our shop, and that's not something that's been driven by the downturn; that's been driven by being a startup. Even though we're not a startup anymore, it's a governing philosophy we have. We've kept our internal staff pretty lean, and we've been very selective about the kinds offolks that are working for us in a subcontracting capacity.
We've been less-selective on the type of people we're looking for in the operating space becauseeverybody's money is green. As long as they pay their bills, we're good with it, and we've learned to deal with a wide variety of people in the midst of the downturn.
Frankly, I think that what we do has become of greater value in the midst of lower commodity prices because operators have to have more-efficient capital deployment, and that's what we specialize in. The need for our facet of the service sector, where we stand between the service companies and the operators, has become more necessary.
MRT: Break-even prices in the Permian are decent. Has there been an uptick in business for Octane Energy?
BLONG: Yes. We've had two different types of growth. One part is that folks that we've been working with all along have been getting more active. The other is new operators to us. There have been some of those that have made the election to go ahead and deploy their capital while it's conceivably inexpensive to do so, hoping that prices will recover around the fourth quarter this year or early next year.
Hopefully, we will continue to see cost improvements, and I say that emphatically because we see costs and prices as different metrics. Service company prices have been scraping the bottom of the barrel for some time now. We're still seeing some erratic behavior, both up and down, but we're also seeing some fat on the bone for us. We're able to go to an oil company and adjust business to see cost improvements of 15 percent to 30 percent.
For guys that haven't been doing anything lately, we can leverage our momentum as an organization from an efficiency perspective. We can say, "hey, these are the lessons we've been learning; these are the service providers that are really stepping up to the plate from a price and quality standpoint, so we think they're qualitatively better." And because we work in all parts of the basin and have people who work for us literally from California to Virginia, and have worked inevery basin in North America, we draw from a broad experience base.
We have a great pool of talent, and we work with other service companies to get the most bang for our buck. It's very human-intelligence driven and pair that up with the data. We're seeing a lot of improvements in operations.
MRT: How does Octane Energy work?
BLONG: We fit into the facet of the industry that calls for well-site consulting, project management and engineering. We're the folks that manage and deploy capital on behalf of oil and gas companies with service companies. The guy that's leading the project on location is typically one of the folks that works with us or someone like us. We make it so companies don't haveto keep someone on salary; our activity level matches their activity level.
MRT: Is Octane a critical player in finding efficiencies?
BLONG: Yes. We have some unique relationships with capital providers and institutional investors. We host them several times a year in our office because they want to know the real boots-on-the-ground story out here. If the investment community realizes our job function is becoming more and more critical, we feel the operating community will continue to trend in that direction. That being said, company men — which is the common vernacular — have been in use for decades. The more white-glove approach that we bring to the table? Not so much. Consider us the on-demand version of well-site professional and technical expertise.
Living in more of an on-demand economy requires us to identify talent and deploy that talent to the right places in a very expeditious fashion. We have to know the application. In doing so, what we’re doing is becoming more critical, especially as operators look to improve profits versus losses. As they’re looking at capex and opex per barrel, we work to decrease those numbers.
MRT: What does Octane do differently?
BLONG: I worked for an old drilling guy — when I cut my teeth in the business — who owned an oil company and a consulting firm, but I would say by and large he was very hands-off compared to what we do. I saw an opportunity to be more on-demand and more white-glove, to bring more human intelligence and data analytics to mitigate risk well and, in doing so, help improve capital efficiency. If we can save you x-number of dollars, are you going to spend that turning the bit more? Everyone says yes.
MRT: Has the Permian been accepting of you as competition?
BLONG: What I love about the Permian is that if you put a good prospect together, you work your rear end off and surround yourself with talented people, the sky is the limit. We’ve seen that time and again for almost a century that you have a great entrepreneur who is ready to bootstrap something the right way. I think in the Permian, and particularly in the Midland-Odessa area, people are open to others starting businesses. We surrounded ourselves with talented people and worked with people willing to help at the outset. We got good references behind us in our book of business, and it’s continued to grow.
We love helping startup oil companies because those guys are trying to get funding or have funding and acreage already, and they can’t put a team together because they don’t want to spend the money on it or shouldn’t spend the money on it. We really fill a void, especially at growth stage, to get them from point A to point B. We also augment bigger oil companies with field and technical staff to dial in on efficiencies.
MRT: Who are your clients?
BLONG: We don’t work for Occidental or Chevron, but we work for Energen, Henry and Patriot Resources all the way down to three-man startups with a couple of postage stamps of acreage that they’re trying to drill. So, people that have been in the business for 50 years and people in it for five months.
MRT: Has business been slow in the downturn?
BLONG: We’ve actually had a record year so far. With things being really challenging, especially starting this time last year with so much volatility in the commodity market, we ratcheted down our effort and made sure we’re targeting folks we felt had an impetus to be active. We’ve delivered on what we said we were going to do, which sounds incredibly simple, but it’s so challenging. … We’ve got a great financial partner with a local bank in town that has decided to put their boots on with us, and that’s a great thing. Having great partners makes all the difference in the world.
MRT: Are there any efficiencies you’ve found that you warn all companies about?
BLONG: You’re going to laugh at this because it seems rudimentary, but physical presence makes a humongous difference. At the height of the boom, I think a lot of people had a laissez faire management style. We’re hands-on. We don’t just sit in town. I get caliche on my boots just as much as the next guy does, so I sit in the boardroom and I sit on the pad, and I’m comfortable in both spaces. That’s what our company is really about: bridging the boardroom and the field. I think our team of technical professionals does an extraordinary job communicating the complex to the decision-makers.
MRT: Why work in the Permian?
BLONG: I was sitting in a business meeting with some guys from Oklahoma recently, and they said, “Man, you guys are so lucky that you’re here. The last drilling rig in North America, whenever that day comes, will be in this basin.” And I said, “That’s why this is home.”
Source:Midland Reporter Telegram