In the current industry downturn, companies of all shapes and sizes are doing everything they can to cut costs and maximize revenues. How this is done varies from one company to another. But typically, the first thing management will look to do is trim the fat, so to speak. Efficiency is king.
Upstream oil and gas companies feel the pain of low oil and gas prices directly. If there can be any unnecessary costs identified in producing the next barrel of oil, you can be sure those costs will be cut.
For example, when setting up a standard single well battery, excessive costs to make it a reality happen all too often. Having multiple contractors and equipment vendors visiting a remote site usually means extensive travel costs, overtime, and freight charges. There may be one company bringing out and setting up the separator, another bringing the tank, and so on until the accountants are wondering where the budget went!
Excessive costs including setting up a new well battery are intolerable; especially in today’s low oil price environment. One way that companies are now dealing with reducing costs is through renting equipment instead of purchasing it outright.
“The costs of new equipment for an exploration project can be huge – and risky. If not enough resources are found, the equipment eats into profit margins. Sure, you can use it for the next project, but that’s if there is a next project,” says Dallas Cairns.
Dallas is General Manager of OSY Rentals. OSY is an oilfield rental and sales company specializing in vapour tight tank packages, flares, knockouts and separators. Dallas sees now as the perfect time for companies to consider renting the necessary equipment rather than purchasing it outright.
“If you rent the package you need, everything comes from one company and you only see one charge for the entire setup,” remarks Cairns.
What’s more, there are many hidden costs to owning equipment – not just depreciation. Equipment owners are responsible for maintaining it, repairing it, moving it from site to site and much more.
“If you rent, you remove all of these headaches with the option to buy your equipment should you decide to hang onto it,” adds Cairns. “Ongoing maintenance costs are included in our monthly rental costs and so cost spikes from having to send out a maintenance crew or to do emergency repairs on a remote single well battery are avoided.
Not only do companies have to cut costs but also increase production in order to see a greater profit. Increasing production means more projects, more exploration, and more equipment is required for companies to do the job.
“Renting equipment can allow your business to have multiple projects on the go without overextending cash flow,” says Cairns, adding, “we do work for the smallest of small companies and also for the big guys and there is no cheaper option to set up a well battery.”
In addition to inefficient cost structures, government regulation can also add burdensome costs to oil and gas producers.
The Government of Saskatchewan recently put forth new, stricter guidelines concerning the venting of gas from wells into the atmosphere. Under the new guidelines, the government’s preference is for no gas to be vented into the atmosphere, especially hydrogen sulfide and methane.
But what if an oil company purchased a new storage tank right before the announcement? To avoid the risk of fines or a shut-in, they would likely be forced to sell the equipment at a deep discount.
Addressing this risk can best be done by renting the right equipment – such as positive pressure production packages. Also known as a vapour tight tanks, they are a cost effective approach ensuring operations are in compliance with both Alberta and Saskatchewan regulations.
“We provide the right equipment to set up a single well battery and also don’t charge for the setup,” says Cairns. “Companies often spend tens of thousands of dollars doing the engineering on a permanent single well battery installation. These costs can be greatly mitigated by renting as there is no longer any need to spend a bunch of money engineering the site.”
As more oil and gas explorers look to cut costs and improve profits, renting oilfield equipment is poised to grow in popularity.
“Costs are predictable and you never run the risk of bleeding cash out on a project. Plus, your procurement process is streamlined; one call and we bring everything you need, including vapour-tight tank packages, flares and knockouts,” says Cairns.