Oil and gas producers have a certain skill set based on the talent they need to find deposits of organic material that has rotted below the surface of the earth for the past few hundred million years. They are good at it. Why? They hire the right people with the skills they require to find that stuff. Seems logical.

The business of extracting hydro carbons is heavily dependent on third party contractors. Most producing companies do not really own much in the way of drilling rigs, water trucks, etc. They hire this kind of talent from the dizzying array of energy service companies in the market. However, the organization of this network is a real brain cramp.

When we meet with operating companies about how they manage their supply chain, we get a wide-ranging response about how the process works from company to company. We hear everything from sophisticated enterprise management platforms to, “I send out an email to my Rolodex of service companies. I have a great relationship with all of them, many on a personal level, and use them for each well we drill.” These responses are being used depending on the size of the company. But, the interesting thing is all companies, from micro juniors to majors, have told us they are having issues and need help getting things more organized, verifiable, and audit proof. Not all operating companies are good at logistics and supply chain management. Again, seems logical.

The process of extracting the ancient plant goo is complex. Vendors offer services or products that are crucial in all facets of the lifecycle of a well. With each project typically involving 25+ vendors the operator is responsible for keeping track of, field supervisor’s days are divided between reporting on actual operations and coordinating these vendors.

In times such as what we are struggling through now, when commodity prices are constricted, the pain threshold gets challenged across the entire network. Typically, the letter goes out to energy service companies requesting they reduce their rates. Seems logical. But, is it the answer? How hard are producers looking to find efficiencies in their own backyard before they just throw out the obligatory oration of, “Okay, all you service companies, you know the drill. Drop your pants and bend over. This one might hurt a bit.” Well the old butt cheeks are still puckered, and the mercy rule does not apply here. At least it doesn’t for the companies that have somehow managed to stay in business. They are the smart ones that made the appropriate adjustments instead of just blankly staring at each other in the lunch room hoping the beatings would stop. They haven’t.