Oilfield Service Software Costs...
is it worth it?
Today, even with the resurgence in prices and related drilling activities, the cost structure of many oilfield service (OFS) providers continues to place an undue burden on their profitability. Further, many oilfield service providers (more so than the operators) are finding that adopting technologies which support the business functions are having a greater impact on their profitability than adopting technologies which support the engineering functions. But why? How did we get here, what can be done about it, at what cost?
In response to lower oil prices and demand over the last few years, many OFS providers cut labor and equipment costs substantially as it was critical to survival. Many who didn’t react quick enough, or who were laden with high fixed costs, didn’t make it. Some are sitting still waiting on a return to even higher prices and will watch while others pass them by. Today, lessons learned from the past are leading many to continually seek technologies to:
- Further Reduce Costs
- Increase Efficiencies
- Increase the Speed of Cash Flow
- Increase Customer Adds.
- Strengthen their Competitive Advantages
- Attract the best talent
But the numerous requirements of the oilfield service industry are unique, and the variety of types of services within the OFS industry are even more unique. Thus, finding a solution comprehensive enough to meet a specific providers’ requirements is often quite challenging.
The high costs inherent in the oilfield industry:
The complexities of the industry have caused typical oilfield service companies to deploy multiple independent systems and processes causing inefficiencies, mistakes, and more labor costs. This problem began to erode the bottom line even before the collapse in prices and continues to do so today. Further compounding these challenges are the complexities of changing external regulatory and customer requirements. Operators impose their own unique requirements for field ticket documentation and invoice approvals which can significantly delay payments.
Yet service companies are routinely expected to respond quickly, safely deploy millions of dollars of equipment and crews in harsh environments, and allow operators to move this equipment from site-to-site at will. Often equipment deployed together ends up being returned separately, causing some valuable tools and equipment to be lost and damaged. Then when it is finally returned, unrecorded and unbilled usage erodes profits even further. The costs to repair equipment damaged in the field are often not easily tracked and billed back to the operator. We often hear from our new clients that they did not know which jobs or business lines were truly profitable, or to what extent, and why.
High oil prices served as an “enabler”, masking the high costs of manpower and outdated technologies
In the past, higher oil prices spurred constant excess demand for field service and supply providers. This record activity and revenue camouflaged inefficiencies and often masked the impact of lost equipment, billing errors, rejected invoices, and extra labor costs. Companies were able to earn substantial profits without addressing these issues. Speed became king, disconnected systems caused both field and office staff to be over-worked, costly mistakes were made and even repeated, and the imbalance of demand/supply for skilled people fueled high employee turnover.
Additional manpower was thrown at the problem as labor was often perceived as the quickest to deploy, inefficiencies in the paper flow and business processes were largely ignored. There was little time or available personnel to identify or implement time-saving technologies. When found, the applications were typically either not comprehensive enough to handle the variety of activities, and were either too complicated or too expensive; often no action was taken.
The industry’s reliance on mounds of paperwork, spreadsheets and disparate software systems create “islands of data.” Management is deprived of real-time visibility limiting their ability to make timely decisions to optimize performance and to improve the bottom line. The office staff has to manually make redundant entries into multiple places, setting up a perfect environment for errors.
Today, old technology translates to higher costs, but also the ability to add new customers, especially in areas flooded with service providers, like the Permian.
With prices rebounding, ignoring these inefficiencies carries a costs not just with respect to profits and cash flow, and the ability to compete to win new business. It becomes critical to seize every opportunity to be more financially secure, competitive, and attractive – both to customers and potential suitors. The most perceptive OFS companies are acting upon the things they can control today, rather than things they cannot such as the price of crude and natural gas. They are adopting business strategies to reduce cost and increase cash flow and are acquiring the technology and expertise to enable execution of their strategies …
Increase cash flow, profits, employee retention, and market share.
Properly equipped with the right software and an experienced partner, OFS companies can become financially stronger today, without waiting on a rebound in crude and NG prices. Accelerating the field work-to-invoice-to-payment cycle will increase cash flow. Properly equipped, OFS companies have the power to virtually eliminate lost equipment, lost revenue from missing tickets, incomplete invoices, and can increase equipment up-time, improve customer loyalty, win new customers and increase their market share. Business processes can be streamlined, accuracy improved, and real-time visibility of all operations, departments, and locations can be achieved. Financials and cash flow can be quickly analyzed, even on a daily basis.
Running a field service or supply company will be simpler. It will also be easier to keep key employees, acquire the best industry talent, and appeal to investors. (They’re not big fans of editable books and of spreadsheets, per Jason Schumacher, of Dentons US LLP, experienced with over 100 M&A transactions)
Take advantage of our Financial Impact and Cash Flow Calculators to determine the $ impact of implementing a few of the strategies proven to work in this industry. The the payback in cash flow alone can be huge (e.g. $273,972 for every $10 million in annual by invoicing 10 days faster), and the upfront cost for most companies is negligible, especially with 100% vendor financing.