As the ‘energy boom’ lifts the U.S. economy, are you prepared?

May 2, 2013

Who would have predicted the U.S. would ever become an oil exporter? The International Energy Agency predicts the U.S. could become the world's biggest oil producer by 2020.

Hardly a day goes by without a report on the “energy boom.” Oil and natural gas drilling is expanding in the Bakken formation in North Dakota, the Barnett Shale (Texas), the Haynesville/Bossier Shale (Louisiana and Texas), the Antrim Shale (Michigan), the Fayetteville Shale (Arkansas), the Marcellus Shale (New York, Ohio, Pennsylvania and West Virginia) and the New Albany Shale (Indiana and Kentucky).

The activity impacts the U.S. economy. And the tool industry, including mobile distributors, is among the more immediate beneficiaries. Particularly in the oil and natural gas drilling regions.

I witnessed this first hand riding with tool distributors in Texas earlier this year. One Texas distributor said companies involved in extracting, refining and delivering oil and natural gas comprise his largest customer base and account for 40 percent of his business. During the Mac Tools, Matco Tools and Cornwell Tools distributor shows in February and March, distributors from other regions confirmed that they are also cashing in.

It would be premature to say the “energy boom” has rescued the nation from its economic woes. We are still at the beginning of a significant period of growth in energy production.

Because many of the companies involved in the extraction, refinement and transport of oil and gas use a lot of equipment, it behooves the tool industry to understand the opportunity at hand. Wells need to be drilled. Oil and gas rigs need to be installed. Rigs need to be kept running 24 hours a day. Techs need all types of tools to keep the rigs operating at full capacity.

After the oil and gas is extracted, it has to be treated before it is loaded onto tankers and transported to refineries. Sophisticated pumps are used to process the oil before it is loaded onto tankers and hauled to refineries. Post-production activities before the oil and gas are transported include gathering, dehydrating, compressing and processing.

With hydraulic fracturing (known as “fracking”), there is more equipment involved in both the extraction and treatment of the crude, and more water and chemical handling.

Drilling revives communities

Michael Gruber, a Mac Tools distributor in Williamsport, Pa., was a discouraged man three years ago as the recession ravaged his area. Then drillers began moving in to extract natural gas from the Marcellus Shale. Companies began hiring as the drilling activity grew. Automotive shops revived. “It’s had a huge impact on this area,” Gruber says. “This area’s definitely different than it used to be.”

Shops that service the tankers have become some of Gruber’s best customers. “It brought me back,” he says.

The prosperity has since brought new competition to the area, but Gruber isn’t complaining. His business is healthy, and being the veteran distributor in his market has served him well.

The effects of the Marcellus Shale extend as far south as Mechanicsburg, Pa., noted Jay Hoover, another Mac Tools distributor. While Mechanicsburg is nearly an hour and half from the hub of the fracking activity, some of Hoover’s repair shops service trucks that carry supplies to fracking operations.

Bobby Herndon, another distributor, saw it coming while working as a diagnostic tech for an oil and gas service company in Searcy, Ark. When the company decided to relocate its main operations to another part of the state, Herndon knew he had plenty of options being a tool expert in a region where energy development activity is booming. Not wanting to relocate, Herndon became a Matco Tools distributor. Four months later, he couldn’t be happier.

When the Arkansas company relocated its main operations, they decided to turn their former building into an equipment refurbishing center, rebuilding engines, transmissions and other machines. That center has become one of Herndon’s biggest tool customers. “They use a lot of tools,” he observes.

And it’s not the only energy-related stop now Herndon visits as a Matco distributor. Techs working at the oil and gas concerns are among the highest paid people he sells to. Weekly collections of $50 and more aren’t unusual with some of these customers. In many cases, the techs get tool spending allocations from their employers.

Energy boom brings challenges

Energy companies aren’t always easy customers. One Texas tool distributor I rode with lost his biggest customer, an oil services contractor, when it decided to supply the service techs their tools. The company was using another source for its tools.

Veterans of the oil industry are quick to note that it’s highly volatile. A lot of oil and gas wells have been capped for various reasons. Drillers stay in an area for undetermined periods of time, depending on leases and their productivity.

Energy development remains a small customer segment that the mobile distribution industry. But it is growing.

Mobile distributors that take the time to learn about new industries will be in a better position to meet new customer needs.

Distributors must also recognize the need to keep abreast new business opportunities. They can do this by keeping up to date on the economy and by networking with business organizations.

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