Oilfield Services Capacity: Hitting the Limits?
In the depths of the COVID pandemic, oilfield activity ground to a halt and service companies were forced to shrink. While oilfield activity levels have rebounded significantly, they are still below the pre-pandemic peaks.
This week, Steve Glanville, President and Chief Operating Officer of STEP Energy Services and Shawn Martens, Co-Founder, VP of Operations at IronSight join the podcast.
Here are some of the questions that Peter and Jackie ask: How much inflation are you seeing now? Is there a labour shortage for oil and gas workers? If North American E&P companies decided to ramp-up their oil and gas production, would oilfield services be a constraint to growth? Are oilfield service companies likely to invest in new equipment? Are E&P companies early adopters or laggards when it comes to digital technology?
Other content referenced in this week’s podcast includes:
- From the Energyphile collection, the vignette of the “Investor Visit”
- Peter’s written and audio story from the Energyphile collection “The Investor Visit” when a CEO hosts an investor to visit his oil well in 1915 and provides some timeless advice
- STEP Energy Services
- IronSight app
In March 2020, as the world was just realizing the realities of COVID-19, the price of oil dipped below $20 a barrel USD. Demand had fallen to unprecedented (and unforeseen) levels, storage capacity began to be overwhelmed.
Two companies that persisted, and even managed to invest, were STEP Energy Services and IronSight.
Today the price of oil on the WTI is over $120 a barrel USD, Alberta alone produces over eight million barrels per day, and ARC is projecting drilling rates to be about 6,000 wells in Western Canada in 2022 (the highest level in four years).
In this episode of ARC Energy Ideas, Jackie and Peter talk with two leaders in the oilfield services industry. What are they seeing for the near future? Are they reaching a pinch point? If so, it’s possible prices might be bumping up.
Steve Glanville from STEP shares what he sees as more hardware goes into the field. It’s a company with 1,300 employees currently (split between Canada and the US) and operates eight crews per day. Shawn Martens from IronSight sees activity as a software provider to the industry – often known as the Skip the Dishes for the oil and gas industry. They’re a team of 40 operating in all major basins.
Both are deploying more and more resources every week as things heat up. That’s creating employment pressures as they need to attract more and more people and often higher wages are needed to accomplish that. “Every time we go and train (new employees) we’re talking to them, ‘Hey, do you know anybody that could come to work?’ says Martens. “We’re starting to see the crews fly back out from out east, the direct flights, the company houses. I don’t know if it’s all the way back, but it’s coming for sure.”
As the work is ramping up, companies like STEP are also looking for ways to control costs for clients.
“It’s all about efficiencies of what the clients are looking for today,” says Glanville. “I think this industry from a technology standpoint, particularly Canada, has always evolved, has always been kind of the front runners of technology and putting it in the field. And I think today our clients are benefiting from the technology that has been developed over the last five years, but now coupling that with efficiencies. We were pumping on average about 14 hours a day back in 2019. And now we’re pumping consistently 18 and 19 hours a day.”
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Episode 158 Transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. And welcome back. One of the favorite things in my collection of energy artifacts is an old photograph I bought about 20 years ago. That’s this black and white of one of the first wells ever drilled in Alberta. And I used it as a basis for my book of short stories, The Investor Visits. And I reflect back on that a lot because I think to now where we are today in Alberta, over eight million barrels a day equivalent of oil, natural gas, it’s just incredible how the industry has grown over the course of the century. And the people that made that happen are really the inventive people who worked in the field, the risk takers and so on. And so it’s just, I think you’ll agree a really incredible story.
Jackie Forrest:
Yeah. And we want to talk about oilfield services. They’re really the backbone of this industry. Sometimes we always talk about the oil and gas producing companies, but who does the work? It’s the oilfield services companies and there’s been a lot of changes there. We’re really excited to have our special guest today. Steve Glanville, president and chief operating officer of STEP Energy Services. Welcome Steve.
Steve Glanville:
Ah, thank you very much, Jackie and Peter, I’m excited to be here today.
Jackie Forrest:
We also have Shawn Martens, co-founder, VP of operations at IronSight.
Shawn Martens:
Yeah. Peter, Jackie, I appreciate the time and excited to have a talk with you guys.
Peter Tertzakian:
Yeah. We’re going to talk not only about the hardware. I think Steve, you’re going to talk a lot about the hardware that goes in the field and really excited to have you Shawn, to talk about software and some of the major advances going on. And it just, this said, the development of our oil and gas industry has been on the back of a lot of innovation. And there’s been a lot of firsts that have really happened in Western Canada and the technologies have gone around the world. And I know both of you are at the leading edge of some of those technologies that we want to talk about.
Jackie Forrest:
All right, well, let’s start though with a little bit of update on North American oilfield services. Oil and gas activity levels have been slow to recover post COVID. Obviously the prices for oil and gas have reached near record highs here, but we haven’t really seen that translate through to so much money being spent on capital projects like drilling oil and gas wells, or efficiency projects. In Canada, just to give you a perspective, drilling rates, which are a good indicator for all oil field activity have come up quite a bit. They’re slightly above the five year average now. So after just following off the cliff there in COVID, they are back up to above the five year average. And we at ARC are expecting about 6,000 wells will be drilled in Western Canada in 2022. That would be the highest level in four years and a thousand wells higher than before COVID.
Jackie Forrest:
We are hitting a point where we’re reaching activity levels that are some of the highest we’ve seen in four years, so we want to talk about that. Now I want to talk about the US as well, drilling rates there are not as high as they are in Canada relative to before COVID, they’re probably 20 or 25% below where they were before. That just gives you some context for what we’re going to talk about today, because the real question is, are oil field services starting to reach that inflection point again, where things are getting tight and prices may be going up?
Peter Tertzakian:
Yeah. Well, before we start though, I want to have our guests talk about themselves a little bit and maybe actually, Steve, I’m going to start with you. I need you to tell us a little about yourself, your career in oil field services, how you came to STEP Energy.
Steve Glanville:
Yeah. Good question, Peter and actually, we celebrated 11 years at STEP Energy Services here in March. And when I was reflecting back on that, I’ve been 30 years in this industry. It’s hard to believe, excited obviously-
Peter Tertzakian:
And you have no gray hairs. I’m sitting in front of you in the audience here, how is this possible?
Steve Glanville:
Yeah. I’m not sure how that is possible. My dad is completely bald and was at 45, so I’m pretty fortunate, but we’re really excited about the business today. Like I mentioned, we’ve been 11 years with the story. We specialize, of course, in deep capacity coil tubing units industrial nitrogen services and of course fracturing. Currently today we’re about 1300 employees, about 500 in the US and about 800 in Canada. We operate in most of the prolific plays in North America. So we have operations in the Permian, in the Eagle Ford in Texas, of course, the DJ Basin and the Bachan in Wilston. And then our Canadian operations really focused on the [inaudible 00:04:40] plays. We have 29 coil tubing units all together, 19 of them are active today. And we have just over 500,000 horsepower all together in Canada and the US. We operate about eight crews today, five in Canada and three in the US.
Jackie Forrest:
For fracking services?
Steve Glanville:
For fracturing services, yeah. So that’s a little bit about me. I’m a petroleum engineering technology grad from SAIT in ’92 is when I graduated. Yeah, it’s been 30 years.
Peter Tertzakian:
Yeah. A lot of people that have been really successful have come out of that program.
Steve Glanville:
Yeah. It’s a great program for sure.
Peter Tertzakian:
Yeah.
Jackie Forrest:
All right, Shawn, well, how about, tell us about yourself and a little bit about IronSight and how you came to… I guess you’re a co-founder of IronSight.
Shawn Martens:
Yeah, you betcha. Adam Jessome and I, the other co-founder, we’re extremely proud of our background and how we kind of developed the company and where we are today. Myself, I’m a journeyman electrician born and raised in Cold Lake Alberta. Adam was born in Bonneville, just down the road. And we came together in 2014 and started a service company. We were entrepreneurial guys at heart and we took a lot of learnings from the industry before we kind of came together and we’d seen there’s a ton of inefficiencies. So as we bought our first vac truck, we also started developing our app, in house. And it was, here’s a concept of a $10 Uber you can track, you can pay for, you can have full transparency, both demand and supply, rider and driver.
Shawn Martens:
And we wanted to bring that to a $3,000 vac truck job call out, if you may. Little, did we know we kind of, we stumbled across something and maybe started where we are today. And our clients came to us and said, “We like your service. So your vac trucks. But we actually like your software more.” So that was 2017. We pivoted, came right out of the vac truck business and here we are today. IronSight’s a two-sided platform where we connect demand and supply. Demand being oil and gas producers, midstream, disposal facilities, downstream, and supply being service providers. It’s agnostic and here we are today.
Peter Tertzakian:
You have some people sort of describe it as skip the dishes for the oil and gas industry.
Shawn Martens:
Absolutely.
Peter Tertzakian:
I’ll come back to that, but just for the benefit of our audience, what is a vac truck?
Shawn Martens:
Yeah. A vac truck is a unit on wheels. Driving around, think of it like a big vacuum. It’ll go to a coil tubing unit like Steve’s, and it’ll have a bunch of debris, water, oil, and it’ll go suck it up and dispose of it in a proper and efficient way. Yep.
Jackie Forrest:
Right. Your software was just trying to automate some of the invoicing and calling out those trucks and people found that was more valuable than a more valuable piece of the business that you could grow?
Shawn Martens:
Absolutely. Yeah. We at least seen it. And Adam and I seen that there’s an opportunity there in the market space, that lack that piece of software. And again, we haven’t looked back. So we’re team of 40 today. We operate in all the major basins, like Steve said into the US gaining more momentum as we deploy more and more. In Canada it’s from Estevan to Fort St. John and we have major clients all over and well over 8,500 daily users are on the platform, either requesting work, scheduling work or executing work in any different fashion. Yep.
Jackie Forrest:
We’re going to talk about the current situation, but I think it’s important to have the historical context. Steve, we’ll start with you. Describe how your business adjusted when the activity dropped off so drastically during 2020 with COVID and what actions were taken and how much has changed since then?
Steve Glanville:
You’re going to make me go back to those days, Jackie? As March 13th, it was a Friday. And of course, the news media about COVID and it became extremely real for our business and working from home, of course, we got quite used to that, but the challenging part for our business during COVID was we had about 1400 employees in March of 2020, by May of 2020, we had 475.
Jackie Forrest:
Wow.
Steve Glanville:
We have obviously a fixed overhead of people, we have about 16 operating facilities. Going through those times where our business is all based on what the producers are spending, when they rack drilling rigs, when they stop needing completion services, then our businesses completely shut down. We had to go through drastic measures and having to put people on short term or long term leaves until we saw the business pick up. And as I mentioned today, we’re back to almost pre COVID levels of 1300 employees. Pretty excited to be back in these times versus two years ago.
Jackie Forrest:
I’m sure it’s been quite a challenge to shrink and grow so quickly on both sides.
Steve Glanville:
Yeah, you’re exactly right. Yeah. And I mean, like I said, I’ve been in this industry a while, it’s quite a roller coaster and I sure hope there’s one day that we have some more consistent type of operations.
Peter Tertzakian:
Yeah. Well, it’s called a cyclical industry for a reason. And for a long time I’ve been in and around the business for 35 years. And yeah, it’s up and down and every time it goes down, it’s painful for people, especially in rural communities that depend upon the jobs and so on. So talk a little bit about maybe now the pull back and the need for people.
Steve Glanville:
Yeah, it’s real. I actually started thinking the other day, and maybe that’s just something maybe Peter and Jackie, you can start thinking about, but from a drilling rate perspective, how many employees are actually employed when one drilling rate goes to work? I mean, that’s the manufacturing of the casing of the drill pipe. That’s the muds, it’s obviously completion services, it’s tie in services. It’s pretty interesting when you look at the oil field services sector altogether, you might have an ENP company that generates 10,000 BOE a day and have 30 people.
Steve Glanville:
But the overall supply chain to get that barrel of oil out of the ground is large. And at one time the Canadian Energy Services sector was around four to 500,000 employees. I think we’re about 300,000 today. And so as we see this kind of ramp up of activity, it’s going to be extremely difficult to not only attract new professionals to this industry, but from a retention perspective as well. And of course, dollars is important. Wage is one way to kind of attract and COEC would always have a rule of three times minimum wage would be a starting rate for an operator. And of course, since minimum wages kind of increased, it’s closed the gap quite a bit on that.
Peter Tertzakian:
Minimum wage shares is 15 bucks an hour. So you’re saying that it’s like 45 bucks an hour?
Steve Glanville:
Yeah. And I believe they just released a new pay schedule. And I think it was $32 an hour is kind of what I understand
Peter Tertzakian:
… the starting position.
Steve Glanville:
Yeah.
Peter Tertzakian:
And it goes up from there. Shawn, how about you? What’s the labor situation like for the software people that you’re trying to recruit?
Shawn Martens:
For us, majority of our employees are from a software space. It’s aggressive, it’s a hot market definitely for our folks with the working from home. Somebody in Edmonton can work for Facebook and out of California so again, aggressive. I would echo what Steve says for us our engineers, it’s not always so much about money, so we can compete to a certain point, but for our folks, it’s more about the challenge. They really like to dig into a problem or a product IronSight is a product. And they really like to be part of that winning formula from startup to scale up mode, which we would say we’re in today to continuing to push out and more different industries. They want to be part of a success story and we’re able to offer that, but still very much a challenge.
Jackie Forrest:
Well, Shawn, let’s talk a little bit about your business. So, your business is about creating efficiency and lowering costs. How was it impacted in 2020? And I guess my other question would be, now that prices are so high, do people care about efficiencies like that?
Shawn Martens:
Yeah, it’s unique. I wouldn’t say about cutting costs, I’d say about optimizing costs. We make it very clear to our clients and demand and supply, who are on the platform. Yeah. 2020 was a different time for us. Steve, I feel your pain, but we were able to gain some market in COVID when oil hit $20 a barrel. We seen some opportunities. We had to take our different pricing structure. Big risk for us to deploy a platform when our clients are losing money every month, every quarter.
Shawn Martens:
So, we took a bit of a risk there to kind of get some adoption and push it to the market. At that time ironSight was used to optimize for sure and look for opportunities. Now, today, I would say it’s done a complete 180. Now it’s about retaining services, optimizing services to ensure you don’t come into their field for a six-hour job and then go home. It’s about, okay, what other jobs, or what other services can you provide and retain those services from companies like STEP and everybody help.
Jackie Forrest:
Oh, I see. As labor and everything has gotten so tight, your tool is a way to get more useful hours out of everyone that’s out in the field?
Shawn Martens:
You bet.
Jackie Forrest:
Yeah.
Shawn Martens:
So, it’s a win for the oil company. They’re getting the work that needs to be done coming out of IronSight, that’s kind of one thing, but for the supply side, they’re being optimized. Instead of an eight-hour workday, they’re going to work a 12-hour day. And yes, there might not be as many units out in the field, but Steve might be able to echo and talk on it. But if they have more getting a better utilization rate, there’s a win-win for both sides of the plot or the supply and demand and that’s what we do.
Steve Glanville:
Shawn’s exactly right. It’s all about efficiencies of what the clients are looking for today. And just on that, just about efficiencies. I think this industry, of course from a technology standpoint, particularly Canada has always evolved, has always been kind of the front runners of technology and putting it in the field. And I think today our clients are benefiting from the technology that has been developed over the last five years, but now coupling that with efficiencies. And I think that’s been really key. We were pumping on average about 14 hours a day back in 2019. And now we’re pumping consistently 18 and 19 hours a day. And so, when you think about that over of a period of a pad it’s dramatic.
Peter Tertzakian:
And so, are there any differences between this mode of operation and process between Canada and the US, like we’re seeing similar uptakes?
Shawn Martens:
Yeah. For IronSight we see the same problems. The same problem exists in Fort St. John, as it does in Midland. Might be said a little bit differently, might differently words, but for IronSight, we’re seeing the exact same thing. And we’re seeing the exact same, I’d say level of adoption as well for systems like IronSight.
Jackie Forrest:
Well, let’s talk about the situation in the US. In theory, it looks like they should have some spare capacity. In Canada, in theory, we should have some too, because we’ve had higher levels. Like I said, 6,000 wells this year but if we go back before 2019, we had something like 7,000 wells. Is there spare capacity in the system? Or is the system full out in your view in terms of oil field services for fracking and some of the businesses you’re in?
Steve Glanville:
Really good question. Today there’s 710 drilling rigs working in the US. I would say that it’s coupled with the DUCs. So you have to take an account how many DUCs were actually harvested during this period of slowdown. And we believe at one time there was 6,000 DUCs.
Peter Tertzakian:
A DUC is a drilled, but uncompleted well.
Steve Glanville:
That’s correct, Peter. Yeah.
Peter Tertzakian:
It’s just the well has been drilled, but it has not been completed and tied into the pipe system.
Steve Glanville:
Yeah, 100% correct. Yeah. And it’s sort of a way of keeping inventory, keeping a drilling rig busy, and then using kind of spot prices to be able to activate your completion crews, to be able to gain on that. And so, we understand that there’s probably about half of the DUC inventory in the US, so about 3000 wells. And so, it’s hard to kind of do a little bit of correlation with math, but usually it’s about a three to one count from drilling rig to frac crew. And so active today is about 250 frac crews in the US, which would equate to about 13 million horsepower. And that’s how we calculate kind of overall capacity is based on a horsepower count. And with a bunch of retirements that have happened even before COVID, just legacy equipment being parked and of course the cost of capital had increased on the older unit, so they were parked anyways.
Steve Glanville:
We believe that it’s only about 16 million available horsepower. What I said, well, 13 million that’s active today, there’s three million of it is on the fence. If we expect drilling recounts to increase in the US, and we’re hearing that if they want to grow to a half a million, to a million barrels per day of production in the US, it could take up to 100, to 160 drilling rigs to get to that production level. That would be another 30 frac crews, which would basically be tapped out on spare capacity, that’s [inaudible 00:18:01]-
Peter Tertzakian:
Yeah. I mean, we’ve heard stories over the last several years of, especially when the price of oil and gas were low, through the difficult years, 2015 through 2020, that instead of building new equipment or buying new spare parts, you just cannibalize old equipment, use the old parts and shrink the overall inventory of capacity and equipment. Is that what’s happening?
Steve Glanville:
It’s been done for sure. And that’s a bunch of the acquisitions that happened either pre COVID or during COVID. That was the overall mission for a lot of companies was to use some older equipment, park it and use the major components off it to keep their fleet active.
Peter Tertzakian:
Yeah. Now we’re in a situation. What you’re saying is that even if you wanted to grow oil production in the United States relatively quickly, you couldn’t because of the maxing out or close to maxing out of equipment and people.
Steve Glanville:
That’s correct Peter. Halliburton of course is the one of the major oil field service companies in the Us. And they’re the largest frac provider. They’ve been on record saying it’s going to be a tight market, it already is.
Peter Tertzakian:
And usually what happens in these situations in the past is the service industry starts building new equipment. And then of course built too much, but is anybody building any new equipment today?
Steve Glanville:
There’s a few fleets being added into the US. Some of the electric frac fleets that of course are ESG focus, but majority of them are on long term contracts. I think we’ve learned our lesson over the years on redeploying assets. And frankly, there’s not a lot of assets that are available to go back to the field. And when you couple that with labor challenges and even to build a frac fleet today new, you’re 12 to 18 months out and about $60 million. And so, we’re not going to do that. And a lot of other our competitors aren’t going to do that without any type of a long-term kind of contract in place.
Jackie Forrest:
Well, maybe we’ll back up a bit because I think it’s important to kind of talk about the last year or so even though oil and gas producers had this recovery in their oil price, right? In last year, I think by November, we are at $80 a barrel. Oilfield services companies really struggled because there was still competition and enough equipment out there that the pricing remained low. That’s my impression. Right?
Steve Glanville:
Yep.
Jackie Forrest:
Is that starting to change now that we’re at hitting the inflection point that we’re at now where you’re starting to see that price for some of these oilfield services could come up? Because I think that’s needed before you’d even consider-
Steve Glanville:
Oh, absolutely.
Jackie Forrest:
… adding new equipment, right?
Steve Glanville:
Yeah. I mean, we started moving kind of price about a year ago. When we started seeing the increase of WTI and we worked with our clients during the tough times and they’re working with us to get our margin back in our business. And not only to cover cost of inflation because of course that’s been, as you know it’s been huge. You fill up your vehicles at the pumps. Oh, I guess Peter, you don’t, you have electric vehicle, but-
Peter Tertzakian:
What pump? What’s that? Yeah.
Steve Glanville:
But anyways, it’s the cost of inflation is something that our clients are more than accepting of a price increase. We’re wanting more than that, because it is sort of, we need to be able to have margin back in our business to invest in the technology that really is a driver of their production.
Jackie Forrest:
Well, and maybe to attract people. You’re saying that it’s harder to get more people and you may need to attract them with higher wages and that filters too into higher costs?
Steve Glanville:
It does. Yeah, absolutely. Yep.
Shawn Martens:
Yeah. I can echo, I mean, just from our perspective, we would deal with, well over 300 different service companies across North America right now. And every time we go and train or every time, we’re talking to them it’s, “Hey, do you know anybody that could come to work?” We’re seeing the day-to-day maintenance and operations, that’s really our big focus and drilling in frac and everything’s kind of a submarket for us, but we’re starting to see the crews fly back out from out east, the direct flights, the company houses.
Peter Tertzakian:
From Newfoundland.
Shawn Martens:
That’s correct. Yeah.
Shawn Martens:
We were seeing that all the time. So, we’re seeing new users, that’s how we base our business is users on our platform. And we’re seeing them, new folks being added daily from companies. I don’t know if it’s all the way back, but it’s coming for sure.
Steve Glanville:
It took us typically about three months to staff a coil tubing rig this winter. And so, it just kind of shows the depletion of the workforce around Alberta.
Peter Tertzakian:
You have to pay more to get them and train them. And then now there’s a scarcity of equipment that’s starting to show itself across the entire supply chain and different peripheral services that Shawn your stuff dispatches, your software dispatches. Surely the rates are starting to go up and I think further to Jackie’s question, I just want to understand the dynamics of the pricing power of the service industry. Is it returning back to the service companies now?
Steve Glanville:
We are definitely seeing that. I mean, our calendar is full for the remainder of Q2 and into Q3. Right now, we’re about 80% booked and those are clients that are ahead of the program to make sure that they secure services. To my earlier point about inflation, we get it on a daily basis. It seems like we get a new letter from one of our service providers or our key supply chain vendors. And they’re needing to get an increase as well because their costs have gone up not only labor, but materials so-
Peter Tertzakian:
But chemicals and things.
Steve Glanville:
That’s right. Yeah. So, we’re obviously pushing that needle with our good clients that we have. And back to my earlier point about a frac crew today to buy a new one, your $60 million, and we need a return on that. We want to be able to invest in that in the future. In order to do that, we need margin back in our business.
Jackie Forrest:
One thing you said, Steve, that kind of got my attention was that people were actually considering long term contracts for services. If they were going to potentially build new equipment, is that really happening? Are companies actually saying, “I’ll sign up for multiple years of certain amount of work,” because I think oil and gas producers haven’t really wanted to do that because there’s been so many ups and downs and they don’t know for sure how much work they need two or three years out.
Steve Glanville:
Yeah. We’re starting to hear that right now, Jackie, nothing is really solidified yet, but a lot of it is coupled around getting the latest technology invested in the field. And for us it’s having our, a dual fuel type of ESG focused upgrade to our equipment. And that’s some of the discussions that we’re having right now with clients on, if we wanted to focus on that, would they entertain a longer-term contract and we’re getting some traction for sure.
Jackie Forrest:
Okay. So that’d be a smaller capital investment, little bit less long commitment. Well, let’s talk about ESG. Is that something that… We will talk to Shawn, does your product have some ESG benefits? And has that been something that people have focused on differently than they might have a few years ago?
Shawn Martens:
Yeah, absolutely. We talked about optimizing costs and talked about optimizing workforce in the field. We’re starting to see; we collect just a ton of data. IronSight, we know locations, we know the type of equipment in the field. We know the routes and when they’re working and when they’re not, and what we’re learning, what we’re seeing our clients are asking for. Well, not only can you benchmark our utilization of our fluid haulers, just for example, but we want to know what’s the correlation to ESG in our scope 3. IronSight doesn’t have a meter on an exhaust pipe of a fluid hauler, but we have all the data to convert that into a very usable metric.
Shawn Martens:
Scope 3, not so big in Canada right now. I think we’ve been told all of our clients we’re going to get there, “Shawn, keep pushing and keep giving us some data.” But the US, scope 3 is very real. Steve, their equipment would be a miter of scope 3 for what our clients would want to track. Yeah, we definitely are part of that, not so much, maybe just the E but the whole unit of safety and compliance and governance, we provide just a platform for them to do all that
Jackie Forrest:
To collect that data and at scope 3 is the emissions associated with using oil and gas, not just producing it, right? So, it comes out of the tailpipe?
Shawn Martens:
Correct, yeah. So, to put it in perspective, very easy, oil and gas producer scope 3 would be Steve’s equipment in the field. Steve’s scope 1s would be his equipment. Both have demand for that. Both have the need for that type of data and… Yeah.
Jackie Forrest:
Okay. Scope 3, I’m thinking the combustion of your products, but you’re saying even all the energy associated with the service companies that are operating to help you bring that barrel of oil to market or that cubic photo gas? Yeah.
Shawn Martens:
Yeah. That’s correct. Yep.
Peter Tertzakian:
Yeah. Wow. I’m a bit of a data junkie. What other types of interesting data trends are you seeing?
Shawn Martens:
I would say ESG, the scope 3 stuff would be a big one. For us it’s all moving to a lean SIG Sigma, I don’t know how deep we want to get into that, but all of our clients are following this methodology of, having lean operations
Peter Tertzakian:
Just in time.
Shawn Martens:
Just in time, no more having these big backlogs of work. If somebody needs something well, let’s use technology to get that service there. So, it’s a complete shift, back when I work for Chronicle Phillips back in the day and as a maintenance coordinator and we wanted a backlog, it’s shifting, we talk about what our clients want out of us. They want to be able to control what’s going on. Moving from those big backlogs of work to again, more of a [inaudible 00:27:54]-
Peter Tertzakian:
Yeah. I mean, there’s nothing more inefficient than a service truck or big fleet of trucks showing up at a well site and idling for 13 hours and doing nothing. Right?
Shawn Martens:
Yeah.
Peter Tertzakian:
Having much better control over the scheduling is obviously more efficient and therefore less energy intensive and therefore less emissions and scope 3.
Shawn Martens:
Yeah. A byproduct of being efficient is less scope three emissions. We’re able to optimize and just benchmark it. Really focus on the data benchmark it. This is how you operate today. If you said, since we’re in a high time right now for our industry, if oil prices drop and a couple years, they want to be able to benchmark and correlate that, and that’s what we’re providing. As a data junkie, you’d probably appreciate correlating the price of oil to, they can get right down to how many pump jack maintenance crews they have today. It works that way. Yep.
Jackie Forrest:
Shawn, I have a question, Steve talked about the fact that the industry’s got it really innovative, and we’ve developed a lot of technologies here, but I think that my perception is we’ve done really well on the physical technologies, but on digital, compared to other industries where laggards, do you think that’s fair?
Shawn Martens:
Yeah, well that’s 100% correct. I think oil and gas gets labeled as somebody that hates technology and it’s not the case. They had bigger fish to fry. When you’re talking a frac fleet, when you’re talking this, Steve just talked about going from 14 hours to 22 hours a day of pumping, that’s a big, big cost. I’m a pro-oil and gas, they do want to adopt it. They had to handle some of their business before and optimize there. We’re seeing good adoption. We’re seeing folks that want to adopt this. We’re seeing not only do they want to, but they might need to, it’s a mandate right from the chairman’s down, we’re seeing. Yep.
Peter Tertzakian:
Steve in the same vein of the ESG and measuring and things, so are your oil and gas clients discriminating between service providers like your competitors and you, in terms of the I’ll call, them the environmental performance of your services?
Steve Glanville:
Yeah, absolutely Peter. I mean, I’ll just touch on maybe two or three points. One is being displacing diesel. A lot of our frac horsepowers, have that ability to burn natural gas and a percentage of it. And we’ve been investing in that really since we started fracturing in 2015. We have about 62% of our fleet currently today that is either tier four or have dual fuel capability and which is a, it’s an ESG story for sure. And we continue to invest in that each and every year. We’ve saved just the clients in Canada alone about $6 million on diesel costs this year alone.
Steve Glanville:
And that’s really, the driver is it’s a dual benefit. You reduce your carbon footprint, but also, you’re burning wellhead gas right into the engine. The lack of transportation of basically fuel trucks getting to your lease. It’s a huge benefit. Another thing that we’ve been doing as well as investing in idle reduction control kits, and that’s sort of like your vehicle at a red light, it shuts off, we have the same sort of technology that we’ve invented and invested in our field today.
Jackie Forrest:
And do you find that that differentiates you from your competition? Do people care about that kind of stuff when they’re looking at your services?
Steve Glanville:
It definitely it’s a differentiator for sure. And for us, it’s all about how do we save that client money and how do we burn more of their natural gas?
Jackie Forrest:
Right? Yeah. Because there’s that economic benefit.
Steve Glanville:
That’s right. Yeah.
Peter Tertzakian:
Yeah. Instead of the diesel.
Steve Glanville:
And recycled water, I think that’s really important to talk about as well, because we go through a lot of water. I think most of the people don’t realize that it’s close to 90% of the water that we use is recycled. And so, we’ve developed chemistry to be able to use that versus using freshwater.
Jackie Forrest:
Yeah, that’s right. I thought a lot of the fracs were still freshwater, so that’s good to hear. This has been a great discussion. Steve, I have one more question. As you know, the oil markets are very tight and there’s need for more supply. And so far, a lot of the shell producers in the US and a lot of the Canadian producers are saying, “No, we got to give our money back to our investors so we’re going to be pretty modest in terms of what we spend and our activity levels,” but let’s say that changed. Maybe there was some sort of change in policy or the investors in terms of their attitudes, so that there would be a desire to really ramp up production. Do you think that’s possible considering the inflation and the labor issues and the fact that equipment needs to be built? Could you see a scenario where that could actually happen?
Steve Glanville:
That’s a great question, Jackie. We talk a lot strategically on how do we benefit in the case that that were to happen. And as I mentioned before, there’s a lack of labor. Of course, that can be fixed by different work life schedules, like working a 14 and 14 perhaps, or increase in wages, but really for us, it’s about the supply chain. It’s getting major components; it’s getting the investments. There is not a lot of spare capacity on the fence today. And the spare capacity that is available requires capital. And it’s the oldest stuff that is in the fleets.
Steve Glanville:
And people don’t want to spend money on that if there’s some, some new equipment that is ESG friendly, perhaps. That’s what we need to focus on in as an industry. Back to your question, if there is a, I will say a 10%, 15% increase in drilling, it’s going to be very difficult to be able to supply that from our services. I think there’s drilling rig availability, not the top tier driller rigs that may be used. But there might be a few extra frac crews in Canada available and maybe a dozen or so in the US, but it’s pretty tight.
Jackie Forrest:
Right.
Peter Tertzakian:
Yeah. One more quick question. The downturn to 2015 to 2020 was especially hard on rural Alberta, rural Saskatchewan in terms of the labor and is the poll putting people back to work in these areas?
Steve Glanville:
It is Peter. Yeah. We’re starting to see more hotels opening up and it’s great to see that. I just flew in this morning from Midland, Texas, and I love seeing the amount of activity that is going in that area is remarkable. As well as in our northern regions in Grand Prairie and Fort St. John, if we could only get a few more LNG facilities built, Peter, I think it’ll be really exciting for Canada.
Peter Tertzakian:
Well, thanks very much Steve Glanville, president STEP Energy Services, Shawn Martens, co-founder of VP operations at IronSight. Thanks very much for giving us behind the scenes look at what goes on in the oil fields and the trends and the uptake in activity.
Steve Glanville:
Yeah. Thank you very much, Peter and Jackie. I’m an avid listener to your podcast and this morning actually I was on the airplane listening to your latest one. And I’ll be sure to listen to this one now.
Shawn Martens:
Yeah, for sure. No, I appreciate it. I’m excited to always tell the story and yeah keep pushing and highlighting the wins in our industry that we should all be proud of. Yep.
Jackie Forrest:
Great. Well, and thank you to our listeners for joining the podcast. If you liked it, please rate us on the app that you listened to and tell someone else about us.
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