Oilfield chemical services companies are no strangers to risk. Destined to ride the highs and lows of the perennial boom-bust cycle, these sojourners of the oilfield have learned, through hard-earned experience, the true meaning of resilience. The busts bring pain, downsizing, and lessons learned. The booms provide relief and prosperity, but also that persistent, nagging dread; the next downturn hides behind every rig, rock, and arroyo that defines the American oilfield.
The last two years may have provided the very definition of “uncertainty” for the oilfield services industry. We’ve experienced it all in the last 24 months: a divisive global pandemic, negative oil prices, massive labor shortages, supply chain constraints, inflation, capital funds shifting to “ESG”, water scarcity, widespread consolidation of businesses and resources, and an executive administration that often makes the oil & gas industry its political boogieman.
“The biggest challenge for us going into 2021 was just the uncertainty,” said Logan, an Operations & Sales VP at a chemical services company. “You had a lot of operators that were kind of looking to play it safe. They didn’t have a firm budget in place. They didn’t know what the drilling program was going to look like.”
Kevin, another chemical executive in the Bakken, echoed the sentiment. “2021 was about crawling out of the hole that COVID left us in,” he said, “and that was definitely a very large hole that a lot of oil and gas service companies were going through.
The last two years were about contraction. The oilfield downsized, consolidated, and took some punches. But, as it has proven so capable of doing, the services segment has once again bounced back, and 2022 brings with it the “green shoots of hope” that prosperity is on the horizon.
“In the last 4 to 5 months, we’ve gotten out of ‘hunker-down’ mode,” remarked Jonathan, a chemical pump manufacturing executive. “We’re getting out there and reinvesting in infrastructure and personnel.”
Stable oil prices, capital inflows, and down-home positive thinking have created a belief that, at the very least, the next 18 months will provide the economic security that breeds growth.
Sure, the challenges remain. Labor shortages continue to beleaguer companies across the world. Hindered supply chains expose raw materials insecurity. COVID simply won’t go away.
But despite the challenges, 2022 is a year to push forward. Those who have survived now see before them an open playing field ripe with opportunities for innovation, differentiation, and… winning.
This is the state of oilfield chemicals in 2022.
In the paragraphs that follow, we’ll take a deep look at the challenges and opportunities facing one of the most resilient industries in the world. We’ll define what a “good” chemical vendor looks like. We’ll hear from dozens of oilfield chemical stakeholders: district managers, pump manufacturers, production engineers, OFS executives, service techs. We’ll decipher their claims through a data-driven lens. Every voice and data point will contribute to the larger narrative before us: The race is on to see who will come out on top. Which oilfield chemical companies are poised to emerge from the struggles of the last two years, consolidate market share, capture strategic accounts, and win?
Let’s find out.
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The obstacles oilfield chemical services companies face in 2022
Whereas 2021 was about uncertainty, 2022 seems to be about opportunity. Oil and natural gas prices continue to climb. Global investment firm JP Morgan forecasts prices as high as $125 per barrel in 2022, perhaps reaching $150 per barrel next year.1
The price forecast has the industry feeling bullish on growth and gains, and yet serious challenges still constrain oilfield services companies from realizing unmitigated growth.
The playing field in 2022 presents some major obstacles for oilfield services companies, namely:
- Labor Shortages
- Supply Costs
- ESG Demands
- Data Management
Each of these brings unique challenges that oilfield chemical services companies must overcome, as we’ll discover below.
If you follow oilfield services companies on social media, you’ll notice a trend. Take a scroll through LinkedIn, and you’ll find your feed littered with job openings, career fairs, and hiring events. Those outside of the oil & gas industry assume that the labor shortage is limited to traditional services businesses: restaurants, hotels, entertainment venues. But those in the industry are bracing for perhaps the greatest challenge in 2022: finding and keeping people.
“We’ve pretty much had job openings for drivers and field personnel since April 2021,” said Kevin. “In some cases we’ll make a great offer, but they just get another offer. It’s super competitive out there right now.”
Logan repeated the concern. “It’s been difficult to find drivers, and with our business we have to have CDL & HazMat drivers, which is even more of a niche, so it’s been a struggle. We’ve got recruiters whose full time job is to go out and find replacements.”
Despite the ever-heightened focus on efficiency, sustainability, and safety, oilfield chemical services companies are still built around manpower. It’s the fuel that has continually powered the oilfield for decades, and even with the advent and adoption of digital technology, the need for skilled, dedicated field staff persists.
To satisfy their customers, oilfield chemical companies need quality people who can work long hours in remote environments, a commodity growing more and more scarce.
“In the 2021 environment, there was a lot of pressure on cost control,” said Peter, a consultant who works with both operators and service companies to optimize chemical programs, “and cost control basically translated into reduced spending by engineers in the field.” He highlighted the mantra for so many oil & gas operators this past year: “Keep the lights on with whatever minimum staff you have.”
Chemical companies took the brunt of these cost control measures. “They’re suffering from the same things,” said Peter. “The customers don’t want to spend the money, they can’t get drivers, and they’ve got trouble getting skilled people who will work in the field. With the price pressures and everything else going on, the chemical companies have had to cut operations down to the bone in order to stay profitable.”
And yet, despite the pressures, customer demands haven’t diminished. If anything they’ve increased. “Customers want an instant response,” remarked Curt, a District Manager in the Delaware Basin. ”There used to be a lot more 7-day, 14-day turnarounds or even a heads up before a meeting. Now you have to have answers a lot quicker and be able to communicate your value back to the customer much faster.”
The need for an instant response has multiplied the labor burden on oilfield services companies. “It used to be that the chemical companies would try and guarantee at least one person would appear at each injection pump at least once a month,” Peter continued. “But now, the customers are saying, ‘No, no, once a week.’ That means 4 times the labor cost.”
To make matters worse, oilfield services companies tend to operate in the most remote of regions. Unlike their customers, who can position most of their talent in regional headquarters in Houston, Pittsburgh, Denver, or (at worst) Midland, oilfield services companies maintain field offices in towns that most have never heard of: Artesia, Jal, and Hobbs, New Mexico; Minot and Dickinson, North Dakota; Big Spring, Big Lake, and Monahans, Texas; Williamsport, Pennsylvania.
Remote locations make it more difficult to attract talent, especially for commercial drivers, when demand in the United States is so high, giving recruits more attractive options.
Kevin says finding qualified labor in North Dakota has been challenging. “A lot of the transient populations that came up to North Dakota are now in the Permian and the Delaware,” he noted. “They came up here in the past, but now they have stable oilfield work down south, and that makes it harder to find really strong and competent employees outside of the Permian.”
And yet even in the Permian and Delaware Basins, where many producers have concentrated their efforts, laborers are scarce.
“In North America alone, we’re, what, 100,000 drivers short?” remarked Curt, whose district operates out of a New Mexico field office. “Try that in the Delaware Basin. It’s tough to get people to come out and work for us and live in New Mexico, and when we do find talent, it usually comes with the catch that it’s just a stint, just a step in the career ladder.”
Putting all of these factors together has simply meant one thing: the highest labor costs that oilfield chemical services companies have experienced in decades.
“We’re paying more for drivers than we ever paid before”, said Curt.
Tyson, a District Manager in the Gulf Coast, seconded the insight, noting that the cost of a full-time employee is “about 20 to 25 percent higher now” than in the past few years.
In summary, labor might be the greatest challenge facing oilfield chemical services companies in 2022. Efficiency gains will be paramount to overcome the talent gap, especially as companies look to the future.
“The cost of labor goes up, but that’s not something that just rolls back when all of the sudden the price of oil drops,” noted Logan. “It sets up pretty firm, and that’s something we’ve got to live with.”
The US Bureau of Labor Statistics backs up his claim, indicating that average hourly wages in the oilfield have maintained peak levels for years since the shale boom began2, and are continuing to trend upwards.
Logan lamented, “At the end of the day, [rising labor costs] are just something we are going to have to deal with.”
And he’s right. To continue to carve out market share, oilfield chemical services companies need to solve the labor problem. Many are looking to do just that.
Even still, there’s another macroeconomic factor eating into chemical margins.
What comes after lightning? Thunder. What comes after labor shortages? Supply chain constraints.
The global economy’s lack of manpower has inevitably led to backorders, delayed shipments, and missed deadlines.
From computer chips to construction materials to steel tubing, goods are scarce. Nearly every business that sells products is battling with rising supply costs and growing insecurity, and oilfield companies are no different.
“The raw materials costs have been our biggest challenge,” said Logan, and he’s not alone.
“Right now, I’m very focused on security of supply,” offered Curt. “We are really challenged with our supply chain and security of materials.” He asked the question that nearly every oilfield chemical manager is asking of late: “How do we really control our P&L without completely blowing up our cost of goods?”
The problem isn’t just limited to chemical services companies either. Jonathan noted that his pump manufacturing company has “taken a lick on the P&L” as they’ve grappled with raw materials and freight costs.
Dillon, a production engineer for a mid-sized E&P, feels the pain too. “The cost of tubing has gone up almost three times [recently],” he said. “If we don’t have to replace tubing, that’s going to help us a lot.”
Beyond the simple cost of materials, companies are also grappling with shipping delays. This creates additional costs, as freight charges have increased, but it also creates new operational challenges for service providers in an industry where products and answers are expected immediately.
“The mentality of oil and gas is delivery on demand,” said Jonathan. “That mentality is alive and well, and it’s still the expectation, even though it’s harder to accomplish.”
He went on to say that they’ve tried to preserve product pricing by sourcing raw materials from different markets. “So for example, stainless steel bar: we try to hold off on price increases as much as we can, so maybe instead of getting it from Houston, we have to get it from Chicago now, so I’m looking at a much higher cost on freight.”
This supply chain issue has presented oilfield services suppliers with a real dilemma: They can increase prices to offset increased costs, and thus preserve margin, but risk losing market share to more frugally-minded competitors. Or, they can hold off on price increases as they try to carve out market share, but run the risk of suffocating an already tight ledger.
“We wondered, since oil prices have increased, if our operators would be able to take that same type of price increase to help offset these raw materials costs,” said Logan. The responses were mixed. “Some were pretty open with us on what they were willing to accept. And some just say ‘give us your best price.’”
Jonathan and his team have wrestled with when and how to increase prices, worried they may lose access to certain customers or churn existing customers if they raise charges too much. “When is a good time to do a price increase? What does a good price increase look like? We’re asking that question right now.”
Logan and his team also understand the customer implications. “Our operators are looking to increase cash flow and drive out any additional cost they possibly can, but vendors are coming to them on a regular basis asking to increase prices, so how do you do that right? Negotiating that fine line has been a very big challenge for us. We’re trying to find the sweet spot to still be competitive in the market and maintain a decent margin.”
Managing materials and shipping costs is hard for every business right now, but for a market segment whose core offering is centered around both sourcing and delivering specialty chemistry, the pain is that much worse.
At the end of the day, Logan and his team have had to increase their prices to reserve margin, but not without consequences. “We’ve gone back with increases across programs as a whole and then had to come back and negotiate that down a little bit to keep the business.”
While materials costs and labor shortages present very substantial issues for oilfield services companies right now, there’s a more intangible concept that’s keeping at least a few OFS executives up at night in 2022.
For a couple of years now, ESG (which stands for “Environmental, Social, and Governance”) has seemed like a pie-in-the-sky marketing exercise with which only the most publicly exposed companies have needed to engage.
The concept may be headed down to earth this year in oilfield services.
“ESG issues are a huge focus this year,” offered Logan. As oilfield service executives like him consider options for growing their market share in 2022, they are asking important questions related to sustainability, like:
What do my Tier 1 accounts expect?
What must I do to reduce my carbon footprint?
How should we talk about sustainability initiatives?
Do we have the numbers to back them up?
Environmental and safety issues aren’t new to the oilfield, but the continued rise of digital media and instant news feeds has elevated the scrutiny to new heights.
“One of our customers was recently publicly shamed into focusing on sustainability,” Tyson noted. This phenomenon – public shaming – may often be the driving factor that forces oilfield companies to reconcile their image to a particular sustainable standard, all while the industry as a whole receives increasingly negative press lambasting the “hydrocarbons brand.”
Beyond the political and PR aspects, ESG presents challenges for oilfield companies of all stripes. It’s an issue that affects operations, sales, marketing, and human resources, each to varying degrees.
To grow their market share, oilfield services companies must cater to the demands of publicly traded producers and pipeline companies who must maintain a squeaky clean ESG image to attract capital.
“Those Tier 1 operators want to see what ESG initiatives we’ve highlighted, “ Logan mentioned, “because whatever we can do on our end is a direct reflection on them as well.”
Larger oilfield services companies are now tracking things like carbon footprint, waste reductions, water consumption, and more. Beyond just tracking their own sustainability scorecards, they’re actively marketing the ways they can help their customers move the needle on ESG. The public entities have been publishing sustainability reports for years, one of many efforts that reflect the initiatives of their customers. Doing so allows them to attract and retain high-value business.
But ESG isn’t just an issue for oilfield services companies who operate in the limelight. It’s affecting the OFS industry as a whole, regardless of the size of customers they pursue.
Case in point: the labor force is moving away from companies who can’t craft a compelling sustainability narrative. According to a recent survey by recruitment firm Brunel and Oilandgasjobsearch.com, more than half of oilfield workers said they would be searching for opportunities in the renewables sector, an increase of almost 20 points since last year3. The downturn of 2020 soured many potential employees to the industry after they were let go or furloughed. Younger prospects, for better or worse, tend to desire jobs at companies with a more positive public image.
Stuart, an oilfield services executive who focuses on water management, in particular, has noted the exodus of young professionals. “We have a lot of people who are moving on, for one reason or another,” he said, “and we don’t have that same number coming into the industry. There is definitely going to be a hole in terms of knowledge and experience.”
Fighting the negative perception that looms over the oil and gas industry will be an uphill battle for most. But the call for sustainable operations continues its crescendo, and companies are being forced to react.
In the event that Netflix, fast food, and social media haven’t made this completely apparent, let’s put it bluntly: Our culture expects instant gratification.
High-speed internet and mobile devices have spurred the greatest explosion of information availability in human history, and the result is that nearly anyone can meet their needs – whether for food, entertainment, or answers – within seconds.
Despite its tendency towards conservatism, the oil and gas industry hasn’t dodged the appetite for immediate satisfaction, especially as younger engineers join the workforce.
This reality has created new problems for oilfield chemical services companies, specifically around how they manage and share information with their customers.
“There’s been a shift from old school engineering,” Logan reflected. “In the past, you just relied on your relationship with your account manager and trusted them to be a pro. The new school of engineers are very data-driven. Growing up, if they needed something, they could get online and Google it and they’ve got it in front of them immediately. So we’ve got to be able to provide data to them now because of that new school of thought.”
Dillon, the production engineer we mentioned before, is in his twenties and a representative of this “new school” of engineering. He unabashedly confirms this position.
“With us, chemical management is just super data-driven,” he said, “and all of that data goes into building a chemical program built on trust.”
For many operators, “trust” and “data” are becoming more and more synonymous. Dillon went on to offer a tongue in cheek directive: “In God we trust. All others must bring data.”
This cultural shift has created a new requirement for oilfield services companies: learn how to manage large amounts of data, and use that data to communicate value to your customers in real-time, or risk losing trust with your best accounts.
In addition to prescribing and sourcing specialty chemistries, providing lab and sampling services, and managing an in-field chemical program, oilfield chemical services now must become data managers, a burden of proof to attain and maintain market share.
Kevin offered an idea borrowed from his CEO: “Traditionally, you had a three-legged stool in production chemicals. You had field services, you had products, and you had technical services. Now with the new engineers coming out of school, everything is real-time. So the fourth leg of the stool is going to be data management.”
As if oilfield chemical services companies didn’t have enough challenges balancing those three traditional legs, now they have a fourth to try and stabilize. And it seems that every one of them is beginning to undertake this project in earnest.
Colton, an area manager who has taken on the role of “digital specialist” for his district, understands that the process is a journey. “Everybody is on a different part of the path to digital,” he said, “but, ultimately, everybody is going to have to do it.”
This reality is sinking in, or has already sunken in, for the modern oilfield chemical services company. Yet despite the additional workload this brings, many see an opportunity.
“It used to just be the service, the product, the application,” remarked Johnny, an account manager in the Delaware Basin. “Now it’s about quantifying everything, because everything is being looked at under a microscope.” But he didn’t shy away from the challenge, instead seeing the opportunity create additional value for his customers. “It’s a good thing. It makes the cream rise to the top.”
Kelly, another account manager in West Texas, echoed the sentiment. As a younger sales manager with only a few years of experience, she gets excited about the prospect of being more data-driven. “I do my best work when I’m looking at data,” she said, adding that she’s tired of the industry data sharing model built on Excel and emails. “I envision being able to run my account solely off of a dashboard.”
Kelly’s position may be unique to the younger generation of oilfield workers, but as Colton put it, data management is something everybody will have to engage with. “Putting all of the data in a central location and updating it automatically behind the scenes doesn’t take a great deal of time,” he said, “and it frees up a ton of time for our team.”
The data systems and reporting tools do have the potential to free up time for account managers who may previously had to scour dozens of spreadsheets, emails, and grease books for answers, but implementing them doesn’t come without a cost.
“The sheer amount of data is challenging, when you think about all the well attributes you get from the operator, invoicing data, analytical and lab stuff, and then you start bringing in remote telemetry… there’s just a ton of data,” shared Colton. “Managing that data, getting good data in, and getting good data back out, is a huge pain.”
Complicating the matter is that there is as yet no accepted standard for how data should be shared. As one production engineer at a large independent put it, “Every RFP we put out includes the stipulation that data will be provided to us in a manner that is convenient to us. We just haven’t defined what convenient means.”
Tyson made this issue very apparent. “I’ve got 38 different customers and 38 different dashboards that I have to build for each one,” he complained. “With one of our bigger customers, we plug the data into our internal view and then we go in and plug it into Power BI for them.” For a company seeking efficiency gains through digital tools, having to do double duty on premium accounts defeats the purpose.
Still, data management is the new reality, and oilfield services companies are now trying to wrangle IoT, automation, and cloud data services to maintain a path towards market share.
COVID-19 brought a downturn that caught many in the industry off guard. The persistent ramifications of the pandemic and other worldwide forces signal that great challenges still lay before the oilfield chemical services industry. And yet, most in the industry feel positive about the outlook for 2022. With oil prices on the rise, oilfield chemical companies see a great opportunity to go and grab market share.
“Quarters 3 and 4 in 2021 gave us a strong trajectory and a lot of momentum,“ observed Kevin, the Bakken VP. “We’re expecting in 2022 that a lot of our customers will be bringing back their drilling programs and completing some wells, which in 2021 really stagnated. We expect it will be a lot more active, probably closer to what 2019 was like.”
Logan seconded the opportunity. “When the country kind of reopened, it sparked a little bit of activity for us. We started to see new business come online and additional vendors go into RFP and bid, so a lot of opportunities have appeared for us.”
The downturn in the industry has created a vacuum. Many chemical vendors were fired, or programs downsized, due to financial constraints, performance failures, or both. With activity picking back up, oilfield chemical companies of all sizes are looking to break into the void, supplanting incumbents to capture additional market share, revenue, and margin.
But, in a highly competitive market with extreme cost sensitivity, differentiation is key. And thus, oilfield services firms are making a big push to set themselves apart.
The winning playbook may differ from region to region, yet the same imperative applies across all American oilfields: Find cheaper, faster ways to solve customer’s most complex problems while maintaining or expanding revenue and profitability.
As we look at the oilfield landscape headed into 2022, this is what the very best oilfield chemical services companies will do to win.
Oilfield producers and transporters expect more from their oilfield chemical vendors. In the past, “more” may have meant more service, more manpower, more eyes in the field. But in the modern oilfield, more emphasis is now being placed on chemistry, R&D, problem-solving, and data sharing.
Because of the added emphasis on more valuable activities that require devoted time and attention, oilfield chemical companies are looking for ways to free up time in the field, eliminating unnecessary inventory trips, optimizing deliveries, and improving injection technologies.
“There’s a familiar theme that has been circulating around the oil and gas industry for the last two years now,” claimed Logan, “and it’s called ‘Do More with Less.’”
We heard this refrain over and over from both service companies and their customers. “It’s an imperative,” said Peter. “The chemical providers… have learned their lesson on what happens when you can’t get staff and you don’t invest in [efficiency improvements]. So they’re becoming perhaps more grudgingly aware that they’re going to have to make some investments, because if they don’t, they’re going to get caught again.”
Kevin reflected on how the industry downturn allowed them to introspect and brainstorm ways to improve efficiencies. “Looking back at 2020, with a lot of drilling program curtailment, that allowed us a period to really focus on how we could be more efficient. How can we improve systems to do more with less?” For his company, efficiency has become a paramount focus this year. “Outside of our sales goals for 2022, we are mainly focused on what we can do to develop efficiencies with the tools we have, and bringing in tools that can make us more efficient.”
Curt chimed in, “A lot of how we are responding to the labor shortage is working towards managing more with less… so that our people can cover more ground.”
Doing more with less might be the great theme of 2022 for oilfield chemical services. Operators are demanding more and more value at the same or lower price point, and services companies will need to find ways to carve out efficiencies that enable them to deliver higher value services at competitive price points.
“So, how do you do that?” asked Logan, both rhetorically and earnestly. Many oilfield services executives and managers are asking the same question.
Here are some possible answers:
In a 2019 survey of chemical sales & operations managers, 86% of respondents said that “customer service” was their main differentiator.4
In our conversations with account managers and service technicians, it was clear that many feel they must consistently be out in the field and in front of clients, not necessarily because that’s the best way to solve problems, but simply because they worry about a perceived lack of service coming back to bite them.
But to succeed in 2022 and beyond, chemical sales and service managers will need to reflect on which time-consuming activities add the most value, and focus their attention on achieving outstanding service levels more efficiently.
As the industry has consolidated over the last decade or so, many smaller chemical services vendors that relied solely on field services without generating effective chemical programs have been pushed out or acquired. This isn’t because field work isn’t required, or even desired, but now, more than ever, their performance can be measured much more readily.
Dillon, the young production engineer, remembers how failure meetings looked different in the past, where perhaps chemical account managers could cover for poor performance with good communication and hard work. “Historically, we didn’t really know if we were even close to hitting our recommended PPMs,” he said.
He went on to say that the advent of remote monitoring systems have created new ways to keep track of vendor performance. “Technology is the red flag,” said Dillon. “It tells you if the guys aren’t doing their job. We’ve kind of opened Pandora’s Box. These guys have to be a lot more accountable for what they do.”
Justin, a Chemical Advisor at a large US independent, flatly stated that he doesn’t think chemical service companies can differentiate themselves on service alone. “Service-wise, the majority of chemical vendors are the same,“ he said. “They might do things a little differently, but, you know, a batch treatment is a batch treatment. Continuous treatment deliveries, the inventory process, they’re all about the same.”
Perhaps Justin is oversimplifying the complexities of field work, but at the end of the day, operators care about performance, and performance looks like better asset integrity, better flow assurance, lower failure rates, lower costs per barrel of fluid. And as performance becomes more quantifiable through digital technologies and data analytics tools, the demand for excessive communication and service may dwindle and be replaced by other factors perceived more critical by customers in the industry.
To be sure, service remains a pillar of the business. Everybody acknowledges that field work isn’t going anywhere, at least not in the near future. “We’re in the field all day, every day,” Colton said. “We’re an extra set of eyes in the field for our customers, and that’s something we don’t want to lose sight of.”
He went on to remind those in the industry who don’t perceive field work as valuable that time spent over target is often a critical piece of addressing and solving problems, an important element of the trust that customers desire with their service companies. “It’s kind of a catch 22. To be a problem solver and be proactive you have to do a bunch of field work. You can’t not go to the field.”
Of course, finding problems by getting into a truck takes time and money. It creates safety risks. It inflates carbon emissions. And it takes time away from actually solving the problems that are found.
In this new oilfield, chemical companies will need to think more critically about the processes in the field that actually detract from their ability to provide exceptional service – measured as program performance that leads to better production and throughput for their customers – and find ways to either replace those tasks with automation or reduce their frequency.
Tyson confirmed. “If we could overcome the manual processes, we could allow our people to focus more on solving problems, which is the key.”
This is the critical point: Oilfield chemical service companies who want to win in 2022 need to discover ways to find problems without wasting field hours and truck miles. Instead of using manual observation to catch problems, service companies need to know what problems face them before they head into the field.
And of course, the reason is simple: Chemical companies must focus on what they do best that their customers can’t do well, and that’s chemistry.
If customer service isn’t the calling card for the modern oilfield chemical services company, then what is?
To answer that question, we turned to their customers. The response was nearly unanimous: Develop better chemistry as fast as possible to tackle the most complex production and pipeline problems.
“The number one value that service providers bring to us is they have to have chemistry that will work best for our field,” said Justin. “They can have the best lab capabilities, the best manpower or resources, or the shiniest truck, but if they don’t have the chemistry that can help us address our problem then it’s just not going to work.”
Every customer we interviewed seconded the emphasis on quality, effective chemistry.
“We are obviously going to get on our chemical vendors about pumping the right rates and making sure the execution is there,” said Dillon, “but at the end of the day we value them as service providers to make the right chemical selection.”
William put it as succinctly as possible: “They’re the chemists. I’m not a chemist.”
As customers continue to consolidate their focus on core activities, service companies are being called on to select the right chemistry for the job. And as we mentioned, new digital technologies are making it easier to track chemical usage and performance, so customers are getting a clearer picture of whether the chemistry is working much more quickly than they did in the past.
All this brings more attention to the actual chemistries being utilized and how they function effectively in the various North American oil and gas fields. Companies are experimenting with different types of chemistries, like non-triazine HsS scavengers or multi-functional inhibitors that promote both integrity and flow assurance.
For Dillon, chemical performance even trumps cost, within reason. “Who can I trust to go out and solve an issue?” he asked. “Who can I trust is not going to just slap some chemical on it and pump it really fast? Who is going to pick the right chemical?”
The demand for effective chemistry isn’t new to the oilfield, but perhaps the cycles at which chemistries are being deployed, tested, and analyzed are shrinking, bringing a growing demand for chemical manufacturing abilities, better lab capacity, and shorter testing and R&D times.
“We are looking for R&D and how they’re in tune with the treatment of non-typical chemical problems,” offered Justin. “The issues are quite unique in US onshore. We have a lot of water, so corrosion and scale are going to be the major components, but different assets behave differently, so they need to be able to tailor and adapt, or they won’t be able to compete.”
Logan understands the need to continue generating effective chemistries to respond to new problems. His company leans on its ability to manufacture chemistry, which in a time when supply chain constraints are creating material delays that impact performance, has proven exceptionally valuable.
“There are only a select few vendors that have manufacturing capabilities, so that’s one differentiator for us is that we can manufacture our own products and control our raw material quality and costs a little more.”
Even smaller companies that aren’t vertically integrated with global chemical manufacturers are pursuing manufacturing options. Kevin’s team has carved this out as a key differentiator for his team. “Our in-house manufacturing facility allows us to come up with different chemistries and improve on current chemistries and be nimble.”
The nimbleness has proven key in an oilfield where answers are expected ASAP. More demand has been placed by customers on lab capability and chemical R&D, a requirement that has only become more pressing during the current supply chain crisis.
Justin isn’t satisfied with the speed with which he is able to get lab results from the majority of his chemical vendors. “The feedback cycle [on lab data] is not fast enough,” he groaned. “If they could automate testing, they could shorten that timeframe.”
Because of his position, Justin wants to see more focus on lab performance and R&D, both in terms of selecting and developing chemistries, but also in analyzing their performance. He sees opportunities to automate lab analysis and sampling data to both shorten R&D cycles and improve field performance. “The number one thing I want to see from a service provider is more research and development on new chemistry to help us with new problems.”
Companies like Kevin’s are looking to respond, focusing on better R&D to meet the demand. “Our R&D cycle for really high-end products is shorter than some of the large companies, which has allowed us to move quicker and be more responsive to our customers.” He said their single-basin focus has made it easier to home in on specific problem-solving chemistries, as the range of problems they must address is narrower.
As operators shift their attention to their core business, chemical companies must do the same. Customers in 2022 demand better chemistry, and service companies must satisfy the demand.
If they want to grow, smaller chemical companies in focused geographies may have one of two options: specialize in particular chemistries or applications (for example, by focusing solely on water management or SWDs), or expand lab and R&D capabilities to better understand the problems that new regions and new reservoir characteristics bring.
Similarly, larger companies can’t lose sight of the need to quickly respond to new customer challenges, creating specialized R&D teams who deeply understand particular regions, applications, and production characteristics, and the nuance of their chemistry needs.
Better chemistry will lead to better performance. But what good is better performance if it can’t be backed up with proof? That’s where the next strategy comes into play.
The demand for digital is reaching a crescendo in the industry, and most leaders now appreciate the value that it can bring.
“The battle for remote automation has been won, as far as people accepting it,” proposed Peter. “The people [who don’t believe in automation] have moved out.”
While there certainly are a handful of holdouts, Peter’s claim appears to be true. Oilfield chemical services executives have no choice but to automate using digital technology. “The reality is that when you can’t get the people, that really hurts. So there has to be business change.”
Many oilfield chemical companies are discovering that it’s possible to both improve efficiency and increase field and technical service quality simultaneously. To do so, many are turning to technology.
“We have an entire division focused on digital,“ mentioned Colton, the area manager focused on implementing digital tools. “It’s just going to grow as everything continues to move towards using technology more.”
Indeed, digital technology will be on the forefront of those attempting to solve for labor shortages, supply chain disruptions, sustainability initiatives, and data sharing requirements. Automation will be key to responding to the “Do More With Less” imperative, as Logan understands.
“The only way to do more with less is to automate more and more of your processes,” he insisted. “We’re asking, ‘How much can we automate? How much can we reduce actual boots on the ground? How can we keep trucks off the road?’”
These critical questions require answers from every oilfield chemical services company seeking to capture market share in 2022. Not only because labor and supply costs are rising, but also because, as mentioned, operators demand better, faster solutions to their problems.
According to data captured by WellAware, the average continuous chemical injection pump misses dosing targets by 25% to 35%, with over half of chemical pump downtime lasting 24 hours or more.5
“Most operators and service companies don’t realize the dire state of their chemical injection programs, because they don’t have the data to see the problems in real-time,” said WellAware Operations Director John Morgan. According to WellAware, adding remote monitoring and automation has the ability to reduce that number to 15% or less, while freeing service managers’ time to focus on answering their customers’ most pressing demands.
But, as many have discovered, adding automation is about more than just buying technology and distributing it out to field offices. Automation is as much about adopting a particular mindset about how to work, a mindset which can be difficult to establish within an industry that employs many long-tenured workers who may perceive automation as a threat to their jobs.
Nathan, an automation champion, says the issue is often not an issue of tools or skills, but of attitude. “People are quick to just say the automation is bad, but you have to get into a digital mindset.” He adds that digital tools do require some management and maintenance, and many people don’t see enough benefit to overcome the initial burdens of adoption.
“When I first started in oilfield chemicals 10 years ago, just getting email on my phone was something new,” Curt reminisced. “But one of the biggest changes I’ve seen in the past decade is just that digital piece. Going from a steno pad and paper to Excel to now there are apps and things like that.”
The transition is a lot to handle for those who’ve spent decades-long careers in oilfield services, but leaders bent on adopting technology must assure them that they won’t be replaced.
“We’re not trying to automate a workforce out of a job,” insisted Kevin. His team is moreso looking to digital tools to create additional leverage for his team. “Employee retention has been a huge focus for us, and to this point we’ve been fortunate to have a stable workforce. How can we set them up for success?”
This is the mindset we’re hearing from nearly every District Manager, Vice President, and Executive at Oilfield Chemical Services companies: We’re not turning to automation to replace people, but to help them.
“Our intent has never been to say, for example, that 250 units of automation equals one guy. But some of our people are driving thousands of miles just to take inventory,” offered Colton. “That task is pretty easy, and it is not bringing any value to the customer. We want to free up time for our account managers and field techs so they can focus on the customer.”
For many, digital technology can offer the efficiency, safety, and sustainability benefits they require while also creating new value streams for their customers. To get there, though, they’ll need to convince field staff that automation helps, not harms.
“Our company has really made it a priority for us to go digital, providing capital funds and investing in the technology so we can work towards those improvements,” said Curt.
It takes time to build trust in new tools, and many in the industry have been through their fair share of booms and busts. Curt understands that until his team trusts the data created by automation systems, adoption will lag.
“It’s nowhere near perfect where we are now,” he said. “Adopting the technology and getting consistent results is a major hurdle for us.” He is continuing to focus on training and incentivization that will help his team, wanting them to utilize the new tools in a way that actually leverages the value they can provide.
Fortunately, even the most stubborn anti-technologists are starting to come around.
“When it works, automation is a game changer,” mentioned Johnny, who has over 15 years of oilfield chemicals experience with multiple service companies.
When it works. That’s the operative phrase. And as we’ve learned through our interviews, getting automation to “work” has been a huge challenge.
While oilfield services companies are trying to overcome predeveloped biases against automation as a time-wasting job-killer, failed automation projects reinforce these prejudices, resulting in low adoption rates caused by a lack of trust, plus a hesitancy to take on new digital projects that could prove fruitful.
Ultimately, Nathan believes that end users, not executives, need to champion technology. Regardless of who we interviewed, from executives to service technicians, this sentiment held true. Nobody wants “top down digital transformation” enforced through corporate mandates. Rather, leaders are trying to capitalize on the skill sets their workers have to integrate more digital tools.
“We’re not where we want to be,” noted Kevin. “We’re comfortable with the processes we have in place, but when you’re truly talking about digitizing it, that’s a big focus for our team in 2022.”
For all who champion digital projects, the effort is worth it. Not only are efficiency, sustainability, and safety at stake, but also the opportunity to create stickiness with the most strategic accounts.
In an industry with a high rate of customer turnover, projects that can increase retention often get special attention. Digital tools show that promise, and as we discovered, many are hoping that by shifting to a digital framework, they’ll be able to capture more trust, an elusive quality that allows them to stand out from their peers.
And this is perhaps the most enticing prize that oilfield executives see in adopting automation. Sure, there are internal efficiencies to gain, but the true value will be in using data to measure and demonstrate performance – proof that their service and chemistry works.
“Data is becoming more and more of an asset,” Justin said about his chemical advisory team. “Our goal in 2022 is to strengthen our chemical data so we can have a more standardized evaluation across the whole company.” He’s working hard to create digital systems that his service companies can feed, allowing him to monitor and measure performance to find efficiency and sustainability gains for his company. “If we can align into a single, organized, onshore chemical process, that will be a big plus.”
Chemical companies that can use data to measure and communicate their value are exceptionally well positioned headed into 2022.
Curt thinks the value of automation really lies in the ability to communicate better with his customers. “For me, digital and automation is about trying to meet the demands of our customers and meet the instant need for data.” He sees digital tools as a way to differentiate his services, prove their value, and focus his team on critical work.
Kevin also has his team focused on data sharing techniques that will strengthen their customer relationships. “We want systems that pre-populate data, whether it’s failure reports, rate adjustments, lab data, iron analysis, things of that nature. We’re actively working on implementing things like that for our customers, creating those bridges for data sharing.”
Still, service providers will need to tighten their focus on digital adoption so that every investment delivers value to their customers. It can be tempting to pursue dozens of digital projects, but the best service companies will use technology where it can deliver the most value without adding too much of a cost or operational burden.
“Right now, the guys who are doing data management really well are also the most expensive, because that G&A portion of their business is weighing in on the chemical price,” remarked Dillon. He’s looking for data, yes, but he needs it cost effectively. What he’s currently getting from his service providers doesn’t quite fit the bill.
Many service providers have spent considerable energy adopting tools such as Power BI, Spotfire, or Tableau that allow them to build custom visualizations for their own internal efficiencies.
But those who think that customers would also benefit from complex visualizations are missing the point, says Dillon, and may be negatively impacting their service and price. According to him, oilfield chemical service companies must focus less on customer-facing dashboards, and more on building connections that enable better real-time data sharing.
“I don’t need the visualizations,” he said. “I just need an API.”
Dillon is a younger engineer with a digital skillset, so he’s content to receive integrated data feeds or database access, saying that “cool visualizations” provided by vendors are more trouble than they’re worth. “You have two silos of data management programs being built up: one at the operator and one at the chemical company. We’ve got all of the data management stuff built already. They’re trying to do ‘Spotfire-as-a-service’ for us, and we’ve just got more experience than them. Just give us the data. Just give us a REST API, and that will be so much easier. That’s where the disconnect is.”
So, 2022 is about becoming more digital, yes, but that doesn’t just mean slapping some tank monitors on a few critical sites to track inventories. To succeed, oilfield services companies must use automation and digital tools that not only capture efficiencies, but also shorten the performance feedback cycles with their customers. Doing so will inevitably create more opportunities to innovate and establish authority and expertise, which should position companies who effectively manage digital as highly differentiated.
“It’s at least a five year endeavor, with every roadblock and obstacle along the way,” Tyson noted.
It’s worth the effort. Those who can stick it out will be best positioned to meet the shifting needs of the most demanding – and lucrative – accounts.
Oilfield chemical services companies have arrived at a critical nexus. The last two years have created a void that needs to be filled, and 2022 will present great opportunities for a handful of oilfield chemical services companies that can create differentiation through a combination of efficiency, expertise, and innovation.
To grow and meet the demands of their accounts, OFS companies will need to remain cost effective despite labor shortages and supply constraints. They’ll need to demonstrate a commitment to safety and sustainability as their customers align initiatives toward better ESG scores. They’ll have to become data wranglers who can communicate value and drive efficiencies through digital and automation tools. And they must continue to provide effective, innovative chemistries that solve their customers’ biggest problems.
To summarize all that you’ve read here, we think it’s helpful to look at the most critical challenges we’ve heard, and offer some strategies – backed up by insights from industry leaders – on how to get those challenges addressed. Below you’ll get our quick take on how the best oilfield chemical service companies will respond to our industry’s most pressing challenges in 2022.
Adjusting to rising labor costs
Think critically about the number of sites an individual service tech or account manager can handle, and find ways – through automation or process improvements – to increase that number.
Use central operational leaders or automation to help drive people towards executing the most critical tasks first.
“We’re trying to develop a Control Center, to basically run the operation from a control center with data coming in and being able to manage our operations that way, keeping people working on critical tasks.” – Logan
Adjusting to rising labor costs
Think critically about the number of sites an individual service tech or account manager can handle, and find ways – through automation or process improvements – to increase that number.
Use central operational leaders or automation to help drive people towards executing the most critical tasks first.
“We’re trying to develop a Control Center, to basically run the operation from a control center with data coming in and being able to manage our operations that way, keeping people working on critical tasks.” – Logan
Attracting qualified talent in remote environments
Give hirees more flexibility. Offer exciting or differentiated perks. Allow remote work on occasion. In short, be creative! There are ways to incentivize work that have nothing to do with money.
“I don’t think we’ll ever get away from people needing to be based close to the business, but you can make it a bit more attractive for them [by allowing them to work remote].” – Curt
Managing supply costs without negative margin or customer turnover
Work with regional chemistry wholesalers who understand particular chemistry requirements in that region. Expand your network of wholesalers. You can use an expanded network to leverage better pricing, but also to gain unique expertise in particular regions where those distributors operate.
If possible, work towards manufacturing your own chemistry, or start working directly with contract manufacturers instead of wholesalers.
“We’ve got better forecasting because instead of ordering and blending we’ve got capacity in our manufacturing facilities and can better forecast our supply chain.” – Logan
Justifying price increases to hesitant customers
Focus on the ROI – and proving it. Increasing price without providing a corresponding increase in service means you’re a commodity. Some chemistries are just that – commodity – but if you can use digital tools to demonstrate where and how you are delivering value – and quantify that value – your customers will likely accept the price increases much more readily, and probably will spend more with you in the future.
“The cost of tubing has gone up almost three times recently, so the execution [by the chemical company] is super important now with supply chains the way they are. We’re going to spending more on chemical [in 2022] because we want insurance that we won’t have to find tubing, because we might be waiting days before we can even get tubing on location.” – Dillon
Asking for necessary price increases
Be honest with your customers about price increases. As long as you continue to provide performance, there’s wiggle room for pricing. If you can fail a well less often, for example, your customer is more likely to pay top dollar for your chemistry and service.
“The customers understand that there are supply shortages and labor shortages, so we’re getting a little more leeway, but not as much as you would think.” – Jonathan
Reducing vehicle incident and safety risks
Keep people off the roads, plain and simple. It’s easier said than done, but think critically about which processes can be handled remotely. Or, consider working with field-based contractors who can handle some of the more mundane tasks like catching samples or changing rates. Take it a step further, and add automation technologies that can replace those tasks entirely.
“Some of our guys are driving thousands and thousands of miles just [to take inventory], and it’s pretty easy. It’s not rocket science. And there’s a safety risk factor with that too. The task of checking chemical levels is not bringing value to the customer. Maybe it brings value to us so we know when we need to deliver, but I’d rather have our guys not driving 5000 miles this month just to check chemical tanks. I’d rather them be sampling wells, looking for issues, finding issues before they become bigger problems, being really proactive.” – Colton
Crafting a positive ESG image
For starters, take ESG seriously. Your best customers do, and you should too.
Start with your carbon footprint. Vehicle mileage will be a big contributor to your emissions, so any changes you make to reduce mileage for efficiency should also impact your ESG image. Make sure to track mileage baselines and show improvement to your customers. Share this information with your customer’s marketing teams – they love to highlight when they’re contractors align with their ESG goals.
In addition to measuring your own footprint, demonstrate your impact to your customer’s footprint. For instance, if you treat produced water for recycling, monitor how much water you treat, then go back to your customer and tell them how much water they recycled by partnering with you.
“ESG issues are a huge focus for this year. We’ve had a lot of our Tier 1 operators tell us it’s part of their plan for this year to drive more sustainability. At the end of the day, it’s one of our top goals too, so we’ve put those ESG initiatives in place. Those Tier 1 operators want to see what ESG initiatives we’ve highlighted, because whatever we can do on our end is a direct reflection on them as well.” – Logan
Meeting customer demand for rapid lab feedback
If you have in-house lab capacity, use it efficiently. Add things like mobile labs that can work out in the field and turn results more quickly.
Furthermore, integrate lab data with your digital systems and customer data feeds. Rely on your customer’s expertise – if they have it – to take some of the burden off of the analytical work.
“Their main responsibility to the operator is that we have a problem, and they have a chemistry to address the problem. They need to monitor and automate to streamline the entire process [so they can focus on solving the problem].” – Justin
Shortening specialty chemistry R&D cycles
Focus on what you do best. If you’re a smaller chemical company, consider specializing in particular applications or chemistries and carving out a market niche in that specialty. If you’re a larger company, continue to invest in regional manufacturing and blending facilities with personnel who are tuned into the regional chemistry challenges of those particular oilfields or basins.
“If they could automate testing, they could shorten that [feedback] timeframe, and then maybe they wouldn’t need as many folks out there in the field. Same thing if they have a tank level monitoring, they don’t need to go out and do inventory.” – Justin
Adding automation without creating a huge financial risk
Automation like tank monitoring or pump control can be scary, and a lot of people have been burned. Still, the benefits outweigh the risks.
First, do a detailed ROI analysis. Be honest about what’s achievable, and understand the “cost buckets” that you can impact – these generally fall into: hours, mileage & maintenance, fuel, incident risk, and revenue recovery.
Consider a partner that will offer automation hardware risk free at a stable price – your biggest risk, both from a financial and operational standpoint – will be having to replace sensors or controllers that fail. Partners like WellAware, for example, offer a lifetime warranty on all equipment hardware, so if it ever breaks it’s replaced free of charge.
“I believe in [automation] from a P&L standpoint. If I have 50 tanks in a field and I used to go around every week to check them, I would find one or two pumps broken, sometimes more than that. If you find those injection points that are down, you capture value. I mean, even if it’s just 2 gallons per day, and I’m pumping out of the sight glass for 5 days – because we all make mistakes – that’s 10 gallons right there. That may not seem like much, but when you’ve got 2,500 tanks and you add it all up, there’s so many inefficiencies that can get in the way.” – Tyson
Driving field user adoption of automation
Some field users won’t adopt new technology immediately, and that’s okay.
Find technology partners that can help translate “data” into recommended actions. You need tools that prioritize problems. Make sure to avoid systems that “cry wolf” – false alarms will erode trust faster than just about anything.
We’ve learned that it’s much better to train your workforce internally than having a vendor provide all the technology training, so consider creating “digital champions” within each district or functional geography – these cross-functional internal champions can help end users better understand and adopt technology.
“That’s the one thing I try to figure out. How can we create actionable items out of the data? I think we are still trying to figure that out. If we can get down to ‘I come in on Monday and look at my report and then within an hour I know exactly what to do for the whole week’, that would be a major win. It all comes down to ‘Do you need to fix the pump? Do you need to adjust the pump? Do you need to go to the site today?’ – Nathan
Managing the gap between digital adopters and technology holdouts
Some of your workforce will be especially hesitant to adopt digital tools. Don’t worry about that. Work within their skill sets. Perhaps the account managers with better digital skills can focus more on data management and customer communication, while others who prefer field work can take on additional sampling or field management tasks.
“I’d like to get my team out on the assets more than behind a computer, but you have those where that’s their skill set and it’s fulfilling to them, so it’s a balance. We try to balance putting those with digital skills maybe more in the office, whereas those without those skills we let run around the field more.” – Curt
Responding to customers' digital demands
The demand for data is growing. Focus on what your customer actually needs, not what you think will make you look good. Chances are that your best customers probably can handle their own data visualization and management – focus on getting them clean, quality data through an automatic, internet-based connection like an API.
If you partner with the right technology vendor, they can usually help to make and maintain these connections.
“More and more operators are wanting us to provide [remote tank and pump] automation, just for the additional insurance to make sure we’re actually pumping product out to protect the integrity of the asset. As much as they want to save, [our customers] also want to make sure they’ve got a program in place that’s validated and working properly. When you’ve got situations where you’re unsure what your program is doing, you’re not sure if all the pumps are working and all the assets are protected, that makes them think “Hey we’re spending money on a program that’s not working for us.”
” – Logan
“Our preference is to have the data coming in in an organized manner, whether through a cloud or database somewhere, so we can use a query or Spotfire to manage and understand the data.” – Justin
It won’t be easy, but those who are able to put in the time and energy to address these problems in a meaningful way will have a tremendous opportunity to capture market share. The industry is only going up in 2022.
Are you going up with it?
Who is WellAware?
WellAware is an automation and technology company specifically focused on helping oilfield services companies do more with less using automation like tank level monitoring, remote pump control, and chemical injection automation systems. We work with many oilfield chemical services companies, helping them plan and execute automation projects designed to return maximum dollar. Our hardware comes with a lifetime warranty, and our customer support is the best in the oilfield.
To learn more about our solutions for oilfield chemicals service companies, go to wellaware.us/oilfield-chemicals.
Why we wrote this article
You may be wondering why we took the time to interview dozens of oilfield chemical workers and then write over 8,000 words about what we learned. Well, it’s simple. We really care about our community, and we recognize the changes happening in the oilfield are significant – and challenging. We wanted to ask our customers and colleagues how they plan to win in 2022, and then share that with our community. This article is the result. If you found it accurate, validating, or simply enjoyed the read, please share it. You can use the link in the menu on this page.
4Oilfield Chemicals Survey, WellAware, 2019, n=21
5Baseline data gathered from thousands of chemical pumps with WellAware automation systems installed.