The Energizing America Podcast

EP 36: What is the biggest threat to the energy industry in 2022?

Episode Summary

In this episode Jon and Shane talk about the state of the Energy Industry and how extremism in the media influences discussion about the future of oil and gas. For more info on our company visit wescominc.com.

Episode Transcription

Shane:

Welcome to the energizing America podcast, where we talk all things, energy and why we need it in our business lives and communities, and boy now today, more than ever, do we need this oil and gas? So John, what a wild ride. I think it was several months ago that the whole Russia Ukrainian thing blew up. We were trying to figure out what that means for us. I did a little podcast on, uh, inflation inflation. We had Pete Stauber in here, Congressman Stauber. We talked about inflation and energy. Uh, since then Riley sassy came in with red river and we talked a lot about business and where his business was headed and things he's been experiencing. I talked with a journalist down in Houston about the market conditions. I've read. We've been reporting every biweekly. When we have our senior leadership meetings, we're up to 41 drill rigs in North Dakota.

 

Shane:

Compared to this time last year, there was 18. I believe if I, if my memory is serving me correctly, and by the way, during the pandemic, we're down to 12 in North Dakota. So phenomenal increase in drilling activity. We are still in a terrible state of affairs in the oil and gas industry and in the energy industry. We're I, I don't know if you saw the article. I caught Mico the, the organization in charge of the Midwest grid sent out a notice to all the utility companies to expect rolling blackouts this summer in Minnesota and North Dakota energy, energy capitals. On the way in this morning, I was stating that you see the coal across the dock over at the superior docks. You see limestone headed up, you see iron or coming down the hill, you see ships out in the Harbor, you see fish fishing boats. You would think that this country is at its finest point ever, but you pull back this curtain. And boy, is it tough? I have you filled up your pickup lately.

 

Shane:

Yeah, I have. It's not pretty. It's not pretty. It's not pretty. And we've, we've had to try and get supplies. I, I did a little test run and the guys hate me for this because one of the things I, I get, I still get the, the invoices from one particular supplier every morning in my inbox, we do several million dollars with them. And it's highly important that we have a good relationship in that we check on pricing. One component that we use a lot up 33.3, 3% since January that's after it was up 17% in 2021. So that's a 43% 40 or whatever, 50. I don't know how to do math. It's an outrageous increase in material that we use every day since January of 2021. And so when I'm in Houston last week, I'm ask, or a couple weeks ago, I'm asking our clients, what are you most worried about?

 

Shane:

What, what what's on your mind? And they're all telling me we can't get material. I said, oh, you're not worried about inflation. Uh, we don't even care that works itself out. What it's, it's a mute point. If you can't get what you need, and this is starting to impact us way more than I could have ever expected. And it's, it's disappointing because I think we chatted as a team that there will be another COVID. It probably won't be called COVID, but there will be something disruptive in our business. And what keeps me up at night is that I don't know what it is. And therefore, I don't know how to plan around it. And boy has that come to like roost in the form of material.

 

Jon:

Yeah. It's when, when you, when you have all this work stacked up and you can't do it, cuz you can't get the stuff, it's pretty devastating. I mean, you have manpower sitting there, you have assets sitting there like we are ready to go. We're primed. Oh, we can't get the stuff to do the job. What do you do with the guys? What do you do with all these trucks and trailers and tools? And

 

Shane:

To the point that we were awarded a very large project with one of our top clients back in say, March mm-hmm and you got up. And we started looking at our schedule and we're like, boy, June is gonna be nuts, but so is may. And in order to do this, we gotta start replacing some trucks. We go to the market to find trucks. You can't find trucks. So poor asset manage just in deep trying to find trucks and he pulls it off. And then we're like, oh boy employees, Hey, John, get busy. Right? Cuz you're not busy. And so you, you got busy, you get all these great employees back. Some of them have worked for us before and we're all excited and we, oh, Hey, we gotta get them trained, get their, OQs get them through these different training programs. So we make that investment and then bam client calls and says, Hey, by the way, we're gonna have at least a two to three month delay because this equipment manufacturer can't get us a material.

 

Shane:

And they told us, you know, I'm speaking on behalf of the client. Yep. Equipment manufacturer tells client. Yep. No problem. You'll have your material come June 1st. Well they decide on May 30th to tell client no, actually that equipment isn't gonna be here for two to three months. Well, I'm sitting in a oil producer's office last week and this producer tells me Shane, guess how long to dig to get a particular flow. The, the company in question makes flow and measuring products. Yep. Right? Yep. 265 days to get a product 265. This client down in Houston is telling me they have to take there's about a two month delay in products. There'd be a 60 day delay. Right? And I'm thinking isn't that phenomenal. This client over here has told me it's 265 days to get material, which I actually believe more realistic. I think that's actually accurate.

 

Shane:

This client in Houston is being told it's 60 days. This client in Houston has told me to wait two months. Well, I I'm thinking we're probably looking at a four to five month delay. It's probably somewhere in between there, depending on if there's another COVID. But I think this industry we are in and I don't even know if it matters, if, what industry you're in right now, because everyone I talk to is challenged with, with the material delays and, and the problem with material delays is the impact it has, like you just said on people, assets overhead, how do you actually make a dollar? So as I'm out in the community, we did a solar education with one of the local schools a few weeks ago, Corey and I, our solar specialist went out and there was an environmental education day. And it, it was a great opportunity.

 

Shane:

Corey had a solar panel on a all set up with some lights behind it and a fan. And we brought our big Westcom tent and, and this, the solar panel was on wheels. So we would point it at the sun and the lights would shine and then we'd shove it under the tent. We'd show. 'em what happens at night when the solar isn't shining and people saw in a very real way, why we need an energy mix that still includes oil and gas. I'm not sure that's what the school wanted to see, but that's what we did. Reality, huh? Reality, reality. It's it's fairly important to us. So one of the administrators at this school started asking me like, you guys must be raking in the money with the gas prices being what they are. And in my peer group, people would be like, oh, I bet your clients are just raking in the dough.

 

Shane:

And I'm like, okay, folks news, flash Wescom does not own any gas stations. I know I've I'm as our company has grown, I don't have every detail about our company. But as far as I know, we don't own any gas company. We didn't tell you about that. so the price at the pump does not directly affect us. No. And news flash, when I'm in Houston, the oil producers also do not own gas stations. They produce oil, they take oil out of the ground. They sell that oil to a refinery company. Our refinery takes the oil, they process it and they sell it to the gas company, the gas companies, the, the holiday gas stations that come and goes, whatever they are, the Cenex of the world pay for the fuel based on the going market price, which is commanded by supply and demand. We are doing everything we can as an industry to help out the current situation.

 

Shane:

I am telling you down at the, the major producer that we met with in Houston, they are smoking busy. They have allocated additional resources to this deal. They they're trying, but guess what? They can't get steel pipe. Guess what? They can't get poly. Guess what? If they do get it and they put it into place. There's a psychotic governor in New Mexico, who's threatening to shut their production down the day. They flare an ounce of gas in order to get oil, we have to drill in order to drill. We need material. That's step one. Step two is once you drill, you need some assurances that you're actually gonna be able to do it and make a buck. But if you tell me I'm gonna drill oil, the first thing that's gonna happen when I pull that oil out is a mixture of chemicals is coming. One of which is gas. Yep. And if we lack the infrastructure to pipe that gas out to a local compressor or to, to, to somewhere, then we have to flare it. So where, where at a crossroads folks, are you willing to give up some flaring rules? Are you willing to negotiate something with industry to say, you know what, I guess back in the day when North Dakota was hopping and you would fly in there in the evening, it was like a city of lights underneath you with

 

Jon:

Flare. I

 

Shane:

Remember I'm not advocating. We go back to that. I'm just simply stating that there are trade offs in life. If we wanna see the price of a pump at the pump, come down, we gotta reduce the price that the fuel company is paying to the refinery. And the refinery has to have a less price that they're paying to the oil producer. And so we gotta get to the root cause of these things. And that's the only way I see it changing. What, what, what am I missing?

 

Jon:

No, I, I think you're exactly right. And I think that, you know, to take a step further back from that, that is one of the large problems I think in not only in the country, but in the world is everybody is so set and a black and white you're either for it or against it. And I don't care. Pick the subject, pick the, whatever we can no longer have a dialogue. We can no longer sit down at a table and say, yes, I do want to someday have green energy. So how are we gonna get there? What is the roadmap? I understand that today. It's not gonna happen instead. You're like, I'm four fossil fuels. Everybody flare everybody, whatever. Or I'm totally green tomorrow. We better have all solar energy. Neither one is realistic. Right? It's not reality.

 

Shane:

It's not, I think it, so, you know, we chatted sometime ago about how like quotes can mean something or simple is better. And I think that's what sometimes can cause the extremism that we see. So like we can say, uh, climate emergency must act now like, like, like, you know, there's a climate emergency. Did you hear right? Meanwhile, down in Texas,

 

Jon:

Have you ever seen a picture about the climate emergency without flames?

 

Shane:

No. And then meanwhile, down in Texas, you have a school shooting happening and it's like climate emergency climate, emergency school shooting, climate emergency climate school shooting. Why is there a climate emergency? If everyone's gonna get shot to death, anyone care, if we're all gone, who, who gives a flying flute? What happens in this world? Maybe we should talk about, you know, the need for some mental awareness, some school help some additional resources, some, uh, respect for the cops rather than throwing them under the bus at the minute it happens. And Hey, let's talk about some climate change. Let's talk about some better ways to do things instead. It's just this massive extremism that I don't even think people realize they're participating in. They just like the simple, the simplicity of a picture with some flames or some gross factory, you know, that happened back in 1960 and right.

 

Shane:

You know, spewing all kinds of stuff. Yeah. With some guy with a top hat and a cigar and you know, he's got his Cadillac with his woman there or something. Right. Cause that's totally what happens. Right. Climate emergency. And so people like it without realizing that they're just building upon a cause that they don't even understand. And, and we're moving away from this dialogue, like you say, but we actually had some conversation in Houston with one of our clients over dinner. And we're chatting about how this really has been an industry problem that we forgot to tell our story. Absolutely, absolutely true. We forgot to get out there and tell people that that is true, that, you know, the, the old way of pulling out oil and gas, it wasn't the best way to do it. And so now we've changed it and we're doing it better.

 

Shane:

We also haven't told the story about how big of an impact we have in industry. I challenged or I put on LinkedIn. This was probably at least a year ago, maybe even a year and a half, two years ago. We started a nonprofit, a few guys in town to take care of a skating rink. Yep. It's a huge activity in Northern Minnesota. And I said, I need some ideas. How do we raise some funds? And a couple people had a couple ideas, right? Well, I happened to be on one of our client's websites one day. What do I see? They have a grant program. So TC energy. And I'm I asked if I could name 'em and they said, sure. So TC energy I see on their website, they have a grant program. I did an application. I forgot all about it. Five months later, I get an email.

 

Shane:

This is to inform you that your grant request has been submitted and a check will be forthcoming for $10,000, TC energy, a pipeline company, Excel pipeline company for the reference yep. Gave a $10,000 contribution to a pod community in Northern Minnesota so that 80 kids can go skating. When it's zero degrees outside, I think last winter, that was 18 below. And we counted that night, 88 kids at that skating rink. John, you want impact there? You have it. That same client has a negative connotation from a world who's acting like we don't need them. Like we don't need to move liquids. And as a result, the world is mad at that company because they're actually a greedy gas company. Yep. They're actually not. We went down to Houston and I'm telling you what an incredible group of people, that contribution they made. I was able to go meet these people. The contribution matches the company and that story gets forgotten in today's

 

Jon:

World. Well, I think so much gets taken for granted. Nobody gets up in the morning and flips their lights on and goes, well, thank you. And then they go turn their coffee pot on and they say, thank you. And they get in their car. And it turns on, they say, thank you. Just, these are things you just assume and take for granted that are gonna happen. Right. But what does it take to make that happen? What's the story behind the story. And I think that's what we, as an industry need to do a lot better job of reminding people.

 

Shane:

And the challenge about that is given the current circumstances. So oil yesterday, and you know, who knows when the podcast gets released, but yesterday $118 a

 

Jon:

Barrel one 20 this morning on the way in

 

Shane:

One 20 this morning, on the way in, when we talked about inflation and the Russia Ukrainian mess, it was approaching a hundred a barrel, right? Yep. It has not come down. It has only went up and you got folks on Capitol hill, you got folks everywhere saying the American producers need to do more, need to do more, need to do more. I would love to grab that clip and put it right next to president Biden's clip saying, I will end fracking. Oh, you're, you're shocked. Come on. American people are you really shocked? And guess what? That oil and gas touches everything in your life. That is why we are seeing the costs go through the rough sure. 22% increase at the grocery store. Sure. If you're buying a lot of bread, you're feeling the impact of the Russia Ukrainian thing. Right. But the reality, what you're really feeling is I saw somebody posted on LinkedIn. They filled up their 18 Wheeler over a thousand dollars that used to cost that same individual. Like what did he say? $480.

 

Jon:

Yep. Yep. I seen the same post.

 

Shane:

So who pays for that? You think the 18 Wheeler, the guy behind that, or the gal behind that 18 Wheeler, you think that she's out on the road because it's a better life than staying home and raising her children. And so she's gonna do it at a loss because she's so dead set on reducing fossil fuel consumption. Nah. Uh, what she's doing is trying to make a living for her family. So she needs to actually earn enough to pay that fossil fuel bill or that, that, uh, fuel bill. And therefore she's gotta charge somebody. She's gonna charge the distributor. Who's gonna charge the consumer. It's it's really not grocery

 

Jon:

Groceries. Don't magically appear on shelves.

 

Shane:

Well, right. They don't. And John, I'm telling you the fear here is us as an industry, need to tell the story and we need to do a better job at that at the same exact time. There's immense pressure on our industry to get out there and get back to work and get the job done. So somehow we need to do both. And that brings us back to the premise. There's no extreme way. We gotta dance in both. And it's, it's not a, it's not a all or nothing. It's not a hundred percent here. Zero there it's a, it's a 50 50 mix that maybe it's a 70, 30 mix. You know, spend some time telling our story, spend the majority of time getting our industry back to work. But ultimately until our oil and gas pricing is corrected, we're not gonna see any relief, no anywhere.

 

Jon:

No. And the other part of it is, you know, you did a podcast sometime back with a gentleman that brought out the treatment of the folks in the industry, from the industry itself, which I thought was a great point. Like the people that are getting up and putting their boots on at four 30 in the morning and going out there and doing this, it can't be this boom and bust cycle. It's gotta be, we have to recognize how important they are to society and treat them accordingly.

 

Shane:

Right. And to, to that end, I was shocked with our producers down in Houston, not to keep talking about that, but I actually asked him, what are we gonna do about this labor? What is your guys' plan? And well, that's not, that's on you guys. That was one, one response I got, okay, hang on a second folks. If, if I'm gonna have dedicated people available so that we can continue to take care of you. I need some assurance that our guys will have some workload. Right. And how many of our guys are actually, when we're talking about the Permian basin or the Bach and basin, we don't have traveling people. These are people who live there. They have their wives there or their husband's there. They have families. I mean, Ashley's got a six month old baby, right? Like you cannot expect that person to be working 70 hours on week one.

 

Shane:

And then week two, be like, um, weird. We don't have anything to do. And then week three at two o'clock in the morning, Hey, Ashley, you need you all your right away. Yep. Guess what? That doesn't work. Now, if you wanna pay Ashley really well and give her that flexibility and set up a contract. That that's what that looks like. Great. We can do that. Right. And actually yesterday at about four o'clock in the afternoon, I got an email from that same company. I had this conversation with. They want two dedicated crews and with a guaranteed amount of hours every week.

 

Jon:

Well, they're starting to recognize that a relationship isn't needed.

 

Shane:

I, I couldn't believe my, I, I was reading this email and I'm like, wow, there's a guy on LinkedIn or somewhere. There's this thing called hashtag not your daddy's oil field. And I was wow. Maybe it truly is moving away from your daddy's oil field. Maybe we have learned a lesson in the oil and gas industry. And if we can learn a lesson, the American people can learn a lesson and we can get back to the basics here that if you're worried today about inflation, and you're worried about the craziness of the world, you haven't seen an ounce of what is about to come. So let's learn the lesson that the oil and gas industry is learning. Let's bring it to the country and let's say, Hey guys, let's all realize what just happened. We went through COVID. We realized what happens when we send all of our manufacturing overseas.

 

Shane:

We realized what, just in time inventory, some of the challenges with it. That was another thing. I was shocked at so many of our clients, every single one of 'em that we've been talking to lately. So we are in North Dakota last week and I met with two of our clients there. I was in Houston a few weeks ago. We met with a couple of our clients there and I was in Carlsbad, New Mexico, right before that common theme. And this, our local utility is talking about the same things. Common theme, everyone is now saying, oh yep. We're setting up an inventory room. We're setting up an inventory standard. We're setting up a, you know, we're hiring an inventory clerk. And these are people who would've died to have inventory before I went to accounting school. And the thing that you left with is don't you dare have inventory.

 

Jon:

One thing for sure is you don't want inventory

 

Shane:

Do not have inventory. Yeah. And now it turns out all these companies are, you know? Yeah. I got a budget of a million dollars to stock up my warehouse, you know, like, wow, what a, what a change. But we, we realized what that does is setting our manufacturing overseas. We realize what it does when we go through a bus cycle and we just lay everybody off. And then when a boom cycle comes, those people are like, yeah, thanks. No thanks. Right. Those same lessons can be applicable to the energy transition. The same things can be applicable. But the question becomes, are we gonna take those lessons and bring 'em forward?

 

Jon:

We gotta learn.

 

Shane:

I'm I'm a bit worried about our team and the pressure that's put on us right now with I COVID was tough. 2020 was awful. 2021 was challenging. We set out with 20, 22 that let's go, we're recovered in 2021 we're realigned. And the mantra was now we're gonna be racing in 2022. We started the race, but there isn't very many participants in the race. Everyone's just stuck at this start line.

 

Jon:

We keep having these weird anomalies, like these we call, I call 'em one offs.

 

Shane:

Yeah. But what did our board say last month? Like ever since I've been on the board, you've had a one off.

 

Jon:

No, that's what I'm saying. And it's this weird thing that you can't really plan for that happens, but we have to be able to deal with it.

 

Shane:

Well, the challenges out in the, out, in the real world that, you know, like even these, the inflationary pressure we've, I, I don't even remember the stats, but it's incredible how much our costs have went up. Right. And then we're having these reviews with employees and everyone I'm seeing and rightfully so. They're powerful negotiators. Our employees kudos to them. They're like, Hey Bob, you know what? I'm sick of paying my fuel at home. I'm seeing some cost increases. I need more than the standard 3%, like, sorry, inflation's eight and a half. I need some, I need some more help.

 

Jon:

Yep.

 

Shane:

How do we translate that down to our clients so that we can ensure that we're making enough? So we're around to continue to energize this country. That that is a challenge.

 

Jon:

It certainly is. But like you mentioned, I think that there are now companies out there, producers out there that recognize the need for a relationship. And they're understanding that you can't there isn't 57 people to call all of a sudden, you know, that everybody's feeling these pressures and manpower issues and asset issues. And so I better find a couple people, a couple companies to have a relationship with in order to make my business successful. We're no different, right. If, if we have a, a great relationship with a vendor that takes care of us and we feel like is actually looking out for us, we want to continue that relationship with them. We're not necessarily looking for everything to be 5 cents cheaper. Right. It's about a relationship we wanna create. Win-wins where, you know, I thought it was remarkable when that, that company did that. Like, Hey, it's finally clicking. We're getting there.

 

Shane:

Yeah. Well, I mean, kudos to Riley sassy with red river. Cause I did a podcast and we talked about marketing. Yep. And he's like, dude, the people in the corporate office, they put on their shoes, just like you do every day. They want you to succeed. Just go meet 'em and have the conversations. Yep. And what I found want that, that same client, who's looking for a couple embedded crews. She said, you know, we've had a lot of people come to us with rate increases. Shane, you are the only company that sold right through. And I'll tell you why you, you sent a paragraph. It wasn't a storybook, but it was a paragraph. And it said, our other job costs are up X percent fuels up X percent cost labors up X percent. She said, you laid it right out there. And then you said, now we're going back to our pre COVID rates plus X percent.

 

Shane:

I'm sure you understand. And I'm sure you find this difficult sincerely. She said I had all the information I needed to push at right on through no problem. Different than she said, another company who came in with an 80% increase, they obviously are playing the boom and bust cycle. Yep. Right. Yep. When times are good, I'm gonna charge you really, really well and put a bunch of money in the bank when times are bad, I'm gonna give my labor for free. And along the way, I'm just trashing people. Cuz that's the only way that works. You have no stability. You have no way of paying off somebody's house. There's zero stability in that. So she I've said, well, how much is our cost increase? Like what is that in line with other people? And she said, well, you're, you know, um, some people have gotten more and I was like, dang, see, that's why I shouldn't be in business. I don't know how to even price this out. But, but we're having an ongoing conversation with our folks, right? I think we're meeting once a month right now about our rates and trying to stay on top of it. But what a, what a big conversation. And I, I, I don't think it's going away anytime soon. Certainly

 

Jon:

Not.

 

Shane:

And I hope folks can, uh, you know, I don't like to think that our national politics can play a big role in our daily life. But boy, it's discouraging. When you go through a tough April, like we did busy as all get out, everyone was hitting home. Runs, got the, people, got the assets, got everything ready to roll. Then you get POS canceled and you're, you're shuffling things around you get the month closed out and you didn't even make a buck. And you're like, when, when are, when is that gonna happen? Right. And at the same time you catch a news article fly across that 5.8 billion of student loan debt was wiped out for a group of folks who didn't have enough responsibility to vet the college they went to. And now that's my issue. That's pretty disappointing. And I, I hope folks can remember that.

 

Shane:

I don't, I don't know that that's gonna change the trajectory of specifically our industry, that we're under siege. We're gonna stay under siege. We just gotta get out and tell this story. There will be people who will listen, even if they don't wanna listen, when they go to protests, they're gonna drive their car. So they'll be using the product we make. Um, and in fact, most of them like to dress. Although some of them like to go naked that's I don't know what that's all about, but they'll also use our product because they'll buy some clothing and all these different things, but I'm, I'm discouraged. I guess that two things I'm encouraged by the fact that I felt like when the Russia Ukrainian thing happened, that was just like the start of something much more awful. And, and that's true. I'm glad we had the conversations we did in our business and how to navigate these unchartered waters. But I'm discouraged by the fact that I don't know that folks are really understanding the root cause of this.

 

Jon:

Well, and you may be right, but there's, there's a little saying that you say that. I think we have to remember too, that, you know, let the crazies be crazy. What can we control in our sphere? We control that. And we just have to put our blinders on a little bit, to a certain extent. We, we have to be involved. We have to vote. We have to do what we can. We have to tell our story. We have to be out in the community, but the crazies are gonna be crazy,

 

Shane:

Right? So let's, let's go forward safely, energizing America, recognizing that crazies will be crazy, but we gotta think we got, we got stuff to do. Oils, crazy gas prices are too high. Labor is scarce. Every cost is going up. So we're just having better conversations with our producers. We're having better conversations with our clients. And in fact, we're even having better conversations with our employees because we're really getting to know well each other very well. And we're gonna just go do that safely. Energize America, crazy as be crazy. We'll catch you on the flip side. Meanwhile, I was out at the fuel station last night, filling my gas can and I saw some random kid jump out of a car with his mom. And then he ran into the gas station with a west gum sweatshirt on and I thought, boy, , isn't that the coolest thing ever bigger people are catching on. Yep. So let's go do it.