Service company NOV Tuboscope may be running low on well work, but now overwhelmed with saving money for operators

downturnthumbStu Shultz, 49, is an account manager for NOV Tuboscope, a 75-year-old international service company for oil and gas. Tuboscope helps maximize the life cycle of wells through a variety of wellbore technologies and pipe retrieval processes. The Calgary Journal spoke to Schultz about how the downturn has affected this industry in a phone interview.

How hard has this downturn hit your company?

Well it's hit everybody hard. For us it's had significant impact but not to the point where we are in any trouble. Work is just starting to dry up. When you work for a service company like me, there is the drilling side of the business and then there is completion. We are on the completion side more, so we are not affected as immediately as those on the drilling side.

 When people have to stop running drilling rigs, their business dries up in an instant. So for us, there is always a lag behind drilling activity. If drilling activity goes through the roof that's great, that's a great indicator for us, but we are not going to see an immediate impact. So we are three or four months into this downturn and we are starting to see more and more impact every day. Having said that, we did see immediate impact to some degree.

Have there been layoffs in your company?

There haven't been any layoffs yet. We are pretty big and pretty stable and we are not directly tied to drilling. It's not our job to keep drills up and running, so we'll always have some work. It's just that the volume or degree will vary. We used to have four months of work sitting in our yard so we could just keep plugging away and now that's starting to dry up. Instead of having three months worth of work we may have three weeks worth of work. In some cases customers are saying, "don't do the work - hold off for now," because they're trying to save as much money as they can.

What has been the biggest impact?

The big impact is in profitability because all of the operators [oil and gas companies] want price reductions on our services and materials. Our volume of business is already down and our profitability is going to go down if we have to drop our prices, but we have not had to yet.

How does this compare to previous downturns?

It was not as rapid as this in 2008, oil prices went down a little slower than they are now. This one seems to be more severe than that one. I haven't looked at the historical price of oil but I do not think that it went down as far last time or as quick. This is pretty damn fast.

EDIT SHULTZShultz says in an ideal world, oil and gas companies would be trying to save as much as possible at all times, instead of only saving when oil prices are this low.

Photo provided by Stu Shultz

Lots of customers are getting laid off now as well. I had coffee a few weeks ago with a customer and when I showed up she just looked stunned and was like, "Wow, I just got laid off 15 minutes ago." So we just sat and finished out coffees and talked about what her next step was and what this type of lay off means. And the problem is now is that there are no jobs out there for the people getting laid off. Six or eight months ago, there was a lot of demand with the people who I deal with, called asset management — those who manage pipe inventory for oil and gas companies — and now they are barely hanging on to their jobs.

What is the plan for the future?

It's honestly a matter of being able to endure it. You cut costs as much as you can to stay as profitable as you can. You stretch it out as far as you can before you have to lay anyone off, like giving days off throughout the week. I know of a company where the employees are taking a 10 per cent pay rollback and in time they will start taking every second Friday off. That's how they are adjusting their cost. On the other hand, there are companies that, no matter how many millions of dollars an employee brought in last year, because there is no activity, they lay him off right now. The oil and gas companies talk about survival and how they want to help everybody to get through these difficult times. But for the most part, we are not talking about absolute survival. The company I mentioned that is taking a 10 per cent pay cut, it's not a matter of their absolute survival for them, it's a matter of maintaining return for shareholder investment.

How has this downturn been affecting you personally?

For me it's adding stress because I'm busier than I've ever been. I work with the oil and gas companies in recovering pipe and preventing corrosion damage so we help these companies save money whether oil is $90 or $55 a barrel. Of course everyone wants to save money now and that's what we do as a service company. But when times are tough, people want our service way more than they do when oil is high. There are only so many of us and every company wants to save money now. If you ask me, in an ideal world, they would be doing that when oil is priced at $90 a barrel. We are a public company as well. We need to have return for our shareholders by having our stock prices go up. The only way we do that is to be efficient and profitable — same as oil and gas companies. We are all trying to accomplish the same thing and ideally we are trying to work together.

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Read this Calgary Journal special report for an in-depth comparison between Jim Prentice's response to the current drop in oil prices and Don Getty's response in the 1980s.