If you’ve been in the Oil and Gas Service business for any amount of time, you know the wild ride of commodity prices and how it can make or break your business. We’ve asked several industry leaders their experience in how to successfully navigate the ups and downs to remain profitable and cash flow positive.
Johnnie Reaves, Asphalt & Fuel Supply, Inc.
Know your customers! Find recurring revenue with a necessary product, in our case maintenance of highways. When possible, have long-term contracts with your customers and know your market. Is there an additional product you can provide?
Robby Hagemann, Boardman, Inc.
Our oil and gas sector works on a 6-7 year cycle, so we project and plan towards the average of that cycle. Having good employees and diversity across other industries has allowed us to weather the changes in commodity prices. In a boom, businesses hire too many people and spend money like there’s no tomorrow. Don’t overextend yourself with credit, and be selective with who you take as customers.
Mike Cantrell, Cantrell Investments, LLC
Resist the temptation to get drunk on your own whiskey! People start believing in their own deals too much. Always expect the unexpected, three-quarters of it will be bad. When possible, use other people’s money, but resist borrowing money from banks for speculation, just for acquisition.
Mims Talton, Flogistix
Have sticky products. 60% of our income comes from rental. We’ve designed a product that not only helps with regulatory compliance, it provides a measurable economic impact for our customers even in down commodity markets. Make sure that you can show your quantifiable value to your customer. We use data analytics to predict the next 3-6 months sales window and manage production output based upon that, which includes managing our supply chain. Develop relationships with your lenders during the good times.
Nick Armoudian, Patriot Wellhead
Cross-train your employees. That makes you more flexible in a downturn. Have 3-6 months of cash. Have a plan and stick to it! Understand what business you’re in. We only stock what is used 80% of the time. I’d rather give up some profit margin than be stuck with something we don’t need and tie up capital.
Borrow excess cash when you don’t need it, you can always pay it back. We’ve had success using financial derivatives to hedge against price changes. We think of it as insurance. You’re going to pay a premium, but you’ve locked in your profit.
What has been your experience? How do you plan for the downturns?
About Christian Brim
Christian graduated from the University of Oklahoma with a Bachelor of Accountancy. He enjoys spending time with his wife and three children, and the very occasional golf game. He handles Core Group’s Business Advisory services and business succession planning for their clients.