Ohio is booming with oil & gas activity. Are you trying to cash in on the opportunity? If so, there are a few things you need to know.
You see, gaining the trust of the large out-of-state oil & gas producers isn’t easy. Not only does your business have to be in tip-top shape, but you have to be prepared to deliver your products or services like never before.
Getting Your Business Ready
Be prepared to be overwhelmed
If you want oil & gas producers to embrace your business, you might need to expand rapidly. Don’t just react to this sudden demand; rather, plan ahead so you can control your expansion. At a minimum:
- Understand your business model — what it looks like now and what it will look like with substantial new business.
- Develop good cash flow models and projections. Your CPA can help with this critical need if you don’t have a CFO on staff.
- Talk to your banker about financing the growth. Incentives are available to expanding small businesses, but you must talk to your CPA before expanding.
- Write a clear business plan that spells out the details of expansion and how you’ll meet increased demand, including any additional facilities or equipment needed.
Have a Plan B for any new investments you make for when the boom is over. If a particular expansion won’t have a payoff or be valuable once things slow back down, you need to have a tough conversation with yourself about whether the investment will be worth it.
There’s no such thing as “dipping your toe into” the oil & gas industry. You’re either all in or you’re out. Make sure you’re ready for the volume you’re about to take on. If you’re not, the industry will move on to the next supplier.
Be prepared for the world of Master Service Agreements
Large oil & gas companies and their tier-one vendors issue master service agreements, or MSAs, in an effort to find qualified contractors and suppliers. This agreement states all of the obligations and responsibilities between the parties, the oil & gas companies and their prospective contractors.
Entering into the MSA process can be a rigorous task, and may take a fair amount of time and energy. ISNetworld is one of the better known administrators in the MSA process, and it aims to connect purchasers with safe and reliable contractor and suppliers.
If you are not ready to go through the MSA process or function at the rigorous level that is required under an MSA, don’t give up hope. Your company should be able to sub-contract with a company that has already entered into an MSA.
Be prepared to fight for your employees
Just as you are trying to expand your business to handle the increase in activity from oil & gas, so are many others, including industry insiders. You might have to compete for quality employees and fight hard to keep current ones, especially welders or truck drivers with high quality CDLs. Don’t assume that your long-term employees won’t be poached; the allure of a new job or better pay and substantial signing bonuses can entice even the most loyal employees.
Doing the Work
Put safety first…and second…and third…
Safety is the first thing oil & gas producers think about when they step onto a drill site, and the last thing they think about when they leave. Safeguarding workers is the absolute most crucial element of their industry, followed by the environment. Production is third on the list. The thought goes: without people and the environment, there can be no production. There is no room for error, as any error would be catastrophic.
Roll up your sleeves
The oil & gas industry is competitive. For them, being available 24/7 isn’t good enough. They’re working with an unwavering dedication to 24/7/365. They are very serious about their hard work ethic – and expect you to meet or exceed their expectations.
This industry is incredibly results-oriented. Suppliers must provide exceptional service so they can achieve the superior results they need to deliver.
If you promise to deliver something, you absolutely have to do it – if not, they’ll find someone who will. No excuse is acceptable. If you promise to deliver a hydraulic hose in four hours, four hours and five minutes isn’t going to cut it. You’d be wise to under-promise and over-deliver.
It’s not like baseball, where you get three strikes before you’re out. In oil & gas, you’re out after one strike – they can more or less take their pick with whom to do business, and they won’t settle for a mediocre supplier.
But on the other hand, if you can demonstrate that you have the same work ethic as they do, and you deliver what you promise, you’ll be business partners for a long time to come. You won’t find a more faithful group of people to do business with.
Most importantly – and we can’t stress this enough – don’t bet all your chips on one hand. Some things really are too good to be true.
This article was originally published in The Rea Report, a Rea & Associates print publication, Summer 2012.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.