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NOVEMBER 2012 issue of
Rental Management

Cover story: Energizing rental
Cover story: Energizing rental
11/01/2012

Oil and gas are what some might call “mature” industries. However, over the past few years in particular, energy prices and new technologies have helped fuel expansion in exploration and production of oil and gas in North America, creating economic booms in areas like Louisiana, Pennsylvania, North Dakota and Wyoming with shale gas formations and different regions in Canada, most notably the oil sands near Fort McMurray in Alberta.

The rapid expansion in some of these areas is beginning to level off, but equipment rental companies are finding revenue growth opportunities by serving this customer base in several ways.

While there are several oilfield equipment rental specialists serving the oil and gas industries, construction and general tool equipment rental companies — from United Rentals, Hertz Equipment Rental Corp. and Sunbelt Rentals to a variety of independents — are finding demand for their products, too. Some party and event specialists also have rented or subrented a variety of structures used as everything from offices to temporary housing.

“Definitely almost everyone in the equipment rental industry can get involved in some way,” says John Redwine, regional operations manager for Hertz Equipment Rental Corp. (HERC), based in Ponca City, Okla.

“Very often in these areas with oil and gas, infrastructure is not set up to handle the people. There’s usually a lot of construction work as a byproduct when an area starts expanding in oil and gas. That means there are a lot of direct and indirect benefits for rental,” Redwine says.

A site in Texas, for example, may need very little preparation prior to drilling while a remote area in Pennsylvania could require brush cutters, skid-steers and more before the oil and gas work can begin.

“Exploration increases the demand for all types of rental equipment as new production comes online because it requires infrastructure to be built and to support it,” says Wayne Wadley, president, CERF, Calgary, Alberta, Canada, parent company of 4-Way Equipment Rental, Edmonton.

“Whether it is anything from roads to treating and pumping facilities, and then subsequent support facilities including housing, schools, hotels and restaurants, it all spurs construction activity that requires rental equipment,” Wadley says.

“With an ongoing need for energy consumption, this is a great opportunity for United Rentals and the equipment rental industry,” says Frank Roth, vice president of marketing for United Rentals, Scottsdale, Ariz.

As part of its focus on growing industrial rental, for example, United Rentals targets those who need oilfield services. Roth says the “upstream” remote sites for oil and gas companies need equipment and service available 24/7 for site preparation, drilling and rigs as well as for production to completion, creating an opportunity for equipment rental companies. Offering services that can save time and money for customers “is a big value offering,” he says.

Oil and gas companies have similar needs. “They see the value. They are looking at cash flow, access to capital and economic uncertainty. In addition, the challenges oil and gas companies face are unique. They are in remote sites and need to move equipment in so many different places, which is not their core competency,” he says.

“As a result, we’re working to convince these industries to allow us to leverage our core competency of moving equipment assets where they need them when they need them delivering uptime, 24/7, to these remote sites,” Roth says.

“Oil and gas companies are not built to manage fleet. We, as United Rentals and as an industry, can show how we can improve their cash flow and uptime as well as compress cycle times of site move-in and move-out. That’s all about saving money and time for them,” Roth says.

Wadley says the rental option has become more appealing to oil and gas companies for the same reasons as it has for construction companies.

“Oil and gas producers very rarely own their own construction equipment, so the idea of renting has long been appreciated. Renting equipment limits capital on the balance sheet, reduces the in-house staff needed to manage and maintain such a fleet, and gives a company access to all the latest equipment to ensure projects are done efficiently,” Wadley says.

Roth emphasizes that serving this customer base, especially upstream, can be an expensive proposition and probably isn’t for everybody. “This is not a space amateurs would want to play in,” he says.

Harry Hoyer, a former president of the Cat Rental Store in Edmonton, Alberta, Canada, and now a partner in a small specialty rental company, says the oil and gas industries in Canada also are moving from explosive growth to maturity.

“That still leaves opportunities, but companies need to be smart about it. You can’t be a ‘me, too’ and come up here with an inventory of booms, jumping jacks and small track loaders. You will die. However, if you can find a niche or specialty product, you can slide in and provide value,” Hoyer says.

“I can’t tell you which niches might work because each market is going to be different, but it could be welding or piping tools for pipelines or shoring for excavation. You have to find that niche you’re good at in a big enough market to support it. The value is in knowing more than
the customer does about the application of your products,” he says.

Mark Clawson, president, Diamond Rental, Salt Lake City, says oil and gas is attractive, but because of the boom and bust cycles that have been seen in his area, his company considers serving those industries as risky.

“It’s never been our niche because we have not had enough inventory to take care of the oil field customers who are two or three hours away. However, Diamond Party has had long-term rentals for structures from other rental companies that serve oil and gas companies,” Clawson says.

Roth says that in some cases, it can make sense for some industries to own rather than rent certain equipment if it will be used long-term with a high utilization rate. However, he also says the need for a diversity of fleet and mobility as well as the cycle of the drilling jobs plays into the benefits of rental.

“When you talk about the three phases of site preparation, drilling and the requirements of diversity of fleet, it makes more sense to rent,” Roth says.

In addition, he says there have been circumstances where United Rentals has made investments in additional equipment specifically for the oil and gas industry, including equipment categories the company may not have carried before.

What has been a particularly valuable addition, Roth says, is having GPS-enabled equipment. “The challenge in these remote areas is finding the equipment as it moves from site to site. GPS is a tremendous value offering, so that our customers know where the equipment is at all times and whether the equipment is available so that they don’t duplicate a rental. This isn’t so much about telematics, but in offering value that can reduce downtime,” he says.

In addition to construction work, production facilities often require maintenance or “turnaround” on a regular basis, creating demand for rental equipment such as high-reach forklifts, aerial work platforms, boom lifts, light towers, pumps, generators and more.

When it comes to refineries, United Rentals offers its Mobile Tool Room, bringing trailers stocked with tools needed for maintenance and repair direct to the refinery where workers can check out tools as needed.

“We have a great offering for refineries with the Mobile Tool Room. Usually someone is looking for a tool or someone else has it. This way, they just go to the Mobile Tool Room and get what they need. It saves time,” Roth says.

Redwine says HERC offers a similar service. “HERC has the capability of offering mobile tool trailers and they are involved in several large turnarounds for oil and gas clients. Generally, the customers want a large amount of tools and equipment in a short time period and Hertz can provide the inventory,” he says.

Mike O’Neal, gulf coast district manager, NES Rentals, Geismar, La., agrees the equipment rental industry today has the chance to greatly benefit from working with the oil and gas industry in different ways.

“This is absolutely growing. There are opportunities and areas we have targeted to aggressively pursue. In my experience, the oil and gas companies try to stay with what they are experts at, which is oil and gas exploration,” O’Neal says.

“When you talk about general rental equipment that lifts people or materials, OSHA and ANSI [American National Standards Institute]
require qualified service technicians and the oil and gas industries do not have the people to do that. At NES, we’re aerial specialists. OSHA and ANSI require 90-day and annual inspections of equipment. When you start talking about 24/7 businesses like oil and gas, we can dispatch qualified personnel who know what to do faster than they can. It boils down to what they do best. That’s why they will continue to rent more equipment than own it,” O’Neal says.

Hoyer says another reason oil and gas companies might consider renting instead of buying equipment has to do with labor costs.

“It’s not just the machine. Every machine needs maintenance, transportation and logistics support. When you rent a light tower, the equipment rental company provides labor, logistics and tracking manpower, which is critical in places where there are not enough
people to do the jobs,” Hoyer says.

In addition, O’Neal says the rising cost of equipment, environmental concerns and more have tipped the scales, making rental rates more attractive than ownership.

“The cost to own and buy equipment is rising. If you own it, you need a mechanic and you will have to move it as needed. If you don’t own it, you can return it. The rental store can move it around for you,” he says.


 

What they rent

Types of equipment typically rented by oil and gas companies, depending on the phase of the project as well as the location:

  • Generators
  • Excavators
  • Attachments
  • Pump trucks
  • Potable water trucks
  • Tents and structures
  • Temperature control products
  • Lighting
  • Portable buildings
  • Temporary housing
  • Mobile kitchens and sinks
  • Drilling rig enclosures
  • Portable roadways
  • Pumps and dewatering equipment
  • Ground heaters
  • Brush cutters
  • Hydroseeders
  • Equipment trailers

 

Far-reaching impact

While the oil and gas boom hasn’t necessarily spread to all parts of Canada, it has had an impact on the availability of labor in places like Manitoba, says Ed Dwyer, president, C&T Rentals and Sales, which has three locations in Winnipeg, Manitoba, Canada.

Dwyer, who also serves as president of the Canadian Rental Association (CRA), says what happens in the oil sands, however, can feed prosperity and equipment rental opportunities in other areas.

“I’m originally from Newfoundland and many people have migrated to work in the oil sands. They have charter planes every three weeks and these people bring wages back to Newfoundland. They are spending the money on homes, cars, restaurants and more. Newfoundland might be 2,500 miles from the oil sands, but it is having an impact there, too,” Dwyer says.

“Things like piping also are made in Ontario and Quebec. They supply the hardware and all those factories keep busy and expand by supplying equipment to the oil sands area and then they rent more equipment in their area,” Dwyer says.


 

 

Page 2

Seeing the oil sands first-hand

Anyone who has ever visited Fort McMurray in Alberta, Canada, and witnessed what’s going on related to the oil sands is usually overwhelmed by the sheer size and scope of the operations involved.

“The amount of equipment is staggering. Some rental companies have as many as four locations in Fort McMurray with fleets valued at hundreds of millions of dollars,” says John McClelland, the American Rental Association’s (ARA) vice president for government affairs.

McClelland recently traveled to Fort McMurray as part of an ARA-sponsored oil sands trade mission led by the Association of Equipment Manufacturers (AEM), which included a delegation of small and medium-sized member company representatives from the heavy off-road equipment industry.

The group arrived in Calgary, Alberta, Canada, on Aug. 13 for a briefing on the oil sands industry, and the regulatory and political environment in Alberta. The following day, the group headed to Fort McMurray to tour Syncrude Canada and receive a briefing by the Wood Buffalo Regional Municipality on the economic and political status of the oils sands, and future projections of growth and investment in the area.

“The companies in Fort McMurray are not renting all of their equipment, but they are renting some of it. They have to process this product and the processing facilities need maintenance with rental companies often providing equipment for maintenance,” McClelland says.

“We visited Syncrude and other on-site contractors. While we’re traveling in a bus, you see pieces of equipment with a Hertz or United Rentals sticker on it. They have all kinds of equipment they work with there,” he says.

“The Canada oil sands are a bright spot for safer and more secure oil in North America, and show tremendous promise of long-term investment and growth for the U.S. heavy off-road equipment industry,” says Nick Yaksich, AEM vice president of global public policy. “As the industry continues to grow, equipment manufacturers will play an important role in providing the much needed resources for these sites to successfully operate.”

In addition, McClelland says Fort McMurray is facing several infrastructure issues, which could create opportunities for equipment rental companies as new facilities and roads are built.

“They are building a new airport and right now there is only one highway to Fort McMurray. There are many things that can get done,” he says.

In general, McClelland says it was “unbelievable” to see what’s happening in a boom town such as Fort McMurray. “People at McDonalds make $18 an hour. One place has its own air strip and its own fleet of 737s. They fly people in every two or three weeks to work in the oil sands. They come in, stay in a dorm, go home and then come back. They rotate in and out as operations are 24/7 and people work 8-, 10- and 12-hour shifts, seven days a week,” he says.

“It’s tremendously impressive. Multi-billions of dollars have been invested and there are huge opportunities. A majority of equipment up there, like mining trucks, are owned assets, but the amount of investment is so huge, even the residual of rental equipment is probably worth more than a half-billion dollars,” McClelland says.

He says the companies involved also are working to make sure the oil sands are environmentally sustainable. “We went to an original mining site from 20 years ago. It has been remediated. The forest has come back and there were clearly beaver in a beaver pond,” he says. “Yes, there is the smell of petroleum in the air, but they can remediate very well. There are holding ponds for water, but they don’t want wildlife in them, so they have propane cannons to make sure no birds are in these clay-lined pits.”

 



CERF acquires oilfield equipment rental company

CERF, Calgary, Alberta, Canada, parent company of 4-Way Equipment Rental, Edmonton, has acquired TRAC Energy Services, Nisku, Alberta, Canada, a private oilfield equipment rental company, for $17.8 million.

Wayne Wadley, CERF president, says the company has wanted to participate more directly in the oilfield service business because it has become such a large part of the economy in Western Canada.

“This acquisition opens up access to new customers for us who oftentimes require equipment for extended periods of time. My background is in the oil patch, so I am very familiar with how the industry functions in Canada,” Wadley says.

“This fits in well with CERF in that we hope to leverage our existing businesses into supplying more equipment and services to these new customers. The oilfield rental business is very similar to construction rentals in that you have to supply quality equipment in a fast and efficient manner. It may be different types of equipment and customers, but you must maintain a very high level of service. The oil industry works 24 hours per day, so oilfield rental staff members must be prepared to meet those demands,” he says.
 

 

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