The Produced Water Society has launched a webinar series to maintain engagement with water experts during this downturn. The first one focused on strategies to weather market downturns.
With water inextricably linked to hydrocarbons production, companies involved in the water management sector are particularly susceptible to market volatility. Even the water midstream sector – touted as a more stable space due to the long-term contracts associated with permanent infrastructure – will not be spared in this downturn.
Brent Halldorson, founder of consulting firm RedOx Systems and former water treatment CTO at Fountain Quail Water Management discussed this topic in his mid-May webinar titled “Managing produced water in a turbulent market.” He shared lessons learned from the industry slumps he has endured over the past 25 years and offered advice on survival strategies for water services providers.
“The good news is we are critical. When companies are drilling and developing wells, they absolutely need water management partners,” Halldorson said. “The bad news is that when drilling slows […] we are the first service to be cut.”
It is mandatory for water services providers to learn how to persist in this cyclical market where crashes occur every few years. Brutal competition and pressure from operators to reduce service pricing during downturns can lead services providers to operate at a loss just to survive. But there are other approaches water management firms can take to weather the bad times.
Though companies may be tempted to remain focused on their core service areas, applying their expertise in other industries could bring much-needed stability and flexibility, even if it does not necessarily add revenue. For example, diversification into municipal and other sectors could allow firms to retain key employees by working on break-even projects. Halldorson acknowledged that pivoting to new sectors may be challenging for small businesses, but nevertheless recommends it during downturns, even if investors discourage diversification.
It is crucial for companies to have a strategy in place to prepare for inevitable industry lulls. Halldorson used a DEFCON scale to explain how businesses should regularly assess their operations as the industry goes through the downcycle.
Halldorson offered this DEFCON plan as an example of how companies may approach strategizing ahead of market crashes; however, he urged companies to make plans suitable to their needs and characteristics. Source: Halldorson, “Managing produced water in a turbulent market”
Survivability also depends on how leveraged companies are and whether they have savings they can tap when the market dips. “If at all possible, you want to fund your growth from cashflow and avoid excessive leverage. Ideally, avoid any leverage if you can manage it,” Halldorson said, later adding that this may not be easy to do in an industry where many are backed by private equity investors that prioritize quick growth.
He also explained that proactive communication during difficult periods is essential. Maintaining transparent and consistent contact with clients, suppliers and employees will promote understanding between all parties involved, resulting in improved business outcomes.
“As long as they know you have a plan and are working towards survival, they will help you and work with you,” Halldorson told attendees, describing his past experiences. “If you say nothing, it’s terrible. Liens will be filed and those key suppliers that you want to hold onto are not going to work with you in the future even if you come out of this; they’re going to remember how you treated them.”
If you would like to hear all of Halldorson’s advice, you can watch his full presentation here.