American Oil and Gas Reporter - August 2022 - 40

ConventionSec tion: Texas Alliance of Energy Producers
The Alliance tapped Ingham to investigate
oil and gas companies' experience
with steel constraints, he recounts, and
he put together a brief survey that he distributed
to a representative sample of the
group's membership. Some respondents
had only one or two employees, while
others had a couple dozen, a couple hundred
or more than a thousand.
The Alliance has released the results
in a report with findings that include:
· 87.5% of survey respondents indicate
lack of steel is a real and prevalent
industry concern;
· 77.5% say steel availability is a
highly significant impediment to nearterm
activity increases;
· 47.5% confirm that their companies
cannot start projects when they want to
because they lack readily available steel
and steel products; and
· The reported steel-associated drilling
and completion activity lag ranged from
14 days to 12 months, with an average
delay of 85 days.
Moreover, a small fraction of respondents
indicated they were having no issues
in 2022 because they had secured tubulars
last year for this year's program. However,
some said availability would limit any
upward change in planned activity levels.
" The most important takeaway is a
dire and worsening shortage of oil field
steel products, " Ingham summarizes.
" Very large independents are paying dramatically
more than they once were, but
they generally can obtain steel. For them,
the cost seems to be a significant limiting
factor that constrains activity growth.
" Cost is not necessarily the issue for
the smaller guys, some of whom have
been crowded out by bigger buyers, " he
contrasts. " Smaller companies tell us they
face delays that can go weeks or months.
Some cannot expect delivery in fewer
than three-four months and cannot get a
quoted price. Nor is that three-four month
delivery guaranteed. "
While functioning markets eventually
will ease many of the industry's other
drags, Ingham says protectionist policies
will keep the steel supplies tight. " Tariffs
and quotas prevent this market from correcting
itself like labor and other supply
chain markets will over time, " he characterizes.
" Steel issues will not resolve
themselves until the government gets out
of the way. "
Ingham emphasizes that the executive
branch that imposed the steel tariffs and
set import quotas also has the authority
to eliminate them. " This requires no congressional
action, " he observes. " The
tariffs can be undone with the stroke of a
pen and jumping through a few hoops at
the Department of Commerce. "
He adds that the Alliance has shared its
survey results with several industry allies,
including the American Petroleum Institute.
" API has forthrightly called for the elimination
of these tariffs, " Ingham recalls.
" We also have worked closely with ConocoPhillips
on this, and have shared our
results with groups such as The U.S. Chamber
of Commerce and the American Exploration
& Production Council. "
Modglin says the Alliance also has
distributed its findings among Washington
policymakers. " Some in Congress and
from federal agencies have told us it is
helpful information and that they are reviewing
trade statutes and processes to
see how to expedite these matters, " he
reports. " Meanwhile, the White House
has had bilateral communications with
China with regard to steel. Some things
seem to be in the works. "
Current Conditions
As he examines the broader industry
picture, Sullivan considers how recent
commodity prices have influenced companies'
planning. The previous mindset,
which arguably extended back several
years, strove to focus on oil projects that
could break even at $40-$50 a barrel.
" That led to severe underinvestment in
exploration and step-out plays, " he assesses.
" Now there are definitely more step-outs
and people are drilling prospective zones. "
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40 THE AMERICAN OIL & GAS REPORTER
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gas prices, as well as producers' renewed
interest in the Permian Basin's multiple
benches, " For the last handful of years,
only the proven benches have been drilled, "
Sullivan describes. " Now folks are drilling
and testing potential zones up hole and
down hole. People also are looking at expanding
plays around the fringes. The
low-hanging fruit has been pounded for
years. Now we are seeing something more. "
According to Sullivan, the industry's
approach to securing capital also has
evolved. The original Veritas was formed
with private equity before it merged with
Double Eagle Energy and later, in 2017,
was sold to Parsley Energy. Veritas II
formed in 2018 with different private equity
sponsors and a nonoperating strategy,
before it sold to Northern Oil & Gas in
January, after which Parsley III was
formed with the same financier as its
second iteration. Parsley III also is a nonoperating
company that focuses on the
Permian Basin, though it has holdings in
other areas, such as the Haynesville Shale.
" The dynamics have changed considerably
from the original private equity
boom, " Sullivan confirms. " Early on, a
growth-at-any-cost model prevailed . . .
with an end goal of selling to a public

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American Oil and Gas Reporter - August 2022

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