Building through the bust: Southwest ND oilfield service company leaders say they’re using 2015 slowdown to improve their businesses

MBI Energy Services CEO and founder Jim Arthaud stands by one of his trucks on Oct. 8, 2015, at his company’s Belfield headquarters. (Dustin Monke / The Dickinson Press)
MBI Energy Services CEO and founder Jim Arthaud stands by one of his trucks on Oct. 8, 2015, at his company’s Belfield headquarters. (Dustin Monke / The Dickinson Press)

Jim Arthaud doesn’t look like a man at the helm of a multimillion-dollar oilfield services company.

Wearing a T-shirt and baseball cap with blue jeans, he sits in the office of his senior vice president and watches The Weather Channel while discussing the price of oil.

“Oil’s up today,” he says with a smile. “It’s about at $50. It’s only got $50 to go.”

The 60-year-old CEO and founder of MBI Energy Services follows that statement with a smile and laughter, knowing all too well the price for a barrel of crude oil isn’t doubling anytime soon.

That Arthaud can joke about the price of oil is a telling sign that not all is doom and gloom in the western North Dakota oilfields — at least not yet. Still, following eight years of substantial growth tied directly to the Bakken oil boom, Arthaud looks back on the past 10 months — a unique type of oil bust, as he puts it — and knows he should have seen these days coming.

“I’d say it surprised a lot of people and it surprised me,” he said. “It was definitely a dramatic downturn that a lot of people didn’t see. Obviously, the writing was on the wall. We all should have seen it.”

SM Fencing and Energy Services owner Seth Murphy stands with his wife, Chantel, in front of his company’s new shop north of Dickinson on Saturday, Oct. 24. (Dustin Monke / The Dickinson Press)
SM Fencing and Energy Services owner Seth Murphy stands with his wife, Chantel, in front of his company’s new shop north of Dickinson on Saturday, Oct. 24. (Dustin Monke / The Dickinson Press)

Despite being 30 years younger than Arthaud, Seth Murphy is cut from the same cloth. They’re both the type of men who’d rather be working in the field than stuck in an office, and each has an unsuspecting way about him.

While Arthaud has surrounded himself with a management team he believes is second to none in the North Dakota oil industry, Murphy is a 30-year-old entrepreneur and former rodeo cowboy who’s constantly on the move as he continues to build SM Fencing and Energy Services, a service company he started in 2006 with just one employee.

His iPhone constantly buzzes with calls and messages — questions from employees or clients, which he’s more than content to answer himself.

Even with no end to the North Dakota oil slowdown in sight, Murphy keeps very busy.

“In my eyes, it’s not a bust,” he said, acknowledging there are plenty of people who disagree with him. “For us as a company, it hasn’t been a bust. I view these times — there’s more good that comes out of these times than bad. This is a natural Darwin’s Theory of Evolution. There’s a natural progression here. In the end, oil goes back up.”

 

Leading, not following

The slowdown that has reverberated throughout rural western North Dakota the past 11 months began Nov. 27, 2014, at a meeting in Vienna, when the Organization of Petroleum Exporting Countries, better known as OPEC, determined it wouldn’t slow down its crude oil production as America’s continued to increase through the development of the shale plays in North Dakota and Texas.

That week, the price of oil took its first plunge.

Ever since, the slowdown in activity has been obvious. Oilfield traffic is, as Murphy puts it, “crickets compared to what it was.” Bakken apartment costs, while still high compared to pre-boom times, have declined from the Manhattan-like prices they were at a year ago, and businesses aren’t springing up at the same rate as they have been the past two years.

In the final week of October 2014, the average price for a barrel of West Texas Intermediate crude oil — the Bakken’s benchmark price — was around $84, and there were 180 drilling rigs punching into North Dakota’s Bakken and Three Forks shale formations. On Friday, one year later, WTI crude oil closed at $44.68 — down about 5 percent for the week — and there were only 63 rigs operating in the state, according to Baker Hughes.

The Press reached out to multiple oil industry leaders for companies based in Dickinson over the past three weeks, but received few responses. Arthaud and Murphy granted extensive interviews about how their businesses are dealing with the Bakken slowdown.

As the rigs began to come down and work slowed, Arthaud said one of the first steps was to root out inefficiencies across the board.

“It’s nothing magical, other than it does give you a chance to take a look from within,” he said.

Everything from overall safety to environmental health practices are being shored up. They’ve even looked to cut back on the number of miles being put on company pickup trucks and how much employees charge to personal expense accounts.

While MBI is still busy, the ultra-hectic pace of the boom’s early days is over. Not that it’s a bad thing, Arthaud said. With more time on their hands, Arthaud and his management team are revamping MBI’s business strategy. Branded “The House of MBI,” it’s a five-year plan of improving every aspect of its company.

“There’s two ways to operate during a downturn,” Arthaud said. “You can manage or you can lead. We lead through the downturn.”

Murphy said SM Fencing isn’t resting on its laurels. It’s putting a priority on customer service, and has brought in third-party business consultants to perform internal audits of everything from personnel and everyday finances to the company’s functional structure.

“Everything you do, every dime that comes through needs to be looked after,” Murphy said. “You need to know where it’s going.”

The dramatic drop in drilling rigs led to a substantial decline in some areas of SM Fencing’s business, Murphy said. So, instead of focusing solely on the oil business, they’ve turned to pursuing government and military contracts. He said they’ve done work for the North Dakota Department of Transportation, the U.S. Army and BNSF Railway since last fall.

“Basically the same things we’re doing (in the oilfield) — fencing, erosion control, stuff like that, but just for different entities,” Murphy said.

Murphy, whose company deals with multiple environmental aspects of the oilfield from cleanup of oil and brine water spills to landscaping, said he has even watched as large oil companies cut back everywhere they can.

“It’s anything that was more of a suggestion and not a requirement,” Murphy said. “Anything the state requires them to do, they do. But anything they can get away without doing — everyone is tightening their belt. If you don’t have to do it, or if there’s a more effective and efficient way to do it, they’re doing it.”

 

Employers regain power

Despite being established during the 1980s oil boom, MBI was one of the hundreds of oil-related companies that exploded during the Bakken shale boom. It went from having around 300 employees in 2006 to nearly 2,000 at the boom’s peak, said Chuck Steffan, the company’s senior vice president of human resources and administration.

Since the beginning of the year, however, MBI has reduced its workforce by more than one-third, all while maintaining the Bakken’s largest trucking fleet.  

Arthaud said they’ve avoided massive declines in profits by trimming the fat, doubling down on safety and picking up the best talent they can find, whether it’s for jobs in the oilfield or the office. They still employ about 1,265 people, making them the largest oil-related employer in southwest North Dakota.

“We’ve had some opportunities to pick up some very high-level people from other competitors to lead our service industries,” Arthaud said. “We’re the type of people, when it slows down, we take a look at the labor pool and we want to get the best of the best.”

Arthaud and Steffan said much of MBI’s employment cutbacks were the result of natural attrition, either by choice or force.

“When someone would go away because of natural turnover, you just didn’t fill the position,” Arthaud said.

Employees that were costing companies money through mistakes or accidents no longer have a place, Arthaud and Murphy each said. In line with that, more experienced employees with strong safety records are getting better because the work has slowed down.

“It’s a combination of things we’ve had in place for the last five years coming to fruition,” Arthaud said. “But at the same token, your labor pool is becoming more experienced and your managers are becoming more experienced. … It’s all starting to come together now. You have a lot of things that happen to coincide, coming together with the slowdown.”

The twist now, Murphy said, is that business owners and companies have more power.

When the industry was booming, losing an employee and finding a suitable replacement wasn’t always an option. Now, he said, employees who commit safety violations or simply don’t do their jobs as well as others aren’t going to make it in the industry.

“People that can’t tow the line, they’re not going to be there because these companies have that option now,” Murphy said. “… We used to have to scrounge to find a warm body out there. At any given time, we have 150 applications in a folder we can go and pick from. That’s a huge difference.”

Even with thousands of laid-off people searching for oilfield work, Arthaud said that if the price of oil jumps back up, business isn’t going to crank up as easily as some may think. He believes it’ll take time, despite nearly 1,000 drilled-but-uncompleted North Dakota oil wells awaiting hydraulic fracturing.

He pointed to a conversation with one of his contacts in the fracking industry who told him it’d take an estimated three months to put together five experienced, trustworthy frac crews in the Bakken.

“The labor pool took a huge reduction,” Arthaud said. “When it does pick back up, people who think you’re just going to snap your fingers and go back to work out here are kidding themselves. It’s going to be a struggle. It’s going be chaotic.”

 

Weathering the cycle

Arthaud hesitates to call what’s happening in the Bakken a “bust,” but then smiles and says, “I don’t know what else you would call it.”

He said, this time around, it’s a bust with a twist. The 1980s oil boom and subsequent bust, which led to banks failing and financially damaged cities like Dickinson and Belfield, was a bust from every standpoint, Arthaud said — geologic, price and employment.

Now, the wildcatting and uncertainty of vertical drilling of the 1980s has been replaced by pinpoint scientific accuracy and seemingly endless technological advances, with the most obvious being fracking.

“It was definitely a bust from an employee standpoint,” he said. “… But the thing is, you don’t have the geologic bust here.”

Drillers know where the oil is, he said, and they’re still going after it. On top of that, companies like MBI and SM Fencing benefit from wells already drilled because they’ve invested on the production side of the business.

In August, there were 12,648 active wells in North Dakota producing an average of more than 94 barrels of oil a day, meaning there’s still plenty of work to go around for energy service companies.

Murphy said he’s betting on an eventual turnaround in oil prices and believes his business and the amount of employees he has will double in the next five years.

It’s why he’s building a new shop in the north Dickinson industrial area east of Highway 22.

“I believe that when everyone else is walking, you need to run,” he said. “So, it costs a lot of money to build that shop. But in doing that, there’s so many things we’re going to be able to do and implement. That shop, when it’s all said and done, will be paying for itself on a monthly basis.”

Despite falling rates of return, the market is sustainable for now, Arthaud said.

He said companies are working harder than they did when it was busy, but their focus is much better, as it has shifted to customers and improving from within.

“At times like this, we look at what are we going to do best in our company so we come out on the back end of it and we’re going to be firing on all cylinders,” Arthaud said. “There’s a lot of ways to do that.

“We’re going to weather this cycle. We’re not worried about weathering the cycle. I wish oil was $120 and everybody was making money. But when you go through a down cycle, some things happen out of it that are good.”

 

Author: Dustin Monke

Former newspaper editor. Now I market the best baked goods and donuts in America. But every once in a while, I write a cool story too.

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