Low oil prices impact service companies in San Juan Basin

James Fenton
The Daily Times

FARMINGTON — San Juan Basin oil field service companies are among the hardest hit by the downturn in oil prices. They are facing challenges that require layoffs and other cutbacks, and they say the work that is coming in allows their employees — local residents — to feed their families.

Enrique "Kiki" Polanco said Hurricane Air and Swabbing, a family business started by Polanco's father in 2002, has been actively downsizing this year, making tough financial choices to keep the doors open.

In January, Hurricane employed around 200 workers. Over the last few months, Polanco said he has had to lay off about 25 people and expects to lay off more later this year if oil prices remain around the $50-per-barrel mark.

The Farmington offices of Hurricane Air and Swabbing on U.S. Highway 64 are hard to miss — with a giant sculpture of a rooster on the roof and an even larger sculpture of a bull with horns standing guard in front of the hacienda-style building.

But the ripple effect of low oil prices is changing the human face of Polanco's company, starting with the number of people he can afford to employ.

"We're going to do more layoffs because there's just not enough work out there right now," he said. "I think, we've seen this before. We have to downsize. Instead of buying 10 boxes of rags now we're buying four, five. And (we) make them last longer. We can't afford to waste money. What can we do? Get creative."

Polanco said he accepted the 20 percent cut that its main client WPX Energy requested in February. He, in turn, cut his workers' pay by 10 percent before he faced laying some of them off.

"I didn't feel like we had to, but I told (WPX), 'this is going to hurt,' but they've been such a good customer that we agreed to do it," Polanco said. "We all took a 10-percent cut, the whole company, which I wasn't happy to do because ... it was a tough decision. In reality, me and my dad and my sisters, we took a bigger cut. My wife was working here, and I had to let her go. We had to cut back a lot, on payroll, and money and spending. Now, we're not working as many 24-hour days and the costs come down. (But) I hate these times. Being a small company, it's personal. It hits hard. Sales and letting people go is the worst part of my job."

Currently, Hurricane has 14 work-over and completion rigs, six swabbing units and six air-foam units on hand. Six of those rigs are currently servicing wells in the San Juan Basin, one rig in Greeley, Colo., and two more in the Bakken oilfield in North Dakota.

Polanco's father moved to North Dakota four years ago to help keep the company afloat.

"It's the independent companies that will keep you alive during the slow times, because they're from here. That's why we made the choice to keep the rigs working in the basin here and not just pull out completely," Polanco said. "But when you have to let 25 people go, that's 25 families with kids, grandparents, a lot of people counting on that paycheck. My dad said it's the worst part of the job and sometimes you just have to do it. When you lay people off, it hurts. You're letting them go and they haven't done anything wrong."

Polanco said the decisions he makes this year will not be easy, but it's the relationships Hurricane maintains with oil and gas companies that will keep his business going.

"People who don't have debt are the ones who are going to survive, and we learned that a long time ago — to save our money and to pay equipment off as (quickly) as possible and not get into a mess you can't dig yourself out. It's really cut-throat. There's a lot of cut-throat," Polanco said. "We had to cut our prices to stay working. We'll come up a little bit to make a little profit and, if we have to, bring it down, and if we go below that we'll park the rigs and wait for a better time. I'm not going to be out there working for free, losing money and working for a real cheap price.

"We've been really fortunate to pay off a lot of our equipment (but) we still owe a bunch of money on equipment — pick-ups, rigs — normal daily expenses we've got to make to keep working. But we'll survive. We have good relationships."

Wally Drangmeister, New Mexico Oil & Gas Association spokesman, said that the industry's service companies are hit the hardest, but no company is immune from the belt-tightening.

Across basins in the U.S., Drangmesiter said, he has seen a number of service company consolidations in reaction to current market prices.

"In general," he said, "there is more pressure on acquisitions in a down market as companies try to get to the right size for maximum cost efficiency."

Jason Sandel, executive vice president at Aztec Well Servicing, said he remains grateful for the work that is available.

"We — and all the companies — are doing everything that we possibly can to keep people working and keep equipment going, knowing that without equipment going, there are no people working," Sandel said. "Every company is making very difficult decisions. I don't know any companies, any local service providers, who are sitting in some ivory tower making decisions about people they don't know. We're talking about people we have grown up with, broken bread with."

Before laying off 15 percent of his company's 825 employees, Sandel said he sought out alternative strategies to help save money over time. One of those was beginning a multi-year process of converting Aztec Well Service's fleet of around 200 hauling trucks, drilling rigs, crew cabs and pickups from diesel to propane. He said he wanted to convert the vehicles to natural gas, but couldn't get enough pressure supply from the New Mexico Gas Company, so he chose propane and said he now can boast that he has the only propane-based, or alternative, auto fuel station in the state.

"Diesel is selling for around $3 a gallon, but propane is selling for $2.15 and it increases our gas mileage by 35 percent, plus it's cleaner," Sandel said. "This has been a long-time fight for me, to get this going. At three grand per truck (to convert to propane), it's tough to spend the money but in 2018, we'll be pretty much converted by then. We're working smarter to drive those efficiencies into the system in order protect the people who make our company great. It's an investment."

And finding work is key.

"I'm grateful we're still working," Polanco said. "(Companies like WPX Energy and Encana) have helped us grow and we've helped them grow. We just want to keep running. And we will. No matter what happens, we'll be doing everything we can to be out there."

Even though he has worked outside the oil field periodically, Polanco admits to having a lifelong fascination with the equipment that keeps him happily anchored to the industry he grew up in and to life in San Juan County.

"I've always enjoyed the (equipment), the hydraulics, how they stand up. They're really neat, like Transformers," Polanco said while touring his company's equipment yard. "When you're working the derricks, you're standing about 60 feet in the air with harness and cable. It's tough work but it's good work. I worked rigs my whole life. When you look at North Dakota, they're making five times more than we are here with the same equipment. But this is our home."

James Fenton is the business editor of The Daily Times. He can be reached at 505-564-4621 and Follow him @fentondt on Twitter.