Through The Downturn and Back Again
I am chronicling my thoughts on the Oil and Gas economic downtown for a few reasons.
I think it is important for us to capture what it was like to allow us to not only move past it, but to remember what it was like, how far we have come and for how long we struggled.
I believe it is also important for us not to forget how difficult things become, so that next time, when we are riding the success of yet another boom, we keep front and center in our thoughts and decisions just how quickly things can go south. To reward how hard everyone worked to build the company up during the boom and ensure that they can be protected from the inevitable storm.
Perhaps I am writing this to celebrate with our employees, our friends, our clients, our partners and everyone else in the industry, just the sheer joy of still standing. I think it is fair to characterize the downturn as an economic hurricane. The destruction and aftermath, in a career and business since, feels a lot like the effects of a large hurricane. Survival is bittersweet when you look around at everything torn down that required so much toil to erect. At the same time celebration feels premature. Not enough time has passed for our friends who lost their jobs and the market seems uncertain. We, as well as others, are enjoying the renewed enthusiasm, new investments and slow but steady rise in drilling operations, but I am left feeling as if I am standing on ground ready to give way when the underlying economics cannot be explained or understood. The reality we may be living in is that the market has simply adjusted and the producers and their servicing ecosystem has figured out how to live with the oil prices of the day.
Finally, I want to express sympathy and hope for those that lost their jobs, their companies and their livelihoods through all of it. No one deserved this. There has never been a time where this industry did not require genuine hard work. Even in the boom time when work was plentiful and the rates rewarding, opportunities were earned with hard work, and kept with persistence. Throughout these economic shifts no one who lost their jobs, had their career damaged, or lost their company had it coming. This industry has never been one to reward laziness or sub-par work. Everyone deserved better. Luckily, there is hope. I have watched happily as our great employees and friends started promising new careers, in this industry or somwhere else.
At the beginning of 2014, the majority of Erdos Miller's clients and contract work was for Oil and Gas based clients. It's hard to quote or be sure of an exact figure, but I would certainly remember it as being 80% or more of our business. It made sense too, we were born in this industry and it is our home. In fact we entered the industry in 2009, yet another down point in the long economic history of our industry. However, we were too young and new to feel it's affects and the future was bright.
Abe Erdos and I founded the company officially in 2009. We came from a background of building electronics, firmware and software for high-temperature Measurement While Drilling tools. However, we won our first two contract projects in late 2008, surprisingly not Oil and Gas projects, but it was our third win that cemented us into this industry and as a company. We were awarded a contract to develop the downhole electronics and firmware, as well as surface software and hardware for an entirely new Measurement While Drilling tool. It was an aggressive new design and the dream was big. This was a giant contract for a new company and a firm that started with just a few employees. With three contracts in place in early 2009 we were able to file for a corporation, open a bank account, get payroll setup and rent an office.
The first couple years were tough. As a small company and a startup you must demonstrate exceptional value to overcome the perceptions of being new and unproven. It is not easy to win over new clients, new projects or even new employees. We learned a lot about ourselves, about consulting, and about delivering great work for clients in our first couple years.
We were well positioned in 2010 as the rig count began to recover from the 2009 downturn. We were in a booming industry, had the right expertise, and worked with great clients on ambitious industry changing projects. We grew quickly too. Growth from 2010 through 2013 didn't require aggressive investments into sales or marketing. All it took was a little networking and cold calling to prime the engine, and then following through and delivering exceptional value through great work for our clients. We grew, and grew fast. We added some really great people to the team, sometimes adding 2 or 3 people per month. We grew from a scrappy startup who gave young engineers the opportunity to work on great projects to an aggressive, large firm offering great salaries and benefits.
Attracting great technology talent in the Oil and Gas industry is not simple. We are, as a whole, not exactly what a lot of the world would consider high tech. Additionally the highly cyclical nature of this industry drives away a lot of great talent. And why shouldn't it? Semiconductor tech, big software, computers, and the information technology industries have their cycles, but it seems to be nothing like what we experience here with the great booms and bust cycles. The team you work so hard to build during the growth stages needs to be, and deserves to be protected. I have watched a lot of our former employees find new homes outside of Oil and Gas. These jobs provide the same salaries and benefits, with non of the uncertainty and turmoil of this industry. To be honest, I have often wondered myself if I should drive Erdos Miller towards a different industry. Perhaps we should shift our work and client base fully to the Medical technology industry? Or agriculture? Our skill set could easily be applicable to the new generations of smart heavy machinery being produced for farms and ranches around the world. However, I realized through all of this my passion is in Drilling Technology. So, I am not going anywhere.
There is something special about drilling technology for me. It is a unique challenge that requires knowledge, talent, and trial and error. I often say that in Oil and Gas all of the same requirements and expectations of sending a satellite into space are put in front of us when embarking on a new design. However, just a tiny fraction of the budget given to NASA to launch a satellite is available for developing new drilling technology. It is hard to explain the feeling when you successfully design a new downhole tool, build it into the BHA on the rig floor, and then observe the data as it comes alive downhole while drilling, sending you data that you had only dreamed of seeing before. It is hard to imagine another industry where when you deploy new technology, that you get a chance to control some of the biggest and coolest machines in the world. This industry can also be very financially rewarding. Customers are willing to pay significant fees for technology that just works. These challenges mix together in this industry to present a summit that is nearly unsurmountable. To an engineers and entreprenuers however, a good challenge is hard to find.
I want to say we knew the economic winds were changing sometime mid-to-late 2014. We are not oracles or economic prophets, so we had no idea what was to come ahead. We just knew it was going to be different, and probably bad, but we had no way of knowing how bad.
New projects, new quotes, and bids all had clearly stalled out by the end of 2014 with everyone holding their breath to see what was going to happen with the market. We had lots of conversations with our clients, some good, some bad. We all talked about staying in it for the long haul and surviving together. However the economic reality was just not such that all clients could continue with their technology and investments and some projects had to be cancelled, but that is life.
2015 was a survival year. The rig count was in free fall, customers continued to weigh the risk of following through with existing commitments, with almost the constant feeling that that the market would might never be able to produce a return on investment. New projects and commitments were out of the question.We worked on the projects that we had available and we tried to hold out. We had to say goodbye to some friends, but we were able to retain a lot of people.
The word diversification was thrown around at a lot of management meetings. "We should not be reliant on Oil and Gas!" was the common battlecry. "We should have clients in other industries!" was also heard. We put together plans to prospect into new industries as quickly as possible. We gravely underestimated how long and how much investment it would take to generate consulting revenue in other industries. Luckily, we were awarded a medical device project from a great client that we are happy to be still working with today, which was certainly a bright light in a very dark time. Through 2015 we had a few wins, but mostly losses as clients that were previously optimistic about the economy found it hard to maintain any level of optimism at all as the rig count plummeted daily.
At the end of 2015 there was a renewed enthusiasm. I think the time of the year had had something to do with, and it seemed as if perhaps the rig count had finally reached the bottom. New years always seems to bring renewed enthusiasm that things would be different. We were excited, our clients were excited, everyone seemed to be hopeful that 2016 would bring a new year and new market.
We could not have been more wrong. The rig count continued to drop through the first half 2016. A market that previously seemed grim now felt completely hopeless. Our clients were forced to cancel more projects to survive and we had to unfortunately say goodbye to even more really great friends and coworkers. It was not just us, it seems like everyone went through their own similar journey. We made a lot of mistakes in 2016. Par for the course in 2016 was decreasing revenues and reductions in workforce with break-even nowhere in sight. If you were unlucky, it was even tougher than that.
We fought as hard was we could to right the ship and survive into 2017. It was a long hard struggle for survival that left us with little energy left to concentrate on the future. There was no future, there was just survival in the now, or survival for a little longer until things could get better.
I personally took a couple weeks off at the end of 2016. It had been a long 2 year battling the economy and trying to right our ship and as the saying goes, you cannot pour from an empty glass. I personally had finally run out of fuel and needed time off to recharge and rethink.
I returned to the office in 2017 to a great surprise. The optimism of the industry had changed course, and clients were talking again about building great new technology. Additionally, we felt a lot of shared success as the clients of ours who had struggled through the worst of it to fund their R&D programs were now in a perfect position to offer products and services into a rebounding market and we were right there to support them. I looked back to see what had changed. My head was down working so hard right through the end of 2016 that I had not noticed that the rig count had begun to slowly creep up about mid-year 2016. The industry had been slowly gaining steam and I think it was just coincidence that the renewed enthusiasm occurred around the turn of the year.
At the beginning of 2017 my team was energized and hungry. We had a great set of clients who stuck with us and worked with us through the downturn, and we supported them. We had successfully diversified our revenue streams across industries and had built some technology that was successfully bringing in some extra revenue. We worked hard and focused on our customer success. It has always been my firm belief that for every $1 that you wisely spend developing technology with us it will almost certainly generate a return that will allow our customers to continue investing into new technology. Therefore, if we focus on making our customers successful, we will in turn be successful. So far that value has served us well and I do not see us abandoning it any time in the near future.
It's mid-year now and we are working on delivering some exciting technology to our clients. The economic environment has regenerated enough that we are talking about the future, and what technology will enable and drive the future. Our clients are seeing success and we are sharing in that success. Erdos Miller will continue to focus on the success of our Oil and Gas clients while slowly and cautiously expanding into other arenas. We are passionate about building Oil and Gas technology. To successfully expand into other verticals we will add team members who share that same deep passion for their verticals.
It has been a long journey, I do feel as though we have been through hell and back, but I don't feel that it's fair to say we had the worst of it, nor that it was the worst experience out there in the world by far. There are companies that are no longer in business who provided great services and products prior to the downturn that were just unlucky.
The future is not certain but we can certainly see the sun rising and not setting. I think it's our job, and everyone's to enable that bright new future and not simply hope that it comes to us.
I believe the survival of companies through the downturn, and simply the Oil and Gas industry as whole is a shining example of the American spirit, demonstrating our inguiniety, resolve, and sometimes our downright stubbornness. I have a passion for this industry and the technology in it I can promise you I am not going anywhere.
To all of those who have worked with us over the years as employees, clients, contractors, vendors, partners or just our friends, I want to thank you for the past and I look forward to a future together.
About Erdos Miller
Erdos Miller guides and assists clients in the creation of advanced technology. Erdos Miller's clients are forward thinking companies that are never satisfied with the status quo and are always looking to challenge the expectations of what can be done.
To find out how Erdos Miller can help your firm develop and deploy advanced downhole technologies please visit the following links:
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