Many new and veteran oil drilling companies are leveraging equipment rentals to help secure new drilling contracts
The United States has increased oil production from just under 5 million barrels per day in 2008, to just shy of 8 million barrels per day during 2013. This massive increase in resource extraction is the result of advanced oil location techniques, better access to known oil-rich areas, more technologically advanced oilfield equipment and tools, and some assistance by local governments in terms of drilling regulations and the permitting process. One byproduct of this domestic oil boom is that smaller drilling companies are aggressively seeking out contracts to work these productive oil fields.
These opportunities can become highly lucrative for these smaller groups, but they must have the startup capital to purchase equipment, pay for leases, and fund the non-stop outflow of money for payroll, daily operation costs, and other related expenses. Energy equipment is a necessity on the oilfield, and the machines, trucks, drilling rigs, and peripheral equipment like compressors, pumps, and water tanks are quite costly. Small startup companies – as well as larger, more established organizations, have both begun to turn to the equipment rental market to help defray some of the costs of drilling for oil and gas. The bottom line is that by renting equipment, companies lower their price of admission into this lucrative field.
Key benefits of renting equipment versus purchasing
While some companies like to own their equipment and simply amortize the cost over several years, it takes a lot of cash to operate in this manner. Many small to medium-sized groups can’t afford the hundreds of thousands to millions of dollars it takes to bring their company online, so they turn to the rental market. Here are three key benefits to renting oilfield equipment versus purchasing it outright:
- Test the equipment before you purchase: oil drilling companies don’t always work in one location. Equipment that might work well in Texas doesn’t always perform as intended in the Dakotas. The ability to rent equipment and test its efficiency in the actual area you are working can help ensure you aren’t stuck with an inadequate machine.
- Swap machines if the effectiveness isn’t 100%: If you are renting a piece of equipment and it isn’t as effective as you’d like it to be, simply contact your rental agency and inquire about swapping out the machine. This allows you to tailor your equipment to the job at hand, versus spending huge sums of capital on equipment that may or may not work perfectly on your site.
- No repair costs: With the brunt of the repair and maintenance costs pushed back on your rental company, you don’t have to worry about a broken down machine depleting your business account.
The rental market is incredibly hot right now. Oil drilling companies understand that in this competitive sector, being able to gain access to lucrative drilling sites is critical – and that the huge upfront expense of purchasing all of your required equipment may keep you out of contention.