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In an era of sluggish growth in the electrical market, the sales opportunities popping up in the oil and gas market in some regions of the country for distributors, reps and manufacturers stick out like a solitary pump jack on the northern prairie.
New horizontal drilling technologies combined with what’s called “oil fracking” is now allowing drilling companies to access deposits of oil and natural gas that previously couldn’t be extracted profitably, often in regions of the country where the oil and gas business had more or less been dormant for years. Distributors and reps in Texas, Oklahoma and the Gulf Coast have ridden the booms and busts of the oil and gas business for decades. But hydraulic oil fracking has unlocked new sales opportunities for electrical folks in Ohio, Pennsylvania, upstate New York, Kansas and North Dakota. It’s a relatively new technology that according to energyfromshale.org uses horizontal drilling techniques and water pressure to “create fractures in rock that allow the oil and natural gas it contains to escape and flow out of a well.”
While you hear the most about the Bakken oil and gas business in western North Dakota, distributors along the spine of the Marcellus Shale region in Ohio, West Virginia, Pennsylvania and upstate New York are also marketing their capabilities in the oil and gas business. The Mississippi Lime formation in northern Oklahoma and south-central Kansas is offering sales opportunities to electrical companies in that region, too.
The electrical products most commonly sold in the oil and gas market include the full range of explosionproof equipment required by the National Electrical Code Class 1, Division 1 Hazardous Locations, such as enclosures, fittings and lighting fixtures, as well as wire and cable, temporary lighting, disconnects, variable frequency drives, LED worklights, metal and nonmetallic conduit. In the regions where the scale of the ongoing oil and gas development is truly mammoth, like North Dakota’s Bakken region, distributors, reps and manufacturers are supplying electrical construction materials for new housing, restaurants, gas stations and other service businesses, utility substations and even new refineries. In the Bakken it’s still nearly impossible to get a hotel room, and many workers live in “man camps,” which are dorm-like housing units.
The Bakken region has attracted quite a few new branches of electrical distributors from outside the region over the past few years, and in addition to locations that have been run for some time in Williston and Dickinson, N.D., by Fargo, N.D.-based Border States Electric Supply and Dakota Supply Group, the following companies now have branches in western North Dakota: Consolidated Electrical Distributors, Dickinson and Williston; Graybar Electric Co., Dickinson; QED, Dickinson; and Rural Electric Supply Co. (RESCO), Williston.
According to an article in The Dickinson Press,QED opened a branch in May 2012 with a staff of six employees. The article said the Denver-based company launched an operation in the Bakken region “after many of its clients requested their service out in the Oil Patch.”
And while Graybar had been servicing customers in the Bakken region out of its Bismarck, N.D., location for years with daily deliveries and other services, the company opened a branch in Dickinson early this year to support the oil and gas activity in the area. Graybar also opened a branch in Carrizo Springs, Texas, to support the petrochemical business south of San Antonio, Texas, as well as a branch in Williamsport, Pa., to go after business in the Marcellus shale region.
A Utility Distributor’s Take on the Bakken Business
It’s not only full-line electrical distributors enjoying the Bakken bounty. Rural Electric Supply Cooperative (RESCO), Middleton, Wis., a distributor that specializes in utility products in nine Midwestern states, has moved aggressively to service utility business in the Bakken region. Says Matt Brandrup, the company’s president and CEO, “We are a cooperative and our owner-member-customers are for the most part rural electric cooperative utilities. We also have some municipal utility members as well. We sell to both our member-owner customers (electric coops, municipals) and also sell product to our non-member customers (IOU’s, contractors and non-member municipals), but our key focus is on the public power utility market.
“For the most part, the rural electric cooperative utilities are the utilities that serve the Bakken region in North Dakota and Montana (with the exception of a few of the larger cities where Montana-Dakota Utility (MDU) may serve). There has been, and continues to be, an incredible utility transmission and distribution infrastructure build-out in the Bakken region in order to serve the developing oil wells and the associated commercial, housing and transportation infrastructure that supports it. The rural electric cooperative utilities support all aspects of the build out. Whether it be the oil wells/drilling component, the oil & gas processing facilities, or the commercial and housing development, the rural electric cooperative utilities are involved and that has greatly driven the demand for utility products in the Bakken.”
To help service this market, RESCO built a 32,000-square-foot warehouse in 2011 in Williston, N.D., that it shares with the Mountrail-Williams Electric Cooperative (MWEC), an electric cooperative located in the heart of the Bakken oil boom. RESCO also uses the warehouse to serve its other utility customers in the Bakken region. The Williston warehouse enables RESCO to make same-day deliveries to the utilities serving the Bakken when necessary.
Brandrup says a unique aspect of its relationship with MWEC is a full vendor-managed inventory (VMI) warehouse partnership that allows RESCO to help MWEC manage its large scale inventory inflows/outflows in a more timely and accurate manner. Check out the sidebar on page 21 to learn about other value-added services that RESCO offers MWEC.
Brandrup says another unique aspect of servicing the Bakken is what he calls the “massive” amounts of utility stock, particularly single- and three-phase transformers, it must stock. In an email to EWhe said, “The demand for transformers has required RESCO to work hand-in-hand, sometimes on a daily basis, with our transformer partner, ERMCO (Electric Research and Manufacturing Cooperative, Inc., Dyersburg, Tenn.), to ensure the Bakken utility demand for transformers is met. Having dependable manufacturer partners like ERMCO and others who can react and get material to you quickly when unforeseen demand occurs is paramount in being able to serve the Bakken utilities. The utility work plans can change constantly since new projects can pop up at anytime in the oil fields or in the related residential and commercial developments.”
While the Bakken business really started heating up approximately seven years ago because of new oil fracking technology, EWfirst started sensing the impact of oil fracking in the Marcellus Shale region in its Top 200 survey last year, when one distributor from Ohio said confidentially that they expected double-digit growth in 2012 because of the development of the Marcellus Shale deposits.
Another Ohio distributor, Furbay Electric Supply Co., Canton, Ohio, says on its website that it services the Utica Shale formation in central and eastern Ohio (adjacent to and in some cases overlapping the Marcellus Shale deposit) with services that include but are not limited to next-day deliveries for oil and gas companies in the Utica Shale region; 24/7 emergency services; managed inventory solutions consisting of and offsite storage and bin replenishment; inventory of hazardous location equipment; and its participation in the Ohio Oil & Gas Association (OOGA).
Friedman Supply, a division of Sonepar USA, Exeter, Pa., also targets oil and gas accounts in the Marcellus Shale region through its 14 locations in central Pennsylvania and upstate New York and according to its website has $5 million of specialty drilling product inventory; specialists dedicated to oil and gas sales; and a full range of standard and emergency delivery.
Schaedler Yesco Distribution (SYD), Harrisburg, Pa., is also going after the oil and gas business. The company aggressively promotes its capabilities in this area and says on its website, “With stocking branches conveniently located throughout the Marcellus Shale fairway, we have the products you need to get the job done. No other electrical distributor in Pennsylvania can offer the years of experience, technical expertise, knowledge and creativity to enhance your company’s performance and profitability like Schaedler Yesco can.”
And in his response to the Top 200 survey, James Van Zandt, president and CEO, Tri State Supply Co., Washington, Pa., said gas and oil contractors were a key factor in the company’s sales growth last year and that this business is “the only cash cow in southwestern Pennsylvania.”
How long will these new oil and gas opportunities last? RESCO’s Brandrup believes the opportunity for robust sales in the Bakken utility market will remain strong for at least the next three-to-five years, and says he wouldn’t surprised if it lasts a bit longer than that. “Obviously, oil prices will play a big role in the rate of oil field development and the related utility product need,” he said. “That being said, some oil experts suggest that the oil well drill-out in the area will last another 20-25 years, and RESCO is ready and committed to serving our member-customer utilities in the Bakken for the long run.
“The Bakken oil field boom is truly amazing and I guess the only thing I can compare it to is the housing boom and the related utility product sales boom that we saw briefly in the mid-2000s. Of course, that boom was relatively short and ended in a crash like so many booms do, but we do not see the same thing happening in the Bakken as long as oil prices do not completely tank for an extended period of time.”
How RESCO Helps a Bakken-Based Utility Serve Its Customers
A value-added service that Rural Electric Supply Cooperative (RESCO), Middleton, Wis., provides the Mountrail-Williams Electric Cooperative (MWEC) is due to what Matt Brandrup, RESCO’s president and CEO, calls the incredible demand and backlog to install distribution/transmission infrastructure to serve the oil wells and the related commercial and residential developments. To alleviate this backlog, MWEC has contracted with several outside utility contractors to assist its own employees in the installation of the distribution and transmission lines.
“A few years ago, MWEC was having difficulty accurately tracking all of their material outflows to the scores of independent contractors that it uses, so RESCO stepped in and is now managing and tracking, in a very detailed manner, the utility material that MWEC gives to the contractors,” he says.
“On a daily basis, utility contractor personnel drive into our drive-in-warehouse loading facility (which can fit two semis back to back) where RESCO warehouse personnel quickly load them up with their daily utility product needs. The order sizes are sometimes very large, so quick turnaround is a must as [having] contractors sitting and waiting for material is a cost to both MWEC and the contractors.
“RESCO closely tracks the material given to each contractor by work-job number and then passes that information, along with our invoicing, to MWEC. This has greatly minimized the inventory discrepancies MWEC was experiencing and allows MWEC to be billed for material only when it is needed by them or their contractors. This has also allowed MWEC to reduce their owned-inventory levels on a substantial amount of their product classes. Also, to meet the demand from MWEC and the other Bakken utilities, RESCO now is open extended hours during the weekday (7 a.m. to 6 p.m.) and have just initiated Saturday operations as well (8 a.m.- noon).”
FACTS & FIGURES ON BUSINESS IN THE BAKKEN
- North Dakota now produces more oil than any other state except Texas. According to a New York Times article, monthly output in the state reached 20.97 million barrels by July 2012.
- The U.S. Geological Survey significantly increased its estimates for the amount of recoverable oil and gas in the Bakken region. According to a report released last month, “Using a geology-based assessment methodology, the U.S. Geological Survey estimated mean undiscovered volumes of 7.4 billion barrels of oil, 6.7 trillion cubic feet of associated/dissolved natural gas, and 0.53 billion barrels of natural gas liquids in the Bakken and Three Forks Formations in the Williston Basin Province of Montana, North Dakota and South Dakota.” That’s double the amount of oil thought to be accessible just five years ago.
- Along with all the construction related to the drilling sites and support facilities, the utility conglomerate MDU Resources is building a 20,000 barrel-per-day diesel topping plant near Dickinson. According to a posting on www.bakkenreport.com, the facility will be jointly owned by MDU Resources subsidiary WBI Energy and Calumet Specialty Products Partners, L.P., and will process Bakken crude and market the diesel within the Bakken region. Construction is expected to be completed next year.