Shale Gas Contracts Don’t Come Easily
COLUMBIANA, Ohio -- To hear Jerry Stoneburner tell it, he stumbled into being a successful supplier to the energy companies drilling for oil and gas in the Utica shale in eastern Ohio.
Stoneburner, president of Buckeye Transfer Inc., bought the former National Refractories & Minerals property, a brownfield site west of Columbiana and north of Leetonia, in bankruptcy court after its former owners filed Chapter 11 bankruptcy in 2001.
The 111-acre property, Stoneburner told a group of businessmen interested in following his lead, is an ideal base from which to serve the needs of the energy companies as they build pads, drill wells and extract the oil and gas. Not only because of its location, near the state Route 11 interchange with Columbiana and Leetonia, but because of its assets, he pointed out.
He was one of four panelists brought together Nov. 9 by the Columbiana Area Chamber of Commerce to provide small-business owners with insights on how to get a share of the contracts, if not wealth, the Utica shale is bringing the area.
The others were attorney Alan Wenger, who manages the energy practice at Harrington, Hoppe & Mitchell Ltd., Youngstown, Rex Ferry, owner/president and CEO of VEC Inc., Girard, and Jason Wilson, director of the Governor’s Office of Appalachia and a former state senator.
The Buckeye Transfer property today has two aluminum presses (one 1,500-ton, the other 2,000- ton), a 20,000-square-foot warehouse, nine silos, roads and a rail spur that Stoneburner is extending. When he bought the property in 2003, he was interested only in the one-mile rail spur, he related, and uncertain what to do with its other assets. Facing him was the need to remediate the contaminants, including asbestos in a 300-foot kiln, before he could develop it further.
Buckeye Transfer trucks hauled the cores the energy companies drilled to Republic Services’ Carbon Limestone Landfill in Poland Township, which is how he came to know its manager, Mike Heher.
Heher made him more aware of the potential to serve the energy industry and profits to be made. “We had a trucking business that gave us entry to oil and gas,” Stoneburner said.
“I started making calls about a year ago,” he told the businessmen. Buckeye Transfer also entered into a joint venture so its owner could extend the rail spur such that it can handle unit trains. Initially the trains are hauling the sand needed in hydraulic fracturing (or fracking) to release the oil and gas in the shale. Once the wells start producing, they will carry the oil and gas the pipeline systems can’t.
At present, the rail site at Buckeye Transfer is handling “20 carloads of sand every other day,” Stoneburner reported. “We have 50 pads being built within 25 miles of us.”
When the wells begin production in earnest, “The pipelines can’t handle it all,” Stoneburner observed, “and they go in only one direction. Unit trains [of 100 to 110 cars] will go where the pipes can’t.”
The advice Wenger, Ferry, Stoneburner and Wilson gave has been offered before at similar seminars throughout Trumbull, Mahoning and Columbiana counties.
“It’s still early in the game,” Wenger observed of the shale play, and so would-be suppliers have time to get their acts together before they approach the energy companies. And they still have time to measure the risks they could assume against the rewards they hope to win.
Despite local companies’ best efforts and the resources they’re willing to devote to serving the energy companies and the contractors that serve them, “Be prepared to never be called upon to perform,” Wenger warned.
Ferry counseled, “It takes a lot of money to be prepared,” adding the owner of a small businesses should develop, if he doesn’t have one, “a good relationship with your banker.”
Afterward, Ferry said he’s at an age, 61, where most small-business owners are beginning to take money out of their businesses in anticipation of retirement. “I’m pouring more money into my business than I’m taking out.” He’s having the time of his life seeing his business grow and prosper, he said, as well as witness the recovery of the Mahoning Valley.
“I see a workforce shortage coming” as the energy and manufacturing industries grow,” Ferry observed.
Trying to work with the players in the energy industry, both the drillers and the primary contractors who supply them, can be frustrating, all four agreed. Simply finding the right person to deal with is time-consuming. “You might have to make 50 phone calls before you reach the right fellow,” Stoneburner said.
Even that is no assurance the small-business owner will be called on. Should an energy company call back, “They come in. They go away. They come in. They go away. They come back. We have done so much show-and-tell, I can’t tell you how much,” Stoneburner related.
“They’ll call you once and you’d better be prepared to say yes,” Ferry elaborated. “You can be there tomorrow, whether you’re a landscaper, build fence or provide education and training.”
Once a small-business owner is called back, he better be prepared to respond immediately, as in “the next morning,” Ferry and Stoneburner agreed. “Be ready to say yes when they call you back six months later,” Ferry advised.
Wilson told of an incident where a truck driver wanted to eat breakfast before he started his assignment. He was told not to bother and his employer was notified its services wouldn’t be needed.
“You’ve got to give service,” Stoneburner said. “Screw up one time and you’re out.
The emphasis on safety cannot be exaggerated, all four said. To do business with the energy companies it’s a good idea to exceed the minimum standards and be aware of what they are. For example, a truck must carry two fire extinguishers, not one as in most other industries, Stoneburner said.
The levels of insurance a would-be supplier must carry are also higher than in most other industries, Wenger pointed out. “Look to the trade associations [for what’s required,” he advised. “Know what you need and how much – and how much risk you are assuming when you sign a contract.”
Persistence, learning and knowing the energy industry, attention to every detail (especially safety), patience, a willingness to travel to the other shale plays, the ability to respond immediately – all are prerequisites to doing business with the energy companies, the speakers told their audience.
To which Wilson added the region’s need to develop and maintain “an entrepreneurial spirit.” One legacy of the steel industry from Warren to Weirton, W.Va., he suggested, is “too many worked for someone else” and remain leery, if not uncomfortable with working for themselves.
Opportunity will knock but once and they’d better be home and awake to hear it if they’re to share in the wealth the oil and gas giants are bringing to the region. The result will be begin to be visible from the ground in 2014, as Ferry answered Tom Wycoff, manager of the East Liverpool Motor Lodge.
The number of rigs in Columbiana County has caught up with the number in Carroll County, Wilson added.
Copyright 2012 The Business Journal, Youngstown, Ohio.