- Associated Press - Saturday, July 30, 2016

INDIANA, Pa. (AP) - In the first three minutes, auctioneer Jim Richie already has sold six shop welders, an articulating forklift and a backhoe.

He started with smaller stuff to get the crowd accustomed to his monotone staccato - an endless stream of numbers, nonsense sounds that keep the rhythm and the occasional joke.

“I’ll tell you what,” he tells the bidders. “I’ll stop if you pay too much.”

In reality, of course, there’s no ceiling in an auction. But that’s beside the point here, at the Kruse Energy event held recently at the Park Inn by Radisson in Indiana County, where some 100 oil and gas equipment buyers winked, waved and nodded their interest.

This room is more concerned with the floor.



“It’s definitely a buyer’s market, but nobody has any money to buy,” says Philip Stephan, who drove in from Allegany, N.Y., to scope out bargains for his small oil and gas service business.

Stephan is a poster child for the new normal of the oil and gas world. He has been in the industry his whole career - some 35 years. Back in New York - where there is a moratorium on fracking - he has about 50 shallow oil and gas wells that are still producing but don’t make enough to sustain him.

They don’t even make enough money to cover their own maintenance. To pay for that, Stephan and his son service other peoples’ wells.

“The only reason we’re not extinct is we can’t afford to get out of the business right now,” he said. “I have a lot of liabilities with my old wells. Can’t sell them and can’t give them away.”

The gush of shale oil and gas has upended the industry over the past decade - flooding the market with cheap product and concentrating oil and gas production in the hands of large, sometimes multi-national, behemoths that can afford to pay millions of dollars to drill a single shale well even with oil selling at low prices.

Small producers don’t drill many wells anymore, which means drilling equipment isn’t a hot commodity.

Stephan had come to the energy equipment auction with an eye on some tanks, flatbeds and handling tools.

All those items came and went. Stephan didn’t bite.

“They went very reasonable, but not reasonable enough for us.”

No bathroom breaks

Richie has been auctioneering since he was 17. He does some breathing exercises, but for the most part, he said, it’s just something he can do, just as some people can sing or others can dance.

Once in a while he bangs a small gavel to indicate a sale to give him pause for a long breath. Otherwise, it seems he can go on forever. His record is 12 hours - no breaks, not even for the bathroom.

He’s one of the founders of Kruse Energy & Equipment Auctioneers, an oil field auction firm that holds nearly two dozen auctions a year. In 2014, it became part of online auction site IronPlanet Inc., so Richie now balances floor bids with clicks from “the interwebs.” It slows him down and he doesn’t love the idea, but that’s the business.

Without much ado, he introduces the auction’s two biggest-ticket items - two drilling rigs sitting on a yard in Mount Morris, Greene County - and gets $575,000 a pop.

The rigs haven’t worked in a half-dozen years, said Gary Bergman, a general manager with Kruse. The buyer will have to spend several hundred thousand dollars to move them to Texas and at least that much to get them into working shape, he guessed.

Two and a half years ago, Kruse auctioned those same two rigs for $1.4 million each, said Tim Archer, regional sales manager at Kruse, who is pacing the auction floor and scribbling prices in the 484-item catalog.

Like the ringmen, whose job it is to rile up and read the crowd for bids, Archer is wearing a white shirt and chili pepper tie. But he lacks their pep.

“This is pretty nerve-wracking,” he said. “I talked these people into selling, and some stuff is doing good and some not.”

‘A depressing time’

Archer has been in his clients’ shoes. In 2010, when his longtime employer S.W. Jack Drilling Co. out of Indiana, Pa., was going out of business, Archer worked with Texas-based Kruse to arrange a liquidation auction. After the company dissolved, he joined Kruse.

Oil and gas auction houses rise and fall with the market. When times are good in the energy industry, they might sell fewer pieces but those pieces will bring in a lot more money.

When, as now, oil and gas is hurting - producers and service companies are going out of business or selling off equipment to keep afloat - there’s more to sell but less to reap. Companies are generally reluctant to sell their equipment so it’s likely that whatever they’re parting with has been sitting idle and lacking maintenance.

The number of oil and gas equipment auctions is on the rise, but that doesn’t mean business is good.

“It’s a depressing time for me,” said Craig Cannon, president and co-owner of Texas-based auction house Cannon Sales Inc. “We’re not going to go broke. We’re still going to make money, but it’s not the same as when anything we could get our hands on (we could) sell privately.”

During the mid-1980s, when the oil and gas industry was reeling from a crash, the auction business was actually booming, Cannon recalled.

The quality of the equipment was cutting-edge stuff; banks made frenzied loans to oil and gas companies in the late 1970s and early 1980s; companies bought the latest technology before the market crashed. When it did and drilling and service firms fell into bankruptcy, the banks auctioned off a ton of nearly new equipment at extraordinary discounts.

The buyers, then as now, were a mix of healthy companies and speculators “that know it’s going to come back,” Cannon said.

But the industry has changed so much since shale gas came on the scene that the bounce back is likely to leave a lot of equipment in the scrap yard, he said.

“There are not that many independent drilling contractors anymore. The public companies bought them all up,” he said.

“The public companies buy new equipment,” he said. They don’t go to auctions.

War in Yemen

Laverne Zeiset, shop foreman with East West Drilling Inc. in Mifflinburg, Pa., has been to eight auctions so far this year, most of them with his 8-year-old son Anthony Zeiset, who was patiently leafing through the catalog during the Kruse auction.

Anthony is in it for the equipment tours. He and his dad hit six equipment yards in southwestern Pennsylvania the day before the auction, scoping out mud pumps, tractors, trailers, compressors, rigs, drill bits and tools.

Zeiset is a reseller. He seeks out bargains, repairs them and finds them a home. Much of the time, that home is abroad.

Panama has been a good market, Zeiset said. He suspects some of that is driven by the expansion of the Panama Canal and the need for heavy equipment.

Africa and the Middle East are popular takers.

But the war in Yemen has put a damper on sales in the Middle East, he said. A drilling rig headed to Yemen has been stuck at a Baltimore port for two months now because a paperwork error identified it as a milling machine. Apparently, that can be used to make weapons, Zeiset said.

The drilling rig is actually intended to drill water wells in Yemen, where water reserves are a few thousand feet deep - about as deep as conventional oil and gas drillers in the U.S. once dug for their bounty.

Whatever can be sold into the international water-well market will do well, Archer said.

“The Egyptians have bought a lot of equipment from Pittsburgh,” he said.

Oil field optimism

Zeiset wins a handful of bids before Richie sounds the final “sold” some 5½ hours after the first.

Total sales for the auction add up to $2.8 million and the Kruse team disperses, with two ringmen headed to Lock Haven, Pa., to ring for a classic car auction.

Kruse’s next auction hits Odessa, Texas, in three weeks.

It’s shaping up to be a big one, Bergman said, with millions of dollars in fracking equipment and buyers from Colombia, Germany and Russia already approved to bid.

“People in the oil field are optimistic,” he said. “They think it’s going to come back. And it will come back. It’s just a matter of time.”

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Online:

https://bit.ly/2ab4oFm

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Information from: Pittsburgh Post-Gazette, https://www.post-gazette.com

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