Some might recall when branch banks were forbidden in Texas. I know that is hard to believe when you see the proliferation of banks gracing almost every intersection in town today, but it is true. Perhaps you would like to know why?

Back when Texas really was part of the “wild west,” towns sprang up on the frontier like weeds. In those days, three elements defined a town – a saloon, a general store, and a bank. We all know about the first two, because they figured into every western movie ever made. The last edifice managed to keep a low profile. The reason was that the entrepreneurs who ran the early banks believed they could make more money by installing branch banks in every new town and grow their businesses. The only problem was they could have had a dozen banks, but they only had one set of money. The way they stayed in business was as soon as the bank examiners came to do their annual audit, the bank hired a man with a fast horse to move the money to the next bank overnight. Completely unaware of this nefarious scheme, auditors were counting the same money over and over.

Finally, there was a crop failure or some other economic disaster, and the hapless depositors found out that there was not enough money to cover their withdrawals. After a few unlucky bankers were strung up by angry crowds, branch banking ended in Texas, for almost a century. So why am I telling you this story?

Some of today’s oil patch entrepreneurs are like those old bankers. Say the Black Gold Energy Co. issues a press release claiming a 20% production increase from its Bonanza field. Within a few weeks, you start seeing ads and flyers saying, “Black Gold uses Big Bite Bits to boost production 20%”

You guessed it; they all are counting the same 20% increase over and over and taking credit for it. The fact is that all of these products might have contributed to the increase, but it is highly unlikely that any one product deserves credit for the entire production increase.

I am starting to hear grumbling from the ranks of oil operators, particularly some independents. In a recent conversation, an industry veteran voiced his opinion that many service companies are not delivering the value to support their prices. This is another way of implying that they are trying to take sole credit for every production improvement, increase in drilling efficiency, or cost-saving procedure. If they can take credit for the value added, they can charge more. That might be true if they could prove conclusively that the value added resulted solely from their product or service.

An operator explained it to me in clear terms: “I know you think that if your tool improves drilling efficiency, you are entitled to charge more for it, but what you don’t realize is that our company doesn’t care about penetration rates, per se – we only care about money!” He continued to explain that if a new whiz-bang rotary steerable system upped penetration rates by 25% but caused an additional bit trip, all those drilling efficiency gains were for naught.

The industry is plainly exhorting service companies to sharpen their pencils and bring a positive business case along with their sales pitches. If a company cannot prove the value it claims to deliver or cannot deliver that value consistently, it had better be prepared to hop the first fast horse out of town!

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