Calgary – Hard times in the oilpatch are proving to be good times for Energy Auctions Inc., a growing online auction and brokerage business based in Calgary.
Capital spending cuts by producers due to low world oil prices have increased buyer demand for used or so-called field run oil and gas production process equipment that Energy Auctions specializes in.
“They’re buying just due to the economy,” said Marlon Ellerby. president of the Energy Auctions that is co-owned with his wife Janet with Marlon being the spokesperson.
“They’re looking for field-run used stuff because it’s cheaper right now than buying new so they’re trying to shop to get the best bang for their buck,” he said.
“I do also have manufacturers that I sell for that have new surplus – if they have too many tanks in stock or too many separators or whatever.
“They will phone me and I will sell that as if it’s new, but the bulk of my equipment that I sell is field run.”
Oil and gas separators, tanks, pumpjacks and treaters are selling quickly mainly to producers who are focused on cost efficiencies.
“I think probably the biggest thing is the amount of wells still. It’s so much more cost-effective to maintain production to keep producing, than it is to buy production by drilling new wells,” said Ellerby.
“Anything that’s out there that’s producing, they need to keep it going.”
Over 75 per cent of Ellerby’s customers are brokers who buy the equipment online and resell it knowing they can still make a profit after he takes a set fee.
“I broker quite a bit more than I auction,” said Ellerby.
“I think the big thing is, that way that I deal with my customers is, we find a fair market value for their product and I take a set fee.
“That way when the broker comes along and buys it off our auction, he’ll know that there’s a little bit of meat left on the bone when he sells it.
“I think the auction is a good way to go for a producer or anybody with surplus because I can go in there, and between me and the seller, we can set a set price.”
Ellerby relies on formulas to determine fair market value off of new prices and broker knowledge of the market to set prices.
“They’re the ones out there just like I am. We have a very good idea of where the market’s at. That’s the name of the game. It’s all economics,” he said.
Energy Auctions sells oil and gas production process equipment to buyers from around the world who register for free to bid on his online auction website.
It’s up to the buyer to pick up their purchase, but Ellerby handles everything from listing, cataloguing and photographing equipment to writing product descriptions.
In Western Canada, most of his business is targets clients in Alberta and Saskatchewan with growth coming from Manitoba and North Dakota and beyond.
“I sell a lot of jacks, kind of thirty party, down into Wyoming, Colorado and Texas,” said Ellerby.
Energy Auctions is linked to anyone in the world with an Internet connection including customers in China who invited him to speak at a shale gas summit in China in the fall.
When contacted on June 9, Ellerby was preparing to speak with his Chinese contacts at the Global Petroleum show in Calgary the following day.
“I’ve been approached to expand a bit more into China with the auction service part of it. I am looking at translating my website to Chinese,” he said.
“Even within their own provinces, they can use our services.”
Ellerby gives credit to his Calgary based IT provider, Gratisies Inc. for creating a software platform the provides many ways to market and auction equipment online internationally.
“We can take a tank that’s sitting in Minot, North Dakota and we can sell that tank tomorrow morning in two hours,” said Ellerby.
“I can set it up for tomorrow morning for two hours and everybody in the world can get online and bid on that tank.”
Aside from online auctions, Energy Auctions has a third part shop where customers can design, build or refurbish a variety of oil and gas products.
The company also offers contracted licensed realty services for complete commercial and business listings.
Ellerby’s office is his truck that he drove to the Saskatchewan Oil & Show held in Weyburn June 3-4 to proactively market his business to producers and service companies.
“For the most part it was good. I can’t say it was positive but it was good,” he said about the mood with low oil prices slowing oilfield activity.
“Guys are continuing on just like here (Calgary). In Lloyd, it’s all the same and everywhere else around the world, it’s slowed down considerably,” he said.
While in Weyburn he touched base with some of his best clients.
“I’ve done some pretty big business with Enerplus down in that area, so we took those guys out to one night for supper and sat around and visited with their operators and everything. It was good.
“They’re talking about doing a little bit more here come June and July.”
The downturn has been good for Energy Auctions just as it was in ’08 when he launched a concept business model as the pipeline coatings company he worked went broke.
With his background auctioning cattle online, he set up an online auction site to liquate the company’s oilfield equipment and then set out on his own with steady sales.
“That’s the unfortunate part of this thing. There’s good and bad. We’re busy,” he said somewhat apologetically.
“One of the reasons why I do well in southern Saskatchewan with Enerplus is the convenience of it. It’s set up for the juniors and the intermediates.
“They don’t have to do anything. They just tell me it’s for sale.
“I do a ton of the business with the big guys as far as selling their equipment, but I don’t sell very often to the big guys. The juniors and the intermediates are the companies that I target.
“That’s the niche that I fit into.”
As for comparing the downturns of ’08 and this year, Ellerby thinks this one is worse.
“I think the biggest thing is that this thing hit almost within 24 hours,” he said.
“Just boom – it hit before Christmas or whenever that was and the whole world just kind of stopped. Then look at how fast the price dropped, so it took a lot of guys off guard.
“It shocked a lot of guys and put a lot of companies into a bad position with a lot of stock.”
Ellerby noted that the online auction market is not strong for all types of oilfield equipment as companies try to hold out for better returns.
“I think everybody’s hanging off liquidating everything or anything because they don’t want to give it away,” he said.
“They’re just waiting to see what this thing’s going to do now that the breakup is over and everybody’s going to start to do a few projects.
“I know there’s a few drilling rigs out starting to pick back up again. There’s a lot of equipment out there right now.
“Buying at an auction is different than just buying it because of course, you have to be so diligent in what you’re buying like with pressures and sizes and everything.
“I tell them to go and inspect it or send an inspector for $500. They can save you a pile of money.”
Ellerby said what he calls “commodity stuff” like pumpjacks and tanks sell well online because every well site needs that equipment while pressure vessels are tough to auction.
As for why companies do business with him Ellerby puts it down to building honest relationships with his customers and fair pricing in booms and busts.
“They can trust me. They can set a starting price. It has to be within the market though. If a tank’s worth $10,000 they can’t tell me they need $25,000 out of it.”
Equipment is sold during timed auctions similar to eBay with short auctions for one-off items and monthly one day sales with multiple lots and bidders.
Convenience is probably the biggest advantage for sellers who come to Energy Auctions that markets itself as a one stop shop.
“I think the biggest thing is ‘sold as is, where it is’ so there’s no freight involved. There’s no logistics set up to get the thing to my yard or whatever. There’s none of that,” said Ellerby.