Have data, will travel

Hey there,

Let’s talk about Tom.

Tom is a fake name. He represents the story of Barrel Hub clients.

And that story goes something like:

“I used to assume that purchasers were pricing similarly across identical production. Why wouldn’t I get the same price as my neighbor?

Then I took a look at what Barrel Hub was doing and my heart dropped.

Based on a preliminary review, my assumption was costing me about $80k/year.

Armed with the correct data, we renegotiated our purchasing agreements.

We’re now making way more on our production - I have no idea how we survived before we found you guys.”

"I Thought Our Prices Were Fine" - Tom's Reality Check

Tom is like most producers.

He spends lots of time and lots of effort getting his production online.

Drilling permits, equipment, personnel, etc…

It’s a serious endeavor that stands to make serious money.

Tom has a friend who also produces oil.

They’re eating lunch together one day when Tom’s friend says “Purchaser X? I use those guys. They’re giving me $73.24/bbl over in Andrews county.”

Tom responds, “What? I’m a couple of roads over from you and they’re paying me $71.54/bbl. What gives?”

Like most producers, Tom would have never realized this discrespancy existed if not for someone else accidentally telling him.

So how did Tom get here?

Tom didn’t consider a critical part of being an oil and producer: he operates in an adversarial environment.

Purchasers and producers are in constant battle.

Purchasers want production and they want margin on that production.

Producers just want the highest price possible for their energy products.

All markets share fundamental traits and the upstream oil and gas market is no different.

If you’re an uninformed party, do you think your counterparty is going to take you aside and say, “Hey Tom, I noticed that we’re paying your competitors $1 more for their barrels. We didn’t feel good about this so we’re going to start paying you $1 more for your production starting today”?

Of course not.

The Data That Changed Everything

After hearing the bad news from his friend, Tom says “How on earth did you figure this out?”

And his friend responds, “I wouldn’t have if it weren’t for Barrel Hub. They show you every purchaser transaction in Texas for direct comparison to your prices. If you’re getting beat down, they’ll show you where to find better pricing or renegotiate your purchasing agreements with your current purchaser”

So Tom signed up for Barrel Hub.

And then this happened:

1. Tom saw the prices of all of his competitors

2. Tom instantly understood where his pricing ranked (and which purchasers were paying better)

3. Tom signed new purchasing agreements

4. Tom made a lot of money

This isn’t magic.

It’s seing the market in it’s entirety (which is a first for most).

From Data to Dollars: Securing the Increase

I’m not going to sit back and pretend that every Barrel Hub client signs up, pushes a button, and makes several hundred thousand dollars.

For those who have never optimized pricing before, there is a lot of room for improvement, so it’s often fast and easy to get those dollars per bbl back on their revenue line.

For those who already have sweetheart deals with their purchaser, it might not be as effective (however, the majority of producers fall into the first camp).

But what I can confidently say is that using Barrel Hub data leads to making more money, whether it takes a week, a month, or 6 months.

Staying competitive in this market means understanding the following:

How are purchasers pricing?

Where does your $/bbl rank among your peers?

What’s the difference between those producers making $2/bbl more and you?

What characteristics make a lease overpriced vs. underpriced? How do I exploit that?

To answer all of those questions, you need:

1. Lots of fresh market data

2. Standardized analyses on that data to make the patterns show

3. An operations person or team capable of making purchaser changes

You can take the time to work on 1 and 2 or you can pay us $2K/month to get the above and increase your revenue by $50,000 a year.

For a long time, producers were like Tom.

No data, no insight, no ability to distinguish their pricing from their peers.

Don’t be a Tom.

Talk soon,

Taylor