Why Renting Oilfield Equipment Simply Makes Sense
As the global demand for energy grows, so does the oilfield equipment rental industry. According to recent statistics from Oil & Gas Financial Journal, the oilfield equipment market environment is set to grow from $26.8 billion as of 2014 to a staggering $53.7 billion in 2019.
While many companies choose to purchase their oilfield equipment outright, a large number of firms rent or lease their equipment. There are several reasons why rentals and leases offer a more attractive choice for both small and large-scale oilfield firms.
Firms Always Have Access to the Equipment They Need Most
Having the right equipment for the right job can make or break an oilfield firm. For many companies, making a major investment in a piece of equipment that quickly becomes unnecessary or unwanted can be a tremendous and costly misstep. Instead of making a purchase that could potentially become a burden on the bottom line, companies can rent their equipment based on their immediate needs.
Changing conditions and locations could prompt a swift change in the type of equipment needed. As an example, soil variations can make equipment that excels in one particular region next to useless in another. Certain equipment that works well dealing with Canadian soil might not be up to the task of dealing with the different soil conditions in Texas or North Dakota. For this reason alone, renting your equipment gives you an opportunity to quickly swap out what you don’t need for more appropriate equipment.
It’s also worth noting that equipment rental companies constantly rotate aging equipment out of their fleets on a regular basis. This ensures that not only do firms have access to the latest equipment, but that there’s little to no fear of it failing due to neglect or poor maintenance.
It Allows Upstarts to Gain Traction
While the big boys are likely to have considerable capital investments in drilling and transportation equipment, start-ups are less likely to have the capital needed to outright purchase their equipment. This can leave some smaller companies out in the cold unless they have access to rental equipment.
By renting or leasing instead of purchasing oilfield equipment outright, these companies are able to enter the marketplace and compete without having to invest hard-earned capital into equipment purchases. It also helps start-up firms with limited capital avoid the pitfalls of equipment ownership, such as maintaining favorable utilization rates and dealing with equipment downtime.
The Rental Company Handles the Asset Management
Equipment maintenance costs play a sizable role in an oilfield company’s overall profitability. A company that owns its own equipment must deal with all of the costs that come from maintenance and repairs, in addition to inspections, storage and transportation to and from the job site. For this reason, the company has to maximize its utilization rate if it wants a chance to successfully amortize its capital investment.
Consider the following when it comes to equipment rental vs. ownership:
- The average rental company usually replaces its core construction equipment every 5 to 6 years, generating an average of 800 hours of use each year.
- Companies that own their own equipment tend to retain them for as long as it’s economically viable to do so. These machines typically see 1,500 or more hours of work annually. The older the equipment gets, the more maintenance and upkeep it’ll likely require.
With rental equipment, the responsibility for maintenance and upkeep falls on the rental company. This helps smaller companies maintain their bottom lines by focusing on production instead of pouring operating funds into maintenance and upkeep tasks. It also eliminates the need for major downtime periods, as a replacement can be sourced and rushed to the job site within a reasonable amount of time. Larger companies can easily supplement their current equipment with rentals and/or leased equipment, especially if it’s needed for special short-term projects.
