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A new service provider chose a more engineered and operational strategy to set the foundation for its future growth.
The genesis of Summit ESP can be traced to the major players electing to focus on the integrated services model while redirecting resources to the Eastern Hemisphere. The principal architect of the year-old Tulsa-based service provider says those decisions essentially put out a welcome mat for his company to enter into one of the fastest growing segments of the multibillion-dollar North American artificial lift market.
In 2010, veteran industry executive John Kenner believed the time was ripe for a flexible and engineering-focused independent company that would concentrate entirely on providing operators advanced electrical submersible pump (ESP) technologies in the liquids-rich US onshore plays. Accordingly, the former president of Baker Hughes Centrilift spearheaded an initiative to fill the gap in a North American ESP market that industry analysts estimate is more than US $1 billion and growing exponentially. It also has been estimated that upwards of 90% of all wells ultimately will require some sort of artificial lift.
In laying the foundation, Kenner said he envisioned an ESP company that would design and deliver new-generation technology and emphasize service and customer responsiveness while also being easy to work with "both commercially and technically."
With Kenner as president and CEO, Summit ESP was established in April 2011 to initially provide comprehensive ESP systems and associated services in three key onshore markets. Owing to its proximity to mature and emerging fields in the Midcontinent, Tulsa was chosen as the primary engineering and manufacturing hub. In May, Summit opened its first full-service operational center in Midland/Odessa to serve operators in the Permian basin. In the third quarter, the company intends to open a similar facility on property it owns in Powell, Wyo., to target production-boosting opportunities in the Rockies and Bakken shale. Each facility is being designed with capacity sufficient to generate $50 million in annual revenue.
Today, employee-owned Summit has a workforce approaching 50 specialists with an average of 20 years experience in designing, installing, and servicing ESP systems. Complementing its all-inclusive suite of project-specific ESP solutions for flow rates from 150 b/d to 30,000 b/d, the company also provides application engineering and equipment design as well as reliability engineering and equipment service.
The financial hurdle
Before reaching that point, Kenner had to secure funding for a capital-intensive venture at a time when the economy was in tatters. Moreover, the startup had adopted a stepwise development strategy that called for the supply and service infrastructure of targeted locations be built from the ground up, meaning an investor, likewise, would have to be a patient sort. "In order to ensure we were extremely responsive to the market, we made a commitment to sacrifice early returns to build high-performing products, quality facilities, put in all new tooling, and have our inventory and people in place on day one," he said.
Ironically, the dismal condition of the stock market placed venture capital on the sidelines and made it avail-
able for high-quality, well-led enterprises. "In 2010, the market was in the tank, but we also had $100 oil," Kenner said. "In 2010, people with funds were not putting money in the market, which left well-funded private equity looking at deals."
In seeking funding, Kenner said he sought a financial partner motivated by Summit's high potential without necessarily requiring it be well-versed on the intricacies of the ESP market. He acquired funding from a venture capital concern that, while uneducated in the particulars of ESP, was extremely knowledgeable in the industry as a whole and recognized the potential.
"When I pitched this, I pointed out there was a trend in the industry where the integrated service companies had largely taken their eyes off North America. Beyond that, further integration was occurring, and more companies were taking a geomarket approach. This continual integration of services had basically demoted ESP and production services within heavy drilling and pressure pumping-oriented organizations," he said.
Landing the talent
Once funding was in hand, Kenner began assembling an engineering and technical support staff. With the long-established behemoths scouring the industry for qualified personnel, the challenge of attracting highly specialized and experienced employees to a start-up company was formidable. Since operators can ill-afford to keep production offline because of malfunctioning artificial lift equipment, the new company required specialists with 20 to 40 years of ESP experience, making the search even more daunting.
Early on, Kenner said, Summit tended to attract highly experienced artificial lift and ESP experts who had become "demotivated" by the increased focus on integrated services or other noncore goals. According to the executive, the company successfully attracted a "high-caliber team" by fostering an environment that encouraged open debate and ingenuity. "The people we attract have worked with artificial lift and ESP systems their entire careers and welcome the opportunity to put their creative juices to work and add their own ingredients to a new organization," he said.
Engineered, multimarket approach
Unlike most newcomers to the artificial lift market, Summit focused on multiple US onshore markets while also implanting its own technical stamp rather than simply acquiring and running pre-manufactured ESP systems.
Kenner said early on it was decided a single-market focus would dramatically restrict the capacity of the company to attract top engineering and technical talent. Hence, the company chose to initially establish strategic operations in three key areas, which would effectively widen the available talent pool and set the foundation for future growth.
In contrast to the mainstream approach of new entrants to the artificial lift market, the company chose a more engineered and operational strategy that centered on buying components to its specifications, which in turn are further modified and assembled according to its proprietary methods. To ensure reliability and quality, Kenner said many components of the basic three-phase induction motors, multistage centrifugal pumps, and other surface and downhole equipment undergo what he terms, "American modifications."
"Starting off, we acquired some initial technology, upgraded it, and are now working on second-generation clean-sheet designs," he explained. "Our approach was to put the infrastructure in place and immediately open using technology we could upgrade over time. Then, in another year, launch with all of our technology, of which we already have applied for four patents with a fifth in development."
Growth on track
Initial customer response following the opening of the Midland facility suggests the company is on pace to achieve its North American goals. While assuming its core customer base initially would comprise the smaller independent operators, Kenner said Summit executives were pleasantly surprised with myriad opportunities presented by super majors, including potential major industry R&D programs.
Following the opening of the Wyoming facility later this year, further expansion plans include the establishment of a physical presence in Alberta, Western Canada, and South America.