Alignment is a good thing. Think tires. Or, spines. It brings everything into focus, allowing for any and all moving parts to function with efficiency and purpose.
Alignment is also good for organizations, particularly as it relates to goals and incentives. In the ongoing conversation of leasing vs buying ESP equipment, your supply chain is an extension of your organizational capabilities and should therefore also be in alignment with your organizational objectives.
Producers who are leasing ESPs have a genuine misalignment problem.
Especially, when it comes to considering equipment with lower upfront lease rates because they’re usually saddled with higher backend charges. See, an ESP supplier can only be profitable and obtain a measurable return on leasing their equipment when the ESP fails. Yes, you read that correctly…can only be profitable and obtain a measurable return on leasing their equipment when the ESP fails.
Suppliers count on equipment replacement/repairs to drive additional revenue through backend charges. Suppliers want the ESP to fail (and fail quickly) because that is how the supplier generates a return.
After all, that’s where the real money is. The lease is just a vehicle to get to a bigger payday. This is not great news for you, the operator. You’re the one who will be facing workover expenses, deferred production losses, and unknown replacement/repair bills when your equipment fails.
So, how do you create alignment? By focusing on ESP run time performance, which minimizes workover expenses and deferred production losses. That means new equipment. New equipment performs better for longer than used equipment from the lease fleet, increasing production while lowering total operational expense.
More production. Lower lease operating expense (LOE). Isn’t that what we are all striving for anyway?