I was asked if payment issues with oil producers were geographically related. I plotted field areas of the ten fastest and slowest paying producers. I followed that with a map of ten recent insolvencies.
There are no geographical patterns. Anywhere there is oil and gas production there are those that pay promptly, those that pay slowly and those that go broke.
Looking back at the insolvencies a different pattern jumps at me. It’s a chronological pattern. These insolvent companies would have started in the left map. Maybe they weren’t the fastest paying but they would have been steady and reliable. As trouble developed their payment habits would have become slower and more sporadic until they collapsed ending off on the right map.
The insolvencies left behind approximately $250,000,000 of unsecured creditors most of whom were service companies. A significant number of these service companies did not recover from these losses and followed the same fate as the producers. While I do not have payment data from these years, I was working in the field at the time and I knew many folks impacted by these insolvencies. The devastation to the local economies, shuttered businesses, broken marriages, etc. is a story unto itself.
The takeaway here is, watching industry patterns can save your business. A service company with insight on the payment habits of a producer is better equipped to make a decision to keep extending credit or begin implementing risk reduction strategies. To be effective, that insight should look at the producer habits across the industry, not just your own experience. If you only look at only your own experience you will limit yourself on knowing when to pivot to avoid a loss.
If their proverbial ship is sinking, tying your business to them will not keep them afloat. It will only end with you being pulled under with them. How do you observe patterns?
