Service-side companies can't get complacent just because the coffers are bulging, and now is the time to make business practices more streamlined than ever, according to service executives at the annual IPAA meeting in Houston recently. Dealing with rising costs of raw materials and other production expenses has always been challenging, said Rhys Best, chairman and chief executive of Lone Star Technologies Inc. "But managing in prosperity may be even more difficult." The E&P industry is striving to drill across many different geologies. The service companies have got to keep in step with these changes, he said. "This will require significant focus on supply-chain management and a broader range of OCTG [oil country tubular goods] and line-pipe products. In recent months, consumption has grown while OCTG supply has dipped, and short-notice supply is not as available as it once was," Best said. Lone Star's current cost of goods sold comes 65% from raw materials, 10% labor, 20% other expenses and 5% energy. Raw-material costs are elevated. Energy costs for service companies have doubled in recent years, and Best said a new strategy is in order. Utilizing both international and domestic options to procure materials and "enhanced product scheduling" are both ways to streamline costs, he said. "You've got to have straight-forward supply-chain management and you've got to have a commitment to value over the unit price. You have to be well-matched to your vendors and focus on product diversity to have access to what the industry needs when it needs it. Buy early and often to have what you need in 2006." It might seem easier said than done. During the past 20 months, steel prices are up 24%; bulk products, 16%; personnel, 15%; fuel, 95%; transportation, 16%; and oilfield equipment, 12%. John Yearwood, president of oilfield services, North and South America, at Schlumberger, said there are key cost-management elements that can help. Leveraged spending, using multiple suppliers and having numerous contracts are examples. "People, processes and technology also drive costs, and improved management strategies will strive to create a different interaction of the three," Yearwood said. "Management must also have an understanding of the services that are expected, what deliverables are reasonable and the kinds of risks that are involved." He added that in terms of people, service companies must do much more with less. He suggested "recruiting where you work" as a way to cut relocation costs. Accelerated training, increased front-line knowledge and investments in the future workforce are also cost-effective, practical ways to boost productivity and trim costs. Using real-time workflows and remote automation can make processes more effective, and good technology reduces costs and brings more productivity per dollar spent, he added. Becoming more cost-effective will be beneficial as competition for services continues to get stronger, said Stephen Jones, a senior principal at Houston-based international energy consultant firm Purvin & Gertz Inc. Additional risks on the service-side horizon include a softening economy and weaker demand. Service-side executives must be willing to adapt to the needs of an E&P industry that is determined to keep growing. "It's going to mean re-engineering existing workflows," Yearwood said. "Management has to be willing to analyze the way things are now and take steps to change."