Eutsler weathers downturn in oil industry

HOUSTON—Eutsler Technical Products Inc. is a small custom rubber shop where its fortunes typically rise and fall with the oil industry.

So while the public around the U.S. generally is thrilled to be paying much less at the gas pumps, firms such as Eutsler are feeling the trickle-down effects of oil prices that generally are less than half of what they were a year ago, said Mike Borski, president of the Houston-based rubber firm.

“It's a roller coaster ride, similar to the automotive industry in a sense,” he said. “Here in the Houston area, if you're a rubber company, you're pretty much supplying to oilfield services type businesses.”

But because Eutsler has been run conservatively over the years, Borski said the firm will survive this downturn just as it has others over the years. It even is bringing in some new equipment it hopes will enable it to broaden its offerings.

The company, founded in 1964 by Ernest Eutsler, makes molded, extruded and mandrel-wrapped rubber products, 90 percent of which are geared toward oilfield service companies. He founded the company after H.F. Maloney Co.—the firm he was CEO of—was bought out. The first employee he hired was Mike Borski's father, Bernie.

Bernie Borski became president after Eutsler's death in the early 1990s, and Bernie still works several days a week under the title of senior president. The founder's widow, Ann Eutsler, maintains majority ownership, with the rest held by others involved in the business.

The custom rubber manufacturer operates out of three shops totaling about 45,000 square feet in Houston. The main facility houses molding presses, the mandrel department, mill room, trim department and inventory storage. It also has capability for doing small-run, cold-feed extrusion products.

The second shop houses mold storage and some molding presses, along with a small rubber test laboratory. The third building has a mandrel operation for larger casing pipe, where the elastomer is wrapped around the outer diameter of the casing pipe. A side shop off that building is for mold and raw material storage, along with a prep department for applying bonding agent to metal components.

Mike Borski said the firm mixes about a third of its rubber on a 60-inch, two-roll mill that is limited to batches of 60 to 70 pounds. The remainder is sourced from custom mixers.

Eutsler runs on a June through May fiscal year, and the period from June 2014 into January of this year went pretty well for the operation.

But since that time, business is down about 55 percent—Borski doesn't reveal sales—and the firm had to downsize from 54 employees to 33. The remaining salaried staff all took a pay cut, he said, while the shop employees are working 32 hours a week, moves that will get it back closer to the break-even point.

“We're trying to get our expenses and costs down, and hopefully orders will come in and we can maintain and get to the second quarter of next year,” he said.

For Borski and others it's easy to find the root cause of the downturn: Just follow the tumbling price of oil. From prices of $100 a barrel late last year, it first fell to $70, then $60 and now stands in the $40 to $45 range.

“There is a trickle-down effect,” he said. “That goes through all the oilfield service companies, and once it starts hitting them, then it hits their vendors, people like us.”

Eutsler provides rubber products mainly for service companies that are providing tools and doing drilling out in the fields. When prices get so low, oil-related firms start cutting back on rigs and then scavenge for parts off the mothballed rigs until they use up inventory before needing to re-order for replacement parts, he said.

When prices hit levels where they are now, Borski said it's cheaper for a lot of the refineries to buy oil from overseas than it is to produce the oil domestically.

“There are a lot of global things going on, and you can't just point your finger at one thing that's driving all of it,” he said. “But the one thing here is it does cost more money to explore and bring oil up out of the ground in the states than in some areas of the world.”

And besides the lack of volume, as larger companies were making wide-scale layoffs, they also started pressuring vendors such as Eutsler to provide price relief in the 20-30 percent range.

“We're scratching our head because we'd been beat up over the years,” Borski said. “We haven't had a price increase in probably 21/2 to three years, and now they're asking for a 20-30 percent decrease. We throw our hands up, tell them we haven't had a price increase and don't even have that kind of profit margin in the product.”

Eutsler officials then sharpened their pencils, he said, and figured out a smaller discount they could get by with, along with agreeing to longer payment terms for some of the larger customers. “We can't do it for all customers, but when you have a couple of bigger customers, you don't want to lose them,” he said. “You have to work with them.”

And because the business has been conservatively run and is debt free, Borski said Eutsler is in better shape to survive this downturn. For example, several years ago the company acquired an additional three acres adjacent to the four it already owns.

“We were looking at building a new facility and moving everything into that,” he said. “We held up, and it was probably a good thing that we did because of the downturn that we're seeing now.”

Not all has been doom and gloom, as there still are some bright spots.

“We're still quoting things,” Borski said. “That's a good sign when you have people coming in and knocking on your door or coming through your website and you're getting inquiries.”

Some of these have led to new business, he added.

As a custom shop, the firm's president said one of Eutsler's strong points has been in helping customers select the proper formulation by understanding what they are trying to accomplish with the particular product. Senior Chemist Andy Anderson, formerly with Zeon Chemicals Corp., has a good understanding of molding applications and the types of equipment that the firm has, Borski said.

“On paper you can make a formulation that's the greatest in the world for a rubber compound, but if you can't mold it, what good is it?” he asked. “You can test it in the lab, but if you can't process it and mold it into a product, then it's no good to anybody. That's the challenge.”

Eutsler is looking to branch out into other areas to make up for the downturn in oil and gas, but that's not always easy.

“As a small company, when you're busy, you're really busy,” he said. “You don't have the time to go out and be aggressive and be looking in other areas. Typically, when things get like they are now is when we start looking around to see if there are other places we can get involved.”

As it does that, Borski said the firm will aim to stay on the upper end of the scale of rubber compounds, looking to work with nitriles, HNBRs and fluoroelastomers, among others. “Right now, we're kind of early in that process in terms of what might be out there,” he said.

Eutsler is taking a step toward upgrading its capabilities as well. In the past its technology has been centered on compression and transfer molding, but by mid-December it will install a 320-ton Maplan-brand rubber injection molding machine that can run up to 90 durometer Shore-A rubber compounds.

Borski didn't say how much the company invested in the press, but said it made the purchase because it has been receiving requests for quotes on high-volume, small- to mid-size parts.

“We have several current customers as well as new customers interested once we're up and running,” he said.

In early July it installed a new steam autoclave for curing in the mandrel area.

“We're in a very strong position to ride out the downturn in the oil field industry,” Borski said. “We're in hopes we'll see that start slowly turning around by the first or second quarter of next year. In the meantime, we'll be pursuing other industries, trying to get our name out there, and let people know that we're here and what our capabilities are.”