During 2013 and 2014, things were going so well in the oil and gas business that custom mixer Pinnacle Elastomeric Technology decided to add more capacity.
More than half of its business was tied to oil and gas, its plant in Lula, Ga., was operating 50-plus hours per week, and the business was close to capacity, working on open mills, according to President Bob Rathbun. After all, from 2012 to the end of 2014, the number of oil rigs drilling for oil in the U.S. had doubled from 800 to 1,600.
So Pinnacle made the investment to add an internal mixer, a 55-liter TMP tilt-body mixing line with state-of-the-art controls. The firm focuses on high-end compounds such as fluoroelastomers, HNBR and Aflas, materials Rathbun said are perfectly suited for the wide array of rubber products that are used in down-hole oilfield applications.
But as the price of oil plunged, so did the fortunes of Pinnacle's customers that made their living supplying those oilfield service components. Just as Pinnacle was bringing its new capacity online, the number of rigs operating in the U.S. plunged, dropping roughly 75 percent to its current level of about 400.
“I'll tell you, as long as I've been in this industry, if you want to predict a downturn, just install capacity,” said Rathbun, a longtime industry veteran. “I've seen it so often in the tire business and other places.”
Scott Kearns, R.D. Abbott Co. Inc. vice president of sales and commercial development, said the suddenness of the market's decline caught many firms off-guard.
“With oil and gas, it was more like it was a cliff,” he said. “You're plugging away and then the cliff came, and things just stopped.”
About 25 percent of R.D. Abbott's business comes from oil and gas, and Kearns said customers of the distributor of materials and other services to the rubber industry were building inventory and hiring new staff.
“They were investing, and it really hit a lot of folks with great surprise,” he said. “That almost makes it much worse; it wasn't really predictable. And companies were in an investment posture. They were preparing for future growth and future demand.”