The $50B Junk Drawer: Turning Oilpatch Surplus Into Serious Cash

Speaker A: Welcome back to Digital Innovations in Oil and Gas. I was reflecting the other day on a story that, uh, was once relayed to me by an executive at a big oil sands company. They had completed a large expansion and he was delighted to inform me that they had just $60 million in pipe left over. So a couple things about that one, is the pipe good that the expansion was completed and there was, uh, engineering improvements built in to free up spare pipe. But, uh, oddly, this pipe is now in the wrong place. It's, it's now in Northern Alberta. What are you going to do with. Turns out this phenomenon is very quite common in oil and gas as there's, there is a substantial amount of improvements in industrial products. Projects get canceled. Uh, there's surplus goods. Uh, and to a degree this is a, both an opportunity, it's a problem because it takes up space capital on the balance sheet, but it's an opportunity too. And the company that I met in Calgary, gosh, uh, I'm going to go back to 2018, I think, uh, is a company called IronHub, headed up by a chap by the name of Taylor Astley. And I thought I'd follow up with him. We spoke on the podcast some time ago and I said, you know, we should bring you back and talk about what's the latest and greatest in surplus goods management because there's lots of it. Um, so Taylor, welcome back to Digital Innovations in Oil and Gas.

Speaker B: Jeffrey, how are you? Thanks for having me. Super excited to be here.

Speaker A: Yeah, delighted to see you again. It's, um, been several years now. You and I, of course, we converse regularly enough. Um, of course you're the president and uh, the founder of uh, IronHub. Uh, but just for those who might not be familiar with you and your background, what is your backstory? How did you get into surplus goods?

Speaker B: Hey, you know what? Thanks. Thanks, Jeff. It's a fairly entertaining, uh, story, um, if you're listening to it. Maybe not so entertaining if you're delivering the story, but to peel the onion back. For me, um, most people think that bankruptcy is an ending. Uh, for me it was more or less a million dollar tuition fee paid uh, uh, by my partner. Partner that fled the country. So it was pretty wild. So, um, my backstory comes out of tourism. Um, When I was 26 year old, 26 years old, I ultimately hit the ultimate reset button. Um, uh, out in B.C. two baby girls, uh, at home business partner decided to embezzle about a million dollars and uh, flee the country. So I, uh, went from running A tourism company in B.C. to freezing, to the uh, freezing mud of a northern Alberta oil rig, uh, just to kind of survive. Uh, so this is where I got introduced into uh, the industry in general. But uh, quickly then became aware of uh, what upstream producers were dealing with. I did get recruited over to a major energy company which is really cool and really saw for the first time this surplus monster if you will. Uh, and that's really what brought me into it. So big life changing event and was uh, blessed to be able to kind of with the opportunity to get into oil and gas and kind of trip over this uh, industry challenge to say the least. Um, that's how we got into it.

Speaker A: Why does the monster exist?

Speaker B: Hey you know what, that's a great question and it's a question that people ask me often. So um, if you can believe it or not, there's about ah, $4.8 billion with a B, um of surplus value littered across the top 30 producing companies in Canada. And so everybody always asks me, oh geez Taylor, that's a lot, that's a lot of money. It's like, well it is, but what if I would tell you that was book value, not market value. So market value, there's merit in saying, you know, upwards of 40, 50, 60 billion of inventory. So everybody always asks me this question, well geez, that's stratospheric numbers. Why the, why the heck would there be that much stuff just laying around? So yeah, really we found that there's three major challenges and these are ultimately three big buckets that we spend a lot of time focusing on. Um, one is data capture. Right, Data capture. The data sucks, right? The data really sucks. It's hard to find good data upstream, uh, with active inventory information, let alone downstream information in idle and surplus. So there truly is a big data problem. There's a data bottleneck. Um, and so that's number one, it's hard to get good data.

Speaker A: I was going to ask why is the data a problem? I mean companies have bought this stuff for say a capital project. They have the data, right, it came with the original good. It's just not carrying along with the good through its full life cycle. Is that what happens?

Speaker B: Yeah, 100%. So as something gets procured, comes into your ERP system, um, uh, when it's active. When it's active, the information exists, it just exists in different places. Um, and then as an item works its way through its life cycle, um, behaviors around data management dwindle, to say the least. So once something is inactive when something is, is idle or surplus, um, we see it day in and day out where the focus just changes.

Speaker A: So crap data. That's problem number one. What's problem number two? Cause number two, I should say.

Speaker B: Yeah, so. Cause number two is just internal tools for internal management.

Speaker A: Right?

Speaker B: Tools for internal management. No company that we have ever come across has the tools that are designed to internally utilize surplus inventory. So hypothetically, let's just say that you do have data, but there's no tools internally to communicate that data and gain access to the important information, information that's going to support that item for internal reutilization or just initial utilization for that matter. So the, the, the data usually sucks. If you can get over the data issue, then the tools suck, if that makes sense. Um, so that's a big challenge. Everything still lives in a silo. It's very difficult to engage multiple business units, uh, and communicate internally. Um, there's no process. Right. There's no divestment process. That's another big issue that we face a lot of the times. Um, at the end of the day, Jeff, these companies are not designed for this. Right. Internal utilization of stuff that they own, especially surplus stuff.

Speaker A: So, ah, yeah, I'd even add that the incentives and the metrics that people are running by the guardrails are put in place as well as the prizes that are offered to them for execution. Actually don't incentivize the going after surplus goods. They're incented to go after something new. I remember working, uh, with an LNG producer in Australia. He was so frustrated. CEO, he's so frustrated that, uh, every time they started a new gas, uh, field development, his crew would go out and buy all new trucks, all new trucks. And they'd run them for that, you know, 35,000 kilometers or what have you, and then that's it. Then they go and get all new trucks. And he's like, what is with this? And it was the incentive structure was telling the employees, you got the capital, go get the truck.

Speaker B: You nailed it. You nailed it. I mean, I, yeah, like one of the things that really shot this out of a canon for us initially in the early days, what before I had even started IronHub, uh, was just the lack of internal awareness and the motivation to even look at what's in your own backyard and be like, hey, listen, the life of this thing is not quite optimized yet. So, um, yeah, like $5 million worth of control panels that I overheard over coffee that was going to get purchased and like, oh, you mean like the ones we have in the warehouse that are still in the wrapper. Oh, what, what, what? We didn't know about those. We didn't know about those. Why the heck do you not know about these? Right. They've been sitting here. So anyways, um. It's wild. Yeah, it's pretty wild. So, communication.

Speaker A: There you go. So, tools, data, communications, internal process, incentive structures, all pointing to building this very large $50 billion market value of goods that could be monetized. Um, what's the latest development, though? I know that companies, because you've been working this since 2018, right. Coming up to eight years now, nine years. Uh, companies in the Canadian context are certainly working hard to address this. What's the latest developments that, uh, you really see as starting to show this awareness coming home finally, and big changes becoming embraced?

Speaker B: Well, to be honest with you, Jeff, uh, with the introduction of new technologies that we're seeing, obviously a big theme around AI and being able to manage data at scale, enrich data at scale, standardized data at scale, and really communicate data at scale, this has been probably the largest, um, kind of influx of ability that we've ever seen. Um, so it's one thing to be able to manage 10 to 20 big, large compressor stations, generator packages, big, big stuff. But it's the hundreds upon thousands of SKUs of things sitting in warehouses that nobody's ever been able to wrap their arms around and really gain a sense as to, as to how to enrich this data. So data enrichment ability is really key.

Speaker A: Well, let's, let's unwrap that a bit. What do you mean by data enrichment?

Speaker B: Yeah, so it's a great question. Um, what do you got to. What does somebody have to do in order to mitigate the perceived risk of a new owner? Right. So usually what happens is there's just not enough information for a new user or a new buyer or somebody that's going to use that thing to, uh, to gain the confidence to use it. So, you know, manufacturer, name, part number, short 40, description and quantity, um, at best.

Speaker A: But that's not going to be enough. I'm going to want warranty information. I'm going to need provenance of. I need to, I certainly want a full bill of materials, of content, so I know what was produced, where, by whom, all the spare parts, warranty, details, all that sort of stuff.

Speaker B: I suspect you nailed it. Data sheetsupporting, specs, dimensions, drawings. Drawings, absolutely. Yeah. So when you, you know, again, it's one thing to be able to go in and, and you Know, you know, put your chat GPT hat on or, or whatnot and be like, I could, I could take this part number and figure out what it is and get all the information I need, you know, for maybe 1, 2, 5, 10 things. Try to do it for 127,000 SKUs from one company.

Speaker A: Oh boy.

Speaker B: Across all of the routes. So just at scale it's impossible or has been traditionally impossible. Um, so this is really where we're spending a lot of time is the data enrichment, um, to be able to then present it in an interface that really allows the user to gain the confidence or have the confidence to like, yep, I'm going to use that. I can use that.

Speaker A: Well, for that to be, to work, the user would have to trust that the data enrichment is working correctly. So how do you provide that confidence or that trust in the process of enrichment? Does that take its own form?

Speaker B: Yeah, it's a great question. So just like any other, um, um, buyer beware. We're only as good as the data that we're presenting. So really the goal here is to provide a level of a threshold of confidence in which the data is coming. So we mitigate that. At least we try to mitigate as much as we can by connecting to um, manufacturer sources of truth. So uh, we have that luxury. We have that luxury, um, not only through general public facing information that manufacturers are displaying to the world, um, but the ones that don't, um, through our client base, we have the ability to connect with those manufacturers through those vendor programs. And also we just have a massive, massive repository of information already existing that we can leverage. Um, so drawings for a particular thing, um, usually are already living in our database. So we're simply pointing our AI models and engines to that source of truth that has already been validated, uh, to be 100% confident.

Speaker A: Wow. So you end up with, effectively start to think about it. The 150,000 SKU catalog of every possible thing that's ever been purchased by the oil and gas industry over a decade, decade was sitting in your catalog with drawings, specs, part numbers, manufacturer,

Speaker B: you nailed it. Yeah, you nailed it. And ultimately then comes the challenge of structuring all that information. But if you can visualize it as a massive swimming pool or in this sense maybe the ocean of data that is unstructured. And this is where the excitement comes for us as we, we've now built a technology that allows you to um, leverage that information and ultimately structure it in an interface that makes sense to the user. But you can sleep at Night knowing that you've got an ocean full of information that was never accessible in one location. Um, historically.

Speaker A: So where does the value release come from? I understand now. So I have my. Imagine I've got six warehouses, a big oil company, six warehouses, dozen lay down yards. Um, I have uh, now a competent structured catalog that tells me of, you know, proper, uh, descriptions of, of what these things actually are. Uh, how do you, how do companies now marry these up and extract value? Like some of this is truly surplus, they're never going to use it. Others I think they would be surprised to discover I actually have it and did I was good. I just don't want to buy it again.

Speaker B: Yeah, you nailed it. So there's two different lenses you can look through. There's the materials management lens which ultimately allows you to strategize. It's like, okay, holy crap, I got all this stuff. I didn't realize I had all this stuff. What should I do with it? Um, and so again that's where a lot of the intelligence comes out. Hey, the bottom 50% of the stuff is obsolete. Get rid of it, um, connect it to an audience that might have an appetite for it somewhere else or just salvage and focus on that. So along with that comes, you know, carrying costs and um, just you know, the amount of um, um, you know, cost that comes along with storage and all that sort of stuff. Materials perspective. And then, and then you got to look at it through a, through a procurement perspective. So um, just being able to exhaust all of your own internal inventories, um, for once finally, um, but exhaust it in a manner that, that brings confidence. You know, it's like, hey, I can see more than just a manufacturer name and part number on a spreadsheet. I can now see a fully enriched listing entity with photos and documents and specs and dimensions and everything that you would, you would need in order to use it. So that's, you know, call it a cost savings perspective. Um, also a time savings perspective because now you don't have to order it and wait, you know, the eight months for it to get delivered. Um, so that's the other one. And then the other benefit too is ultimately you know, the peer to peer collaboration potential here where you know, we've all been at home, you know, needing a, ah, needing a ladder. And before you go down to Home Depot to buy a ladder, wouldn't it be nice to be able to just see how many ladders your neighbor has, you know, like, or you know, I always call it the lost hammer syndrome. It's like oh man, I can't find my hammer. Well, you know darn well that you probably have six of them in your garage. You just can't find. Uh, but you also know that your neighbor's probably got another five of them over there. So it's being able to see these, these inventories and, and exhaust them and sleep at night knowing that you've, you've at least looked before you go and buy new.

Speaker A: It would seem to me that, um, that once the, these, this inventory, if you like, has been uh, exposed, uh, to a degree, um, it, it, there's new commercial value can be surfaced because you can reach a much bigger market for it. It's not just, oh, I've got some surplus goods in a certain part of Alberta. Um, I'm thinking right now about the Middle East. The Middle east is going to have to go through an enormous rebuilding effort. And if they rely on manufacturers, um, originally equipment manufacturers to build stuff, there's a three and four year time they're all going to get in a queue here to try and get stuff built. Some of this, things that they might value might exist in inventory that's surplus to somebody else. Is there any. What's the possibility here is the transportation logistics costs just get too, you know, too overwhelming to, for that to really materialize.

Speaker B: Yeah, you know what it's, this is really where the, the stratospheric opportunities lie is, is having access to inventory that you didn't think you had access before. Now, whether that's within your same geographical region or, or even if it's like, hey, you know, shipping it over, you know, through some, there's some ocean ports internationally. Yeah, it's going to take a little bit longer, but it's still better than having to wait a year and a half or two years. Um, and we're definitely seeing a lot of this coming out of the Middle east in regards to having access to inventories in a timely fashion that would ultimately traditionally be, you know, fairly custom with long, long lead times.

Speaker A: Yeah, when the inventory is. That's a great question too. When the inventory is custom, then like how does that, how does that play in here? Because I'm sure some, some gear people will purchase will be very, very customized and tailored and they'll argue, uh, there's no market for this.

Speaker B: Yeah, you know, when we first started, everybody thought we were going to be a disruptor for the services companies that, that, that kind of sit in the middle of, of providing that value of taking a square peg and maybe turning you Know, being able to fit it into a round hole. So we hold those service providers up on a very high pedestal, um, because they are the ones that have the ability to mitigate that risk on highly customizable stuff. Now I will say that there's been a dramatic shift in surplus culture throughout the energy industry and across the globe for that matter. And just this circular economy type of thinking where it's like, hey, why go and buy new and we can ultimately leverage something that's 75, 90% of the way there. We just got to, you know, tweak a couple of things here or there, what have you. So, so we do, um, um, lean heavily on the service providers that are able to kind of bring it up to that customization threshold if needed. Um, so that's ultimately how we tackle that.

Speaker A: Um, yeah, I mean a bit of metal bending and some welding and suddenly that custom housing is uh, adapted for some other purpose and poof, you've saved a nine month lead time while you're waiting for the manufacturer to go and build it for you. It's just, uh, might be that simple.

Speaker B: Absolutely. You nailed it. Nailed it. It's, it's, it's, it's pretty wild. Like we're seeing, we're seeing value ratios for our customers in the like 200, 250, 300 to 1. Right. So for every dollar spent in our direction to help, they're, they're getting anywhere from 150 to $300 back to their bottom line. It's, it's absolutely wild. The value that they're seeing.

Speaker A: No, better say that again. You're saying two to 300 times, not two to three times.

Speaker B: Correct? Correct. Yes, exactly. Like in a world of 2% margins, we're delivering 15,000% return on investment. It's just wild. Like the amount of savings, um, or return on investment to our technology is, it's almost mind numbing, um, and, and really forcing us to reevaluate our commercial structure. Uh, holy cow. We would have never thought we were going to add that much value back to our clients. So um, it's pretty compelling.

Speaker A: I think a CFO is listening to this, Might, might want to sit up and take note because um, a lot of the capital projects, uh, you know, they'll, some of them will, a bit of a stretch, will take. Liquefied natural gas projects in Canada all struggle to get to a competent roi, um, because of the, you know, the challenges of geography, where the gas is located, getting the infrastructure built, et cetera, et cetera. So if you can lower the cost of these projects because you're building them on, um, available inventory, um, and you're gathering these huge returns. Ah, the capital cost of building some projects would have to change materially. I would think a CFO should be like, I'll take a look at that.

Speaker B: Yeah, you nailed it. You know what I always say, the most expensive inventory you own is, uh, the inventory that you didn't know you had. Um, um. Or because you didn't know you had it. Right? Yeah, absolutely. This is really where the true value comes in. There's never really been, ah, a, ah, mechanism that allows these companies to exhaust what they've had internally. And it's just profound, the amount of value. Um, we always say cost cutting is for amateurs. Right. Professionals focus on asset velocity and utilization to drive real shareholder value. So being able to leverage what you have is definitely, uh, something worth considering.

Speaker A: You're principally Canadian focused at this point.

Speaker B: Uh, yeah, for the most part. We've really dug our heels in for the most part over the last few years to, to stay within Canada. So all of our, um. Well, 95% of our customer client base, um, is Canadian oil and gas companies. Yeah, yeah. Our, our. Our audience of buyers, if you will, Our audience, uh, of. Of procurement groups that would have an appetite for oil field equipment, um, is. Is very much global.

Speaker A: Very much global. Yeah, I would think so. Like the, um, if I, if I. Canada is about 5% of global oil. Oil production, say. And um, uh, but the companies that supply the equipment and the materials to construct the infrastructure for the industry are not all themselves Canadian. They're very international. So this inventory challenge, um, logically has to be a global problem. It's not just isolated to Canada. The same factors we talked about that make it challenging for Canadian companies to get their arms around their surplus have to be true for those organizations in the United States working in the, in the middle, uh, east, uh, in the North Sea. Like there's no compelling logic I can think of that says, oh, they're just materially better at doing this in some other part of the world. Uh, have you, have you any. Has there been any inbound interest to say, hey, could you lift and shift this model to other geographies every day?

Speaker B: Every day. You know, I'd say one, One benefit that Canada has on their side is

Speaker A: that

Speaker B: with the, uh, regulatory compliance standards. Yeah, very high emissions whatnot. Like the inventory that's built for the, for the industry here in Canada is quite robust. And I'd say compared to other countries, the most Robust. Um, and so it's very easy for Canadian inventory to be applied elsewhere. Little bit less, um, um, um, of an opportunity to bring inventory from m. Outside of Canada into Canada, because there's usually a lot of work that needs. I mean that's not a blanket statement. But, um, the quality of inventory in Canada seems to be quite, uh, a lot higher than other countries. But so there is a big demand for Canadian inventory, um, not only because there's a lot of it and it's available, but because of, because of the quality, um, the standards that we set up here in Canada. So yeah, everyday inquiries coming in from all over the world, um, and there is a micro and macro lens here too. Like companies, what's happening now is, um, a lot of our customers are desperately trying to create internal marketplaces across international borders. Right. So some major producers that have operations globally where that's even just within your own backyard and your own company borders, um, it's a challenge to try to even just communicate that data. So that's where we're really getting pulled over to that. And then ultimately, yeah, when you're looking outside of your company, uh, borders, that inventory at a peer inventory, maybe in Australia or down South America or Alaska, Norway, um, um, Equatorial Guinea. It's amazing the places that we're getting requests from.

Speaker A: Well, I've worked enough in big international oil companies, structurally, big oil often will place different business units, different gas fields, oil fields, in direct competition with each other for capital. So if you're competing for capital with each other, you're sure as heck not going to do things that enable your peer to, say, do a better job, um, unless there's a good motivation to do so. And so there's a certain level of secrecy going on between the different countries. Don't talk about what's going on. Plus there may be, I don't know, data sovereignty issues where you can't even share outside of your country's national borders. Here's what you're up to.

Speaker B: Yeah, absolutely. There's all sorts of, um, intricacies in regards to sharing of data. But I would say when we started back in 2017, 2016, 2017, there was still very much a culture of secrecy and privacy and don't tell anybody what we got, what we have, um, that has shifted dramatically over the years, and we've seen it firsthand. Shift dramatically where, you know, everybody knows where the resources are and everybody knows this, what have you. Like, it's the disciplined operators that are aware of what they have, aware of how they can do it. You know, the surface equipment, you know, there's not a ton of proprietary um, secrets out there that are going to stop somebody from. They just, companies want to be disciplined. They want to, you know, you layer on the esg, um, dialogue as well, where it's just like if you walk a shareholder by a lay down yard and you cannot tell that shareholder what the plan is for the $250 million worth of surplus sitting in that yard, then you're probably going to start getting some eyebrows raised at you. So um, this is ultimately, you know, where, where operators are, are changing their tone is like, hey, what do we have? Where is it? What can we do with it? How can we get rid of it? How can we move it? It's like, okay, I don't care if another peer is going to buy this stuff. It's what, whatever. It's irrelevant to the whole grand scheme of things. They just want to be disciplined. They want to maximize investment recovery. Um, they want to optimize their esg, um reports and ultimately be a good

Speaker A: operator and yeah, good corporate citizen too. Because having that kind of surplus lying around represents a stored ah, carbon you didn't need to spend and put into the atmosphere. Uh, it's a tax base that you can't deploy correctly because all it's doing is storing a bunch of pipes lying on the ground. Like, you know, there's, there's lots of, lots of good social reasons to kind of press down on it. Um, yeah, absolutely, yeah. When he sees the long uh, term play here. I mean, because if you streamline this all up, right. You like, where do you, where do you go? Is it, is and probably related to this, is this just an oil industry phenomenon? I suppose this might, you might actually say I've seen this in electricity, seen it in um, other, other industries.

Speaker B: Yeah, you know, you know what, it's, it's uh, a lot of people think we're building a marketplace but, but you know, that comes along with it. But, but truly we're building an operating system for, for industrial capital assets. So um, you know, we're already getting pulled over to different verticals outside of the energy industry, you know, construction, mining, forestry, um, and things like that. But the ultimate big picture vision here for us has always been creating a peer to peer ecosystem. Right. So man, oh man, what opportunities um, could be presented in the event that even two major energy companies would be able to share their inventory with one another. Um, so that's let alone a major oil and gas company and a mining company. Depending on geographical areas. So opening up these borders of visibility to see what each other's have, has so that you can leverage it. Cost savings, time savings, just environmental discipline, you know, um, and like you say, being a good citizen. All in all, that's the big picture for us, and we're on a fast track to get there as of late, just especially with our ability to, um, enrich standardized data sets across company borders. Comparing apples is easier said than done.

Speaker A: Right. Well, let's wrap up though, with. If you had any, um, any, any, uh, uh, thoughts that you'd share with entrepreneurs who might be listening to this and, and thinking about, uh, you know, how to, how to, how to go forward. Um, what, what, what do you share? What is your insights?

Speaker B: Yeah, hey, listen, you know, my, like, my journey from bankruptcy to building a tech company and one of the most traditional industries in the world, you know, it taught me, it really taught me that, you know, you don't need to be the smartest person in the room. You just need to be the most curious guy in the yard type thing. Um, you know, and so that's always been my advice to everybody out there. It's, it's, you know, don't, don't overanalyze what you think you should do. Just surround yourself with people that are way smarter than you are. Um, and as long as you know why it should be done, there's always the ability to find the people who know how. And so that's truly what we've done. We've built our solution on the shoulders of the industry and guys that are in there and, um, really leaning on them and people that are way smarter than I am to get it done.

Speaker A: Well, I can say you're smarter than I am on this stuff, and I appreciate that. Thanks so much for coming on the podcast today.

Speaker B: Appreciate it, Jeffrey. Thanks for having me.

Speaker A: Uh, you bet. It's been another episode of Digital Innovations in Oil and Gas. The story here, of course, is AI enrichment of industrial data for surplus goods and creating that industrial management system for inventory. If you like what you heard, please share, uh, this with your network and I'll return in a week's time for another episode. Bye for now.