Houston Republic

It was a triple punch to the financial gut for Alegacy Group, as oil prices declined due to the COVID-19 pandemic, a sudden oil war between Russia and Saudi Arabia developed and the stock market experienced a historic decline.

For Alegacy this meant dozens of workers, both full-time employees and contractors, were sent home last week.

“The fact that we sent 70 employees home to tell their spouses they don’t have a job just makes me ill,” Alegacy founder and executive chairman Bob Nickles told the Houston Republic on March 20.

Massive yellow Caterpillar engines. | Submitted

Alegacy Equipment has a 90-acre campus just west of Waller, located about 40 miles northwest of Houston. It produces and ships skid-mounted natural gas compression equipment at a business park that Alegacy Development built.

“This is as an American-made package as you can find,” Nickles said.

It buys engines from Caterpillar in Lafayette, Ill., compressors from the Ariel Corporation in Mt. Vernon, Ohio, and coolers from Chart Industries in Tulsa. They are assembled at the Alegacy campus and sold to companies that use them to propel gas through a pipeline.

“We’re supporting Illinois, Ohio, Oklahoma and Texas,” Nickles told the Houston Republic. “It’s good for everybody.”

But orders slowed as the coronavirus spread across the globe. When the stock market tanked, it added to the woes. The sudden outbreak of a price war between Russia and Saudi Arabia didn’t help, either.

After three years of petroleum peace, the Saudis decided to reduce production in hopes of stabilizing prices as the demand for oil decreased in response to limited business and personal activity during the pandemic. The Russians, who have been collaborating with the Saudis to keep oil prices stable by controlling production, balked at further limits.

Saudi Arabia responded by increasing oil flow, putting 2.6 million more barrels on the market daily. They also lowered prices in Europe, with the dual actions intended to remind the Russians who was in charge. It has driven oil prices to an 18-year low.

These lower prices may be good news for drivers, as gas slips below $2 a gallon across the country, but they are an unhappy development for US. producers, who rely on oil from shale, a more expensive means of obtaining it. That has energy companies slowing work and canceling orders.

“How many blows can you take?” Nickles said.

He said he doesn’t know if the laid-off workers will be back or how long he will have work for his remaining employees.

“We do have some work,” Nickles said. “Not much, but we do have some work. The simple thing we need is for our customers to give us orders. Don’t need a handout, don’t need a bailout. We just need orders.”

An Oklahoma native, he is the third generation of family members to work in the natural gas compression business and has 40 years experience. Nickles, 53, said when he started, he rode a bicycle to work because he was too young to get a driver’s license. 

“I grew up working on the family machine shop on summers, weekends and holidays,” he said.

After earning a degree in mechanical engineering design technology from Oklahoma State University, he started at Nickles Machine as a project manager before rising to engineering manager, plant manager, vice president of operations, president and finally CEO.

When Nickles Machine was sold to Cooper Cameron in 2001, he was named VP of sales and marketing as well as VP of operations. He also took on the role of equity investor and COO of Valerus Compression Services, which was sold to Texas Pacific Group, now TPG.

Alegacy Group was formed in 2013 by Nickles and Bo Pierce. In 2017 Pierce retired. The company name came from Nickles and Pierce, along with co-founders Will Reyes and Minnie Telaroli, seeking to leave “a legacy” in the business.

That legacy has been impressive, as the company topped $1 billion in combined revenue for its first six years, including more than $400 million in 2019 alone, according to Alegacy.

The company had the campus, with multiple large buildings to assemble the gas compression equipment, built on land that was a cornfield when Nickles purchased it. Local governments collected $1,500 annually in tax revenue.

Last year Nickels said his tax bill topped $450,000 and he was glad to pay it while also supporting local business development, youth sports, veterans activities and more.

“If that’s not for the community, I don’t know what is,” Nickles said. “We want to be the person that everybody calls.”

He said the 2017 Tax Cuts and Jobs Act was crucial in his firm’s success. Nickles was so confident in its growth that he did not pay himself a salary. For him to prosper, the company had to succeed.

Until early this year.

The workforce grew, with 225 full-time employees, who were paid well and had full benefits and a 401K program. Nickles said there were 30 shop employees making at least $100,000 in 2018. He has paid more than $70 million in employee compensation since Alegacy opened its doors, with 80% of workers from various minority groups.

“That is something I am very proud of,” he said.

But the workforce had to shrink as fewer orders came in. Normally, they have six months to a year of backlog. Now they are asking their clients when they will resume business as usual.

“Our customers have just been shocked. They are stopped,” Nickles said. “Their best defense is to, a, do nothing, which is terrible, or b., cancel orders, which is worse.”

When will things turn around?

“We don’t know. I mean, we don’t know,” he said. “It’s maddening we don’t know what’s coming. We poll our customers, and they say they don’t know. I don’t know what you do after this.”

Nickles said he is weary of the “media hysteria” over the coronavirus but isn’t sure if the country is reacting properly, is overreacting or not taking the crisis seriously enough.

“I just hope we haven’t ruined our economy and country because of this,” he said. “This is hitting us as an equivalent of 9/11 and the 2008-09 financial crisis combined.”