[Editor's note: This story has been updated to correct the members on Cold Bore’s board of directors.]

The brothers behind Rice Energy recently closed on their first investment in a fracking software company they believe will revolutionize the industry.

The Rice brothers—Daniel, Toby and Derek—emerged earlier this year with the launch of Rice Investment Group (RIG), a $200 million multi-strategy fund focused on all facets of the oil and gas sector.

Through RIG, the Rice brothers plan to target investments of $1 million to $40 million across the upstream, midstream, oilfield service and energy technology sectors, focusing on companies that are “electrifying the oil field.”

“Said another way, we are looking for companies that can capture data from disconnected operations in the field to empower data-driven decisions on things that matter,” Toby Rice told Hart Energy.

Rice, who sources and evaluates investment opportunities for RIG, said he believes the group’s latest investment—Cold Bore Technology Inc.—is one of those companies and will play a leading role in transforming the industry.

Cold Bore is a Calgary, Alberta-based developer of fracturing optimization software cofounded by Brett Chell, the company’s president who Rice dubbed a “shalennial”—an oil and gas entrepreneur from the millennial generation.

Chell and his partners at Cold Bore have developed SmartPAD, the first industrial Internet of Things (IoT) based electronic completions recorder and remote frack operating system. The technology, currently being implemented by several big-name oil and gas players, digitizes well completions to streamline and track operations and, as a result, increase efficiencies.

Rice believes the Cold Bore technology sets the table for hands-free wellhead operations, reducing human error and labor costs while improving field safety by removing frack personnel from high-pressure zones.

“Cold Bore has created something that we as an operator in our past days would have used and that’s a big factor in our investment strategy in the energy tech space,” he said.

Shalennial Journey

Rice and his brothers, who themselves can be considered shalennials, started Rice Energy while still in their mid-20s and quickly grew the company from a family-owned operation into a billion-dollar enterprise in the span of a decade.

The brothers eventually sold Rice Energy to EQT Corp. (NYSE: EQT) for $8.2 billion in what was the most expensive U.S. shale merger of 2017. At the time of the sale, Rice Energy was producing and gathering more than 2 billion cubic feet per day of gas from a 250,000 net acre Appalachian Basin position in the core of the Marcellus and Utica shale plays.

One way the brothers achieved success with Rice Energy was through a focus on technology and their data-driven approach to operations in the field and office.

At Rice Energy, Toby Rice helped lead this initiative as the company’s president and COO. Rice also created a digital work environment, which enabled the company to grow with fewer people and streamlined processes.

Chell told Hart Energy he felt he had met kindred spirits through Rice and his brothers based on their similar backgrounds.

“These guys sound like us,” he said. “They went through having to build a startup and some of the trials and tribulations and being the small guy in the field to all the struggles that you’ll face trying to build companies like this. Their focus was on technology to do this and that’s how they achieved the success that they did.”

After initially starting his career in the field working on drilling rigs as a lease hand in the early 2000s, Chell began to venture to the entrepreneurial side of the business.

Chell started out developing technology companies with his uncle, who began to teach him the ins-and-outs of financing startups. Eventually, Chell set out on his own.

He initially formed Axial Energy Technologies in 2014 as a holding company. Cold Bore was also launched around the same time, but at that point the company was focused on drilling tools.

During this period, Chell also had a hand in launching Raptor Rig Ltd., a Calgary-based drilling company supplying automated drilling rigs, with its co-founders, Reg Layden and Richard Havinga. Due to Raptor’s success, Chell has since moved into a director role with the company, he said.

The Pason Of Completions

Around this time, the industry also entered a downturn and the drilling market dried up, which Chell said led to a pivot of Cold Bore away from drilling tools and into completions and fracking.

It was at this point, Chell said he realized the fracking side was missing something that drillers have: Pason.

The Pason technology is developed by Pason Systems Inc., which provides specialized data management systems for drilling rigs through data acquisition, wellsite reporting, remote communications and web-based information management, enabling collaboration between the rig and the office.

“It was very obvious to me because I was a drilling guy and we would never drill a well without a Pason,” Chell said.

Chell believes the reason behind this “gaping hole in the market” is the result of the slow adoption of new technology by oil and gas, which pre-downturn had been moving at breakneck speed in essentially a land grab mentality. Additionally, the high opportunity cost of implementing new technologies deterred many who instead focused on drilling as many wells as possible and as fast as they could, he said.

However, to Chell, it was the downturn that flipped the industry to focus on improving well completions and technologies that would result in efficiency.

“This recent downturn, which is what was so difficult for a lot of companies to survive, actually has been the catalyst for change within the industry,” he said.

As a result, Chell and his partners at Cold Bore set out to take well completions and fracking from an old school business model involving manual data entry to a “new school IoT data-driven data collection and smart contract producing software” with their SmartPAD technology.

New School Oil And Gas

Chell said SmartPAD essentially replaces a lot of manual work, such as tracking operations by hand and paper, for operators and service companies.

“They themselves try to track their workflow as the operator and then they have five or six service companies out there trying to do the same thing—all separate datasets that are critical to that operation,” he said. “And all of that is mailed in separately and manually in different formats. And no one is tracking the workflow except what notes are put in a notepad. So, you can imagine what kind of a database that produces—just a disaster.”

The first way SmartPAD tackles this particular issue is through the operating system by digitizing the wellhead. This way companies can start tracking operational activity in the field, using wellhead valve position and pressure sensors.

SmartPAD will also act as a remote conduit that consolidates all other service companies data on location and brings that back to head office all in one place, which Chell said is valuable to the industry.

Next is implementation of the SmartPAD dual handshake, which is the software-driven reconciliation process. Through this stage, data is fed into the SmartPAD analytics platform, which Rice said gives completion engineers access to unbiased insights that enable them to focus on key drivers of their completions operation and resulting well economics.

Rice considers SmartPAD technology “the Pason of the completions world.”

“Because SmartPAD illuminates operational challenges and showcases the highest performing service providers, engineers will finally have the insights they need to reduce NPT [nonproductive time] in the field and maximize frack efficiency [measured by stages per day],” he said.

The final stage of implementing SmartPAD in the field, Chell said, is the actual automated contract through blockchain. He said Cold Bore will work closely with EnergyBlock Services to provide blockchain-based smart contracts that will be able to track the data that Cold Bore gathers automatically in the field.

“The real benefit of a system like this is moving from that generalized data, subjective data capture to granular, automated analytics and reporting that are generated by the system,” Chell said.

Implementation

Rice believes Cold Bore will give the industry the vision needed to produce a step change in completions efficiency. Further, the value proposition of SmartPAD to operators is notable. Rice estimates an operator could realize $1.25 million of savings from rental charges alone through Cold Bore’s SmartPAD technology.

Currently, Cold Bore is in the process of deploying the SmartPAD technology in the field with several companies across North America, including Royal Dutch Shell Plc (NYSE: RDS.A) and Pioneer Natural Resources Co. (NYSE: PXD) as well as EQT, where Daniel Rice is a board member.

Cold Bore’s customer base is expected to generate increasing cash flow as the company continues to achieve market adoption. The company plans to put invested capital from RIG toward enhancement of the data analytics platform, marketing initiatives and general corporate purposes.

The company’s management team is comprised of cofounders Chell and Blair Layton and operations manager Nicolai Pacurari. As part of the RIG investment, Toby Rice will join the Cold Bore’s board of directors, which consists of Layton as well as Murray Smith, Gregg Sedun and Glen Hawker.

Chell told Hart Energy he couldn’t be any happier to partner with Rice and his brothers. Just by the end of his first meeting with Rice at the RIG office, which resembled more of a tech startup rather than a traditional office space, Chell said he knew he had found the perfect partner.

“When you walk into their building and meet Toby and his brother, Ryan, it was like I was sitting with guys that I had worked with in the field,” he said. “It felt like the next generation of who is going to change the oil field.”

Zelos Capital Ltd. was Cold Bore’s exclusive financial adviser for the RIG investment, and Clark Wilson LLP was the company’s legal adviser. Blake, Cassels & Graydon LLP provided legal advice to RIG with respect to the financing.

Emily Patsy can be reached at epatsy@hartenergy.com.

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