Deepwater oil and gas, with a daunting reputation as a high-risk, high-cost industry, makes it a seemingly improbable marketplace for a fledgling startup with a mere $150,000 budget.
Yet large, integrated companies are changing the way they see smaller, more nimble companies that can, in something of a paradox, research and test technology and theories that global companies cannot afford, executives said Monday, May 6, at an OTC panel discussion on venture capital’s role in driving offshore innovation.
Panelist Ram Shenoy, chairman of WellDiver, said his company has spent as little $10,000 designing and developing frac balls that contain instruments to measure downhole pressure and temperature. The small company’s ability to adapt has resulted in eight products and 18 patents for onshore and offshore technologies with capex of just $150,000.
“This shows how entrepreneurs might be able to find a niche and a high-value application in what superficially appears to be a high technical risk, high financial risk market,” Shenoy said.
Kemal Anbarci, Chevron Corp.’s vice president and managing executive of technology ventures, said larger corporations, service companies and now start-ups are innovating.
Addressing Shenoy, he said he doubted “larger corporations have the risk tolerance to be able to deliver a technology you’re talking about for tens of thousands of dollars,” Anbarci said. “It would cost us that much just to discuss it.”
Halliburton Co. has its own track record for going far and wide to find the technology it needs. Several years ago, Halliburton famously bought a valuable piece of spectroscopy technology from a company in the dog food industry.
Halliburton continues to find ways to push itself, said Greg Powers, Halliburton’s vice president of global innovation. “My chairman asked me if we could possibly print 3-D parts downhole while they’re in the midst of breaking,” Powers said. “I think that’s a pretty good long aspirational goal.”
But giant companies such as Chevron and Halliburton are trying out partnerships with smaller companies rather than simply absorbing them, as they might have done in the past.
Halliburton, which last year spent $525 million on R&D, also realizes “we cannot invent everything,” Powers said. “To move the needle, we have to embrace this notion other people might be a significant portion of your inventing.”
In the past, a company Halliburton’s size could come across a small business with an import, foundational patent for a new technology. Halliburton, which employs about 30 patent liaisons, could “patent around them, or block them or challenge them” because of their legal resources, he said.
“There’s a behavioral aspect that has to change with big companies interacting with little companies,” Powers said. “We’re definitely going to have to think about, in this ecosystem, how we tread very lightly.”
That may mean less legal burdens and more observation as opposed to ownership, he said. Powers noted that the company recently began funding a proof of concept around a smaller company’s foundational patent with little legal framework. “The intention is to create a durable process” for interacting with small companies, he said. “It remains to be seen what happens.”
Halliburton also serves as an exit destination for companies sponsored by the venture capital arms of large corporations such as Chevron and Saudi Aramco.
James Sledzik, managing director for Saudi Aramco Energy Ventures in the U.S., said with offshore projects relatively capital intensive, investors are more inclined to look outside the sector.
The benefit of working with artificial intelligence and machine learning are what the financial investor world calls “capital light,” he said.
“If it’s capital light it can generally return more capital than what you put in and then some,” and at a fast pace, Sledzik said. “That, almost by definition, is an area all of us are focusing on, because it can bring more bang for your buck than maybe these capital heavy opportunities.”
Saudi Aramco is taking a long view on most of its investments. Its aims include driving future demand for hydrocarbons. Sledzik said his investments are designed to pay off for the company years into the future.
“I’m thinking about 2027 because for the companies we’re investing in today, the exit may be after 2027,” he said. “We hope Halliburton is in the position to buy the company to scale it right.”
Anbarci said people may look back on 2013 and 2014 as the “good old days,” but in many ways the pace of drilling wells prevented companies from driving down costs or increasing efficiencies.
“We innovate when the times are tough,” he said. “If you’re a startup company looking for a new way of doing things, these are the good times.”
Sustained lower oil prices may lead to Permian consolidation, the return of tough times to other shale plays and U.S. E&Ps helping rebalance global inventories.
Devon Energy had been actively shopping the Permian Basin assets, and others in the Rockies, the past several months.
Diamondback’s decision to take its Rattler midstream subsidiary public is the latest move by an E&P to address takeaway capacity concerns in the Permian Basin.