Wednesday, October 11, 2017 12.35PM / By Irina Slav for Oilprice.com
While OPEC mulls over further steps to once again support falling oil prices,
tech startups are quietly ushering in a new era in oil and gas: the era of the
digital oil field.
Much talk has revolved around how software can completely transform the energy
industry, but until recently, it was just talk. Now, things are beginning to
change, and some observers, such as Cottonwood Venture Partners’ Mark P. Mills, believe we are on the verge of an oil
industry transformation of proportions identical to the transformation that
Amazon prompted in retail.
According to Mills, the three technological factors that actualized what he
calls "the Amazon effect", which changed the face of retail forever,
are evidenced in oil and gas right now. These are cheap computing with
industrial-application capabilities; ubiquitous communication networks; and, of
course, cloud tech.
The Internet of Things is entering oil and gas, and so are analytics and
artificial intelligence. These, Mills believes, will be among the main drivers
of a second shale revolution, reinforcing the efficiency push prompted by the
latest oil price crisis.
It seems that shale operators have been paying attention to what growing choirs
of voices, including Oilprice, have been saying: they are talking more and more
about the benefits that software solutions can bring to their business,
potentially leveling the playing field for independents, a field that has been
tipped in favor of Big Oil for decades.
Long-standing mistrust of technology is now dwindling as the benefits—including
streamlining operations, maximizing the success rate of exploration, and
optimizing production—make themselves increasingly evident, not least thanks to
a trove of tech startups specifically targeting the oil and gas industry.
In a story for Forbes, Mills notes several examples of such startups that are
already disrupting the industry with cognitive software for horizontal drilling, an on-demand
contractor network, and an
AI-driven software platform for well
planning, among many others. The common feature among them all is they are
narrowly specializing in various segments of the oil industry to deliver
solutions that promise to substantially reduce times, labor, and costs, while
improving outcomes. What’s not to like?
Tech investments among oil independents are still much below the level already
characteristic of other industries such as healthcare or financial services, to
mention just a couple. Yet this will also change. In the not-too-distant future
we may see a flurry of M&A in oil and gas software development.
The reason for this future consolidation is already evident: there are many oil
and gas independents in the shale patch. Technology improvements will soon
separate the winners from the losers, so it’s a pretty certain bet that more
M&A—a lot more—will likely happen over the next few years.
But independents in the shale patch are already burdened with debts that they
took on in order to expand their production, and not all will survive the
digital disruption. And they don’t just have Big Oil to contend with; oil and
gas independents also have renewable energy solution providers breathing down
their necks every time oil prices rise—renewable energy that’s already married
to software.
That should be strong enough motivation for shale boomers to make sure they catch
up, and catch up fast.
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