The future is now...

The future is now - Investing in completions innovation to unlock future reserves

Steve Kent, partner at Epi-V, the specialist oil and gas services investor, explores the prospects in the well completions market and how, with the right support, today’s technology-driven entrepreneurial firms can become central to overcoming the oil and gas industry’s current and future challenges.

The imperative is clear. For the world to meet its energy requirements, the industry must find ways to turn non-conventional reserves such as shale, heavy oil and deepwater into economically viable prospects.

Prevailing conditions support this focus, with escalating oil prices and strong demand for natural gas seeing leading independent European and US operators increase their budgets by an average of 23 per cent in the first half of 2011.

Greater focus is therefore being attached to the completions market, where investment in overcoming the technical challenges posed by ‘hard to reach’ hydrocarbons can unlock the potential of vast untapped reserves.

This is in turn placing strategic premiums on oilfield technologies capable of maximizing reservoir contact and productive capacity while at the same time simplifying operational processes, and reducing time and costs.

For funders such as Epi-V, investing in entrepreneurial engineering businesses with the completion products and services capable of meeting their requirements will be the key to creating significant value across the industry.

Identifying game-changing technologies

Often a potentially revolutionary completion solution is right under our noses, only it is not yet fully commercialised or is being applied and marketed to a narrow segment of the industry. However, at their core is a concept that, when combined with additional technology or re-designed with new industry challenges in mind, has the potential to make a significant contribution to increasing reservoir recovery and optimising revenue streams.

It is therefore essential that the vision and skill sets of technology-minded entrepreneurs and investors are effectively combined so that these diamonds in the rough are identified, developed and fully commercialised.

The challenges of establishing an innovative service proposition in the complex global oil and gas market for a smaller business means that the role an investor must play is typically much greater than in other sectors.

Meeting market challenges

Transforming a high-potential oilfield technology into a credible market proposition requires development to be closely aligned with current and future challenges.

The completions market has traditionally been served by ‘off the peg’ solutions which, whilst effective in non-complex wells, are not suited to the challenges posed by developing commercial scale production in nonconventional reservoirs.

Operators are facing highly changeable conditions which create new challenges in areas such as zone isolation, gravel packing, multilateral completions and well bore clear out.

Completion-focused businesses therefore need to develop products and services which directly address these challenges whilst providing enhanced functionality, reduced complexity and higher reliability than current solutions.

For many pre-revenue and smaller service businesses, putting their technology in a broad market context can be a real challenge.

As an investor it is up to us to use our industry insight, technical competence and funding to ensure that the development and commercialisation path for the technology is in line with industry needs.

Building a business framework

Having a potentially revolutionary completions technology is one thing, but driving adoption and capturing market share creates a further set of challenges for smaller businesses.

There are countless examples of technologies with huge latent potential which have never made it off the drawing board or test rig because there simply isn’t the required framework around it to effectively support its commercialisation.

This is a key area where an active investor can use their strategic and operational expertise to create the optimal business structure in terms of management, manufacturing, sales, marketing and administration in order to fully capitalise on rising global demand in the completions arena.

For technical-minded entrepreneurs, this structure allows them to focus on rapid and effective engineering of concepts, rather than becoming bogged down in the processes of taking them to market and meeting the operational demands of supporting rapid growth.

Completing the loop

Entrepreneurial engineers will be key to creating the completion innovations the oil and gas industry needs to move forward at pace in the era of high demand and hard oil.

These technologies, however, need investment in order to shape their development to specific challenges and for the creation of solid platforms capable of bringing new products and services to market.

At Epi-V, we have developed a value generating investment model which combines market insight, technical knowledge, commercialisation competence and entrepreneurialism, to transform technological concepts into industry-changing completions companies.

The strength of the opportunities this model presents in the completions market was clearly demonstrated in August 2011, when our fund secured a further £50 million of capital from our cornerstone investor, LDC, part of Lloyds Banking Group.

Together we recognise that there is significant potential value to be realised by building a new generation of successful service businesses focused on meeting the industry’s future completions challenges.