Oil and gas corporate venturers in the US are responding actively to the new oil price environment. So too are their European counterparts, but they also seem to be preparing for a different energy paradigm. Oil and gas is the ultimate all-tech industry. More than any other industry over the past century it has combined its wealth and power to develop, deploy and scale a vast array of technologies. It is impossible to underestimate how oil and gas has shaped our world in, for example, transport, agriculture, pharmaceuticals and plastics, to name but a few of the industries that are products of our age of oil.
The state of oil and gas corporate venture capital is therefore not just a window on the future of hydrocarbons, but of our world at large. And looking through that window today with little prospect of an end to a sustained period of very low oil prices, we see the world grappling with some fundamental changes – energy infrastructure will no longer be centralised, dumb and a capital expenditure (capex) item, it will be distributed, intelligent and an operating expenditure (opex) item. Arguably, we also see the oil and gas industry beginning to contemplate its own mortality.
These changes are most clearly seen in the oil and gas industry itself in the way that the “digital oilfield” is becoming the norm. A lot more software is being used to monitor extraction efficiency, ideally in real time, so that changes can be made to optimise performance and thereby reduce costs.
FlexGen Power Systems, a Texas-based supplier of on-site power and energy storage, is a case in point. Its $25.5m July 2015 series A round was led by Altira Group, a Denver-based energy venture specialist. GE Ventures and Caterpillar also invested. Dirk McDermott, Altira’s managing partner, said: “The technology provides immediate cost savings while improving operating performance and reliability.”
Altira is an example of oil and gas companies combing their outsourced venturing efforts, thereby lowering the cost of finding and investing in technologies that reduce their operating costs. Evok Innovations, a Canada-based venture fund set up last year, is another example. It is backed by Suncor and Cenovus, two of the largest companies in Canada facing two big challenges – a new government with a stronger environmental agenda and a higher per-barrel cost of oil extractions.
In September, Evok announced its first investments. DarkVision Technologies is a digital oilfield play. The company has developed a high-resolution ultrasound-based imaging technology that gives real-time feedback on well performance. Mosaic Materials is a CO2 capture technology. Rotoliptic Technologies has a new low-cost pump. Metabolik Technologies provides low-cost wastewater treatment.
In Europe, the most significant and influential deals done by oil and gas VCs in recent times have been the energy storage and solar acquisitions and investments of France’s Total, ranked second by the Global Corporate Venturing Power Index. In August, Total completed the acquisition of energy storage business Saft for $1bn. Patrick Pouyanné, Total’s chairman and CEO, said the Saft deal would “allow us to complement our portfolio with electricity storage solutions, a key component of the future growth of renewable energy”. The Saft acquisition followed Total’s purchase of a 57% stake in US solar panel and power station maker SunPower for $1.4bn in 2011, and its venture investments this year in Sunverge Energy, a solar storage business, and United Wind, a distributed wind power company.
Total’s European competitors and peers have taken note and now also seem to be dancing to the mood music set by the 2015 Paris climate accord in which European governments and their largest business made vocal commitments to decarbonisation, followed a year later by the US and China.
The Norwegian state operator has established a new fund, Statoil Energy Ventures, which will invest up to $200m over four to seven years. It participated in the July $58m series F round completed by ChargePoint, a US developer of a network of electric vehicle charging stations. The electrification of transport is what keeps some oil and gas executive awake at night. It seems that Statoil, like Total, wants to diversify to survive.
The two fundamental questions for oil and gas corporate venture capital today are whether venturing and acquisitions can combine to guarantee its position in a new energy paradigm and when that paradigm will arrive. But here is another question. Have we not been here before? Low oil prices and a politically-driven enthusiasm for renewables prompted BP’s “beyond petroleum” rebranding in 2000, only for the company subsequently to back out of renewables.
Is this time different? It is too early to say. US oil and gas corporate VCs show no or little sign of switching to renewables. And despite a professed interest in solar, oil and gas corporate VCs from the Middle East have not invested significant amounts. Saudi Aramco Energy Ventures’ recent investments have been mostly in materials technology companies like Nanomech, a US-based manufacturer of nanoparticle-based coatings, whose job will be to prolong the life of oil and gas infrastructure.
Altira’s McDermott summed it up nicely. “There is a large interest in cost-saving technologies in the oil and gas industry today. It is a good time to make such investments. None of us can guess the macro.”