NEW TECHNOLOGIES ARE BECOMING THE COMPETITIVE ADVANTAGE COMPANIES NEED TO SURPASS THEIR PEERS
DAVID BATEMAN, AMPLISINE LABS LLC, LUBBOCK, TEXAS
THE RECENT DOWNTURN in energy has ignited the largest energy technology revolution we have ever seen. All aspects of the energy industry are experiencing this upsurge in innovation.
Historically, and still to a large degree, when the word “technology” has been used in regards to the oil and gas business, we assume the technology refers to subsurface operations without considering the many other aspects of this complex business. The landscape for technology solutions in the space is now changing and there is a flood of tech solutions being brought to all aspects of the industry. Technology is moving into processes or operational procedures making the case that the value gained in savings, efficiency, or access to information which provides companies a competitive advantage while offering superior business intelligence is equal to or exceeds the costs for these technology services.
The advancement and new market entrants of energy tech companies, the sales they are making, and the equity that is financing them can be attributed to the belief that technology as a service for energy is now a new part of the rapidly advancing industry we now know. If a process seems inefficient, apply a technology or develop a mobile app is now the mindset the industry is becoming comfortable with. Think about all the mobile apps we use each day to make our lives easier. The old mentality of “if it’s not broke, don’t fix it,” is simply being left behind.
For these energy technology companies to be successful, they have to envision their market offering as a service that provides value in excess of their costs and solves the solution from end-to-end for the particular customer’s operational workflow they are targeting. A certain company workflow or process must see an incremental gain in value from start to finish to be called a success.
At the end of the day, this is an industry in which there is a high degree of supply chain leverage at the top, and any solution must be value-added from the point of the view of the entire value chain and it can’t be a fragment, niche, or partial solution unless it’s a bolt-on-to or compatible with other technology providers.
This creates a challenge for energy technology companies. Not only do they have to continually advance their products and services to keep up with the technology industry, but they have to integrate or collaborate with other technology providers.
Another item these companies must consider is the tech evolution of the Industrial Internet of Things (IIoT), which is a worldwide phenomenon. IIoT is the concept of the benefits gained from the more and more connected devices and the applications that will come from the connectivity. How will this affect them? Will it bring new entrants into the space?
Capital follows opportunity and is often a signal of what is to come. Early stage technology is perceived to be high-risk by many. However, the capital moving into this space is typically comfortable with the risk and ultimately expects a large reward for the risks taken.
So what do these new energy tech companies look like in terms of capital structure? Are they backed by venture capital, private equity, or are they grown organically with positive cash flow?
The equity markets are beginning to gain an appetite for investing in this space, which is apparent from the multiple press releases we see about financing transactions, emerging venture capital, and private equity firms that focus specifically on energy technology. Recently, there has been a shift in traditional private equity thinking, and today PE firms are more likely to consider investment in energy tech companies. There is a convergence of solutions in this space that are backed by institutional investors or are simply organically grown in the industry like SitePro®. Whatever the source of capital, the money in the market is telling us this technology revolution is here to stay.
Energy tech is a fragmented space, and we still have such issues as how these solutions or systems will work together as they all emerge into the market and race to gain market share. Currently, we lack standardized bodies or a common way to measure the value of the products or services these companies are providing. How do you compare and contrast these solutions when they are so different and the problems they are helping to solve vary from company to company?
The fact is energy companies need technology solutions to either work together to meet their end-to-end needs, or they need the market to consolidate the solutions into fewer offerings. Capital Investment sees this as an opportunity. These energy tech companies will be consolidated, acquired, purchased, or sold. And some will fail. It will be interesting to watch this activity over the next three, five, or even 10 years. What will the energy tech landscape look like then?
Our belief at SitePro® is that, as companies continue to purchase these products and services, the standards the marketplace now lacks will slowly emerge through transactions. Transparency and real-time information add value to day-to-day operations to make more informed decisions more quickly and fine-tune their efficiencies to maximize production.
Information is power. Since the early days of oilfield legends like Sid Richardson or Glenn McCarthy, fortunes have been made by having superior information or technique over the competition. The generation driving the workforce in today’s industry has more unique technology in their tool kits than ever before, and they know how to use it well. It will be interesting to watch the technology revolution in the oil patch unfold over the next few years as superior technology, business intelligence, and data processes become the competitive advantage these companies rely on to get ahead.
ABOUT THE AUTHOR
David T. Bateman is CFO and chief business officer of AmpliSine Labs LLC, where he manages the day-to-day business and financial operations of the company as well as executing the corporate development strategy. He has experience with venture capital and private equity with transactions relating to energy, technology, and real estate. Bateman received his bachelor’s degree in industrial engineering and his MBA from Texas Tech University.