The "Amazon Effect" is coming to oil markets
By Irina Slav
web posted October 16, 2017
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.
Irina Slav is a writer for Oilprice.com where this originally appeared.