Over the past several weeks, we have met with and heard from executives at leading energy companies and they have a lot to say about what want from technology-based solutions. At panel discussions and in one-on-one interviews, several fundamental trends have emerged that every marketer of solutions to the oil and gas industry should note.
Let’s avoid beating around the bush. Both E&P and oilfield service executives unanimously say the one thing they want from technology is results.
Upstream Consolidation
In case you missed it, the upstream oil and gas sector in North America is consolidating. The shale boom is over, the big unconventional resources have been found and the frantic land grab to secure leasehold in the “next big play” is finished. Twelve years after the shale boom started, unconventional resources are now strikingly conventional. Emphasis has turned from exploration to manufacturing, logistics and managing supply chains. Geology plays a supporting role and engineering is firmly in the driver’s seat.
E&P management teams are under pressure to make good on their promises to investors and any technology-based solution must address a fundamental business problem.
Wall Street has taken notice and investor preferences have changed. In large part, generalist investors at big mutual funds, the buyers who drive stock prices higher, have gone AWOL. The only institutional investors who are actively trading energy stocks in any meaningful way today are passive quantitative funds, a diminishing number of energy specialists and activists. As a result, the upstream oil and gas sector is undervalued and institutional investors are now forcing E&P management teams to focus on the often competing priorities of generating free cash flow, growing production while limiting capital expenditures to within cash flow, keeping debt to a manageable level and paying a dividend.
Not many companies can do that, so industry consolidation is in full swing. Most recently, Chevron announced the acquisition of Anadarko Petroleum in a cash and stock deal worth $37 billion. Permian leader Pioneer Natural Resources swallowed fellow Permian player Concho Resources. Canadian oil giant Encana snapped-up Newfield Exploration.
Marketers who can demonstrate a strong value proposition connected to E&P strategic business priorities, ideally backed by a discounted cash flow model, will find success.
Lower on the E&P food chain smaller deals are happening, driven primarily by activist investors who have yet to show much for their efforts. Two activist investors – Monarch Alternative Capital and Kimmeridge Energy Management – pushed Resolute Energy Corporation into a shotgun-wedding style merger with Cimarex Energy. As of this writing, activist investor Elliott Management has a $2 billion buyout offer on the table for QEP Resources. We expect more activist activity in the year ahead.
Implications for Marketers
Consolidation has profound implications for Energy Tech marketers. E&P management teams are under pressure to make good on their promises to investors and any technology-based solution must address a fundamental business problem. With that, let’s turn to the problems E&P executives are trying to solve.
Joseph DeDominic, COO of Anschutz Exploration, recently told a crowd of 140 industry professionals at a panel discussion in Denver that his company is looking at technology solutions that “increase recoveries” by drilling good wells for less.
“Any technology must do one thing – deliver results,” said Tom Jorden, CEO of Cimarex Energy. When asked what kinds of results they were looking for, Jorden, DeDominic and Raisa Energy CEO Luis Rodriguez provided a laundry list of priorities:
- Increasing well End Ultimate Recoveries
- Optimizing completions
- Reducing lease operating expenses
- Managing Big Data
Note that none of the executives mentioned faster production growth, “cracking the code” to reveal the most economic way to develop an interval or finding the “fairway” of a play. Those early stage priorities are largely in the rear-view mirror for today’s E&P management, as they look out the windshield trying to navigate an increasingly curvy and unpredictable road of changing investor expectations.
After a decade or more of hearing about how “The Great Crew Change” is coming, let me confirm right now that it is over.
Interestingly, few companies have a formal process for evaluating and vetting technology-based solutions. In our recent Spotlight Interview with Leen Weijers, VP Engineering at Liberty Oilfield Services, he mentioned that they, like many companies, do not have a point person responsible for finding new technologies and typically rely on internal champions to vet and promote new ideas. That approach was echoed by Jorden, DeDominic and Rodriguez earlier in the month.
Last summer, we wrote “..it feels like we are only in the bottom of the first inning when it comes to Energy Tech!” in our blog post on What E&Ps Really Want. Only nine months later, it feels like we are now in the third inning, as Energy Tech buyers have honed their needs in response to investor preferences and consolidation continues to change the game.
The Takeaways
Savvy marketers can benefit from the ongoing consolidation by leveraging these strategies and tactics:
Connect the dots for buyers. Marketers who can demonstrate a strong value proposition connected to E&P strategic business priorities, ideally backed by a discounted cash flow model, will find success. When we have taken this approach with our clients, the results have been outstanding (we plan to cover this in a future white paper).
Be the pain killer. Winning in today’s competitive market means solving a big pain point for the industry. If your solution is only a “nice-to-have” or has some “really cool stuff,” you might get a customer or two, but just as spell check became a standard component of word processors, over time your business will become a feature in someone else’s bigger solution.
Find your champion. In today’s environment where investors are asking companies to cut overhead costs, few buyers can afford to have a point person on staff to identify and evaluate new technologies. Find a champion in the functional department that your solution will have the most positive impact.
Establish your company as a Thought Leader. Consolidation means fewer, larger buyers and when combined with the reality that few companies have a dedicated technology screener, Thought Leadership is your way to stand out. Commit to publishing useful, engaging content, including white papers, videos and infographics to stand out among an increasingly competitive field.
Leverage social media, now. After a decade or more of hearing about how “The Great Crew Change” is coming, let me confirm right now that it is over. Over the past 18 months it is clear that between 60 and 75% of engineers, finance professionals and landmen are under 40. These people were “born on the web” and use company websites and social media to research technologies and vendor reputations. Ours is still a relationship business, but today those relationships are often initiated and maintained on the web.
Deliver results. Whatever you do, deliver the one thing executives want – results. Have a strong value proposition that delivers a payback in less than a year and generates a positive IRR that you can verify. Don’t expect the buyer to know how your solution will impact their business, know this before you make your first cold call.
About Prism Group
Prism Group is a full-spectrum, multi-talented B2B agency focused on Energy Tech, Technology, Energy, Services and Media markets. Our work is telling stories that matter, because our clients are working to change the world for the better. What makes us different is that we put into action the strategies we recommend – we get it done, so you can get results and increase the value of your business.
Prism Group is also a founding sponsor of the Energy Tech Showcase, where innovative companies meet customers and capital sources.
