Until recently, a technology dichotomy existed within the oil and gas value chain: either capital was used on downhole R&D or it was plowed into drilling and completions budgets. Technology deployment in other areas of the value chain was often ignored. A new energy renaissance is in the early innings, catalyzed by the recent downturn, where technology deployment is accelerating to enhance all aspects of the oil and gas process.

This piece looks at the past, present, and future of technology in the industry and previews a few of the latest oilfield technologies.

IMPLICATIONS

• E&Ps will increasingly rely upon third party vendors and service providers rather than internal resources to stay on the leading edge.
• OFS and midstream service providers with technology solutions will accelerate market share gains and uproot legacy providers.
• Vendors with technology-enabled operations will surpass those who continue to focus on the amount of iron in their yard.
• Field operations headcount will reduce and shift as companies optimize workforce needs.
• Capital will more aggressively flock to technology while asset-reliant businesses will struggle to attract outside capital.

Only recently has the industry prioritized technology across the entire oil and gas value chain - historically, the industry priority remained downhole, supplemented by legacy and outdated systems and processes for above ground operations.

Shale Revolution 1.0 was characterized by vast capital programs to optimize the combination of horizontal drilling and hydraulic fracturing to dramatically boost production. This period of rapid growth in production swiftly gave way to the downturn that left room for technology advancement. 10 years later, the industry is shifting to embrace technology in all facets of operations.

The U.S. market is in the early innings of a new oil and gas technological renaissance. This time, not only are production enhancements from downhole advancement targeted, but also a focus has emerged on cost and safety improvements through technological deployment. This section describes some of the trends that are appearing and how they are changing the oil and gas landscape.

• OFS: Dramatic shifts in the OFS industry are creating winners and losers based on technological offerings and adoptions. Legacy processes are being quickly uprooted by newer, more sophisticated, and more efficient technology-enabled solutions that have implications for companies and workers.
• E&P: The E&P industry is the universal benefactor of these advancements and will continue to adapt technology across the value chain to streamline operations.

WHAT IS HAPPENING NOW AND TOMORROW

Industrial Internet of Things (“IIoT”): E&P’s are utilizing IIoT technology to analyze internal and external artificial lift data in order to optimize production rates.

Artificial Intelligence (“AI”): Last mile logistics providers are leveraging AI to enhance fleet utilization by optimizing trucking assets and driving routes to reduce road congestion and minimize non-productive time.

Predictive Maintenance: Pipeline inspection companies are developing software technologies which identify previously undetectable anomalies in pipelines to minimize future maintenance, safety, and environmental issues.

Advanced Robotics: Drilling rig manufacturers are introducing “iron roughnecks” to reduce drill floor personnel and increase safety standards by automatically connecting and disconnecting drill pipe.

Machine Learning: Storage tank providers are leveraging machine learning to analyze data to identify factors that lead to tank corrosion.

Below are our thoughts on how the trends mentioned in this piece will shake out for some discreet subsegments within the industry. While some of these examples may seem obvious, it is more important to note the acceleration in value discrepancy between offerings.

We believe that winners will gain market share and maintain / bolster financial performance while losers' margins will compress as services are commoditized.

Finally, we believe that a more pronounced meritocracy will proliferate out of the technology transformation where value proposition disrupts legacy relationships. Below are a few examples:

• Trucking: While driver shortages remain an issue, asset-centric haulers with minimal proprietary logistics infrastructure and technology will suffer given their lack of problem solving technology and services.
• Production Services: Solutions providing remote access to and automation of infrastructure will replace personnel services requiring scheduled wellsite visits.
• Equipment Providers: Proprietary and / or IP protected products will more successfully maintain their “moat” relative to metal benders and fabricators that integrate third party components into larger equipment systems.
• Outsourced Services: Technology-enabled professional services will remain more insulated from margin compression than field personnel oriented businesses such as roustabout services.

The oil and gas M&A market has provided evidence of the technology transformation, as traditional asset based or legacy service companies are opting to augment their businesses through buying technology capabilities.

Below are some examples of technology-centric M&A on behalf of both strategic and financial parties in the oil and gas market.