Some of the best known companies have their roots in tough times: Apple, Disney, GE and IBM all built their markets during economic downturns. “Scarcity forces a focus on developing creative ways to deliver customer value,” notes business expert Scott Anthony. Tough economic times force innovators to risk new approaches. Recent data suggests that the current slump in onshore natural gas drilling may be fostering a new wave of water tech giants.
Even for an industry that has been defined by booms and busts, the current downturn in the oil and gas industry is the stuff of epic struggle. Deployment of operational rigs is the lowest since 2002, down 65% from a year ago in the sharpest collapse of US drilling in history. In its hour of reckoning, many producers and services companies are turning to water technologies to survive.
Operators are focusing upon existing wells that produce more water, and using longer wellbores to extend their productivity. “Water represents 10%-30% of overall well capital expenses,” notes Piers Wells, CEO of Digital H20. “Water is becoming even more relevant in the current market environment where margins are being squeezed and there is an increasing emphasis upon operational efficiency and cost reduction.” In the face of the biggest collapse in history, “the energy sector to assess alternative sources of revenues, use of advanced technologies, and innovative practices,” notes Richard Seline, the CEO of H20 Accelerelate, a water tech accelerator in Texas. Water management provides cost savings that could determine survival.
Companies like Gradiant are watching their sales grow during this extended collapse of drilling. CFO Luke Johnson notes: “We have seen a continued but more focused need for our water treatment services over the last 12 months. Customers are looking to reduce their LOE [lease operating expense] over their alternative procurement and disposal options.” According to Johnson, equipment and disposal cost savings were the primary driver for Gradiant’s recent 12,000 bpd recycling plant in the Permian Basin, commissioned just over a month ago. “We’re looking at a robust pipeline of opportunities in the US O&G market despite the macro-environment.” Johnson noted.
Combining financial innovation with technology
Some of the most promising water tech companies are tuning their strategy to support lean drill pad operations. “The current oil price is impacting all O&G players, resulting in large reductions in their capital programs, and an increasing emphasis on operating efficiency and cost reduction,” notes John Coburn of XPV Capital. Filterboxx, one of XPV’s investments, has tuned its marketing strategy to “match their solutions to the changing needs of their customers, combining outright sales with equipment rental and turnkey operations services.” “This non-capital service offering provides customers with solutions to both their restricted capital reality and their high transportation and disposal costs – resilient water solutions, combining technology and economics.” Coburn explains.
Positioning for the next boom
“We saw a similar situation in 2009 when it entered the oil & gas market and in 2015 when the market hit another down cycle.” notes Watertectonics CEO Jason Mothersbaugh, “These down cycles require operators to re-focus on costs. Cycles open opportunities for us to provide cost reduction solutions for clients during the downturn, and put them in a better position in the next boom cycle.”
Forging lasting competitive advantage
Texas has seen that there is upside in oil and gas market lows–rig closures, layoffs and plummeting revenues have brought out innovation and entrepreneurship. Seline notes that Texan grit in the face of earlier downturns have the made companies that survive into global leaders in oil and gas production. “Texas has become a globally recognized ‘platform’ for solving unique energy-water challenges. These downturns show market-gaps, inefficiencies, and identify additional opportunities for optimizing assets.” In the face of the collapse of the pillar of its economy, and a crippling drought, the State of Texas is looking to partner with the energy sector to make its economic woes an engine for long-term growth. Accelerate H20 has just announced the Texas Innovative Water Demonstration Hub – located in Gonzales County – to test, evaluate, demonstrate and showcase technologies that clean and reuse produced water from the oil and gas field. The Hub is convening industry leaders to validate technologies to reclaim water that is typically disposed and never recovered. “We have already identified a number of interested firms and companies – including inquiries from Kuwait, Canada, Germany, Australia, and Brazil.” Seline sees the energy sector integrating technologies proven outside of O&G as part of their standard operations. “Oil and gas drilling rigs are ideal platforms for deploying next generation technology products to reduce waste, to recycle water, and integrate data in off-grid operations.”