MARKET OUTLOOK/
Innovating the Path to Prosperity in the Oilfield By Sanjiv Shah, Piper Sandler
O
ver the last 100+ years, innovations in the domestic oil and gas industry have made the United States both the largest oil and the largest natural gas producer in the world.
While this country is blessed with plentiful resources, innovations in oilfield services have enabled us to continue to exploit those resources while meeting the demands of the modern operating environment. Many oilfield services companies have endured significant operational cutbacks and layoffs in recent years due to turbulent market conditions and capital starvation. The industry is now being called upon to meet an increased demand for services despite cost inflation, labor tightness and supply chain constraints. These challenges necessitate further innovation. Market deterioration that began in late 2018 forced the oilfield services industry to underinvest in equipment maintenance and personnel recruitment due to lack of profitability and cash flow. This was further exacerbated by the COVID-19 pandemic. The pandemic caused a sudden reduction in demand during a time that OPEC+ was increasing supply, creating oversupply of oil and gas commodities as well as the equipment and services needed to drill, complete and produce. In 2022, with the military conflict in Ukraine and the related sanctions, we have experienced a sudden reduction in supply while demand is increasing. This sudden reversal of supply and demand imbalance has driven resurgent demand for oilfield services and equipment. Innovation is playing a key role in enabling operators and services companies alike to increase activity while improving efficiency, profitability and ESG practices. At Piper Sandler, we have an active M&A and capital markets advisory practice that helps oilfield services and equipment companies gain liquidity through a sale or access to capital. As such, we track many companies with technological innovations that enhance the oil and gas services industry. The introduction of new solutions tends to gain traction when addressing the most pressing challenges facing 10
Well Servicing Magazine/June 2022
customers (the oil and gas operators), and these often arise during the early stages of cyclical market recovery, which is when we frequently observe technology-driven market share gains. Recently, these challenges have primarily involved lower returns on capital, labor shortages, safety issues, supply chain disruptions and an increased stakeholder focus on emissions footprints. As such, innovative solutions have focused on enabling operators to drill and complete wells cheaper and faster, maintain production for longer, reduce personnel, reduce safety risks, do more with less and reduce greenhouse gas emissions. Ultimately to be successful commercially, these innovations need to drive an economic value either directly by increasing profitability or indirectly by reducing the cost of capital (or both). A few select themes that have become prevalent areas of innovation through our lens as a M&A advisor: • While automation has been an overarching solution across many other industries, its penetration in oil and gas has generally lagged behind. However, we are now seeing automation thematically in many innovative technologies being applied at the modern wellsite, such as automated field ticketing/ERP systems to reduce waste, automated directional drilling systems that enable drilling faster and more accurately, automated completion systems that eliminate non-productive time between stages, reduced reliance on laborr and reduced exposure to human error. We’re representing companies with some exciting and disruptive technologies automating surface equipment during frac operations to dramatically increase continuous pumping time by eliminating human intervention between stages and facilitating switching out fluid ends while still pumping. Automation also has tangible environmental benefits from more efficiently producing oil and gas faster, longer and with fewer people (and therefore fewer trucks). • As ESG continues to become more important across all industries, Piper Sandler expects to observe a significant profitability and/or cost of capital advantage for companies that facilitate reducing scope 1, 2 and 3 emissions profiles for oil and gas operators. This has driven a rapid growth in the number of new technologies to measure, test, reduce and capture emissions. We’ve
