State of the Industry
The oil and gas (O&G) industry is one of the most powerful branches in the world economy, with more than four billion metric tons of oil produced worldwide annually. The industry is currently divided into three segments: upstream, midstream, and downstream. The upstream is focused on the exploration and production (E&P) of oil and involves underwater and underground searches for natural gas/crude oil fields, drilling of exploration wells, and drilling into established wells to recover oil. The midstream sector involves the transportation, storage, and wholesale marketing of crude or refined petroleum products. The downstream sector refers to the refining of petroleum crude oil, processing and purifying of raw natural gas, as well as the marketing and distribution of products derived from crude oil and natural gas.
We are particularly excited about recent innovations in the upstream, specifically in the production subsector where there has been an explosion of data that companies can now quickly use to create a strong value proposition for their customers.
Technologies Disrupting O&G
The traditional bottleneck for startups in the O&G industry is the slow customer adoption rate. O&G is fundamentally commodity driven with many external factors outside of a company’s locus of control. We believe startup companies implementing new technologies such as AI/ML and IIoT have the potential to decrease their sales cycle by providing a strong ROI for their customer.
Artificial Intelligence & Machine Learning
With an increase in large sets of data, AI has the opportunity to turn those large volume data sets into actionable insights. AI will improve O&G production rates and lower costs by troubleshooting underperforming wells, enhance reservoir modeling, enable preventative maintenance before problems arise, optimize well design, drilling, and completion, and carry out tasks on unmanned, automated drilling platforms and well pads.
The Industrial Internet of Things
Sensors are transforming the industry by locating new spots for drilling, discovering new ways to optimize well and fieldwork, ensuring increased worker safety, detecting breaches and leaks, and reducing downtime. Collectively IIoT ensures companies are receiving real-time data from all their machinery and equipment that previously did not provide this data.
In addition to startup companies managing slow customer adoption rates, successful startups will have to be able to navigate the complex relationship between Silicon Valley and the energy industry. While O&G companies need Silicon Valley’s expertise, some energy executives worry they could be competing with technology companies in years to come, especially as both sides explore renewable energy. Companies in other sectors have already seen their cloud providers encroach on their business and data could be the most profitable aspect of the business if techniques such as fracking are commoditized.
Fusion Fund and O&G
At Fusion Fund we invest in companies that monetize core technical advantages in their business model on targeted sectors including connected industries (mobility, robotics), network technologies (security, connectivity), artificial intelligence (computer vision, natural language processing), and health tech (medical devices, AI in healthcare). Within O&G we are particularly excited about the applications that technologies such as AI and IIoT will have on the industry within the upstream subsector of O&G.