Lux Research- External Innovation meets Oil and Gas · Cost/ land rig $12 million- $32 million •Technology and differentiator •West Group has developed the CMR technology that

External Innovation meets Oil and GasHarshit Sharma

Texas Open Innovation Conference

28th March 2018

Drive Growth Through

Tech Innovation

Analysis you trust.

Opinions you rely on.

Make better decisions, faster.

TECHNICAL EXPERTISE PRIMARY RESEARCH ADVANCED ANALYTICS

BOSTON NEW YORK AMSTERDAM SINGAPORE TOKYO

Agenda

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3 Applying corporate venturing to achieve your specific goals

How oil and gas majors are doing venturing effectively

The momentum around corporate venturing

Agenda

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External innovation comes in many shapes and forms

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The best technologies and ideas for growing your business can come from anywhere.

External InnovationInternal Innovation

Corporate venturing has quickly ascended into the

entrepreneurial ecosystem in recent years

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Traditional powerhouses are not the only ones playing the

corporate venturing game

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Some of the biggest CVC players also carry the world’s biggest logos.

And now almost everyone is corporate venturing.

Although not as prevalent as other industries, the big names in

oil are also investing

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The oil and gas industry is gradually coming onboard as well

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More often than not, corporate venturing does not meet the

expected outcome

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“How often has your venturing program seen the following positive outcomes, compared to expectations?”

Source: Lux Research and International Business Forum’s “Future of Corporate Venturing” Survey (2015)

Much less often than expected

Much moreoften than expected

About as often as expected

So lets revisit the objectives and motivations for corporate

venturing arms

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79%76%

47%

26% 24%

12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Strategically alignwith relevant and

emerging companies

Listed financialreturns as a core

objective

Increases the abilityto be a thought

leader in the market

Establish earlyrelationships with

potential acquisitiontargets

Increase sales orprofits of theincumbentcompanies

Leverage portfoliocompanies to

improve internalefficiencies

Objectives and Motivations of corporate venturing

Source: Lux Research and International Business Forum’s “Future of Corporate Venturing” Survey (2015)

Agenda

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So lets discuss two companies today and understand how

corporate venturing helps achieve key strategic goals

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Chevron’s corporate strategy centers around high returns and

earnings across its value chain

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“Responding to low commodity prices in 2016, we took significant actions to ensure our

competitiveness in any operating environment… Our strategies guide our actions to delivery

industry-leading results and superior stockholder value in any business environment.”

– 2016 Annual Report

Source: Chevron 2016 Annual Report

So it surrounded itself with some of the best technologies to

meet its strategic goals

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Source: Chevron 2016 Annual Report

Spotlight: Zilift

Permanent magnet-based drivetrains for ESPs

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Summary information

Founded in 2009

Location U.K.

No: of employees 26

Revenue $0

Key partners and

backers

Chevron, Saudi

Aramco

Lux Take:

Wait and see

Key metrics

Pump

capacity10,000 bbl/day max

• Technology and differentiator

• Zilift has developed a compact drivetrain built using a permanent magnet

motor and torque convertor for installation of downhole pumps for artificial

lift applications.

• Strategy and markets

• Zilift’s primary business model is to sell or rent out its drivetrains to oil and

gas service companies.

• The company has received backing from Chevron, Saudi Aramco,

ConocoPhillips, and GE Ventures.

• Lux take: Wait and see

• Clients providing artificial lift services and equipment in the industry

should engage with Zilift for collaborations; the company is on the verge

of commercialization and discussing partnerships with service companies.

Spotlight: LUX Assure

Optimal corrosion inhibitor dosage

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Summary information

Founded in 2001

Location U.K.

No: of employees 13

Revenue $500,000

Key partners and

backers

Chevron,

ConocoPhillips

Lux Take:

Wait and see

Key metrics

Cost for

OMMICA$1,500/unit


• LUX Assure offers two flagship products, CoMic, which determines the

optimal dosage of corrosion inhibitors, and OMMICA, used for analyzing

thermodynamic hydrate inhibitors at upstream sites.


• LUX Assure started off with a service-based business model but has

quickly moved toward product sales now that most of its solutions are

offered as on-site kits.

• Since its launch, the OMMICA has been the key driver of LUX's business,

with 90% of the company’s revenue coming from this single product.


• Clients interested in on-site chemical monitoring solutions for upstream

sites should consider collaborations with LUX Assure; the company's

business is highly segmented regionally.

While Chevron’ strategy is around high gains from existing

assets, others might pivot in different directions

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Total has a three-pronged corporate strategy

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Source: Total “Integrating Climate into our Strategy” (2016)

Complemented by a CVC portfolio to align the company across

all levels

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Spotlight: United Wind

Small-scale wind turbine service provider

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Summary information

Founded in 2013

Location U.S.A

No: of employees 40

Revenue $4,000,000

Key partners and

backersTotal, Statoil

Lux Take:

Positive

Key metrics

System cost

(25 kW)$3.7/W


• United Wind offers operating leases on small wind turbines in the 10 kW

to 100 kW range. It installs and maintains the turbines it leases, which are

supplied by five manufacturers.

• The company uses proprietary software, developed by Wind Analytics

before the merger, to evaluate potential project sites.


• United Wind's original focus markets were evenly split between

agricultural, C&I, and residential sectors, but is now centric to farms in the

Midwest region in the U.S.

• Lux take: Positive

• Clients are encouraged to regard United Wind as the leader in small wind

turbine financing, and should partner to deploy its financial model in new

agricultural sectors worldwide

Spotlight: Elevance Renewable Sciences

Specialty chemicals from plant oils

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Summary information

Founded in 2007

Location U.S.A

No: of employees 50

Revenue $50,000,000

Key partners and

backers

Total, Clariant,

DSM

Lux Take:

Wait and see

Key metrics

Capacity 180,000 tpa


• Elevance uses a metathesis catalyst to derive a variety of cleaning

ingredients, long-chain diacids, coalescing agents, oilfield chemicals,

personal care ingredients, and methyl ester building blocks from plant

oils.


• Elevance’s primary business model is to sell its specialty chemical

ingredients, but it has licensed its technology to Chemtura earlier this

year.

• Elevance is working with a variety of big-name companies on formulation

projects, including P&G, Clariant International, and Wilmar International.


• Clients interested in incorporating a renewably sourced ingredient into an

existing product formulation should engage, but be aware of the reduced

production capacity.

Focus on Core: Utilize external innovation as a way of solidifying

your position in the hydrocarbon value chain.

Making sense of corporate venturing, two clear trends emerge

in the oil and gas industry

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Become a “Energy Player”: Utilize external innovation for

diversifying into new opportunities aligned with global megatrends

Agenda

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Now if you do venture, startups can help you transform, here is

one example when it comes to digital

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Analytics and sensing: Smart sensors, cloud servers, Iot infrastructure, data analytics

Remote processes: Autonomous operations, remotely operated

Automation: Robotics in drilling, and inspection



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Analytics player: Ayata

Prescriptive analytics for oilfield operations

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Summary information

Founded in 2009

Location U.S.

No: of employees 25

Revenue $15,000,000

Key partners and

backers

Apache

Corporation

Lux Take:

Wait and see

Key metrics

Service costs$30,000-

$50,000/subscription


• Ayata has developed a software platform that performs continuous

analysis of hybrid data to provide actionable items for process

optimization

• The software can integrate data from varied sources, regardless of

format, ranging from G&G data such as 3D seismic


• Ayata is focused on the upstream market in the U.S. and is about to enter

the Middle-East, its primary business model is subscription based and

claims to be working with 10 oil and gas companies


• Proven track record in the industry makes Ayata a valuable bet, primary

advantage of the technology is its agnostic nature with data

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Data mine

• The company reached out to ESP-RIFTS, a database that maintains data from roughly 104,000 ESPs contributed by companies such as ExxonMobil and Chevron.

Failure themes

• Identify correlations and trends between ‘reliable’ pumps, ‘failed’ pumps, and the individual circumstances the pumps performed in.

Actionable variables

• Out of these broader failure themes, Ayata identified 40 ‘actionable’ variables and 25 ‘non-actionable’ variables

Proposing a optimal

ESP

• Propose changes for variables that were in the operator’s control, including the ‘type of ESP motor’, ‘motor rating’, ‘type of seal assembly’, ‘sealing elastomer type’

Case study: Optimizing an electrical submersible pump

(ESP) design using data mining

http://jip.esprifts.com/



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Automation: West Group

Automated Drilling System

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Summary information

Founded in 2007

Location Norway

Employees 40

Revenue $50 million

Key partners Nabors, Shell

Lux Take:

Wait and see

Key metrics

Cost/ land rig$12 million- $32

million


• West Group has developed the CMR technology that incorporates seven

robots working together on 32 axes for a fully automated drilling

operation.


• West Group built a CMR prototype that was installed for initial field testing

at the International Research Institute of Stavanger (IRIS) in Norway in

2015.

• West Group is seeking strategic investors that will help it grow into a

larger international company, particularly for North America.


• Although the West Group’s automated rig is near to commercialization

after its first sale to Nabors, Lux still foresees several issues to come in

place when field trials begin. Clients should be cautious this is a high

stakes scenario.



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Remote operations: Eelume

Autonomous intervention robot for offshore

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Summary information

Founded in 2015

Location Norway

No: of employees 8

Revenue $0

Key partners and

backers

Statoil,

NTNU Norway

Lux Take:

Positive

Key metrics

Depth

capability

150 meter- 500

meter


• The robot is modular and primarily comprises of a set of flexible joints.

The joints help the robot make 90° bends to perform quick U-turns while

maneuvering in hard to reach subsea locations

• Upon completion, Eelume will be autonomous and charged at the seabed,

the robot will appear on the surface for data transmission


• Eelume is currently in the process of developing further prototypes for

field trials, with 2019 planned as the year for commercialization.

• Lux take: Positive

• The Eelume is a subsea resident robot and is a possible disruptor for

offshore inspection and surveillance. The robot is limited in its payload

capability, however eliminates the need for mobilizing ROV ships every

few months.

While we spoke of one example for each stage, a host of

options exist for each stage of this roadmap

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Key takeaways

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• Corporate venturing has quickly become the popular norm, however simply venturing out is not helpful. It

has to be aligned with your corporate strategy

• While we spoke on the example of digital of how corporate venturing can be used to achieve your

objectives, this thought process is applicable to other corporate goals as well.

• Two trends emerge from how oil and gas majors venture. A focus on hydrocarbons, or a diversified

energy mix. Which option is better, totally depends on your end goals.

Harshit Sharma

+65 6592 6976

[email protected]

Documents

Lux Research- External Innovation meets Oil and Gas · Cost/ land rig $12 million- $32 million •Technology and differentiator •West Group has developed the CMR technology that