Cost-cutting systems start to flood the oil patch

By Nathanial Gronewold | 01/23/2015 08:23 AM EST

The bear market in crude oil is opening up opportunities for innovative companies to market cost-saving technologies to the oil patch.

The bear market in crude oil is opening up opportunities for innovative companies to market cost-saving technologies to the oil patch.

With per-barrel rates plunging below $50, the oil and gas industry these days is mostly focused on fear and pain. Layoffs are underway as oil field service companies downsize, responding to steep drops in capital expenditures by major oil companies. Yesterday, analysts at Wood Mackenzie forecast exploration and production spending cuts of up to 40 percent industrywide from 2014 levels.

But for some technology companies, now is the perfect time to sell their wares.


"We’re definitely going to be gearing up our sales and marketing efforts in 2015," said Matthew Scullin, founder and CEO of Alphabet Energy Inc.

Last October, as oil prices were in the midst of a free fall, Alphabet Energy announced the rollout of its E1, a modular thermoelectric generator that can boost the output of oil field diesel generators by creating extra power from waste heat. The waste heat is pulled from the exhaust of engines running drilling and hydraulic fracturing equipment.

Alphabet said it had achieved a breakthrough in both materials science and design. Ever more efficient thermoelectric materials are being created in its labs, with the first commercial product now fitted to the E1’s systems. The removable panels can be swapped out for even more efficient panels to be produced later on.

Scullin sees his company’s technology as lowering the cost of developing a shale well. He points out that the E1 units reduce drilling and completion costs by reducing operating time on diesel engines, netting savings from both maintenance and fuel costs. Thus, he sees the current business climate as a good one for Alphabet Energy.

Since the October rollout, "the reception from the oil and gas industry has been more enthusiastic than any other industry," he said. "We’ve been getting a good amount of experience in the field."

More companies pursue the cost-conscious

Another company seized on the current climate yesterday, rolling out a suite of services and technologies meant to lower shale oil costs over the long run.

Panorama Consulting Solutions, a planning consultancy, said it is marketing "alternative fuel assessments, pressure pumping cleanup for water/sand, off grid power generation, solar assessments and LED lighting substitution," according to a release.

The company also says it can help oil companies find savings in their supply chains. In an interview, managing partner Eric Kimberling said his company also sees the current price downturn as a unique opportunity for increasing business in the oil and gas industry.

"We also provide solutions that improve supply chain efficiency in other areas, as well as improving top-line sales and market share," Kimberling said. "I think with energy companies now it’s becoming top of mind in terms of how can we reduce costs and become more efficient in our supply chain."

Still another company, Laramie, Wyo.-based WellDog, is aiming to steer attention toward its own oil-and-gas-specific products that it says can enable more economic shale oil development.

The company says its PermSpotter and ResMonitor systems improve the cost calculation for shale oil extraction. The technologies measure conditions in the well bore and can "measure carefully the opening and closing pressures that determine fracturing success so that fracking can be done more cost effectively and with greater success," the company said in an email.

Two more technologies, named WatchDog and AquaTracker, are designed to enable hydrocarbons extraction with fewer fractures generated in the rock, lowering costs that way. WellDog says both have been in development for the past 15 years.

About the same time Alphabet was rolling out its E1 systems, WellDog announced a collaboration with a subsidiary of Royal Dutch Shell PLC to develop technology targeting gas and natural gas liquids. Cost-consciousness was also emphasized in that announcement.

"The new service is directed at identifying the locations where natural gas and natural gas liquids occur in shale formations, allowing producers to focus development efforts, reduce drilling costs, optimize production, and reduce the number of hydraulic fracturing stages and associated water usage," the companies explained in October 2014.

The trend is likely to expand beyond oil and gas as a general commodities bear market appears to be taking hold. Scullin at Alphabet says his team is already approaching other market segments.

"We are looking at a variety of different applications for the technology," Scullin said. "I actually see a lot of parallels between oil and gas and mining."