Andrew Dykes speaks with Statoil’s corporate venture capital arm to learn more about the unit’s investment strategy, and what technologies hold the greatest promise for the NOC
As the industry recalibrates itself amid stabilising prices, NOCs in particular are under pressure to identify where new innovations can help them drive efficiencies and reduce costs. Long considered a major player in technology development, Norwegian NOC Statoil has emphasised a number of methods to lead the charge.
Statoil Technology Invest (STI) was set up in 2000 to help develop small to medium enterprises (SMEs) with new upstream technologies. Acting as the NOC’s venture capital arm, it invests in individual companies, as well as incubators and seed funds, with a view to producing not just a financial return to Statoil but also a measurable benefit to production or operations via the use of the SME’s technology.
The department’s aim is to target innovative, high-impact upstream technology companies. That work involves three phases: identifying SME technologies which could be valuable, investing in them and helping them commercialise their products, and then selling profitable stakes on once that company has a sustainable business.
While the classic venture capital investment model is to fund high-risk, high-growth early phase companies, STI’s managing director in Oslo, Kristin Aamodt, explains: “Corporate venture capital is more than that. Our most important contributions are the know-how and customer perspective.” It is this combination of technical and financial guidance which the NOC believes gives its programme a competitive advantage.
“What we’re looking for is any technology in this space that can increase production, reduce costs, reduce CO2 emissions or improve HSE – especially technologies with a low barrier to implementation that can produce results quickly,” she adds.
In the LOOP STI has a sizable pool of resources and capital to draw from. The NOC’s 2017 research and technology budget is around 2.6 billion kroner (US$300 million), 50% of which will be deployed externally through collaborations, seed funding, academic work, so-called “LOOP” funding for specific projects and investments such as STI’s. Investment director in Stavanger Ingebrigt Masvie noted that a typical corporate investment would be in the region of US$1-10 million, for which Statoil would take a 10-40% position in the company. In general it avoids shares of 50% or over to avoid compliance issues, but it will hold board or observer positions in most of the companies it invests in. “We like to be active owners,” Masvie said.
In addition, the ventures arm and its acquisitions can draw on expertise from the 1,000 or so staff who work in the wider research and technology division. This two-way process helps both to refine the product offering for the SME, and ensure that Statoil sees maximum benefit as a customer. “We spend a lot of time in implementing the technology in Statoil, that’s where we see the greatest value in what we do as a company – getting these technologies in use. That’s where we can save a lot of money in our operations,” Aamodt said.
STI backing also helps SMEs access facilities and personnel to help assess their technology. Investment analyst Erik Jakubowski explained that the company would “provide pilot wells and facilities in the testing process as well as expertise in testing criteria… We have the whole resource pool within Statoil to provide expertise.” These processes help develop the innovation through Technology Readiness Levels (TRLs) 1-7, with the aim of producing a proven solution that can be implemented by Statoil, and by other potential buyers. “In the end we aim to become the end customers and first commercial users,” he said.
That is not to say that the group invests solely in equipment for its own use – the solutions chosen for any particular project must still be the most cost-effective for each job. “[SMEs] don’t get a preference because STI has invested. That’s what we say to our portfolio companies too – we can’t guarantee that Statoil will buy. But we think that by helping the companies understand he customer perspective, their chances are higher. This is why we also push companies to sell to other customers than Statoil. We encourage them to sell to the whole industry to develop a more sustainable company,” Masvie added.
Investment strategy STI has invested around US$20-25 million per year since 2010, and has around 20 companies in its current portfolio, all at various stages of maturity and the investment cycle. These range from ROVs, robotics and drilling equipment through to seismic companies and software providers; any upstream-focused technology is considered, provided it meets the principles set out by Aamodt above.
STI’s ideal targets are not necessarily the most disruptive technologies on the market. The balance of cost and value is everything, and innovations with a long development timeline or high implementation costs are unlikely to be candidates, especially in the current price environment. A few companies in its current portfolio have positioned themselves as “first-movers” in their respective fields, Masvie noted.
In terms of investment targets, companies in which STI invests tend to have already prepared a proof-of-concept. Masvie said that prior to this stage, developers were better candidates for LOOP or seed funding. It has also made investment in mature companies to support growth and keeps an open eye towards companies across the development cycle. “Every year we see about 300 deals or proposals, of which we invest in maybe 2 or 3,” he said. “We see a lot of the companies who do not get any support from us [too], but we do try to point them at incubators, local supporting structures in Norway… We try to help as much as we can.”
The unit is guided by ambitious ROI metrics. “Our target is to bring implementation value to Statoil [of] the order of 20 times the investment we make in the companies,” he explains. “It’s never an exact figure but we try to estimate when we go into the company first time, and then we try to reassess this over the years.”
The unit is also happy to look to the longer-term benefits of a technology rather than quick returns – Masvie confirmed that unlike many private equity or venture funds, STI did not have a fixed timeline for payback. Nevertheless, it maintains “pretty tough targets” to gauge financial returns upon exit, although the team did not specify exact criteria. Examples of the scale are there – in one instance, the company sold out of wireless reservoir surveillance company RESMAN for around 16 times its initial investment – suggesting that the venture can be every bit a revenue generator as a technology incubator.
Throughout the process, however, selling out remains the goal. Once a technology is mature, the company has reached breakeven and shows sustainable growth with repeat customers, STI will move to offload its stake. “We are very much aligned with the founders and inventors to develop the company onto a final exit. We are not there for the duration,” Masvie confirmed.
Driving change Some technologies have been of particular interest to the group. Drilling automation, the team says, has drawn a lot of attention and investment primarily because of the cost savings and efficiency gains it can offer. Actual deployment of these technologies has been muted, in part owing to the fall in prices, and in part because the scale of the challenge is formidable.
“It is a huge step to get a fully automated drill floor, it needs a lot of new technology and by getting that to market we can help realise that ambition… Any pilots we have where we qualify a technology and it works, we have a piece of the puzzle,” Aamodt added, but recent pilots run on some Songa Offshore rigs suggest that progress is continuing. Masvie also points out often barriers to innovation lie in the structure of the industry, rather than a lack of capital. In cases where more disruptive technologies could affect the business models of service companies, SMEs can struggle to gain traction and support in the development stage, not to mention firm sales.
He also drew particular attention to the service contract model, in which many service providers have little incentive to innovate. This was part of the rationale for STI’s investment in Corvus, a hybrid marine battery system aimed at reducing fuel use in offshore vessels. “If you look at supply vessels, most contracts today are based on Statoil paying for the fuel. [Even if a battery system can offer] a fuel reduction of 15-20%, why should a vessel owner install anything at all if Statoil is paying for the fuel?” STI therefore see its investment in new solutions as one method of driving this change in the wider service industry.
A common complaint from many SMEs is that, despite finding enthusiasm in operators, they can struggle to turn this into actual support, pilots or sales. Aamodt said STI’s links to the rest of the NOC’s personnel meant that this was not the case in Statoil. “If you have a great idea I really think we can make a difference, because we are not happy to get stuck in middle management,” she affirmed. “We know who the paying customer is, we know who makes the decision and we ask that person.” Alongside a company-wide willingness to support innovation and deploy new technologies, the team believes that this can make a big difference to SMEs, and in turn, a big difference to the wider industry.