Key Stats: The Digital Oilfield

Posted on January 10th, 2018 by Chip Davis

Market research published by Upstream Intelligence reflects that 23% of operators have named streamlining lifting costs as a top priority.  The complexity of today’s wells has made that a significant challenge.  “Artificial Intelligence” is working on that challenge.

 

Fact Sheet

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And the Software Nominees Are……

Posted on November 11th, 2017 by Chip Davis

We see a fairly high volume of software companies addressing unique challenges of the oil & gas IMG_0017industry. If we were to hand out awards for “most sophisticated” we would have to put Tracts.co in the category of “lifetime achievement.” The linked article in American Oil & Gas Reporter cites several new technologies one of which is Tracts (HERE).

If you have your own Nominee, we encourage you to submit a name and explain. We might have to make this a recurring thing.

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What if You Are a Late Bloomer?

Posted on September 19th, 2017 by Chip Davis

Young software companies seeking growth capital typically look at investor tracksora-capital-approach-advisory-capital-raising-icon record as a variable to consider when determining funding source.  Track record is important, however, it is important for reasons that may not be so obvious.

New fund managers generally aspire to become highly experienced fund managers. To do so, they must perform at levels attractive to their LPs so as to inspire investment in the next fund and the one after that, etc.  LPs are not committed to successive funds and have a wide range of alternatives.

Over the years, we have had deals that required (unexpectedly) multiple rounds of capital (i.e. things were not going according to plan – yes I know, “..you don’t say?”). We have been fortunate enough that many unexpected bets incrementally committed through visceral conviction had positive outcomes allowing us to become “experienced fund managers.”  Sometimes these positive outcomes occurred for reasons we never saw ccompetition-icon-7oming.

When a market suddenly becomes populated with funds promoting the same investment strategy this is when companies seeking funding need to contemplate track record. Why? Because new fund managers want to become experienced fund managers and to do so, they likely have to beat the competition and at significant levels.  So what?

“So what?” needs to be contemplated in the context of the following question…”What if you (i.e. young software company) are a late bloomer?”  This is the question because it impacts how you may be treated by new fund manager hoping to become experienced fund manager.  If you are a late bloomer and other companies in the new fund are not-so-late-bloomers, you have just became a lower priority for incremental capital (which, admittedly, you may or may not need). If you do “need”, you just got squeezed into material financing risk and life just became incredibly complicated. This is so because the inability or unwillingness of your initial capital source to play along significantly is read by potential third-party sources of cash as a sell signal (i.e. they must know something we don’t know). Doesn’t matter what you heard during initial courtship about the long road together, this is the reality of fund management world.

 

 

 

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Tracts – Why We Made This Investment

Posted on September 8th, 2017 by Chip Davis

 

Tracts-Logo


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Buying and Selling Oil & Gas Properties – When oil & gas properties change hands, a buyer wants to know that the seller owns what he is selling. A particular property can have multiple simultaneous “owners” each with a different set of conditions/terms under which they share in the value of underlying hydrocarbons.  Sorting through these variables is complicated and requires a substantial amount of manpower to make final determinations of what is real and what is not (i.e. “ownership”).

Over the past twenty years, the workbench for those calculating title has been the spreadsheet. An examiner gathers all the information relevant to a property and begins a process of understanding how a current owner acquired his interest, what that interest is, and how it relates to everyone else who has an interest and their types of interests. Inside of a spreadsheet, an owner’s position may be represented by something like this:

 (1/7+1/7)-((3/13)*0.5)-(29.4472916/(500))-0.02594875-(16/500)+((0.142857143-((2/13)*0.5))/7)

So imagine a piece of property that has 60 owners and 7 different types of economic rights. The result is a very complex collection of formulas all created for a single purpose by one human.

Are You A Software Developer? – I am sometimes asked to give presentations regarding the energy industry & technology.  On occasion, I like to survey the audience asking, “How many of you are software developers?”  The normal showing of hands might be 10% of the audience.  I then like to ask, “How many of you know how to use spreadsheets?” to which maybe 80% raise their hands.  I then accuse that 80% of actually being software developers. Why?

I like to think of Excel (et al) as a very cleverly packaged software development tool.  It has a database, it has a bunch to canned development objects (i.e. formula functions), and it has a palatable user interface for presenting. The reason we likely don’t think of it as “software development” is that a completed work product has a single purpose and generally only its creator can know how to use it (i.e. you can’t go sell it to a lot of people – IT DOESN’T SCALE).

A Large Scale Software Development Project – An oil & gas acquisition regularly involves a lot of acreage representing thousands of “owners” and complex nesting of varying interest types.  When a buyer determines to move on an acquisition, he engages a team of “examiners” each tasked with determining who owns what. Every parcel of land is examined and the work product is assembled by parcel in a spreadsheet.  This may happen hundreds of times for a single acquisition.  Think of there being 100,000 “lines of code.”  All of this occurs under severe time pressure (say 90 days) and the buyer has little recourse (post acquisition) if the conclusions are incorrect (i.e. the software has “bugs”).

To my knowledge, there are very few successful software companies that are able and willing to produce in 90 days a commercially ready application with 100,000 lines of code. The risk to reputation alone is damaging much less the potential financial liability to a customer depending on that code to perform mission critical processes.   The oil & gas industry is doing this every time it makes an acquisition and court cases reveal that the consequences are not trivial when things go bad.

Why We Invested In TractsTracts obviates the need for humans to create formulas in spreadsheets.  A usertracts-slide-4 simply describes to the system a few variables required to characterize “what, when and who” and the system takes off. As the user adds variables, it determines how each “what, when and who” is connected to all others and it builds the “code.”  Using this system, an oil & gas property buyer gets out of the software development business and stops doing what no commercial software company in its right mind would be willing to do.  Easy to scale and freedom from the consequence of extremely expensive “ownership” bugs.   If am spending $100 million to acquire oil & gas interest, it is appealing to me to cut my “examiner time” by $500k and reduce my error rate by $1 million. This is what we see in Tracts.

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“Clouds are Forming……” – JPT Reprint

Posted on September 7th, 2017 by Chip Davis

Untitled drawing (1)The upstream energy industry has forever constructed itself to “plan for failure.” This mode of operation has implicit to it a set of expense and capitalization challenges that can inflict serious damage on shareholders in certain circumstances. The advent of cloud-computing has presented the industry with a means to alter its strategy for managing the risk of failure.  This article from the Journal of Petroleum Technology (“JPT”) reflects its take on the changes in industry perceptions and behavior on the use of “cloud.” Our own market observations are similar to those cited by JPT.  While the industry may move relatively slowly compared to others, its movements are, when they occur, gigantic.

 

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What Question are You Trying to Answer?

Posted on August 30th, 2017 by Chip Davis

Rise of the Machines – The past two years have revealed a prolific rise in machine learning and artificial intelligence. Platforms that automate creation of analytical insights are on a very steep evolutionunnamedary curve and the range of subject matters that can be probed with these tools is attracting huge amounts of investment capital.

Many years ago I heard an extremely successful enterprise software sales person make the following observations: (i) a lot of money has been made from “adequate” software, and (ii) most software is bought because it can do “one thing.” It is the second observation that has stuck with me the most.

The Implicit Challenge – The notional allure of artificial intelligence is the initial belief that it can replace non-artificial intelligence (i.e. people). The mechanization of data prep and measurement does displace human tolling, however, measurement requires constant adaptation (a highly-developed human skill).  Where it becomes tricky is when the intelligence requirement pertains to questions oriented toward pre-existing scientific disciplines (e.g. oil & gas exploration and production). By their nature and history, these disciplines want to know specifically how an answer is derived – they will not accept “black box” conclusions.

What artificial intelligence is trying to do is mimic and augment real intelligence.  Machine learning is a scaling technique for taking the best minds (subject matter experts) and imparting their own insights into a system from which all may benefit. The competency of this technique is only as good as the subject matter experts regarding the question at hand. How good are they at answering my particular “scientific” question? What background makes those best minds reliable scientists? When parsed through this lens, the revelation is a certain practical irony:  artificial intelligence all comes down to people.

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5 Things Young Software Companies Typically Don’t Know

Posted on August 6th, 2017 by Chip Davis

IMG_0007We hear a lot of pitches from young companies with well developed software capable of solving interesting (high dollar) business problems. There is rarely a solution whose value proposition is so self evident and powerful that it can circumvent typical buying patterns. The danger of most elegant software (at initial commercial release) is its hypnotic distraction from what is required to cause a purchase. In this context, we have listed some opinions and questions for young companies to ponder. In no particular order:

  • If you think you just had a “great meeting” with a prospect, you most likely did not. How do you determine the truth?
  • What it is about the particular business problem of interest that is dragging out your sales cycle and how do you reduce drag?
  • When is a trial the right thing to do for the company?
  • Is your sales force doing too much lead generation and why is this bad?
  • What are the first signs that you should not allow a prospect to become your customer?

Consider these points in earnest and founding shareholders of promising software companies will need less money to evolve and own more stock at exit. Make sure your money source has some answers.

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Darwin’s Theories on Software

Posted on March 7th, 2017 by Chip Davis

We occasionally get our hands on business cases prepared internally by companies wanting to purchase enterprise software products. These documents generally include recognizable dialects of business rationale. Software purchase initiatives are generally grounded in some emotional driver obscured by economic rationale. We thought we would share with you some of the unstated reasons we believe are really in play:

“If this works I might get promoted.”
“This will get me home 15 minutes earlier.”
“Everyone else is doing it.”
 “I have been doing it all wrong and this application can be my confessional booth.
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