Venture Investors: Drilling In To Oil Deals

The oil industry has historically been avoided by venture capitalists, given its data-heavy nature and its challenging market variables. However, after the “clean technology” investment boom at the end of the 2000s, and America’s repossession from Russia of its spot as the world’s number one oil producer, venture capitalists, became once again interested in investing in oil production technology. While it’s true that the world’s energy portfolio is expanding, oil is still a very prevalent energy source. The average American consumes no less than 52 barrels (that’s more than 2,100 gallons) per year.

The application of digital technology and innovation in the oil industry is increasing and is predicted to continue growing in size. In fact, Accenture found that more than 80% of oil companies plan to continue investing the same amount or more in digital technologies over the next 3-5 years. Both oil extraction technology and oil production technologies are advancing. One research firm found that enhanced oil recovery (OER) technologies can add decades to the globe’s supply of oil, as much as six-fold from what we have today.  Among these OER technologies is a process called thermal intervention, which uses renewable resources like solar energy to inject steam into wells and extract heavy oil or oil sands.  Some big oil-producing heavyweights like Chevron have already begun implementing this new technology in California to recover heavy petroleum.

According to the International Energy Agency, up to $4 billion of energy-related early-stage venture capital deals are made annually. In reality, this is a small number compared to the energy market as a whole. However, these investments signal which technologies have been pinpointed by investors to bring future results.

According to an IEA analysis of more than 2,000 transactions involving energy startups, the agency found that venture capitalists slowed their investments in clean energy at the start of the decade, and became increasingly attracted to companies offering software products rather than hardware products.

The reasons behind this go hand in hand with the changing business structure of the oil industry. An increased focus on emerging technologies and increased digitization rather than investment in new infrastructure will enhance productivity and decrease costs. One successful example of this is a new technology created by Bio Technology which assists oil companies choosing the best draining spots for shale gas extraction. Given that the current recovery rate of fracking activities is about 8 percent, even a small increase in the recovery rate could rocket production and profits for these companies. Companies in both Europe and the US have implemented this new digital technology have increased their oil extraction results many times over.

While the world is continuing to explore alternative energy resources, it can be certain that the world will need to run on oil for many years to come. Thanks to disruptive technology we can see how both renewable and conventional fuels can work together to help oil companies extract and produce more of what we have already discovered under the earth’s core. The digital breakthrough in the energy field will not only continue to increase our discovery of new resources, but it will also allow us to harness more out of what we already have.

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