Double Interview – Carlyle and Schlumberger on money and technology
By Femke Perlot-Hoogeveen, Editor, Offshore Energy Today
What makes the world go round? Money or technology? In the world of energy, one is meaningless without the other.
Offshore Energy Today recently sat down exclusively with two esteemed experts in the respective fields of money and technology – Ashok Belani, Executive Vice President Technology, Schlumberger and Marcel van Poecke, Head of Carlyle International Energy Partners – to talk about the impact of volatile oil prices, technology development, investments and what offshore developments we should pay attention to.
With decades of experience in technology development in Schlumberger, Ashok Belani is a frequently asked speaker at major international conferences. By contrast, he does not often give interviews.
Belani makes an exception for Offshore Energy Today to share some of his views. We start with a much-discussed topic: lower for longer oil prices. Because despite a marked rise in crude prices and positive quarterly results for oil majors, few in the industry would claim that the lower-for-longer period is over.
How have technology development and innovation by Schlumberger and its clients been impacted, I asked Belani.
“The amount of money spent on technology development has gone down over the last three years,” says Belani.
“At the same time there is a big change in the way technology is developed and utilized.”
Which is why we have seen companies creating inventions that are more efficient, more performant and therefore more cost-efficient.
“The amount of money spent on technology development has gone down over the last three years”
“So the idea that you can do new things, or exploit new reservoirs, or develop new resources and yet not spend as much money as say five years ago is acceptable. And it will continue to evolve in this direction.”
The latest World Energy Investment by the International Energy Agency supports these statements. While prices have more than doubled since 2016, global upstream costs have remained substantially flat. “Companies appear to have learned to do more with less,” writes the IEA about the decoupling of the relationship between upstream costs and oil prices.
According to the IEA, investments in upstream oil and gas have gone down by more than 40 percent between 2014 and 2016 and have rebounded modestly by 4 percent to USD 450 billion. This year, investments are expected to increase by 5 percent to USD 472 billion.
How have opportunities in upstream developed for private equity, in the lower oil price environment?
According to Marcel van Poecke, it has actually been a very good period for private equity to invest.
Van Poecke is the Head of Carlyle International Energy Partners and its fund. Launched in 2013 and with USD 2.5 billion raised, this fund targets global investments in oil and gas and oil field services excluding North America.
Van Poecke has seen companies that “were stressed in terms of the balance sheets, dividend payments, and capex commitments.”
Banks were less inclined to finance investments, which played into the hands of private equity “because we have dry powder [cash reserves kept on hand to cover future obligations purchases or acquisitions, OET] to invest.”
Van Poecke thinks private equity will become a more important player in oil and gas, as more capital becomes available because of institutional investors allocating more capital of their portfolio to private equity.
A recent article in The Economist quotes Preqin, a consultancy, stating that private equity funds have raised as much as USD 1.1 trillion in dry powder ready to spend around the world and across industries, with another USD 950 bn being raised by over 3,000 firms.
Renewables vs Oil & Gas
Van Poecke focuses on oil and gas but gets more and more questions about investing in renewables. “When investors approach us and ask what I think of the energy transition and about renewables, I say: We see some opportunities.”
Developing renewable energy is clearly important and we will see more and more renewable energy projects, though, in Van Poecke’s view, the market is still relatively small.
“When investors approach us and ask what I think of the energy transition and about renewables, I say: We see some opportunities.”
“The next question investors ask is: What sort of returns can you guarantee us compared to oil and gas; and that is a much more difficult question.”
When investors do not invest in new technology, says Van Poecke, so as a normal private equity investment and not as a venture capital investment, then the returns in renewables will generally be lower than in oil and gas.
“A return target in excess of twenty percent is normal in private equity. In renewables, this could be ten percent or even lower. When investors hear that, they say: Can you please focus on oil and gas?”
Low carbon technology
Oil and gas majors, on the other hand, have stepped up their investments in new energies and low carbon technologies in recent years.
Shell and Equinor in offshore wind and carbon capture and storage, Total is investing in solar, BP in EV charging.
What does Ashok Belani, who has spent most of his life so far in improving oil field services, think about this?
For Belani, it’s all about technology development. Whether that is in oil and gas or renewables, does not seem to matter.
“If one resource of energy goes up with respect to the other resources, technology will go ahead and make that resource more efficient”, says Belani.
He sees the move toward a lower carbon footprint progressing and expects that it will continue to change how technology is developed and applied.
“We try to make processes more efficient in terms of their emissions footprint. I think that can be beneficial and I think it should drive not only technology development but the way we apply it or deploy it in the oil and gas business.”
As a service company, Schlumberger develops technology at pace with what its clients need.
Belani: “So today we put a lot of money into technologies for land developments and relatively speaking less in deep offshore. If this mix changes, it might change.”
North Sea investment decisions
What about mature basins such as the North Sea – what kind of technology changes does Belani see there?
“There will be subsea developments which will be significantly more performant”, says Belani and “integration in subsea systems which will be extremely different from the past and will enable more FIDs to happen in subsea developments.”
Schlumberger is also looking at basin-wide exploration systems, utilizing new data and cloud technologies that will change practices used to date, make them more efficient and will according to Belani lead to more developments on the North Sea.
“However,” says Belani, “The North Sea has gone through a long hiatus in FIDs and investments. So in the near term, there will be some pressure on maintaining production in the North Sea.”
Renaissance of mature basins
That hiatus seems to have ended. According to Van Poecke, it is justified to speak of a renaissance of the North Sea.
Although the North Sea is a mature basin, Van Poecke sees a lot of opportunities, both in acquisitions and in exploration.
“We did a big investment through Neptune Energy, where we bought ENGIE. That portfolio is big in Norway, substantial in the UK, in Holland and in Germany.”
New independents will be created, “with much more capital available in the coming years from private equity.”.
As the majors are moving away from the North Sea, there is more room for independents.
According to Van Poecke, the majors can sell more to independents and partner with them.
Van Poecke thinks that new independents will be created, “with much more capital available in the coming years from private equity.”
Neptune Energy is an example but there are many comparable examples. In the US, in particular, there are numerous independents and there is a lot of capital available. Van Poecke expects to see more of that in other parts of the world as well.
What should we be watching for?
What areas have your interest, I ask Marcel van Poecke. “We focus very much on Africa,” says Van Poecke, “We think there are very interesting opportunities in West-Africa, both offshore and onshore.”
“We also see interesting opportunities in South America, especially in Colombia, Mexico, and Brazil.”
But also the shale plays in Argentina, the Vaca Muerta, are interesting, according to Van Poecke.
What should we be watching in the technology space? I asked Ashok Belani.
Innovation in subsea development is one. But Schlumberger is innovating in many areas. “We are working a lot on drilling technology becoming much more efficient.”
“There is a big change in how seismic processing is going to get done.” According to Belani, cloud- based seismic processing is going to change the way seismic gets used in the oil and gas business, especially for deepwater.
“There will be changes that will make deepwater more efficient with respect to land resources,” he says.
Digitization – Continuous realization of benefit.
In Schlumberger, Belani is the key executive driving digital transformation, looking at how different parts of the upstream lifecycle can develop and improve using digital technologies and data. When is a digital transformation strategy successful, I ask Belani. “It’s not one particular goal post,” says Belani. “The result is going to be a continuous realization of benefit.
“We will make exploration more efficient, we will make field development planning more efficient, we will make well construction more efficient, we will make production more efficient.” “All of this will be enhanced by digital in the coming future and we will see that continuously.”
I ask Van Poecke, who has invested in many oil & gas and oilfield service companies in the past twenty-five years, what he sees as the most remarkable development.
“We will make exploration more efficient, we will make field development planning more efficient, we will make well construction more efficient, we will make production more efficient.”
“The role of technology,” is Van Poecke’s immediate answer. “We are going to a real shift and acceleration with new technology. I see it on the renewable energy side but I see it even more so on the traditional oil and gas side.”
Van Poecke gives a list of examples: seismic imaging, the development of projects, the time to build things, the materials we use, the way we operate platforms, also unmanned and from remote locations, how everything becomes more efficient, in terms of costs, in terms of emissions, the role of big data processing. “The role of technology is amazing.”
With anough dry powder to invest along the oil and gas – and new energies – value chain, the world of energy will keep on turning.
This article is based on interviews during International Petroleum Week in London (Belani) and CERAWeek by IHS Markit in Houston (Van Poecke).
Ashok Belani, Executive Vice President Technology, Schlumberger
Ashok Belani is an executive deeply rooted in technology development for the oil and gas industry. He has served as Executive Vice President of Technology at Schlumberger since August 2011. He is responsible for Schlumberger Research, Engineering, Manufacturing, Technology Lifecycle Management, Software Technology, and Information Technology. Previous roles include Chief Technology Officer, Chief Information Officer and President, Reservoir Characterization, Vice President of Marketing and Product Development for Wireline and Vice President of Marketing and Product Development for Oilfield Services. Belani joined Schlumberger in 1980 as field engineer.
Marcel van Poecke, Head of Carlyle International Energy Partners, Chairman, Oranje-Nassau Energy
Marcel Q.H. van Poecke is an entrepreneur and investor with more than 25 years of experience in the energy sector. Van Poecke is the Head and Managing Director for CIEP, focusing on upstream, midstream and downstream oil and gas and oil field services. He is the Chairman of AtlasInvest, a private holding company he founded in 2007 which is engaged in investments across the energy spectrum. He is also the Chairman of Oranje-Nassau Energy, an AtlasInvest portfolio company with oil and gas assets in the North Sea and West Africa.