O&G Start-ups: low oil price, big opportunities

The the oil and gas (O&G) sector is seen as belonging to the opposite end of the start-up friendly spectrum of industries.

Far away from from the consumer-centric sectors like food & beverage and technology, the O&G industry is perceived to be capital intensive and with long project gestation periods; making it an exclusive of the big players and the listed companies.

This impression, however, is mistaken, say industry insiders.

While not exactly a conventional playground for startups, O&G sector has enough opportunities to interest entrepreneurs, especially now that the oil prices are down.

According to Schlumberger Asia-Pacific chairman Jamal A Ainul, the impression that O&G is a difficult place for start-ups, is misleading. “People think that it (O&G) is a ‘closed’ industry but it’s quite the opposite,” he said, adding that “It’s is merely a matter of where to look for the opportunities.”

Jamal believes that the softening oil prices, actually, presents a window of opportunity for entrepreneurs, who want to enter this industry. “People may think that with oil prices falling, it is not a good time to get into this sector but I think, this is the best of times (to do so),” he said ,explaining that the softening in the O&G market meant a lower entry barrier.

“In fact, when the prices go up, it would be costly to set up anything (in this sector),” he added.

US crude futures (now below $78) and the Brent crude oil price (now below $83) have tumbled consecutively for almost two months as the Organisation of Petroleum Exporting Countries (OPEC) cut its supply outlook.

Walking his talk, Jamal is already more involved with his O&G startup HiRex Petroleum Sdn Bhd. He has consciously reduced his corporate responsibility at Schlumberger, where he now works two days, a week, so that he can focus on the startup HiRex Petroleum. The startup is a joint venture between the Malaysia-listed special purpose acquisition company Hibiscus Petroleum Bhd and the Singapore-listed exploration technology developer Rex International Holding Ltd; it owns and operates O&G explorations assets.

While the industry has enough opportunity for those who are looking, it also has its own set of challenges. Again, though inviting, it is not a field one can simply “waltz into”. The investment has to be backed by thorough research, sufficient technical knowledge and enough capital.

Jamal admitted that most of the business processes, in the O&G sector, could turn out to be forbiddingly expensive for an average entrepreneur; especially since the exploration and production or upstream activities, are very capital intensive. “The venture capitalists may shy away from such projects because they do not understand the business. It does not help that the global sentiment about oil prices is quite bearish,” addressing the participants at the O&G Entrepreneur Opportunity Talk, organised by the MAD Incubator.

Petroleum Energy Integrated Services Sdn Bhd chief executive officer Aleeya Mansor-Brookes reiterated the fact saying that the start-ups looking at this industry needed to comply with a certain minimum technical requirements.

They also had to look for off beat opportunities, within the sector. “It is all about finding the gaps in the industry that you can work on. For example, one has to ask if there is something that no one has done yet, or you can do better or at a lower cost?” she explained.

Her company provides O&G-related technologies for drilling and completions, geology and geophysics, reservoir engineering, IT infrastructure and integrated operations.

The plugging of these gaps, whether in terms of software or hardware solutions or peripheral services, is the key to flourish, Jamal pointed out, adding that if one had the right solutions, they (the oil companies) are willing to pay.

According to him, many players seem to be daunted by the technicality of the sector and by the fact that they are unfamiliar with the industry. One way to understand what the O&G industry requires is to refer to the standardised work and equipment categories (SWEC) list that details the upstream and downstream operational activities, he informed.

There  is also a perception that licenses from the national oil company, Petroliam Nasional Berhad (Petronas) are hard to obtain. “Petronas has 20,000 vendors and only 4,000 of them are licensed. Why don’t more people apply for the license?” he asked.

The Malaysian Oil & Gas Services Council is trying to help more small players enter the market. According to the Council’s honorary secretary professor Dr Mohd Shahir Liew, opportunities in the O&G field were not just limited to the upstream and downstream activities. “There are many spin-off sectors that facilitate the industry, such as the accommodation for the workers. Catering, transportation, infrastructure and building works and other peripheral activities, also come up around the O&G activities and need to be serviced by entrepreneurs,” said Liew, who is also the dean of the faculty of Geosciences  & Petroleum Engineering at Universiti Teknologi Petronas.

Meanwhile, energy conglomerate Petronas has a capex outlay of about $ 90 billion for this sector (2011-15); a spend that is already giving a major boost to the smaller players in the industry.

Malaysia is aiming to become the O&G hub of Asia-Pacific region by 2017.It is now the second largest O&G producer in Southeast Asia and the second largest producer of liquefied natural gas in the world. In 2013,  country’s proven oil reserves stood at 3.7 billion barrels and that of natural gas were at 38.5 Tcf.

The industry is central to the country’s economy, contributing about one-fifth of the national gross domestic products over the past ten years. The most significant development in the industry recently is the Pengerang Integrated Petroleum Complex in Johor. Petronas is investing about $27 billion into the refining and petrochemical complex that will house oil refineries, naphtha crackers and petrochemical plants, a liquefied natural gas (LNG) import terminal and a regasification plant.

Image : Freedigitalphotos.net

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.