January 2, 2014
Title: Rystad's Cubist Movement
Publication: Drillers & Dealers, December 2013
Q: Jarand, next year Rystad Energy will celebrate 10 years in the business – a fantastic milestone! What was the main reason for starting the business in 2004 and does that same reason still resonate today?
A: We are indeed about to celebrate our 10-year anniversary and have grown from an idea of originally two eager entrepreneurs to a business of almost 60 employees, with offices in Oslo, London, Houston, New York, Moscow and representatives in Africa and Asia.
When we started our business in 2004, I was unsatisfied as an oil and gas consultant not to have efficient data available in the industry right there and then. We were eager to create a combination of data and knowledge gained through our consulting experience, hence our business line to provide advisory services and upstream oil and gas databases as well as research reports. The lack of transparency in the industry drove me, and still drives me to create up-to-date information and discussion. We did this 10 years ago and we do this now.
Q: How has your customer base evolved in the past few years? Are you now working more with oilfield services companies than in the past, and has the size of your customer changed markedly?
A: Since we commenced business, we have been working with small and large companies alike, within the E&P, oilfield service, financial and governmental sector. Our client share is about the same today as it was
when we started, but we have broadened our products and services to more than 220 clients and are working increasingly internationally. Companies see a great value and knowledge base in us thanks to the three-tier business model we have set, as previously named. What has evolved over the years is that we now have a much greater share of companies situated outside Europe.
With regards to oilfield services companies, we have always worked with them closely, not only because we provide a database called DCube that looks at all relevant oilfield service segments historically and provides forecasts to the year 2030. We have seen an exceptionally great interest and loyalty from oilfield service companies and we have therefore expanded our focus in this sector.
We are about to launch a new database that looks at the supplier side of the industry, with reported numbers broken down by the same segments for all important oil service companies globally. This is a definite sign that we continue to expand the provision of good products and services dedicated to the needs of the oilfield service industry.
Q: Everyone has one eye on the east and the demand growth there from emerging – and emerged –
economies. Are you viewing the Asian markets as a new growth region and what other geographies and
markets offer you significant opportunity?
A: We have people present in both the Russian and Asian market and we will maintain our presence in these areas. In addition to our home market, Northern and Western Europe, we have up to now heavily invested in the North American market. We also recognised the African market as a lucrative sector, especially for advisory services.
And yes, we see long-term growth in the Asian market. We have engaged a business in Kuala Lumpur to assist us in south-east Asian market growth and we have strong relationships in India also.
Q: Your growth over the past near 10 years has placed you alongside the likes of Wood Mackenzie and IHS. What competitive edge do you have over larger rival intelligence providers?
A: That is correct and something we desired to achieve. Our business model is simple: we want to make it possible for any oil and gas company to extract data in a live, up-to-date, rapid and complete manner. I regard our UCube field-by-field database as the only database available that provides a macro picture based on micro input. And we are very proud of this. So, the completeness alongside with speed, convenience and constantly updated data is our key edge. We make more than 1,000 updates per day.
Also, on economic forecasting, we have seen that we have much more precise numbers than other players in the industry because we are the only one calibrating data in all dimensions, including oil service companies’ revenues, stock exchange pricing, government reporting, E&P company reporting and asset-level information.
Q: One of the biggest challenges an O&G company faces is its it to understand the competitive landscape around them, in order to conduct its operations effectively. What common misunderstandings around data management do O&G companies have that risk their competitive advantage or revenue lines?
A: One issue is the role of NOCs, because some of the most famous industry statistics provide numbers that compare the sum of proven, probable and partly possible resources from OPEC countries with proven reserves only for OECD countries. This does not reflect a clear profile for NOCs, reserves versus IOCs, and has led to many misleading conclusions on control over future resources globally. NOCs do not have such a strong position as many people claim based on such data sources.
This is one issue. In addition, operationalising the consequences of the exploration portfolios is difficult to do for general database providers. We think we are the only company systematically predicting risked future production from the exploration licenses.
Another point is that in exploration, you don’t get an updated view on actual proven-up resources by recent wells, since databases back-date resources to the first exploration well and since statutory reporting only include proven resources added to reserves long after discovery. We have addressed this issue through allocating resources to every well contributing to proving up new resources, not only the first wildcat.
Q: UCube – an upstream “cube” – is your main database service. What is a cube? What does it offer that other O&G databases do not, and how is the product evolving as O&G company information requirements change?
A: A cube is a term for a structured database optimised for quick reading. Thus, we can slice and dice data in any dimensions with any level of aggregation or granularity within a few seconds. This is a unique feature in the market today. Everything is available in one integrated database. We have data available for all producing areas and exploration areas today and in the future, including more than 68,000 assets and 3,200 companies globally. Our database has production numbers from 1900 to 2100. We assume that, being the only existing database with long-term macro numbers based on explicit field-by-field input is one of the reasons why IEA use UCube as a key source for its World Energy Outlook publication.
Q: Is there a limit to how we as an industry can source, leverage and apply data in our day-to-day activities? Are we bound by human limitation or by the pace of technological advancement?
A: I believe we as an industry have ample opportunities to get even more transparency on the data side that could guide our decisions even better. We have tried to do our share here through launching the products we already have in the market, but there is still much more to be done to provide full transparency. The technology is no longer the limiting factor.
However, not all are interested in full transparency, such as companies that need to protect information that is the source of their competitive edge. Still, we will work towards launching many new products under our guiding vision, which is to create transparency in the oil business. What have you observed from other industries that the oil and gas industry should consider when looking at how to maximise the effectiveness of information dissemination and application? One observation is that focus on cost and productivity improvement is key in other commodity industries, and a lot of data is collected for that purpose. This is a big challenge for the E&P industry because of the variability and complexity of the operations, but still I think we can learn from other industries regarding this.
Q: What information challenges await the O&G industry and what must be done, and by whom, to help overcome these?
A: We see one of the challenges in the systematic provision of relevant and consistent benchmarks on productivity and costs. But we are working towards minimising this and have also implemented this in one of our latest products, URank. This provides listings of companies by, for example, production growth, exploration value creation, development effectiveness and portfolio value creation. We try to help overcome such information challenges through platforms like this, where it is easy for anyone to extract
and understand the data given, not only expert analysts.
Q: In your consulting business you work extensively with companies on M&A and A&D, assisting with asset/company valuations, due diligence and screening acquisition targets. What challenges do O&G companies encounter more now than ever in looking to buy or sell O&G assets?
A: We have worked heavily with companies on M&A and A&D, in Norway and abroad. One challenge is that we currently have buyer markets for undeveloped fields, while it is still the seller markets relevant for good
producing fields. To identify companies with complimentary needs and develop a good strategy around this can be a big challenge, since there are 3,200 active companies globally. This makes the market diverse but interesting to assess. The market sees a challenge here, this is why companies come to include us in assessing their targets and the best potential buyer or seller in each particular situation.
Q: You also run a series of research pieces, including some on North American shale. Some of the current impacts of this market on the global O&G industry are now well known, but what are some of the unrecognised implications of the shale market on the future industry landscape?
A: We are among the analysts with the highest expectations for North American shale oil and gas production. We report this in our quarterly North American Shale Report. One observation is that the US, from this year, will be the largest producer of liquids globally, even larger than Saudi Arabia.
Still, our data reflects that offshore new-build projects will be three times more important than shale in meeting the global energy demand towards 2020. We are also sceptical in reporting a strong short-term impact of shale resources outside North America. We think unconventional shale developments will come outside of this region, but it will take time due to lack of geological information, industrial capacity as well as legal, economic and environmental frame conditions. However, I foresee that in 2040, half of the global shale production will be outside the US and Canada.
Q: What are your business plans for 2014?
A: Our plan is to further expand our European, North American and Asian scope. This will involve growth in analytical as well as advisory perspectives. We have recently launched or are in the process of launching
three new databases. ECube is our exploration cube with wells, prospect names and acreage positions bridging the gap between pure geological information and management information on value creation in exploration. SCube, as previously mentioned, includes numbers from all oilfield service companies and in addition shows forecasted oil service companies’ revenues, split on supplier segments and geography. RigCube is the first data source ever showing bottom-up rig demand in the same infrastructure as bottom-up rig supply overview.
At the end of the day, we do and want to continue to provide a complete product and service delivery that enables stronger transparency in the market and makes people assess and think!
Q: What advice would you pass on to a recent graduate that wishes to work in oil and gas?
A: Welcome! We will need you for at least your entire professional life. This is a growing business getting more and more scientific and knowledge intensive. We need all your skills, be it of geological, technological or economic background.
Q: What was the wisest advice you ever received from a mentor?
A: Business is relationships!
Q: Finally, something we always ask: what three things would you bring to a desert island? NB: You are NOT allowed Practical Raftbuilding for Dummies, a satellite phone, tickets for the ferry, etc.
A: Well, I think that BBC listeners know the rules here. As indicated, items enabling me to escape are forbidden and Shakespeare’s complete works are mandatory. I would then choose my PC, good satellite communication and a pile of nice invitation cards allowing me to invite all the people I care about, which hopefully would protect me from dying of boredom.