O&G industry investment in startups reached record levels in 2016 and 2017.
Corporate venture investments by oil and gas companies hit record highs in 2016 and 2017, after a slight dip following the 2014 crash in oil prices. These investments have been concentrated in clean tech companies and technologies with the potential to improve operations.
Integrated oil companies, such as Chevron and BP, have driven CVC investment by the O&G industry over the past decade.
We used CB Insights data to analyze the investment activity of a selection of the largest and most active companies across the O&G value chain.
- Alternative Energy: wind, solar, hydro, advanced batteries, etc;
- Alternative Materials: materials or products with the potential to replace petrochemicals;
- Environmental Impact: technologies with the potential to mitigate the environmental impact of burning hydrocarbons — carbon capture, home energy efficiency, and vehicle efficiency.
Operational Improvement technologies offer the potential to enhance O&G company operations. Startups in this category offer IIOT, analytics, and reserve replacement and enhancement capabilities.
Conventional Energy companies provide processes or products that utilize hydrocarbon generated energy.
Clean tech investment dropped off following the 2011 collapse of Solyndra, whose highly public implosion contributed to a decline in funding and public interest in renewables. Activity has bounced back, with O&G CVC investment in clean tech increasing every year since 2014, hitting record levels in 2017.
In Q3’17, French integrated oil company Total took a $285M minority stake in renewable asset operator Eren Groupe at a $1.2B valuation. In Q4, BP invested in a $200M minority stake in European solar developer Lightsource.
Looking forward to 2018, Anglo-Dutch oil giant Shell invested $217M in solar energy developer Silicon Ranch in a secondary market round.
Investments in operational improvement technologies have increased since 2011, as connected devices, analytics, and automation have advanced. In Q4’17, Maana, a company that provides a platform for analyzing data generated by industrial operations, raised a $28M C round from investors including the VC arms of Chevron, Saudi Aramco, and Shell. Chevron and ConocoPhillips Technology Ventures participated in the company’s Series A in 2014.
Integrated oil companies — defined as international and state-owned companies with operations across the oil and gas value chain — are especially incentivized to invest in technologies that could enable the eventual replacement of hydrocarbon-generated energy and lower the cost of meeting remaining fossil fuel demand. These firms are highly vulnerable to the energy value chain’s environmental, political, and execution risks.
Integrated oil companies accounted for 80% of industry participants in financings since 2008. All other players, including independent exploration companies, oilfield service providers, and independent refiners, accounted for 20% of industry participants over the same period.
With an estimated 1.7 trillion barrels in the ground, untold dollars of capital investment, and investor and regulatory pressure on O&G players to recognize the environment and financial risks posed by climate change, the stakes are high.
Integrated oil company investment also makes sense in the context of the energy industry’s technology development structure. Large, integrated oil producers tend to spend less on R&D than the oilfield services companies that drive technological execution in the industry. However, integrated companies have an active interest in bringing technologies that lower operating costs to market, creating incentives for VC investment.
Below, we break down the portfolio investments of the five most active integrated oil companies that drive much of the VC activity in the O&G industry (notably absent from this list is Exxon, which has eschewed VC investment for R&D, particularly in biofuels).
|Financings by Company Type
(2008 – YTD 2018)
Recent Select Investments
|Clean Tech: 26%
Operational Improvement: 69%
|Maana – Analytics
Lux Assure –Sensors
|Clean Tech: 70%
Operational Improvement: 13%
Cool Planet Energy Systems –Biofuels
Beyond Limits – Analytics
|Clean Tech: 77%
Operational Improvement: 19%
Conventional Energy: 2%
|Eren Groupe – Wind/Solar
Sunverge – Batteries
Sigfox – IOT
|Clean Tech: 45%
Operational Improvement: 32%
Conventional Energy: 21%
|Husk Power Systems – Solar
Silicon Ranch Corporation – Solar
Maana – Analytics
|Clean Tech: 18%
Operational Improvement: 70%Conventional Energy: 3%
|NexWafe – Solar
Foghorn Systems – IOT
Maana – Analytics
CVC investment is a fraction of the industry’s still nominal move into renewables, initiatives that are an even smaller fraction of supermajor capex budgets.
However, O&G industry CVC investment is an important source of funding to bring entrepreneurial-driven energy technologies to market, along with government, academic, and investment interests.