By Miles Kruppa
Oil and gas producers, including those with drilling operations in the Eagle Ford Shale, face increasingly tight margins as the price of a barrel of crude has hovered in the low $40s.
Drilling can require large on-site power generators. And FlexGen, a Houston-based company that created a hybrid system that plug into existing generators and convert and store energy from multiple sources, says it can save companies significant amounts in fuel costs and maintenance spending.
The technology, introduced in September, is being used on seven wells for three different operators, says FlexGen CEO Josh Prueher. The company also has contracts for 60 more rigs for nine major independent shale players.
A recent infusion of capital helped the company fill the demand for renting its turn-key hybrid power generators. In August, FlexGen completed a $25.5 million round of financing led by Denver-based Altira Group and the venture arms of Caterpillar and General Electric. The money will let the company expand operations and develop more efficient artificial lift products, which bring oil to the surface by increasing the pressure within a reservoir.
Prueher spoke to the Houston Chronicle about the company’s technology and growth. Excerpts, condensed and edited for clarity:
Q: How would you explain, to a layperson, what the hybrid power generation system does?
A: Conceptually, the way our technology works is not too different from a Prius drivetrain. What we do is that exact same thing, but we do it for generators.
Q: What other industries have expressed an interest in this technology?
A: Anywhere there is a generator, we can drive a lot of efficiencies. The risk in a small company is trying to do too many things at once, so we’re very focused on the oil field because with the price of oil where it is, the efficiency with which operators can extract oil and natural gas is really critical, and we’re effectively an efficiency tool.
Q: The financing round was the first time GE and Caterpillar venture arms have gone in on a deal together. What does it show about how they value the technology?
A: We are really overjoyed because we think the fact that both GE and Caterpillar, who are also competitors, invested in the same company and the same technology reflects their belief in the global applicability of our technology.
Q: What’s the first step to going global?
A: Oil and gas, because it’s a global industry, helps us in a lot of ways. Proving our application on a drill rig in North America for a number of primarily North American drillers is the first step, but we really want to let our customers take us into those new markets. The real beauty, again, of the Caterpillar relationship and the GE relationship is that, as a small company, if you send a product to the other side of the world, you’ve got to be able to support that product. It halves electricity costs, but the biggest question from a big industrial customer is, great, how can a company that is 25 people support a product operating in Africa? The answer is GE and Caterpillar.
Q: What does it mean that FlexGen will revolutionize off-the-grid power?
A: In North America people generally think of generators as backup systems. The layman just thinks of a generator that turns on when a hurricane blows through, but in 40 percent of the world, that generator is running all the time. They don’t have electricity from anywhere else. Forty percent of the earth operates off-grid, that’s just population based, and most industries operate off-grid because they don’t have grid-supplied power in the places where they have to operate.
Q: If, as you say, 40 percent of the world is operating off-grid, that’s a pretty large market.
A: It’s huge. The diesel generator market is one of the fastest growing industrial markets in the world, and the market potential for a company like us that provides hybridization systems is in the billions with a ‘b.’
Q: And your business has grown through the downturn, even as shale fields have dried up. What will happen during an upturn?
A: We’re building this company in a market that is pretty challenging for our customers, and we’re doing that by being able to add a lot of value. If you think about the economic return to our customers of employing our technology on a drill rig, today we’re reducing costs of drilling about $3,000 a day. If you went back to mid-2013, that number would be over $6,000 a day because the diesel prices were so much higher then, and so if you start to see an upswing in oil prices, that only helps our value proposition because the fuel savings are a meaningful part of what we do.
Q: What does this all mean for the company’s profile in the Houston community?
A: We have now become silhouetted within the venture community within Houston. Historically, a lot of the innovation has been behind closed doors in companies, and we really regard ourselves as banner carriers in the Houston venture community.