Queen of Kens­ing­ton

Alberta Oil - - OB­SERVER -

There has been a lot of talk re­cently about the need to di­ver­sify Al­berta’s en­ergy econ­omy. What there hasn’t been a lot of, are peo­ple will­ing to put their money where their mouth is on the is­sue. With more than $850 mil­lion un­der its man­age­ment, Toronto-based Kens­ing­ton Cap­i­tal Part­ners is try­ing to change that. The al­ter­na­tive in­vest­ment house re­cently opened a west­ern op­er­at­ing base in Cal­gary that is fo­cused on fund­ing en­ergy and power in­fra­struc­ture, as well as green tech­nol­ogy. The pres­ence of ven­ture cap­i­tal in the oil patch is noth­ing new. And while Al­berta may not be known yet for hav­ing a thriv­ing tech sec­tor, it is known for be­ing one of the most en­tre­pre­neur­ial places in Canada.

Con­nect­ing those two worlds is where MICHELLE SCAR­BOR­OUGH comes in. She’s the head of Kens­ing­ton’s new Cal­gary of­fice, and a sea­soned ven­ture cap­i­tal­ist with a back­ground in the en­ergy and tech sec­tors. She ex­plains that the en­ergy in­dus­try is go­ing through a time of great evo­lu­tion and up­heaval, much of that as a re­sult of new tech­nolo­gies. But that doesn’t mean tech­nol­ogy is go­ing to be the en­emy of fos­sil-fuel de­vel­op­ment any­time soon. In­deed, the two are be­com­ing in­creas­ingly co-de­pen­dent. That’s good news, not only for ven­ture cap­i­tal­ists and an ail­ing Al­berta oil patch, but for fu­ture en­ergy pro­duc­ers and con­sumers ev­ery­where, too.

It was June 2015 when Kens­ing­ton’s Cal­gary of­fice opened. West­ern Canada’s en­ergy in­dus­try was and is tak­ing a se­vere beat­ing, and here comes this Bay Street in­vest­ment firm rid­ing in to save the day. Is that ba­si­cally the ori­gin story here?

No, it takes a vil­lage, re­ally. But be­cause of my back­ground in en­ergy and tech­nol­ogy, I be­lieve that tech­nol­ogy is one of the ways we’re go­ing to be able to help re­duce costs, both in en­ergy tech and clean tech. If we look across the land­scape, the in­dus­try is driven by tech­nol­ogy. Whether it’s pumps go­ing into the ground to pull out oil, or all the power-gen­er­a­tion fa­cil­i­ties around those sys­tems – it’s all tech­nol­ogy-based. So re­ally what we’re talk­ing about now is the next evo­lu­tion of tech­nol­ogy in the en­ergy busi­ness. And we are here be­cause tech­nol­ogy will be a big driver in re­duc­ing costs to the cus­tomer and in­creas­ing pro­duc­tiv­ity and ef­fi­ciency.

What’s the cur­rent state of Cana­dian oil­field tech­nol­ogy, from a global per­spec­tive?

I work with a num­ber of large cor­po­ra­tions and the de­sire to adopt new tech­nolo­gies is there, but one of the chal­lenges is: Where do you start? And where are you go­ing to see the big­gest im­prove­ment?

This hasn’t been well-ar­tic­u­lated, but the in­dus­try has been a tech­nol­ogy adopter all along. But the goal now is adopt­ing tech­nolo­gies that trans­form how de­ci­sions are made, how wa­ter is used, how emis­sions are re­duced and how power and en­ergy can be used more ef­fi­ciently. The idea is, cer­tainly, to be more en­vi­ron­men­tally friendly, but also to main­tain and in­crease that so­cial li­cense to op­er­ate. You’d be hard-pressed to find any­body in the in­dus­try who isn’t on­board with that. The ques­tion is: What are the eco­nom­ics for do­ing that ef­fec­tively so that we can still main­tain com­pet­i­tive­ness? And that’s be­ing asked on a global ba­sis – it’s not just hap­pen­ing in Canada.

Of­ten it feels as if we’re ask­ing en­ergy com­pa­nies to em­brace th­ese rather new and un­cer­tain tech­nolo­gies at a time when many are strug­gling just to keep the lights on. How do you help them bridge that di­vide?

Some of the tech­nolo­gies we are see­ing are able to be im­ple­mented seam­lessly into ex­ist­ing sys­tems that the in­dus­try is al­ready us­ing, and that can be done quite cheaply. The new tech­nolo­gies that are be­ing de­vel­oped are com­ing into com­mer­cial use at a price that is af­ford­able even in this mar­ket. And they aren’t im­pact­ing reser­voirs, mean­ing that you don’t have to shut a well down to im­ple­ment a new tool. They’re al­low­ing the op­er­a­tor to make a well run more ef­fi­ciently through data, and safety and se­cu­rity mon­i­tor­ing. So we’re see­ing mainly com­mu­ni­ca­tions tech­nol­ogy be­ing used for new ap­pli­ca­tions in en­ergy, while things like wa­ter tech­nol­ogy and sol­vents are a bit fur­ther out.

Also, en­ergy com­pa­nies are be­com­ing more adept at us­ing al­ter­na­tive en­er­gies as a power source. We’re go­ing to see quite an in­ter­est­ing evo­lu­tion here over the next 10 years. It’s prob­a­bly the best time to be in­vest­ing in en­ergy and clean tech that we’ve seen in a long time.

What are some of the more dis­rup­tive tech­nolo­gies that you see com­ing on­stream to­day?

Some of the big dis­rup­tors are tech­nolo­gies that al­low you to re­motely op­er­ate wells with­out field op­er­a­tors check­ing the wells ev­ery five min­utes. It’s a huge cost sav­ings and a big dis­rup­tor in terms of how they man­age their sys­tem of wells and man­age the flow. Is the well op­er­at­ing or not op­er­at­ing? Is it on or off? Is it func­tion­ing at op­ti­mum tem­per­a­ture pres­sure? How much sand is there? How much wa­ter is there? Those are things that will be quite dis­rup­tive over time. There are also tech­nolo­gies be­ing de­vel­oped that are dis­rupt­ing the way in which wa­ter is used or not used in ex­trac­tion. The use of dif­fer­ent kinds of sol­vents – “green chem­istry” – is on the hori­zon. Some very in­ter­est­ing chemistries are be­ing cre­ated us­ing biodegrad­able or bio-friendly pro­cesses. And then you’ve got dis­rup­tions through de­cen­tral­ized en­ergy and de­cen­tral­ized power use. We’ve got coal-fired plants com­ing off­line and we’re switch­ing to gas. There’s go­ing to be dis­rup­tion in terms of how that gas is used, and how it’s used for de­cen­tral­ized en­ergy and cre­at­ing a dis­trib­uted sys­tem. And the power com­pa­nies will have to adapt to that. So there are a whole lot of knock-on ef­fects as a re­sult of changes in the en­ergy space – and in oil and gas, specif­i­cally.

Prime Min­is­ter Justin Trudeau re­cently made the in­fa­mous dis­tinc­tion that he’d rather Canada was known less for its re­sources than for its re­source­ful­ness. Do you see the re­cent growth of the Al­berta tech in­dus­try as a move away from re­source de­vel­op­ment or as a par­al­lel path?

It’s not an ei­ther-or sit­u­a­tion. We have the lux­ury of hav­ing nat­u­ral re­sources as a big part of our econ­omy, and I don’t think throw­ing that away is a great strat­egy. The en­ergy sec­tor in Al­berta has been a big driver of tech­nol­ogy in the past, and I don’t see that stop­ping. What I do see is the evo­lu­tion of the en­ergy in­dus­try as a tech­nol­ogy in­dus­try. What we’re go­ing to see is an evo­lu­tion to a tech­nol­ogy econ­omy that al­lows all of the in­dus­tries that Canada has been built on – that’s nat­u­ral re­sources across the board, in­clud­ing so­lar and wind – to en­hance us and make us very ef­fi­cient and able to com­pete on the global mar­ket.

But most of the new en­ergy tech com­pa­nies that we’re see­ing – whether they’re above the ground or be­low the ground – are green tech­nolo­gies in that they’re fo­cused on ex­pend­ing less en­ergy to get that same job done.

Michelle Scar­bor­ough, se­nior vi­cepres­i­dent, Kens­ing­ton Cap­i­tal Part­ners

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