New exploration technologies are being offered through partnerships rather than the standard client-service company mode.

Business models come, and business models go. And it's always fun to watch.

Oil companies have tried on many models over the years, moving from a regional approach to a centralized approach, moving from owning everything internally to focusing on "core competencies" and outsourcing everything else. Perhaps the only certainty is that the pendulum will continue to swing as long as there are remaining drops of hydrocarbons in the ground.

Service companies adopt some of the same strategies, usually in response to whatever it is they think their customers want at any given time. When oil companies were outsourcing non-core activities, service companies responded by becoming "one-stop shops," offering cradle-to-grave solutions. Most of the major integrated service companies still use this approach to some extent.

But in the wake of that across-the-board integration are some niches, and a new breed of company seems to be emerging that is almost a hybrid between a service company and an oil company partner. These companies offer technology and expertise that many companies, particularly the smaller ones, lack internally. But they also want a piece of the action.

In the exploration business, at least two such companies are gaining a foothold. The technology they offer differs in significant ways. But they have a couple of things in common: They offer techniques that fast-track prospect generation, and they like to be involved in the upside potential that their techniques make possible.

Emerald Geoscience

Emerald Geoscience Research, formerly Diamond Geoscience Research, was formed in 1994. It was designed to complement oil companies' exploration and field development efforts through the use of multi-attribute geophysical technology. Building on 8 years of R&D, Emerald has created a technology that decomposes the seismic trace into its basic components. One of these extracted components is the density information. What's so unique about this density derivative is that it is not as sensitive and misleading as conventional amplitude and AVO technology. While the conventional technology is able to indicate the presence of hydrocarbons, the 3-D density cube can detect between economic and non-economic amounts of oil and gas.

The two principals of Emerald Research also formed RiverBend Energy Partners as a vehicle to leverage its technology. RiverBend has had considerable success working with smaller independents in lease sale, farm-in and field development scenarios, whereas the original operator, using less sophisticated techniques, may overlook potential pay.

RiverBend partners with oil companies, supplies its technology and data at a discounted rate, and in return gets an overriding royalty interest on the resulting wells. "We may discount our services by 60% with the hope that we can assist them in finding economic quantities of hydrocarbons," said Davis Ratcliff, president of both RiverBend and Emerald Research. "Our return may come 5 or 6 years down the road. But it's well worth the wait."

Emerald and RiverBend have been very selective about their partners, preferring smaller independents that lack sufficient staff to perform high-end processing and interpretation on their data. "This gives them access to tools that even the majors don't have," said David Weber, chief executive officer of Emerald Research and RiverBend. "It gives these smaller companies a distinct competitive advantage and keeps our technology contained."

So far the model has worked exceptionally well, and Ratcliff said Emerald has contracts through the end of 2003.

Chroma Energy

Despite the name, Chroma Energy isn't simply another oil company. But company officials also make a point of distancing themselves from the service company label.

Chroma Energy's expertise is in pattern recognition technology. It applies proprietary pattern recognition and visualization tools to augment the oil-finding expertise of its staff as well as the geoscientists in its partner companies.

Chroma Energy partners with oil companies in a variety of fashions - bonuses, overrides, carried and networking interests, and equity participation. It targets partners that have vast quantities of 3-D seismic data but not necessarily the staff to sort through that data in a meaningful and timely way.
"I have a factory," said Peter Duncan, chief operating officer for Chroma Energy. "Data goes in, and prospects come out. We have really good craftsmen, but we need a lot of feedstock."

However, quality matters more than quantity. "We're trying to set up a few significant partnerships where they see the value of our technology," Duncan said.

Already the company has crafted several different business relationships, from exploration agreements, where Chroma Energy personnel generate the prospects, to joint ventures, where Chroma Energy works with one or more companies to assemble the basic components of an exploration or development program in a targeted geographic area for the purpose of creating a new company. It has this type of arrangement with F-W Oil LLC. It also has operational agreements with Parallel Petroleum and Anadarko, where it works specifically with that partner and receives a retainer and success-based compensation.
No doubt there are countless other examples of this business approach as well. It's a risky business because the niche company must offer a truly innovative solution and market it in a way that appeals to the potential clients. But when it works, it amounts to the proverbial "win-win" situation: oil companies get access to ground-breaking technology, and the technology providers are exposed to a potential upside far beyond the typical service company returns.

For more information about Chroma Energy, visit www.chromaenergy.com. For more information about Emerald, visit www.emeraldgrc.com.

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