Co-founder and COO of Vortex Oil Sergey Jakimov shares how their solution extends oil field utilization 5-6 times, works for 5 years straight at -40 to +40°C and is battling the unwritten rules of the global oil industry. All for cleaner, cheaper and more efficient oil extraction:
About Vortex Oil: Vortex Oil is an oil service startup from Latvia with an idea born in the cold and harsh region of Siberia in Russia and realized in the Commercialization Reactor. The company offers a technology that can increase the extracted oil amounts from oil fields and reduce the production of polluted water at the same time.
- How was Vortex Oil created?
Vortex Oil is actually a really interesting case in terms of being highly untypical for Latvia. Who would have thought there could be an oil service company coming from a region without any oil extraction traditions at all? Of course there have been attempts to develop this field in Latvia but, to be honest, the amounts could be measured in buckets, not barrels. Another of our unusual characteristics is that until the end of August 2015, we were actually working without any external investments, funded by minor funds contributed by our own members that helped us travel around and work on this project.
We set a challenge and a work structure for ourselves to develop as far as possible without money so that we could build a bigger trust around us for outside partners.
Vortex Oil started out in October 2013 as a proto-company in the 7th reactor within the Commercialization Reactor. The product concept comes from Novosibirsk, Russia and the Commercialization reactor acted as a matchmaker by putting us together. The official registration of the company took place in the summer of 2014, until then we existed only as a team was working on the idea. Now we are in negotiations to work with one of the biggest oil extraction companies in Europe, which is also a notable player globally.
Additionally we want to say thanks to LIAA (Investment and Development Agency of Latvia) for partial support on the trip expenses for participating in the investment sessions abroad. EU funds have greatly helped us in developing the product.
- How would you describe your team?
The team consists of four standing and most active members from two countries. The management is mostly Latvian and the team of scientists and experts is mainly from Russia. In the course of the last few years, our team has changed, some partners have left and some have joined us. Now we consider our team complete and ready to achieve our goals.
- How does your Vortex device actually work?
Usually, when oil is found, extraction company will drill a hole, a so-called extraction well, through which the oil is coming out. Most people imagine the oil fields as a big underground lake, but this is not the actual case. The oil fields and the land underground (production layer) could be better compared with a kitchen sponge and it is the spongy structure that holds the oil within it. After drilling the first hole, it is possible to extract about 10 to 15 percent of the oil reserves with the help of underground pressure. Then comes the problem of how to get out the rest. To stimulate the underground layer, an overwhelming majority companies drill a second hole, a so-called injection well, through which they pump some water inside. The water gets into the spongy structure, replaces the oil and squeezes it out. As a result, a mix of water and oil is extracted from the first well, which then has to be separated. The separated water (produced water) is repeatedly pumped back into the production layer. This is where the second problem comes in. It is currently impossible to perfectly filter out the oil and other particles from the water without significantly increasing the costs. As the extraction water becomes muddier and muddier after repeated use, its efficiency as a pressure stimulator decreases. The water cannot be used infinitely, so it has to be changed. The polluted water is hard and expensive to purify and utilize for anything else, which creates extra costs and environmental problems.
As the extraction water becomes muddier and muddier after repeated use, its efficiency as a pressure stimulator decreases. The water cannot be used infinitely, so it has to be changed. The polluted water is hard and expensive to purify and utilize for anything else, which creates extra costs and environmental problems. This is the point where Vortex Oil comes in.
We offer to install our device in the pipeline connected to the injection well. To illustrate the outside of the device you can imagine a regular piece of a pipe. The actual know-how is that this piece of pipe comes with a vortex chamber in it. The whole pipeline system has a huge atmospheric pressure, around one hundred, and the water injection rate is starting from 50 tons a day. Because of this amount of water and pressure, we can turn this muddy water in such a way that it blends and mixes to a condition where the biggest oil particles have collapsed. Imagine it as a giant mixer. This process brings up the efficiency and reduces the viscosity of the water. As a result, the water penetrates deeper production layers, widens the range, boosts the extraction amounts.
Of course, at some point, the water has to be changed again, but our device extends this cycle by 5 to 6 times.
We offer oil companies to save money and water, while extracting more oil before leaving each field. Currently, the cost of utilizing one barrel of water is from 75 cents to 1 US dollars and 94 million barrels of oil are being extracted around the world every day . Oil is a non-renewable resource and the prices per barrel have recently dropped, so this is the right time for the companies to start acting more prudently.
- Who are your competitors?
We have no direct competitors around who would offer a solution similar to ours, so our product is unique. Other solutions that we are competing with include using polymers, chemicals and propellants.
One competing solution is called fracking. It is very radical. By using a lot of machines, chemicals and propellants (ceramic balls), they pull out the entire production layer with an underground explosion of pressure. The result is effective, but very expensive and pollutes all of the neighboring water supplies under and above it. European Union does not support this method.
As opposed to these solutions, we offer a comparable alternative with a constant effect. Another advantage is that our product does not have to be operated and served as there are no moving parts. Our the device had worked in Siberia for five years straight without breaking. It can operate under the temperatures ranging from -40 to +40°C without any problems.
- How has Commercialization Reactor helped your company?
There is a fundamental difference in the mindset of a scientist and an entrepreneur. In a single conversation, it is impossible to explain something about the beneficial side of business idea to a scientist. And the thing is that the scientist who has worked on the idea for 20 years doesn’t want to believe the ideas of a random guy in a business suit and doesn’t even have to understand anything about selling.
Commercialization Reactor brings the people from these two worlds together and offers all the necessary mentoring for them to understand each other and communicate. It provides the base knowledge on how a high-tech business is built and teaches you how to look at experts, how to speak to them, how to find them and attract them. Commercialization Reactor lets you understand where you are now and in which direction you should put your next step.
- What are your planned revenue models?
Contrary to the popular belief, the owners usually do not operate their oil fields themselves. Most entrust the extraction to professional oil service companies. The owners have contractors who employ subcontractors and this outsourcing chain can become long and complicated.
We have chosen some typical revenue models that are easily understandable for the oil service industry. This is not a place to think of something innovative.
In our first model, we do not sell our device, we rent it out and keep it as our own property. The first revenue model is paying a fixed monthly fee for the use of our device. In this case we do not take in consideration how much more oil has been extracted with it: as long as the company pays for it, they can use it. We offer a 3-month free trial period for investigation, manufacturing and installation to every client. All injection wells are tailor-made, based on characteristics of the injected water, production layer and the oil itself.
Our second revenue model is not typical for European and American oil companies, as it would make them reveal their data to competitors, but it is widely used in Latin America. There it is common for oil service companies to receive money for the increased effect. For example, if an oil company can extract 10 000 tons of oil and after installing new equipment the amount increases by 70% (to 17 000 tons), the oil service company receives a 10% revenue premium from the market value of these additional 70%.
- Can you share more details about your recently attracted investments?
In September we attracted a pre-seed round of €50 000 from Imprimatur Capital and around the 8th of December we officially closed the next round exceeding €500 000 together with a Polish fund - Startup Hub Poland, after a 4 months long dialogue. This Polish fund saw our presentation at Hello Tomorrow Conference 2015 in Paris and it played a key role in our cooperation.
- How do you plan to use the funds and what are your future milestones?
We have a lot of plans related to R&D and one of the main tasks is to assemble an efficiency dossier about our technology and what we can offer to our clients and partners in a more consolidated manner. We also plan to perform a field-test, a bigger one than we originally planned to do with the pre-seed funding. Other plans are related to our commercial development. In 2016 we are planning to work with our first clients and protect our intellectual property.
- What is your experience attracting investment for a science-based startup?
In the terms of startups themselves, we have observed that a bigger emphasis is being put on funding and developing IT solutions because they need less money to test their concept and to create a marketing strategy. IT solutions can be duplicated and recreated in a different appearance for different target groups.
Science-based startups need more money for testing and receiving feedback from the industry. When offering something to the particular industry you are offering something new and not tested. The search for a partner takes a lot of time because it means he has to take some kind of risk after all.
You can not just create a web-site and look at the traction, how many clicks have been performed and how many returning users you have, this is our biggest challenge.
In the terms of oil industry, the biggest problem that we have faced are entry barriers for newcomers. Oil industry already has its main players and in many cases bigger efficiency is not as important as the existing division of spheres of influence, which has been created and sustained throughout many years. We have to talk directly to an industry with a history and traditions of hundreds of years and overcome strict Standard Operating Procedures.
- Just a month ago, your fellow startup at Commercialization Reactor, Naco Technologies, announced their exit to German Schaeffler Group. What can you learn from their experience?
Naco Technologies is a really interesting example, as they are not only the first exit but also the first project started in Commercialization Reactor. The main takeaway to learn from them as a science startup is that you have to be patient and you shouldn’t step back from a company, but ought to work a lot together. This exit took them about six years to accomplish. They are a good example of commitment demonstrated by a strong team. You really have to believe in yourselves and the idea to achieve anything.