FastTrack to Success
We recently interviewed Nader Behjat, founding partner and CEO of Centraflow, a startup company that is in the process of developing oil & gas products with the goal of reducing their customers’ life-cycle well costs. Centraflow was accepted into Validé’s incubator program in December 2015 and was later allocated an investment of 2 million NOK through Validé Invest’s pre-seed fund. Centraflow’s team consists of eight employees in Norway as well as two in Scotland.
At a Crossroads
On rare occasions, the stars align just right, and everything seems to fall into place. Nader Behjat and Grant Knight, the entrepreneurs behind Centraflow, encountered such an occasion during the Autumn of 2015. As colleagues in the petroleum industry, the pair were chatting over lunch one day and stumbled upon an idea that, if viable, would fulfill a long-standing market need. After some preliminary research, they received verification that their idea was viable. Almost simultaneously, Grant and Nader were told that their employer’s acquisition by another firm meant that they would soon be unemployed. Standing at a crossroads in their lives, the men decided to choose risk over certainty and took the first steps toward turning their idea into reality.
As colleagues at Premier Oil, Nader and Grant were aware of the various challenges and shortcomings
related to petroleum and gas production. Nader explained that countless presentations by other oil service firms highlighted the presence of a widespread problem with the integrity of oil wells. “There are different solutions [on the market], but there isn’t anyone that is addressing the root cause of the problem, which is [uneven] flow velocity during wellbore clean-up and cementing operations.”
Nader went on to explain that during the process of drilling a new well, drilling fluid (mud) is used to clean away the drilled cuttings and other debris. In horizontal/deviated wells, gravity causes the debris to settle on the bottom (or low-side) of the well. Obstruction of a well’s low-side often creates a disparity in the drilling fluid’s flow velocity, which then results in cuttings and debris being left behind during the cleaning process. Once drilling is complete, a steel pipe (casing) is inserted, and cement is placed between the wellbore and the casing to create a bond between the casing and the oil-bearing rock formations. If debris is present, it decreases the cement’s ability to bond, often leading to well integrity being compromised. “Market data supports that there is a need for better technology…40% of global wells have issues with well integrity, and the majority are [because of issues with] cementing”.
Need – The Mother of Invention
Nader and Grant’s idea was to create a product that would equalize the flow velocity of drilling fluid and cement and, as a result, ensure the thorough removal of debris as well as the circumferential integrity of the cement’s bond. By placing an obstruction on the high-side of the well, they hypothesized, the fluid’s flow velocity would be equalized. Fortunately, Nader had prior knowledge of computational fluid dynamics (CFD), which is the process of using numerical analysis to simulate the flow of fluids. In August / September 2015, the men used CFD to run preliminary simulations without the need to build a physical prototype. “The results [of the preliminary analysis] were mind-blowing!” They were, in fact, better than Nader and Grant ever expected. The men quickly decided to move forward with developing their idea. Over the next few months, they established their company, Centraflow AS; pitched their idea to Validé’s (earlier IPark AS) Incubator program; and applied for patent protection in Norway.
Turning Adversity into Opportunity
“The timing was perfect.” explained Nader. The men had recently been told that their positions at Premier Oil would soon be eliminated. By 2016, the oil and gas industry was in the middle of a market downturn and, thus, a substantial number of jobs were being eliminated. In the Stavanger region alone, 25,000 people (roughly 10% of the population) had become unemployed (Aftenposten, May 18, 2016).
While investment and growth stagnated across the industry, Nader and Grant saw opportunity.
The men recognized that time was on their side. They were suddenly in a position to invest all their time and energy into developing their idea. Because of the petroleum market’s stagnation, they thought that, at least in the short-term, it was unlikely that others companies would also be working on launching similar solutions to improve well-integrity. Furthermore, Nader and Grant saw the opportunities related to recruiting young and inexperienced talent. “We wouldn’t have been able to attract this quality of people 2-3 years ago, especially as a startup.” Nader believes that young people have certain characteristics that make them especially valuable employees. For example, he believes it’s a positive that inexperienced employees are driven by vision and creativity rather than being stuck in the mentality of their predecessors “Young talent hasn’t been tainted by the status quo,” he said “attitude and commitment [are often] far more important than experience.”
Audacious Business Model
A lot has happened with Centraflow in the short time since its inception. “We’ve been quite aggressive and different with how we’ve done things, compared to others.” Nader explained that he and Grant both believe that to be successful, they need to develop a simple product and get it to market as soon as possible. “You lose your competitive advantage the longer [it] takes.”
“To be able to [keep your competitive advantage], you need a sort of critical mass,” Nader explained “and we’ve built up our organization to be able to do that.” As of the time of the interview (February 2017), Centraflow had grown to eight employees strong. Team members include a CFD engineer, two mechanical/petroleum engineers, a CAD engineer, a business development manager, and an administration/HR manager. “We’re quite self-sufficient, and that lets us work at a much faster pace because we’re not relying [very much] on outside engineering…that’s how we’ve been able to develop the product so quickly.”
Nader believes that one of the reasons Centraflow could do so much in so little time is because he and Grant encourage their team to take chances. “We don’t want to limit their experimentation…I’ve [told them] ‘Don’t be afraid to experiment and then fail. What if you succeed?’” As it turns out, one of their young engineers discovered that they could use the physics of buoyancy as a basis for designing their well-tool. “It took one of the guys playing around…he set up a bathtub test with tubes, and tried the concept…and it worked. [That] was the birth of our tool.”
Cash and Credibility
However talented the team, however brilliant the idea, a profitable business cannot be built without funding. Early-on, Centraflow had many elements in place to help them propel their business to success: a niche market, a viable & proven product idea, and a passionate, committed team with competency and expertise. However, at the time, the company was also working on a very limited budget, which was the result of personal investments made by Nader and Grant. They knew that without additional funding, their chances of fully developing their product would diminish. Soon after Nader and Grant began seeking out possible sources of funding, they secured some financial assistance from Innovation Norway.
Early on, Nader and Grant also recognized that they could increase the chances of selling their product if their young and little-known company had some external credibility to back it up. By word-of-mouth, they heard about the incubator program at IPark AS (the forerunner to Validé). After some initial research, the pair were confident that being a part of the incubator program would help them gain the credibility they needed. Centraflow applied for, and were accepted into, the program and subsequently joined IPark’s incubator in January 2016. “We [weren’t] really in need of external support,” Nader explained “but the association with [IPark]/Validé has been of great value to us.” “When you go and present [your product], they take you a lot more seriously…that’s been extremely valuable.”