Forced to diversify, Alberta tech sector expands out of oil

The downturn in the oil and gas business has hit Mike Nagus and Charger Industries hard.

Like many people in Alberta, Nagus, who runs the company's technical operations, would have been much happier if the boom had continued.

But his Calgary company is an example of a painful silver lining in the fall of oil prices. 

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Charger's main source of income is making and selling sophisticated batteries used in oil drilling. Long and tubular like the drill bit to which they are attached, the high-powered batteries withstand tremendous pressure, temperature and brutal shaking four kilometres underground.

Charger's product is crucial to modern drilling techniques, powering a suite of underground devices most of us never knew existed. 

Cutting edge

The company, which started in 1998, has never seen an oil bust. But as drilling declines, being on the leading edge of oil and gas know-how may not be enough to save the firm. Business is drying up.

That's why Nagus and his team have stepped up a year-long scheme to find alternative uses for Charger's technology. Nagus says it may be a matter of life and death for the firm.

"It's obvious we have to go somewhere," says Nagus over a scratchy cellphone line, "because we can't rely on oil."

Charger is already developing products for what's called the downstream — or customer-focused — sector of the business that is relatively untouched by falling prices.

One project involves using their batteries to run "pigs," devices that bounce along inside a pipeline, measuring and reporting conditions without interrupting the flow. 

Worst shock

But that may not be enough. Nagus and his research team are searching for other applications, including the military or maybe oceanography or space, places that need batteries that can sustain what Nagus calls the worst shock-and-vibration environment on Earth.

Unlike what you might think, research by the University of Alberta's Dev Jennings shows that innovation doesn't happen when booms are at their peak, when there is plenty of money to go around.

Instead it comes several years after a boom goes off the boil. Perhaps boom times mean there is too much wealth, letting existing businesses live off the fat of the land.

Certainly since oil fell from more than $100 a barrel last summer to about $50 now, the industry has been widely criticized for its inefficiency.

Experts say the crash in prices has concentrated minds. In the world of business, the urge to survive, as you might say, is the mother of innovation.

Kristina Williams, head of the Alberta Enterprise Corporation, says that even while oil companies reduce spending on exploration and drilling, small startups that attract investment are ones that prove they can help the oil business cut costs.

But in many ways, she says, oil and gas has become too big and too rich, pricing other sectors out of business.

Nancy Knowlton, co-founder of one of Calgary's best known non-oil technology companies, Smart Technologies, says it may be no coincidence that she and her husband were able to bring their world-famous Smart Board interactive whiteboard to market during the previous oil downturn.

Sucking out the oxygen

She says that especially when it's booming, the oil industry "really does suck the oxygen right out of the room."

Knowlton says high salaries mean energy is a magnet for the best people, including the essential back office staff such as IT, legal and finance. In that way, her latest startup Nureva, which is working on a new learning and thinking tool, may benefit from the current fall in oil. 

People I spoke to in the venture capital business — which provides investment for startups — say there are already signs the oil decline is pulling down wage rates for skilled professionals as the oil and gas sector lays off staff and no longer picks off all the talent coming out of university.

But redirecting its cast-off technology and employees isn't the only way that Alberta's energy sector is contributing to the province's diversification. Indirectly it is also contributing cash and a pool of entrepreneurial talent.

Like the dot-com billionaires who made their fortunes in one business and then used their cash to invest in another, Alberta entrepreneurs are taking profits made in oil and hoping to turn them into technology gold.

Art Robinson, a partner at Calgary-based private equity firm 32 Degrees Capital, made his pile after selling a transportation company that did most of its work in oil and gas.

Now some of that money is going into Charger Industries, helping it diversify out of oil and gas, and at the same time helping to redirect Alberta's plentiful reserves of drive and human energy into building an economy that is durable, whatever the price of oil.