How Factor Technology Is Automating Geosteering for Oil Drillers with 6 Customers and a Bootstrap Model (Interview with CEO Hugh Winkler)

Introduction and Company Overview

Nathan Latka

00:00Guys factor technology helps folks, especially consultants in the well and drilling industry understand how to map these wells at scale, right? Using a different kind of technology. They want to focus on getting more wellbore in the pay zone as Hugh said it. He's there working with six customer, half dozen customers. They bootstrapped, which we loved, loved launched in 2017, hoping to break a million bucks in revenue next year. We'll see what happens. Hey folks, my guest

00:24today is Hugh Winkler. He is trained as a geophysicist and experienced in web architecture. He invented a technique for well positioning using machine learning technology. With two partners, he founded factor technology to commercialize this technique. They acquired their first early adopters in 2022. And he previously founded Wellstorm, which is acquired by Enverus, which is drilling info in 2012. Hugh, you ready to take us to the top?

Hugh Winkler

00:46>> You bet.

How Geosteering Works and Why It Matters

Nathan Latka

00:47All right. So I guess tell us about this technology and why do people care about what is in a well?

Hugh Winkler

00:54>> Well, everybody's drilling horizontal wells since, you know, for the last two decades. And,

01:02>> you know, for the last twenty years, people have been kinda using an ad hoc sort of heuristic method to position them. So you drill it down two miles, and then you drill it across two miles, and you wanna stay in the in the formation that you're targeting. And they've got various methods for keeping it in the formation while they go two miles lateral.

Nathan Latka

01:25What's the most popular formation before what you've invented? The popular formation. Sorry, not formation, technique to stay in no formation. So you're going down two miles and across two miles. What's the most popular?

Hugh Winkler

01:37>> Geosteering. They call it there's directional drilling and geosteering is what guides directional drilling. And so the geo steer is usually trained in geology, reads measurements that they take down hole. And he uses his intuition and his knowledge and historically uses some desktop computer assistance, but also the seat of his pants to keep the well in the target formation. And this has worked pretty great for the last twenty years. It's not that it's failing, but

The Stress and Risk of Manual Geosteering

Hugh Winkler

02:16>> it turns out that it's a big stress on an individual having to do this job. And so every twenty minutes, you get some new measurements in and you've gotta

02:30>> read some wiggly lines on a screen that are measurements and figure out what that means as far as the geology. And then if you make a wrong decision, you've steered your wellbore out of the productive zone and possibly into a hazard that could cause you to you know, a very expensive sidetrack. So it's a high stress

02:53>> decision that people have been making. And

Nathan Latka

02:57you've got Sorry, Hugh, just to dumb this down for folks that don't know the well in drilling drilling business, you know, you know, really well. So ExxonMobil is drilling something new. They're fracking whatever in Texas. They'll they'll pay someone to go out and do this drilling to understand what the economic opportunity is before they spend all the money to actually do the drilling. Is that it was that what's at stake here? That's what you help with?

Hugh Winkler

03:17>> They're actually this is actually during the doing the drilling part.

Nathan Latka

03:21Ah, okay.

Hugh Winkler

03:21>> They're exploiting the field and they're drilling all these horizontal wells and they've gone out and made a map of what they think the target zone looks like, but nobody you you can't see what's 20 10,000 feet down under the surface. So they're blind. And and as they're drilling along, they try to use these electronic measurements down hole to determine where they are geologically.

Nathan Latka

03:48Interesting. And what, forgive me for my naivete here, but if you know, if you go down to two miles, you're gonna hit, you know, a slice, right? That is, I'm gonna make this up, 300 feet deep of, you know, frackable oil or whatever. Why do you need to know what the pattern is? The left, right? Why can't you just keep sucking from the same spot?

Hugh Winkler

04:08>> Why do you have to go to the Horizontally. If the more wellbore that you can expose to the formation, the more oil you produce out of there.

Nathan Latka

04:20I see.

Hugh Winkler

04:21>> Because the kind of formations they're producing in Texas mostly now are no longer the rich flowing ones, you know, with gushers. That that doesn't happen much anymore. What happens now is that they have to they have a little trickle coming in after and only after they fracture the well. So you drill this two mile horizontal hole through that pay zone and hopefully your whole well bores in the pay zone.

Nathan Latka

04:50Interesting. So your argument is pay for our software. We're gonna help you make more money by spending less money as you exploit, you know, these, you know, much smaller pay pay zone areas.

Hugh Winkler

05:03>> There you go. You'll have more wellbore in the pay.

Nathan Latka

05:07Interesting.

05:08Oh, what's going on there, YouTube? Good to see you guys. Now imagine this. You love watching these interviews with SaaS founders. But imagine if we took all of the valuation data out from over 2,807 interviews I've done manually. Saves you a lot of time. Well, we've done this. We've built it into the beautiful interface inside of Founderpath. Check this out. I'll show you how you can access this in a second, but you log in, you connect

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Who Uses Factor Technology and How

Nathan Latka

07:32interview. So who's using you? I mean, mentioned ahead of the call that you're selling like financial institutions. Are you is this more a research tool for hedge funds or is it actually being used in the field by, you know, ExxonMobil or someone like Exxon?

Hugh Winkler

07:43>> No. This is all about, these are for operators and and their consultants. I see. Yeah, so we've got one top 10 US company using the software and several smaller

08:03>> consultancies. So a lot of these big companies outsource this function because it's a

08:11>> person has to stay up all night watching screens and they don't like to do it themselves. So they outsource the job to workers who work in shifts, watch the screens, take the measurements and guide the wells. And so that's the way it's been done historically. And now we're trying to convince people that instead of outsourcing it, this menial sort of, all night work, you can automate the process by feeding the data directly into our software, sending

08:49>> alerts. We compute the answer instead of just, you know, nobody has to make a lot of judgment calls. You're

Nathan Latka

08:56using What are what are you billing against? Like, are you billing against number of miles tracked, size of payload area? Like, how do you bill?

Hugh Winkler

09:05>> Similar. It's like it's a day rate. Okay, every day you use the software, you you pay a certain amount.

Nathan Latka

09:13Okay, what if I am cheap and I want to take advantage of your software as much as possible? So I just do all my work in one day that I'm done.

Hugh Winkler

09:23>> Well, that's possible and I encourage you to do that, but you can't. I mean, if you're if you're for instance, if you have a well that you wanna know what happened to it retrospectively, you drilled it last week and you wanna know whether it's in zone or out of zone, you could do that. But while you're drilling the well, you want constant updates. So pretty much a user is gonna, use it while they're in the lateral

09:51>> and pay us per day as you extend the well. So that could be five to ten days.

Nathan Latka

09:58So is it just per day rate or what if I'm using you daily across 10 wells? Do I also pay a per well rate?

Hugh Winkler

10:05>> We have a enterprise edition as well that doesn't work on a day rate, it works on a package. Then we sit there with the this is for the majors and large US oil companies and they'll you know, they know what their drilling program is gonna be for the next quarter, for the next four quarters, really.

Nathan Latka

10:27Measured by what though? Do they know that? They forecast that based off number of wells or what's the unit measurement?

Hugh Winkler

10:31>> They have leases they have to exploit within a certain amount of time because they're they have to drill these leases once they've leased them, to keep them under lease, actually. So they know and and they have to contract with the drilling contractors ahead of time. So they're able to come to us and say, you know, we're going to drill 40 wells as next quarter. You know, what's the, what's our package?

Nathan Latka

10:57And do you charge everybody no matter the customer the same day rate?

Hugh Winkler

11:02>> The enterprise has a different rate. I see. Enterprise gets a lot more service. They have the regular day rate people are willing to stick their credit card in and

Nathan Latka

11:16Okay, it is a credit card sale. It's like $10 a day or something like that.

Hugh Winkler

11:19>> Well, it's yeah, it's like, well, it's $90 a day, but

Nathan Latka

11:23it's $9.00?

Hugh Winkler

11:25>> 90. Yeah.

Nathan Latka

11:26Okay. Okay.

Hugh Winkler

11:27>> Yeah. And that's suitable for these consultancies that are,

11:34>> They don't have a lot of bureaucracy. They're not public companies. But if you're a public company, you're asking a lot more of us. One of the things you're asking is compliance. So we're SOC two type one and type two compliant. Additionally,

11:57>> as a big enterprise, you have a bunch of automation in the field so that unlike the small consultancies, you've got continuous data feeds coming in. So you're running the software not intermittently, but continuously.

Team Size and Founding Structure

Nathan Latka

12:11And How many folks are on your team today?

Hugh Winkler

12:14>> There's six of us.

Nathan Latka

12:16Six of you. Okay. And how are you the engineer?

Hugh Winkler

12:18>> Three founders, three founding partners, and an advisor and a couple of programmers and an intern.

Nathan Latka

12:26Do you program?

Hugh Winkler

12:28>> Oh, yeah.

Nathan Latka

12:30Alright, so three engineers including you, you're one of the two, the three co founders. Were you guys nice at the beginning, you just split equally or what?

Hugh Winkler

12:39>> At the beginning, yes. Now we've been self funding for the last several years. So the ratios have diverged a little bit.

Nathan Latka

12:47I see. So can I decode that if you decide to put in your own money, you might get more equity because you put in more of your own capital to fund? Sure. I see. I see. Okay, so you are bootstrapped today. 100%. I love that. Why'd you make that decision? A lot of people choose to raise.

Why the Company Stayed Bootstrapped After COVID

Hugh Winkler

13:06>> Well, at first we were, we did go out and pitch everywhere and we got a lot of response and then COVID happened and then oil went to minus $40 a barrel And nobody wanted to talk to us about anything for a while. And we wanted to keep the company going, so we just decided to keep it going and we would maybe change it into a little Instead of being a big vision company, we did This technology

13:39>> is pretty unique in the industry and I just don't think it's been

13:44>> understood yet, I mean, by many, but we do have people who understand it.

13:51>> But I think it'll eventually prevail so that in five years nobody, nobody's manually doing geosteering the old way.

Nathan Latka

13:58Yep.

Hugh Winkler

13:58>> They might be, might not be using our software, but I think in five years people will all be doing it in this computed automated fashion that we're pioneering. Understood. So we're gonna leave it. We couldn't leave the company and we decided to keep it going and we nursed along a couple of little tiny customers, consultancies and

Nathan Latka

14:26And you how many how many how how many customers are you working with today? Is it still like a handful? One, two, three?

Customer Count and Revenue Predictability

Hugh Winkler

14:32>> Yeah. A half a half a dozen.

Nathan Latka

14:34Half dozen. Okay. And we never asked, we never asked actually when you wanted

Hugh Winkler

14:39>> one of the giant, you know, $20,000,000,000. We do have a giant $20,000,000,000 company. So I feel good about that.

Nathan Latka

14:45When did you launch the business? What year?

Hugh Winkler

14:48>> '97, '97, 2017.

Nathan Latka

14:51I was supposed to say holy All right. So 2017. Oh, startup. Yeah. Six customers. And I guess how do you, you know, one benefit of SaaS is you have predictable revenues so you can hire knowing you can pay salaries, but if you're charging a day rate, I guess I imagine it's really hard to predict if someone's gonna use you, you know, next week or not. How do you try and create predictability in your revenue stream?

Profitability and Pricing Model Discussion

Hugh Winkler

15:15>> Well, we haven't really had to, that hasn't been, you know, we're not profitable yet. So we're not, you know, we would like to just have a revenue stream first and I'll worry about predictability after that.

Nathan Latka

15:29Well, I mean, don't you potentially have to change your pricing model? That's I mean, that's sort of my right? 90 a day, if people can turn off or on so easy, it's really hard to build a recurring stream.

Hugh Winkler

15:39>> Well, don't you? Yes, of course. But don't you love it as a customer? The ability to pay for just what you use?

Nathan Latka

15:45Well, I think if that was the case, you'd have more than six customers.

Hugh Winkler

15:48>> Yeah. Well, I think you have to What we're doing is you have to adopt So we're gonna transition We're hoping to sell more of these enterprise systems, but

16:05>> know, that was sort of our strategy as we crossed the little COVID chasm. Yep. Was to just keep the company going and just try to get users and we don't care how we get them.

Nathan Latka

16:17Yep. How did you get your last customer? Can you tell me the story?

How the Last Customer Was Acquired

Hugh Winkler

16:23>> We went out and recruited a consultancy that we talked to pretty closely. You know, I go and visit them. I didn't get them through the internet. Now, actually, I did if you mean my my very last I mean, you know, every few days we get a new trial. And I think that our software requires a sort of a change of of workflow for a lot of these consultancies. So they need a high touch experience with us.

16:59>> And so far, we're really you know, one one thing I would say, the arm's length approach is not giving us that ability to go in and coach them and, bring them along. So I think we lose customers through not understanding how to use the software.

Revenue Goal: $1M Targeted for Next Year

Nathan Latka

17:15Understood. I mean, what are your goals? Do think you can break a million dollars of revenue this year?

Hugh Winkler

17:21>> No.

Nathan Latka

17:22What year do you have a plan for?

Hugh Winkler

17:23>> Was sort of what year are targeting?

Nathan Latka

17:24Next

Famous Five: Books, Tools, and Life Advice

Hugh Winkler

17:25>> year.

Nathan Latka

17:25Next year. Okay, cool. Cool. And well, we're rooting for you. We hope it works. I love a niche. I love a niche product like this, especially bootstrap. So on that note here, let's wrap up with the famous five. Number one, your favorite book.

Hugh Winkler

17:41>> God, this is the one I just read. How about that? I just read Julian by Gore Vidal.

17:46>> Okay.

Nathan Latka

17:47Number two, is there a CEO you're following or studying?

Hugh Winkler

17:51>> Oh God, no, but my favorite CEO in the world was Allen Gilmer, the CEO of Enverus.

Nathan Latka

17:59Interesting, Enverus. Okay, number three, what's your favorite online tool for coding?

Hugh Winkler

18:06>> Oh, well, we're, you know, I hate to say visual studio code, but you know, that's sort of the

Nathan Latka

18:15That's fact that fair. Hugh, number four, how many hours of sleep do get every night?

Hugh Winkler

18:20>> Sleep. How many hours of sleep?

18:22>> Six.

Nathan Latka

18:23Six. Okay. And situation, married, single, kids?

Hugh Winkler

18:26>> Married, no kids.

Nathan Latka

18:28No kiddos. And how old are you?

Hugh Winkler

18:30>> 65.

Nathan Latka

18:31Last question, something you wish you knew when you were 20.

Hugh Winkler

18:36>> It's all gonna work out.

Nathan Latka

18:39Guys factor technology helps folks, especially consultants in the well and drilling industry understand how to map these wells at scale, right? Using a different of technology. They wanna focus on getting more wellbore in the pay zone as Hugh said it. He's there working with six customer, half dozen customers say bootstrapped, we loved, loved launched in 2017, hoping to break a million bucks in revenue next year. We'll see what happens. Hugh, for taking us to the top.

Hugh Winkler

19:04>> Thank you, Nathan.

Nathan Latka

19:05One more thing before you go. We have a brand new show every Thursday at 1PM Central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers. They try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every Thursday one

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