Palantir Greases BP’s Gears
At Iron Edge VC, we consider versatility and scalability to be among the most important attributes to examine when considering the long-term earnings potential of a company. When we see Topgolf’s intentions to construct 130 of its $20 million facilities and scatter them across the map (and globe), we know that big revenue is coming their way. When SoFi starts with student loans, then gets into home mortgages, financial planning, investment advisory and beyond, we like that they have a multitude of different ways to bring home the bacon. In the case of Palantir Technologies, perhaps in part due to the very secretive nature of the company’s entire culture, it might require a little more digging to reveal what they are poised to accomplish. The extra legwork is well worth the effort, though, as we hope to show you.
Founded in 2004, Palantir was conceived through the work experience of founder Peter Thiel when he was at PayPal. At a huge payment management company like PayPal, as you might imagine, credit card fraud is a most pressing issue. To combat this criminal activity, they developed a security application, for internal use and designed to detect patterns that were common in the credit schemes. It worked: employees at PayPal were able to shut down the cheats, thereby dramatically decreasing financial losses. In the process, pretty much by accident, Palantir was born. Thiel, along with co-founders Nathan Gettings, Joe Lonsdale, Stephen Cohen, and Alex Karp, replicated the program and customized it for the use of companies not called PayPal. Quickly, applications were invented that would greatly benefit military and non-military government functions. Palantir beat out defense giant Raytheon earlier this year for a billion-dollar contract to provide the United States Army with a new tactical version of its Distributed Common Ground System. Palantir’s algorithms have been used to help staffing services match workers with job openings, to assist the New Orleans Police Department in more efficiently deploying its patrol officers, and to expose China-based computer espionage programs Ghostnet and the Shadow Network. Today, inevitably, Palantir is facing some level of controversy for its innovations that assist ICE in that agency’s efforts to control illegal immigration.
Much more space could be devoted to an accounting of the growing and increasingly diverse list of applications that have evolved from one program that was meant to stop credit card fraud. The point has been made, though: the foundation of Palantir’s model starts with the absorption of copious amounts of data, often seemingly drawn from random sources. The data is then repackaged to produce usable and actionable intelligence. This process, when deployed properly, can enable and improve the functions of innumerable government agencies and private enterprises.
One recently disclosed Palantir operation in service to British Petroleum illustrates this nicely. Like Palantir, BP is no stranger to controversy. The 2010 blowout disaster at its Deepwater Horizon rig nearly put them out of business. At the time, a new CEO called Bob Dudley brought BP from the brink of destruction. This February, Dudley will be replaced by Bernard Looney, who will be staring down a less tangible but equally perilous adversary: environmental activism. Regardless of where one stands on the issue of climate change, it is undeniably a topic that many approach with great passion, and often fanaticism. Greenpeace has been known to make its statements in dramatic fashion by committing acts of civil disobedience and disrupting the business activities of companies with whom they don’t see eye-to-eye. An effective leader of a giant energy corporation does not have the luxury of ignoring the agitators. Clearly, Bernard Looney will have his work cut out for him, but he has already demonstrated forward thinking with his implementation of technological upgrades within BP. Most of these improvements are being delivered courtesy of Palantir Technologies.
Looney has engaged with Palantir in a ten-year, $1.2 billion contract. In the agreement, Palantir’s job is to build and maintain a “digital twin” of BP’s oil well infrastructure. It’s basically a virtual reality duplication of the thousands of oil wells in BP’s possession, and of the network of pipelines that connect the wells all across the globe. Palantir’s program runs models that calculate the most efficient routing of oil flow along the network, thereby eliminating the old way: oil traveling at random among billions of potential route combinations. This eliminates the need for maintenance shutdowns of sections of the pipeline, which in turn results in BP producing more than 30,000 additional barrels of crude a day. At today’s prices, this means over $650 million of “found money” annually. Not only is that 10-year, $1.2 billion contract suddenly looking like the bargain of the century, but the substantial improvement in efficiency must be keeping the tree huggers happy as well.
BP’s relationship with Palantir began with their initial digitization efforts in 2014. It was shortly after that introduction that BP made the very unusual move of investing in the Silicon Valley startup. They are believed to have doubled that investment in the five years since. These events deserve much attention: BP is an oil company. After the limited success of its “Beyond Petroleum” campaign and efforts, BP has become much less inclined than its peers to stray from its core oil operations and into alternative energy solutions. They are focused on what they do best, and they certainly are not a venture capital firm. But getting to understand Palantir made this one trip outside of the box irresistible. Through firsthand experience, BP was able to get a good look under Palantir’s veil of secrecy and fully comprehend the growth potential of a company with so many opportunities to customize its applications for an almost limitless client pool.
For individual accredited investors who want to be more like British Petroleum, there is a way to invest in Palantir Technologies before they go public. We at Iron Edge VC are proud to have access to privately held Palantir shares. If you would like to learn more, or if you know of anybody else who would, please do not hesitate to contact us by clicking “Get in Touch” below.
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