A More-Holistic Approach to Oilfield Technology Development
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The complete paper takes a holistic view of technology maturation that addresses both technical and nontechnical risks. The definition of success is expanded to include the establishment of successful, commercially viable, and sustainable solutions that meet end-user needs and requirements.
The Case for Change
Across the industry, companies have seen tremendous drops in revenue and profits along with returns falling well below the cost of capital. The survivors become much more focused on capital-expenditure reductions, with investments almost entirely driven by near-term free cash-flow generation. The effect on innovation within the industry has been dramatic, yet technological innovation is needed now more than ever.
This situation, while difficult, does offer opportunities. The huge reduction in overall investment and resources will lead to an accelerating production decline in an aging production base and increases the likelihood of significant supply deficits that can only be reversed by a broad-based increase in global exploration and production spend.
Defining the Problem
Historically, the industry has lagged behind high-tech industries in terms of research and development (R&D) expenditure relative to revenues, pace of technology maturation (greater than 10 years from discovery to deployment), and the lower fraction of new technologies reaching commerciality. With the billions of dollars of R&D investments stuck at the end of funnels and awaiting deployment years after their initial development, finding a better way of managing technology maturation is essential. Several issues must be considered:
- Current technology-maturation processes tend to focus on progressing through a series of stage gates. These tend to be defined on an almost entirely technical basis, with little consideration given to the commercial challenges involved in delivering the ultimate solution within the constraints of an industry with a rather complex supply chain. This results in far too many projects marching into the so-called “Valley of Death”—the virtual chasm that separates innovation from commercial demonstration (Fig. 1).
- Technology experts are often left to deal with the commercial aspects of their invention without the knowledge or skills necessary to manage commercial work.
- The investment required to deploy and commercialize an innovation is greatly in excess of the amount originally budgeted or approved.
- An innovation may eventually work, but it might take much longer than originally envisioned to reach truly scalable and replicable deployment. Many inventors are not integrated into the supply chain and lack what it takes to deploy technologies at scale.
The root causes of these problems tend to fall into one of four categories: lack of a viable business model; lack of an agile, adaptive, technology-maturation plan; misalignment of risk and reward; and insufficient customer/end-user engagement.
The Oil and Gas Innovation Landscape
The innovation landscape involves a number of stakeholders, each with differing roles, expectations, communication channels, and influence upon the cycle of innovation, including end users, integrators (major service companies and oil-company project teams), innovators (entrepreneurial small companies, academia, R&D departments, and support staff), and investors (venture capitalists, grant-providing agencies, joint industry projects, and corporate budget holders).
Practical and profitable innovation will almost always span across multiple stakeholders. For example, for a small entrepreneurial company, the implications of this multistakeholder landscape can be daunting: Not only do they need to develop, test, and produce the innovative product or service in a ready-to-use form, but they also need to ensure that sufficient financing is available, probably through external funders; they need to work with larger companies that will integrate the innovation into a broader scope of supply of products or services; and they need to successfully engage the respective end customers to understand the actual business need and corresponding value proposition—all while navigating the path of least commercial resistance to first revenue. The bottom line is that stakeholder and end-user engagement is typically insufficient to navigate the commercial, rather than technical, pitfalls that threaten to disrupt the take-up of entrepreneurial innovation within incumbent supply chains. The resulting underestimation of commercialization cost, effort, and risk often threatens the most innovative solutions because of the disillusionment of funding partners or ultimate client partners.
At the other end of the spectrum, all these stakeholders might be located under one roof within a major oil-and-gas operating company. Operating companies are far better placed to understand their own business needs and measure the corresponding value generation that would become possible through the implementation and replication of new technology. Far more distressing are the many examples in which a heavily invested new technology is deemed to be “selectable” by technology R&D functions, while the actual end-user’s perception is that the technology is not ready for integration or field deployment. When technology is left to technologists and R&D groups alone, success tends to be measured solely by the ability to progress through a mostly technical stage-gating process. Commercial risk is addressed too late, and business pull is far too often dictated by the ease of integration rather than the actual improvement that can be achieved.
The likelihood of success for an innovation effort will be greatly increased if the various stakeholders can anticipate or acknowledge which commercial (and technical) priorities need to be addressed and communicated across the stakeholder chain, and throughout the innovation lifecycle. A more-holistic approach is required based upon a concept of “fail early, fail cheaply,” in which both technical and nontechnical risks are addressed throughout the innovation cycle in equal measure, while ensuring that alignment and buy-in is prioritized with the ultimate end-user decision makers.
There are four pillars of success for the approach described in detail in the complete paper.
Viable and Evolving Business Model. A healthy business model must include realistic risk and reward assessment, a clear maturation staircase, and an evergreen business case that evolves from early concept to selectable technology as it changes to reflect new information. Such a model must also include a good understanding of real-world end-user pull that acknowledges actual perceived value from end-user perspective and actual ease of integration and legacy-based barriers to entry given departure from the status quo. Partners, channels, suppliers, and other stakeholders must be considered. Tools such as the Business Model Canvas provide a good framework for this type of holistic thinking, as does the inclusion of a commercialization readiness process/language to go along with technology readiness levels.
Alignment of Risk and Reward. In the oil field, the concept of risk has carried an overwhelmingly negative connotation and risk management is often equated with threat avoidance or consequence mitigation. This is an overly simplistic view. As with all things uncertain, including oil and gas exploration, commodities trading, or the stock market, risk is the flip side of opportunity. Therefore, technology maturation risk and reward must be considered in a holistic sense across the full spectrum of technical, economic, commercial, operational, and other nontangible elements. As with project management, there is need to establish evergreen risk registers as early as the preconcept phase, enabling the capture, maintenance, and communication of the technology risk and reward profile at any time over the life cycle of the technology. Project partners must ask themselves which risks and rewards are best borne by whom. Ideally, the reward distribution needs to be a fair reflection of how the risks are shared.
Agile, Adaptive Technology-Maturation Process. Technology-maturation road maps should focus on being directionally correct, with an emphasis on defining a clear endpoint or goal along well-defined milestones or continuation or exit points. With early-stage technologies, there needs to be recognition that while there are “known unknowns” which can be planned for, there are also many “unknown unknowns” that must also be anticipated. The technology-maturation journey itself should remain highly adaptive and sometimes iterative in order to rapidly derisk the technology and navigate the fastest path to success. All this must be coupled with an agile approach that allows for concurrent work flows and for pivoting when necessary. Technology development also needs to move from the current serial stage-gated model to a more-agile concurrent and iterative model. Serial stage-gated processes tend to progress technologies linearly from idea generation, screening, proof-of-concept testing, and product development through beta testing, manufacturing, and commercialization. In agile and concurrent processes, different stages run simultaneously rather than consecutively. Such processes are more capable of managing increased system complexity, simulating the full range of use cases, testing commercial justification, identifying potential failure modes, optimizing product-design efficiency, and reducing production costs while reducing the likelihood of deployment and service failures.
Focus on Customer/End-User Engagement. Innovators and service providers alike must focus on the front line—that part of the organization that actually touches the customer. Senior technology leaders must venture into the field or market to see first-hand what is really taking place with their staff and their customers. Without customer engagement throughout the technology-maturation cycle, the technology will likely fall short of customer expectations and hence fail to deliver on its promise. It is essential that customers are engaged throughout the technology-development and -deployment process. Shared governance between technical, commercial, and end-users for major technology projects is necessary so that the latter can provide continuous business-model and use-case validation. In the case of operators, the handover from the technology functions to deployment managers and on to asset managers must be carefully managed.
A More-Holistic Approach to Oilfield Technology Development
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