If you are an oil and gas startup hustling your way through several meetings with an operator, you probably dream of hearing the sweet words, “We would like to proceed with a pilot.”
If you are a manager with an operator and discover a potentially beneficial technology, then you probably are eager to introduce it to your company. But in both instances, you may be unsure of the next steps to take.
In my previous article, I outlined how startups and operators can collaborate to accelerate technology adoption. This article addresses some of the common business issues involved with the situations highlighted above, and offers guidelines on how to set up a meaningful pilot project.
- Remember the objective of a pilot test is to prove the value of your technology. The only way to do that is to quantify the benefits, either in terms of added revenue or reduced cost (or health, safety, and environmental benefits). Be prepared to share those metrics and discuss them in detail with the operator as you move forward. From the very beginning of your discussions, you should be estimating the overall economic value the technology brings the customer.
- Beware of the designation Minimal Viable Product (MVP)* as it might not be the best first impression to make on oil and gas companies, unlike in some other industries. If your product does not yet have all the features you envision it to, make sure that its core capabilities are robust and dependable—for it is very difficult to get a second chance to show and tell with many oil and gas operators.
- Be selective with the pilots you accept. Think about the applications and geographies that provide the most value for your company and fit with your growth strategy. Also, consider your pilot as a systematic internal test for the limitations of your technology. This can introduce different objectives than what the operator is focused on.
- Do not do pilots for free and, at the very least, recover your costs. Taking this stance validates the operator’s real interest. Resist the temptation to give away your technology only to see it put to work. As you grow, one of the most frequent questions you will be asked is if you got paid for the first trial, and underselling your technology in the initial trials could become a costly mistake.
- Negotiate the publication rights. It is important that you are allowed to publish a case study that can be shared with future customers. This may require that you offer discounts to get approval from the operator.
- One of the first things you should ask a technology startup is how much it will cost to continue this work on an ongoing basis if the trial is successful. If the commercial cost outweighs the assumed value, then there is no point in a pilot test. This is where your feedback can help a startup establish a realistic pricing strategy.
- Would your business unit pay for the pilot, or do you need to reach out to your company’s technology group? If the business unit is interested in providing the funding, that is a sign that there is a high interest in the technology.
- Corroborate the pilot data with the ground truth, or comparable diagnostics. In selecting where to run the pilot, think about where you have a high confidence in these observable data sets to validate the technology, and also consider how this corroboration may be used in future technological decisions.
- If you are running other diagnostics and planning to compare them with the new technology, you have every right to negotiate pricing in return for data sharing. This can ultimately help both you and the startup maximize your subsurface understanding.
Remember that the results of the pilot trials determine if the technology is scalable. Failure is always a possibility, but with patience, both the startup and operator can apply the lessons learned and try again. A pilot project is not a milestone, it is simply a process and should be treated as such.
*MVP: A product with just enough features to gather validated learning about the product and its continued development. The concept was introduced through lean startup methodology.
Moji Karimi is an oil and gas entrepreneur who has helped ideate, develop, and commercialize technology for big companies such as Weatherford and has now begun focusing on startups. Currently, Karimi is the business development manager at Biota Technology, a startup that is commercializing DNA Sequencing in the oil and gas industry. He is also a cofounder of SPE Gulf Coast Section Entrepreneurship Cell which is an initiative to educate and connect entrepreneurs, decision makers, and investors. Karimi holds BS and MS degrees in drilling and petroleum engineering, respectively.