Shopping for New Ideas Outside the Oil Business

Jason Norman’s search for components for an automated system to manage drilling fluids often begins with an online search.

The senior drilling engineer for Apache Corporation has identified many possible inline instruments to choose from, mostly from companies outside the oil and gas industry. Machines used to test the thickness of yogurt or the water levels in olive oil have been considered to measure the flow rate, density, water cut, viscosity, and the size of particles in drilling mud.

It is part of Apache’s program to create an automated drilling system that is faster, safer, and more dependable, using constant measurement to control every aspect of drilling. To do this cost-effectively for onshore rigs “this needs to be off-the-shelf equipment. There are no inventions here,” Norman said.

He and other members of the Apache automation team, who are working on everything from equipment control systems to programming, are taking advantage of the fact that manufacturers have already created automatic control technology that can be adapted to run a drilling rig like an automated factory.

This ambitious project is an example of how, when oil and gas exploration and service companies face new challenges, often the shortest path to a solution is to adapt other people’s technology.

This marketplace of new ideas was on display last fall at the Innovation Showcase put on at the Oil & Gas Innovation Center, where 24 companies pitched what they could do to a conference room full of oil company technology experts on Anadarko’s campus in The Woodlands, near Houston.

For young, innovative companies the oil industry’s appetite for high performance, and its ability to pay for it, is a draw at a time when budgets are shrinking for the defense and space programs that often fund early-stage technology development.

For oil explorers, the rush to find and develop unconventional reservoirs is just one of the challenges that reward innovators. The quickest way to do that is to reply on other people’s research and development.

When John Barratt, the founder and chief executive officer for the Oil & Gas Innovation Center looks at the traffic on the company’s website he sees a pattern: Big independents, such as conference sponsor Anadarko, are most likely to be reading its profiles of promising young companies. “We are able to tell who is using the [web] site and I can tell you the heaviest users are independents,” he said.

Technology Adoption

One of the companies exhibiting at the technology showcase was Fluid Imaging Technologies. Its outlook on the oil business changed after Norman took an interest in the devices it sells that can constantly measure and sort the particles found in drilling fluids.

About one-quarter of the devices on Norman’s spreadsheet are particle analyzers because knowing the condition of mud after it leaves the well and is processed in a centrifuge is critical. The thinking is: “If I can identify all this [fluid properties], I can build process control,” Norman said.

The Fluid Imaging device rapidly creates and examines microscopic images, measuring and sorting mud particles to see what percentage of them are ultra-fine ones, and track the trend around the clock, rather than checking it once a day. A rise in the share of these “low-gravity solids” changes the consistency of the mud and can reduce hole-­cleaning efficiency, slow the drilling rate, and increase the risk of stuck pipes and well-control problems.

It is part of a truck-trailer full of equipment that Apache will be using for a field test to see if data-driving controls can deliver significant benefits by automatically adjusting the centrifuge used to process the mud leaving the hole, and adding just enough new mud to keep the drilling fluids up to specifications.

Fluid Imaging has seen a sharp increase in oil industry interest after it exhibited at SPE’s Annual Technical Conference and Exhibition and at the Innovation Showcase, said Kent Peterson, president and chief executive officer at Fluid Imaging.

Its device, which has been used to study microbes in water, is being considered as a means to rapidly identify the fossilized microorganisms found in returned drilling fluids that are used to date formations when searching for oil. Peterson said another company would like to know if examining the cuttings in fluids could help establish trends that could help predict what the drill bit is likely to encounter next.

Another plus for oil companies with this technology is that the images and data can be transmitted to central locations, so an expert can monitor what is in the drilling fluids from multiple wells.

“It has been a surprise to us,” how quickly it happened, Peterson said. While breaking into other industries was a long, hard process, “we are not forcing ourselves into the oil industry; we are being pulled into it.”

From War to Oil

Companies presenting at the Innovation Showcase can do some amazing things. There was a rocket-fuel maker experimenting with fracturing; a battery maker working on a more powerful one for underwater vehicles using lithium and seawater; a maker of sensors imbedded in polymer parts that more accurately measure how long critical components are likely to last; and a steel processor with a treatment to make low-cost steel as strong as more costly metals.

The Innovation Center grew out of a request by two major oil companies seeking a larger sample of new tech ventures that might have useful technology, said Barratt, an oil industry geologist turned oil technology consultant.

His clients need advanced technology, and want someone else to pay to develop it. “One company (profiled on the website) has burned through USD 40 million of somebody else’s money to prove it works,” Barratt said. “The average company has burned through USD 5–10 million of someone else’s money.”

Based on feedback from its customers, he now focuses on companies that are closer to marketing a product than he used to. At earlier showcases Barratt said many presenting companies had a “science-y feel.”

One of those was PolyPlus Battery Company which has been reporting on its work on a new generation of lithium-water batteries since 2007. It is now closer to selling a seawater/lithium battery that will last many times longer than lithium-ion batteries, and is much smaller, said Steven Visco, chief executive officer of PolyPlus.

The company has spent more than a decade creating a conductive ceramic coating that controls the reaction between lithium and seawater producing a steady electric current. While in theory lithium has extremely high energy potential, directly combining lithium and water causes a violent, short-lived reaction.

PolyPlus is one of the many companies presenting that day that relied on US government funding, in many cases from the military, to turn ideas into small ventures. “They are niche companies with niche capabilities looking for opportunities to expand,” said Ed Tovar, whose consulting company, InTechSys, advises defense contractors seeking new markets in the oil and gas and energy industries for products in areas such as communications and robotics.

Many companies who relied on the investments and sales to the military to start their businesses are now feeling the pressure to find new customers as the US military downsizes its new technology spending after a spurt of innovation during the wars in Iraq and Afghanistan.

“They developed a project and they have this capability and own this, but their customer, for whatever reason, is no longer buying this and they are forced to look for other buyers,” Tovar said.

For example, several years ago there was intense military interest in developing portable devices able to detect deadly chemicals and biological agents that could be used as weapons of mass destruction. Several presentations at the show were for chemical analyzers the size of a suitcase that could be used in the field and do what a laboratory can do, but quicker, costing from USD 20,000 to USD 80,000.

Disruptive to a Point

The oil industry is a natural market for those selling high performance, because when there is a large quantity of oil there’s a powerful motivation to find a way to produce it.

The oil and gas industry has a unique culture that is comparable to the military. Both go into dangerous remote locations and extreme environments and are expected to overcome the obstacles and accomplish the mission, said Tovar, who started his career as a geologist and worked offshore for a time.

“When they are in deep water, or in the Arctic, you will never hear ExxonMobil or Shell say the weather is too cold or the ocean is too deep. If you are mission driven, you will keep going until the mission is accomplished,” he said. In both the military and the oil industry there are often “high risks and high rewards.”

But the industry wants disruptive technologies that do not disrupt operations. “Someone once told me from the oil and gas industry that what we want has got to look like what we have, but it cannot be incrementally better. It has to be better by an order of magnitude,” Tovar said.

Tovar, a retired US Marine lieutenant colonel, worked for 2 years for the Defense Advanced Research Projects Agency, DARPA. The US Department of Defense’s innovative technology development arm’s mission is to prevent technology surprise in conflicts.

Its list of past development successes includes the Internet and stealth technology.

His job at DARPA was representing the technology needs of the US Marines. During that period he started a number of early stage research programs, including ones to develop steerable bullets to increase the effectiveness of snipers, and a four-legged robot, nicknamed the Big Dog, to do high-risk combat jobs otherwise done by Marines.

At the innovation conference he noticed the attention drawn by a newcomer, SFP Works, a steel processor started by an inventor who said its method could make low-cost carbon steel as strong as costly metals, such as titanium.

The method rapidly heats the steel to about 500°F higher than the temperature normally used for heat treatment and then quickly cools it with water. The quick heating and cooling produces steel with a molecular structure that third-party testing has shown is significantly stronger, but more ductile than steel heat treated using traditional methods, said Gary Cola, SFP’s president who invented the process.

Cola describes it as “pound for pound the strongest, most basically resilient, readily weldable metal known.” He sees it as a way to significantly cut the weight of offshore platforms.

SFP’s steel has been tested for use as tank armor, but the company is stalled in the military procurement review system and is looking for large customers so it can raise the money it needs to build a unit able to handle large-sized steel pieces.

Evaluating Explosive Options

For innovators, having the ability to do something really well is just a starting point. A case in point is Digital Solid State Propulsion (DSSP), which developed the fuel used to power what the US military calls “kill vehicles”—missiles created to knock ballistic missiles with nuclear weapons out of the sky. What sold the military was DSSP’s ability to precisely adjust small control thrusters by varying electric current. More electrical current means more thrust. Otherwise, the material will not ignite, making it a safer option than traditional explosives.

“A user can store, ship, and transport it with significantly less hazard without sacrificing performance,” said Wayne Sawka, chief executive officer of DSSP. The company’s testing has found that the electrically ignited propellant is insensitive to flame, shock, and even bullet impact.

The propellant has attracted the interest of a large oil company, which is studying the material to see if it can be used to fracture a well. Selling the oil industry on doing something differently is typically a long-term process that eliminates many options long before they get to market, where newcomers are up against the status quo. Lab testing suggests it is possible to formulate the electrically ignited propellant in a way that can penetrate fractures in a rock and be ignited releasing water vapor, carbon dioxide, and nitrogen, quickly pressuring a well. Now the company is hoping to do a field test.

A lab test can never replicate the exact conditions found in a well, Sawka said. High geologic pressure levels underground could alter performance—and if it passes that test another unknown is how the production will compare with breaking up rocks using water pressure. The next challenge facing the small company is obtaining the 10,000 lb of the material needed to move forward with an underground test. Sawka said the “cost of large-scale production is also something we are evaluating, but do not expect it to be a show stopper.”

Picking Winners

A fundamental difficulty for those seeking out new technology is separating the winners from the losers. Barratt offers multiple companies with possible solutions for the needs identified by clients because even the investors raising millions of dollars to nurture these young tech companies do not know for sure which ideas will work. “If the really smart people in venture capital firms cannot figure out it would be ridiculous to say we can figure out, which will succeed,” ­Barratt said.

The Oil & Gas Innovation Center website presents a “cross section of what we think are among the best. You have to bring this technology into your process, test it, and determine for yourself which one is the best.”

Making this transition requires an innovative product, technical savvy, the listening skills needed to understand a customer’s needs, and the technical staff to satisfy those needs, preferably for little or no extra cost.

Fluid imaging was chosen by Apache from among other makers of particle-imaging devices because Norman said it made a durable inline device that fits Apache’s needs and budget, and also because the company “happens to be easy to work with” when it comes to offering the technical advice needed to adapt its device for drilling-mud measurement.

Only a small number of companies can successfully move from defense to oil. Tovar said success requires adaptation—the language used in government contracting is not the same as the energy business—and financial discipline—“in oil and gas they will say how much it will cost and will hold you to it,” he said.

For technology companies oil and gas can be a tough industry to crack, but there are rich rewards for doing so. “They buy stuff, and use it, and want to buy some more,” said Mike McPherson, vice president for research and development at Digital Solid State. “Defense buys it, holds it for 20 years and then disposes of it.”

Innovation Checklist

The US Department of Defense’s innovative technology arm, commonly known as DARPA, has a short list of questions to define and develop projects:

• What are we trying to do? What is the problem? Why is it hard?
• How does this get done at present?
• What is new about our approach and why do we think it will be successful at this time?
• Who cares?
• If we succeed, what difference will it make?
• How long will it take? What are the midterm and final “exams” to check for success?
  How much will it cost?

Source: Ed Tovar: InTechSys