Open Innovation in Drilling
If NASA can send astronauts to the moon using mathematical computations, then why can’t the oil and gas industry employ a similar mechanism to drill an automated well? If oil fields became automated, will the industry remove people from the drilling platforms and avoid potential catastrophes during oil exploration? These are some of the questions to be answered using the concept of open innovation.
Open innovation and emerging technologies are underutilized in the oil and gas business. What is open innovation and how does it relate to drilling? Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation and expand markets for external use of innovation (Chesbrough 2003; Sieg et al. 2010). Open innovation in drilling is when service companies, contractors, and drilling operators actively involve each other in product and process innovation. Open innovation is also referred to as external, or network innovation.
In the drilling world, there are two ways to explore this innovation:
Outside in—where external ideas from other industries are brought into the drilling space. An example of this is the transfer of knowledge from Rene Molineux, an aircraft engineer, who originally designed pumps for airplanes. These designs were later incorporated into drilling motors to design the downhole-motor power section.
Inside out—where underutilized ideas in the firm can be disseminated to be incorporated into others’ innovative processes.
While there have been breakthroughs such as rotary drilling, directional drilling, measurement while drilling, and accurate placement of the wellbore, to name a few, the initial high fixed cost and the risk involved in drilling increasingly complex wells inhibits large-scale changes in the industry. It is troubling to see how slowly the oil and gas industry embraces and implements technology vs. adoption in other industries.
Programs such as Amazon’s space program and SpaceX inspire enthusiasm by highlighting how to
commercialize the transportation of humans into space. Reaching such level of innovation in the oil and gas industry often seems like a distant dream; most of the tools and equipment currently used were developed in the 1970s and 1980s. When these outdated processes are questioned, or challenged, the feedback is usually: “If it's not broken, then why fix it?” This traditional mentality inhibits innovation and prohibits technological advancements from improving the oil and gas industry with the same speed and scope as seen in other evolving industries.
As an engineer, I solve complex problems by thinking outside the box, empowering key project stakeholders, and guiding them to success. Open innovation in drilling will tremendously disrupt the conventional setup and encourage a progressive Silicon Valley atmosphere in the energy industry. This will create a tremendous shift for the oil and gas industry from the image of a field that is notorious for its general disregard of the environment, to an industry that will encourage scientists to use emerging technologies. This is important not only because it will fundamentally change the economics of the industry, but also open innovation and technology can erase the negative stigma often associated with the petroleum industry. We can preach about alternatives, but ultimately it is going to be very difficult to replace the byproducts of fossil fuels in the immediate future.
From an analytical point of view, it is clear that most innovations were developed by teams of people and not individual contributors. One can argue that Steve Jobs or Bill Gates have been able to make significant breakthroughs in their respective fields, but when you take a closer look at Apple or Microsoft, execution was undertaken by a team of talented people.
Challenges to Open Innovation
Open innovation will likely not be explored with gusto in the petroleum industry due to the competition among technologies with intellectual property rights. However, it will be highly beneficial to rectify many of the emerging issues that are currently faced. A cross-pollination between companies of the same discipline will not only reduce the initial capital cost but will likely involve a diverse team of individuals around the table to discuss and solve some of the problems.
A buzzword that is frequently heard is drilling automation. The questions I have for professionals in this space are: “What are we automating and how are we rolling out the process? How do we change the status quo and disrupt the conventional way of drilling wells?” I think the first questions one needs to ask are: “What is the job to be done? What are the drilling operators paying the drilling contractors to do?” With these questions answered we can figure out how to introduce innovation.
Other industries that have been successful with open innovation include the mobile phone industry, the open source software industry, and the space industry. Reflecting on Henry Chesbrough’s model of open innovation, its focal point is “connect and people.” This explains that to be able to get the work done, we need to cross-pollinate ideas and resources to be able to drill a safe, producing, cost-effective well. We need to share good drilling practices, benchmarks, roadmaps, and work together to analyze modern drilling challenges and address these challenges.
Where do we start is a good question: Do we start automating the mud system process, do we automate the drilling system tools and processes, or do we focus on rig instrumentation? Open innovation is key to exploring these questions and to determine the solutions to the challenges.
Critically looking at the concept of business edge, profitability, and technology adaptation, these questions arise: Why should company A give up its drilling successes to company B when we are in a fight for market share? Bottom line margins may be affected by handing out key successes. However, it is key to bring the entire industry to the next level of innovation and exploration.
One of the success stories is National Oilwell Varco’s collaboration with an unnamed operator and a couple of service companies in the North Sea to drill an automated well using a closed-loop downhole drilling system to feed high-speed drilling data into a state-of-the-art autonomous control. The system combines the controls, drilling systems, and software application to increase 15% of reservoir access in the North Sea. The key to this success is getting service companies and contractors in the same room to discuss the end goal and how it can be accomplished.
Below are some myths and challenges about open innovation that inhibit collaboration in the drilling space:
Replacement of internal research and development (R&D). Most firms think that the inception of open innovation will affect the internal research department. With the complex problems we face in our industry, we should keep our R&D groups and find ways in which we can contribute to the projects by teaming up with other industry professionals to solve key issues.
Compromising intellectual property (IP). Over the past 2 decades, one of the challenges faced as an industry is compromising IP. We focus too much on IP which inhibits innovation. We are not comfortable venturing into new designs, research, and testing because of the infringement of IP issues.
Always being open. Many people think that encouraging open innovation means always supporting and giving out your IP. I think the best answer to this is to review what you need and collaborate with industry professionals that are going through the same predicaments and strategize a way to tackle some of these issues. Regarding drilling, I think open innovation should be considered on a case-to-case basis.
Huge resources and capital. Most drilling projects rely on exorbitant capital investment. Therefore, it takes numerous years before you reap your return on investment.
Key Processes That Open Innovation Can Influence:
Real-time Downhole Streaming
Managed Pressure Drilling
Automated Casing Running and Cementing of Well
Radio Frequency ID Downhole Tools
Adopting open innovation in the drilling industry will increase the probability of success by solving some of the complex issues we face in drilling. It will also enable drilling operators to focus on understanding the core products and systems in the supply chain, find new ways to access internal and external knowledge, and apply novel methods to take innovative technologies to market.
Sieg, J.H., Wallin, M.W., and Von Krogh, G. 2010. Managerial Challenges in Open Innovation: A Study of Innovation Intermediation in the Chemical Industry. R&D Mgmt.
Chesbrough, H. 2003. Open Innovation: The New Imperative for Creating and Profiting from Technology, Harvard Business School Press.
TWA Editor Nii Ahele is an asset manager at National Oilwell Varco. His oilfield career started in 2012 designing and qualifying electronics on projects for high-shock, high-pressure, and high-temperature downhole tool applications. His focus and expertise is downhole drilling tools used for closed-loop automation. Ahele served on the SPE-Gulf Coast Section (GCS) Young Professionals Board the past 2 years as the chair of the section’s Emerging Engineer’s Conference. He also served as the Career Management and Continuing Education chair on the SPE-GCS Board of Directors, and is the current chair for the SPE-GCS Young Professionals. Ahele earned his BS in electronic engineering from Minnesota State University.
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