Oil Patch folklore includes a bizarre yarn from long ago about geologists actually having themselves lowered into the wellbore to get a look at the subsurface.
Twenty-first century technology tries to take us there, but we're certainly not there yet, according to speakers at the OTC 2003 forum "Technology Commercialization: Trends and Strategies for Funding E&P Technologies."
"Over the last 30 years we’ve made phenomenal achievements in technology, and it’s easy to say it’s been a miracle," said forum keynote speaker Matt Simmons, an AAPG member and chairman-CEO of Simmons & Co. International in Houston. "But the miracle didn’t happen due to careful planning -- it was just serendipitous.
"The pace of industry acceptance of technology became higher than ever in the 1990s," he said, "yet almost all the miracles of technology were being tested in some manner 30 years ago."
The high tech applications and gizmos, which now are pretty much taken for granted, have varied origins:
- Research labs.
- Think tanks, such as the Sandias of the world and universities.
- Government.
- Oil companies.
- Service companies.
- Venture capitalists.
Who deserves the technology Oscar?
"The jury’s out," Simmons said, "because they all played some role."
But not all were rewarded commensurately.
Some venture capitalists received a multiple return on money invested, but for others, success was the ability to stay alive during the industry depression of the 1980s.
At Your Service?
Many of the biggest technology advances have come from the service companies. Unfortunately, this failed to impress Wall Street, where they’re shunned in large part for having the worst return on investment (ROI) of any industry sector in the marketplace, according to Simmons.
While no one would argue that new technology developments have been invaluable to the industry, Simmons asserted the impact of technology on E&P is misunderstood by the industry itself.
"The mantra of the mid- to late ‘90s was technology has changed the game by allowing fewer dry holes and lowering finding and producing costs," he said. "What it really did was let very small fields be successfully exploited, letting us pick the last low-hanging fruit.
"Technology didn’t halt the decline curve, which, in fact, became even more vicious," he said. "In fact, technology created ‘just in time’ production, and it also created a problem of epic proportions.
"Bright spot technology made knowledge of the rocks obsolete," Simmons noted. "Some of the finest people left say we created a generation of Nintendo geologists and got completely away from the source rocks."
Still, without all the high-tech advances, oil and gas production would be far less today, and the consensus is the need for the next generation toolkit has never been greater.
But if you look at the "work-in-progress" blackboard, it’s relatively blank compared to what it was 30 years ago, according to Simmons.
Government's Contribution
Speculation is rife over what will be the miracles of the 2000s and the 2010s. And there’s much concern over who will shoulder the burden of bringing the next advances to market.
"Think tank (university) enrollment is at an all-time low, and service companies are generating less than a 10 percent rate of return," Simmons said. "The government may be the only game in town."
Yet if one looks to the Department of Energy (DOE) to save the day, some of the doings there are likely to trigger an anxiety attack.
Appropriations numbers for the natural gas and oil technology program budgets presented at the forum by Elena Subia Melchert, offshore program manager, U.S. DOE, speak volumes:
| |
2002 |
2003 |
2004 |
| Natural gas |
$44 |
$47 |
$26** |
| Oil |
$56 |
$42 |
$15** |
All Numbers in Millions
**requested |
The dip in research funding can be viewed more as a correction than a decline, Melchert asserted. She attributed it to being in a state of transition while trying to align programs with high-priority goals of the Bush administration.
Melchert emphasized that the agency’s oil and gas program and technology development in general focuses on benefits to the public.
"We walk a fine line in terms of being a part of a very important industry that’s fundamental to the nation’s economic security," she said, "and staying within what is an appropriate government agency role."
To that end, Melchert said the DOE is pursuing a certain road map in a particular arena for a future where E&P activity will be virtually invisible. This is anticipated to help soften some of the public's negative opinion, which hinders access to petroleum-rich areas. She mentioned micro-hole drilling as an example.
The agency continues its longtime practice of funding businesses to conduct a variety of projects. Anyone willing to take the time can "click for dollars" by going to the agency’s Web site to view opportunities for project funding. All DOE solicitations are listed.
Wanted: A Few Good Models
If Big Government is not your thing and you’re thinking the venture capital folks might be an easier touch for R&D funding, brace yourself.
This is still a tough nut to crack.
The capital markets continue to be risk averse, according to forum speaker Allen Parks of Parks Hoepfl & Co.
The key factors needed to stimulate the capital markets, according to Parks:
- Restore investor confidence.
- Stability in corporate earnings.
- World political stability.
If this smacks of never-never land given the still-dicey geopolitical environment and the widespread ongoing distrust of the corporate world, take heart.
Parks said there’s money to be had. You just need a good model.
In fact, a good model can go a long way toward getting a technology to market via funding through various entities.
Want to cut a deal with an oil company?
Shell Technology Ventures (STV) invests funds in E&P technologies that meet certain standards. It offers entrepreneurs the opportunity to test technology in a real oil and gas environment, to leverage Shell’s domain expertise and to get a product to market faster.
"We recognize that technology is expensive to develop," said forum speaker Ricardo Rodriguez, director of investments, STV, "but in the long run, it’s more expensive not to develop.
"We’re in this to stimulate technology, not to be a service company," he said, "and we have a five-year exit strategy."
It’s sometimes easy to overlook the fact that oil and gas R&D is not confined to U.S. soil but is being actively pursued by international organizations as well.
Two such groups were represented on the forum program:
- DEMO 2000 -- Public/private partnership in Norway, having joint government and industry objectives.
- Institute Francais du Petrole -- Independent research and industrial development education and training and information center, active in the fields of oil, natural gas and the automobile.
Despite the not-so-spectacular ROI they may receive for their efforts, look for continuing R&D contributions from what has become the backbone of technology development: the major oil service companies.
"The three major service companies contribute 35 percent of the R&D spend in the industry," said Satish Pai, vice president, Schlumberger Oilfield Technology. "This is a fundamental shift that has happened over the last 10 to 15 years as investments by the five major oil companies steadily decreased.
"But the service companies need commensurate pricing for innovative technology to realize a reasonable rate of return."
He lamented the procurement paradox in activities such as reverse auctions.
"This does not work for complex services," Pai said, "and these type bidding tools do not support innovation."
Retiring the Good Ol' Boy
Neither does the industry’s historic reluctance to embrace anything new.
Indeed, Matt Simmons noted one of the big barriers to technology advances has been the "good ol’ boy" with his incessant refrain: I’m not gonna try that ‘cause it might not work.
"Retiring the 'good ol’ boy' was a big breakthrough," Simmons said -- but there’s evidence he’s lurking in the shadows.
"In most other industries, the first two years when you’re first to market you get the best money and the best return," Pai said. "But with oil and gas, the first two years you’re trying desperately to convince everyone the technology works, and by then your competitors have it and have caught up."
Pai views collaboration as a critical to future technology development and outlined the key reasons:
- Access diverse sources.
- Leverage technology from other industries.
- Access to fields, wells to test complex systems.
- Access to client funding.
- Access to what clients want developed.
There are a number of collaboration issues to be addressed, Pai emphasized:
- Intellectual property ownership.
- How to implement value sharing.
- How to deal with speed of commercialization when you have an oil company and a service company.
"If we agree collaboration is important," he said, "we need to find a model for collaboration."
Even though the service companies are funding a still-increasing percentage of R&D, Pai noted there continues to be a scarcity of research activity in oil and gas production technology.
With the E&P companies reporting immense profits owing to a long stretch of high commodity prices, Simmons pondered aloud what must be done to get operators to spend built-up cash on R&D and technology.
"One of the problems through the ‘90s, as we experimented with pricing of energy and commodities," he said, "we created a level of volatility that destroyed any kind of normal price direction.
"We’ve assumed prices were going to drop, and we’ve wasted a year when the price hasn’t dropped.
"It almost paralyzed the industry," Simmons continued. "How you change all that I don’t know, but it must change."
The real scare factor: All the cheap energy is gone.
"The era of cheap oil and gas is over," Simmons declared. "This doesn’t mean we won’t have low prices, but when we do, nothing works.
"Almost all the giant oil fields in the world are now in decline, and we need a wakeup call rapidly," he said. "Technology advances must accelerate, and if we fail to heed this call, the world’s future is not very pleasant."