Technology Uptake in the UKCSPlanning and Implementation Challenges

John Barwis

Well Engineering Manager,Shell U.K. Exploration and Production

Chairman,Industry Technology Facilitator

TECHNOLOGY means:

The “KNOW HOW” to apply science and engineering to a business problem to enhance our capabilities and performance.

INNOVATION means:

• Introducing new tools, or

• Using old tools in new ways, or

• Working differently

Through innovation we seek to:

• accomplish the previously difficult or “impossible”

• reduce cost, time, risk, or uncertainty

Innovation often involves technology

Innovation need not imply invention or R&D

Effort(ideas, work, time, money)

The Technology “S Curve”M

atu

rity

(desig

n-c

han

ge f

req

uen

cy,

reliab

ilit

y)

Embryonic Growth Mature Ageing

Embryonic: proof of concept

Growth: developing prototype

Mature: improving reliability

Ageing: commoditisation

Generations of Technology Management

1st 2nd 3rd Beyond

R&D driven Project driven

Partnershipbetween R&D supplier and user.(traditional) (supplier - buyer)

Co-creation by R&D supplier and user.

after Roussel, Saad & Erickson, 1991

Decide on best procurement

option for each technology

Decide on best procurement

option for each technology

Technology Development – Strategic Choices

Business Input - Value and Problem

Statements

Business Input - Value and Problem

Statements

Classify Technology Needs

Classify Technology Needs

Create R&D programme to fit

budget and execute

Create R&D programme to fit

budget and execute

3rd GenerationR&D

3rd GenerationR&D

Identify Technology Needs

Identify Technology Needs

Generate Acquisition and Development

Options

Generate Acquisition and Development

Options

Plans and Targets

Technology Procurement Options

Develop In-House

Manage In-House,Farm Out

Non-StrategicElements

Ignore, orObtain from Market

Collaborate via JIPs

NEED FOR COMPETITIVE ADVANTAGE

COST OF DEVELOPMENTLOW

HIGH

HIGH

Idea to Business: Attrition Rate

Ideas MatureTest

NewBusiness

IncubateS

cre

en

ing

Pan

el

Fu

nd

ing

P

an

el

Gu

ide

400(339)

120(85)

35(40) 3

32ExistingBusiness

Develop

• < 10% of ideas become usable products• < 50% of products will be taken up by a single

user• 80% of value will come from 20% of the

implementations

ShellITF

Directing Innovation: R&D Planning

Better direction and screening low on the “S-curve” will increase the uptake of “proven” products later on.

• avoids “nice-to-haves” with low added value

• previews product NPV before it’s built

• generates customer “pull” for implementation

• improves transparency of implementation risks

• ensures early provision of an implementation plan

Guiding Innovation: Mentorship

• No shortage of proposals; solid ITF evaluation process

• ITF brokered 40 projects worth £10.1 mln

• Poor take-up by Universities

• Most SMEs have poor business plans

• Most operators see no clear path to commercialisation

• Service companies could play a key development role

• Government focus should be on incubation, not handouts

The Road to “Proven” Technology

The Developers Perspective

DevelopmentDevelopment

‘‘Not Invented Here’Not Invented Here’

Proof of conceptProof of concept

Fever TeamFever Team

ImplementationImplementation

MaintenanceMaintenance timetime

Old Old workwork

practicpracticeses

stickstick

Skills

Failures

Expandable Casing Failure

End of LifeBowling Alley

Crossing The ChasmThe Marketing Perspective

Early Market

EarlyMajority

34%

LateMajority

34%Innovators

2%

Chasm

Mainstream Market

TechnicalSales

BD managed account teams and sales group focus on economic buyers and influencers

Commercialization and Crusaders

Laggards16%

Early Buyers

15%

Early Failure Pit

after G.A. Moore, 1991

Value of “Proven” Technology

EMV = Ps(PVPs) – Pf(PVCf)

Ps : probability of success

PVPs : present-value profit given

success

Pf : probability of failure

PVCf : present-value cost, given

failure

• includes cost of rework

• includes value of deferred production

Framing the Cost of Failure

Low

• lost opportunity but no collateral damage

• usually involves “learning the limits”

• example: inappropriate 4D reservoir characterisation

Medium

• delay and extra expense, but project not jeopardised

• may be justified by later pay offs

• example: expandable casing failure

High

• project delivery jeopardised or entire NPV destroyed

• profoundly impacts future missions and relationships

• example: loss of a well in a one-producer field

Effort(ideas, work, time, money)

The Technology “S Curve”M

atu

rity

(desig

n-c

han

ge f

req

uen

cy,

reliab

ilit

y)

Embryonic Growth Mature Ageing

Embryonic: proof of concept

Growth: developing prototype

Mature: improving reliability

Ageing: commoditisation

Barriers to “Proven” TechnologyOil and gas E&P may be the least risk-averse endeavour in the industrial world. Operators are not averse to risk – but they will and should avoid risk they don’t know about.

• Operator skills shortage: under-recognition of opportunity

• Service provider skills shortage: implementation failures

• “Good oilfield practice” includes risked decisions

• All operators have different screening criteria

• Lack of data on the probability of failure hinders uptake

• Cost of failure is higher in high-cost basins

Encouraging Innovation & Implementation: Tax

• Tax-code recognition of the full R&D life-cycle

• include commercialisation of technology

• include novel applications and improvements

• include field trials

• Tax credits (e.g. US, Canada, France)

• Payroll tax relief for R&D (e.g. Netherlands)

• Tax relief for University funding (e.g. US)

• Tax payers should not directly assume operator’s risks