In today’s teetering oil economy, technology innovators are faced with new rules on the road to operator adoption, as heightened risk aversity fuels reluctance to invest. Last year’s bright ideas no longer shine so brightly, while mothballed bids are being dusted off for fresh consideration. So which proposals are earning props and which ones are getting canned?
Such were among the topics considered on the first afternoon of the virtual Unconventional Resources Technology Conference (URTeC), as Susan Nash, director of Innovation and Emerging Science and Technology at AAPG, moderated a panel discussion on Technology Adoption: Experiences from the Field.
Nash was joined by operators, accelerators, and technology scouts to discuss technology development from the lab to full-scale commercialization. Panelists included Mouin Almasoodi, senior staff reservoir engineer at Devon Energy; Amy Henry, co-founder and chief executive officer, Eunike Ventures; Aaron Lazarus., chief scientist in emerging technologies, Pioneer Natural Resources; Mike Party, drilling engineer and emerging technology specialist at Hess; and David Wishnow, head of energy technology identification and relationship management, Darcy Partners.
Crossing the Valley of Death
Nash began by posing questions that were foremost on attendees’ minds, as evidenced by posts by the virtual audience such as: How do I get my technology out to the field? How do I qualify it? Who will help me go through the process of evaluating it?
In terms of a concept’s readiness for consideration by an operating company, Lazarus was quick to point to the scale used by Pioneer. “We use the DOD [Department of Defense] readiness levels, which are the TRL levels [Technology Readiness Levels] one through 10. It starts with level one, which is ‘I just came up with an idea’ and 10 is ‘you can buy it at Best Buy.’”
The sweet spot in the middle is TRL five, where physical prototypes finally take shape.
At Pioneer, the emerging technologies team is focused on TRL five through seven technologies that have a basic, realistic prototype and demonstrate the economic viability of that prototype.
And it’s tough to traverse levels five through seven, which for some companies, Lazarus said, is “a real valley of death.”
“But that’s the range where we can come in and partner with you,” he said. “The key to success along the path to production is to partner, partner, partner, partner, partner.”
“Disciplined innovation requires teamwork, where we work hand-in-glove with our assets, with our support functions, and with the people in the field,” said Party.
It also means a company should induce ingenuity from within.
“We recognize that innovation can come from anywhere, and we support and leverage all the creativity of our organization in our employee base. To do that, we’ve tried to minimize bureaucracy, groupthink, and the need for a consensus culture,” Party said, recognizing that a company’s culture of creativity can strongly influence the free flow of ideas.
The caution, however, is that in focusing on internal resources, a company may neglect to pursue partnerships that could broaden its opportunities for success. While many startups are loath to bring in partners such as scientists or PhDs— they don’t want to give up slices of the equity pie—the panelists pointed out the value of partners at every stage in the process of commercialization. That’s because “commercializing technology is just as hard as developing it,” Lazarus said.
The Zero Duct Tape Zone
“At TRL seven, you can begin selling your services and product, and you can get a lot of interest from venture funds. It’s a fully operational prototype that’s been demonstrated in a realistic environment, that can actually be used in the function it was meant for,” he continued.
Or, in scientific terms, as he explained, “A prototype on that level has absolutely no duct tape on it.”
Innovators believe they’ve struck gold when they get great ideas—even more so with viable prototypes; they think they’ve gotten past the hardest part. In reality, though, they’ve taken one small step of the journey.
And it’s a long journey indeed. Several panelists cited a 2012 McKinsey study which reported that in the oil and gas industry, the time from inspiration to invention is typically 30 years.
Darcy Partners’ David Wishnow allowed that over the past few years, (at least until the recent economic downturn) with more wells being drilled compared to 2012, there is a corresponding decrease in risk in trying new ideas in the field.
“If a new tool fails and some equipment be taken out of service, there are fewer repercussions in the overall scheme,” he said. “The risk profile of trials has changed, so it’s faster to iterate and improve the tools that are being tested, and to start getting good data and good refinements.”
But you can’t be in a hurry.
The key to technology development is small, slow incremental steps as you scale up until you go to a full demonstration. “Proof of concept in a lab is not field driven,” said Wishnow. “Even if it’s been tested six ways from Sunday, you’re going to have to run pilots.”
“If you want to get an operator to fund a full-scale trial, you’ll need proof at the next-smaller scale. It’s incumbent on you to march your way up the technology development scale, to prove your technology to the point that an operator would invest that kind of money.”
And unfortunately, even having reached this stage of readiness, failure is still an option.
As Eunike Ventures’ Henry cautioned, “Look at the innovation readiness level and the investment readiness level; sometimes a project will fail not because of its technical readiness but the value of the investment for operators is not there.”
“That’s why, very early on, you need to have the operators’ sensibility,” Party said.
The Fascination Factor
It’s Eunike’s tactic, said Henry, to get a team to work alongside the operators, to continually ask, “Do you want to learn more about the technology? Does it fascinate you? Does it fit your needs? Does it move the needle?”
“If the interest is there, Eunike will do a full-scale due diligence. If the operator believes the concept merits a field trial, the firm will help design a pilot. It’s all about getting everyone involved to put a little skin in the game,” she said.
For operators and partners, that “skin” can be a costly proposition, and for the startup, its sacrifice is buckets of sweat equity. The good news is that firms like Eunike can intervene to influence multiple operators to test different facets of the technology in parallel. They might also work with the asset team to build the business case.
When questions from the virtual audience signaled significant interest in ways to catch the operators’ attention, Henry advised listeners to “figure out how to connect yourself between what you’re trying to sell and what they’re focusing on, to become relevant.”
“Always start with the problem statement from the business, both the stated and contextual,” she continued. “Technologies that have gained the most traction are those that have very clear application to existing pain points within the operator base. There’s tons of public information—start with investor relations. Do a quick google on their latest speeches. Most companies have someone that leads efforts in technology and innovation—what have they said in that respect?”
Almasoodi agreed that, regardless how incredible the innovation seems, “it’s meaningless unless the solution is important for the operator.”
That directive to offer up meaningful solutions means, of course, that their developers devote the time to researching the client’s focus and needs. “Stick to the plan —to their focus areas —and deliver results,” advised Almasoodi. “If an idea is not within our focus areas, we need to ask if it’s worth pursuing and evaluating.”
Nash offered her perspective that it’s “hard to get serious attention of companies unless you’re responding to their hair-on-fire issue,” although, as Lazarus reminded, a company should not be using its emerging tech team to manage those urgent issues. “They’re working on the issues of tomorrow, 5 to 10 years out. It’s too late to start doing R&D if it’s a problem right now.”
Again, this brings up the issue of long-lead time, which can be laborious and somewhat deflating, especially when the solution feels far away.
Stoking the Fire
As the panel members agreed, it’s tough for a startup to keep team members energized and engaged, particularly during the long adoption process or when the project hits a snag. As Henry ventured, “How do you keep the fire alive?”
“The startup team needs to always be working with the operator’s innovation group and with management,” Almasoodi said. “Show the incremental progress rather than say ‘here’s the solution you’ll see 5 years from now.’”
“We need to adjust expectations of the startup companies and ‘catch a little fish’ and go for smaller, incremental pilots,” Henry agreed.
While it is important for a startup to progress through disciplined, sequential steps—and to demonstrate progress at each step—it is also important, once a solution is viable, to pursue multiple paths to acceptance.
“If you’re trying to sell a technology, why restrict yourself to just one path?” Lazarus asked rhetorically.
“We find that multiple sources bring the same technology to us. It’s not uncommon for us to see a technology from an innovation group, then to see the same technology at a Darcy [Partners] meeting, and to have one of our venture partners introduce us to the same technology—why not try all paths?”
“At the end of the day, you don’t get a penalty if we see it more than once. You’re at a greater risk of it falling through if you don’t try all paths that are available to you.”