European Oil & Gas
8 December 2014
The global upstream oil and gas industry is a growing one. It spent $1.3 trillion in 2012, and this is predicted to rise to over $1.6 trillion by 2016.
As a sector, oil and gas has a history of developing and implementing new ideas which have often built upon many of the greatest breakthroughs in history. In the past few decades, for example, operating companies have been at the forefront of:
But even in a growing market, companies face ever-changing technical, environmental and safety challenges that can have a major impact on their ability to find and produce oil competitively. This means there is uncertainty:
“There are considerable unknowns when it comes to oil and gas supplies in the medium to long term.” (‘Fund managers divided over predictions of oil shortages’, Financial Times, 9 November 2014)
There is a constant need for new ideas, technologies, partnerships and business models to address challenging production environments and achieve higher production efficiencies. Integrated operations, improved recovery, monitoring of reservoir fluid movements and reducing costs for drilling and completing rigs are just some of the options available which may attract attention from the investor and support improved production and operation in the future.
Operating companies take research and development very seriously, with industry leaders regularly appearing in Thomson Reuters’ top 100 global innovators list. Much of this innovation will come from the supply chain, but the operator also has a significant role to play.
A considerable part of the industry’s global upstream spend is focused on the development and introduction of new technology and ideas. Through our work we have found that innovation is planned and delivered in different ways due to the range of initiatives by major oil companies.
Nevertheless, one generally accepted principle is that success in innovation is not simply down to the measure of dollars spent, but how that investment is administered. Factors such as geography, service models and production challenges mean operators have different drivers and focus areas, while company history and culture can also influence the innovation process.
From our experience, we have seen variations in the decision process, degrees of risk-taking and levels of transformation, collaboration and participation in research. So, given these differences, how can each company ensure it’s on a path to achieve top-dollar return? Evaluating effective innovation management methods in the major oil companies can act as a guide for organisations operating in the gas and oil sector to ensure the highest returns on technology investment.
The most important, and often overlooked, aspect to implementing new ideas successfully is to make the process exciting.
Keep innovation innovative
Open innovation (OI) is an approach which aims to enhance the quality of innovation outcomes through collaboration with a range of external partners – requiring partners to work together to share ideas and intellectual property. This is an exciting approach that typically provides a quicker time-to-market, but can also better identify new technologies, reduce costs and enable access to new markets. Most of the leading oil majors have embraced OI to help create an innovation culture and add a level of excitement to the development process.
To produce a winning innovation strategy, company leaders can follow the three steps outlined below.
Recognise the importance of encouraging and identifying innovative ideas from employees. Those closest to the challenge know the process best and are ideally placed to see new innovative solutions. Actively encourage ideas from staff and promote stronger employee buy-in. A great example of this is ENI’s annual staff award – ‘Recognition at Innovation ENI’ – which identifies the best patented proposal in terms of potential impact to deliver innovation.
Meanwhile, BP’s ‘Future Leaders Programme’ (FLP) nurtures the organisation’s future leaders through support for development in downstream (refining and marketing) business, HR or information technology and services. BP says the FLP ‘supports enthusiastic members who have new ideas and a fresh energy to keep the business ahead of competition’. These members regularly connect across countries through dedicated events, conferences and ongoing virtual meetings.
BP also has an internal awards programme, ‘The Beacon Awards’, which recognises and rewards innovative initiatives from employees around the world. To facilitate the process of submitting innovative ideas, and help identify potential winners, an online platform is provided. Around 6,000 users have taken part in this initiative which has become an important element of BP's innovation strategy.
2.No pain, no gain
Companies need a mix of game-changing and incremental innovation, with projects that carry varying degrees of risk – the greatest gain can often come from those willing to carry the greatest risk. Advancements needed in the next decade may need technologies that are not familiar, such as wider use of fibre optic monitoring, self-healing concrete, Iridium NEXT (satellite mobile communications), gamification and robosourcing – which all represent different levels of risk.
But how is an acceptable overall level of risk determined and which operators seem to do this well? The answer lies in providing a structure to establish an innovation project portfolio. Exxon’s ‘Process to Manage Innovation’ establishes dedicated research teams that follow a stage-gate management system, from early idea generation to final deployment. They assess active topic areas and determine the benefit/risk levels they should be investing in to deliver the most value. Similarly, BP’s ‘Active Portfolio Management’ has led to divesting some of its investments (about $38 billion by the end of 2013) to focus on other areas of strength. BP’s objective is to create shareholder value by generating sustainable cash flow – enabling it to refocus and invest for the future.
3.Ask for help
When the solution is unavailable in-house, innovation may come from successful partnerships. Successful operators tend to have well-developed means to engage innovation partners from the supply chain and research communities. Having the right partners to ensure ‘all bases are covered’ is the best way to achieve the right outcomes. For example, Shell has built up links to encourage innovative ideas from:
Statoil has fully embraced innovation from small and medium sized enterprises with Statoil Technology Invest (STI). This accelerates technological development and implementation through the provision of expert technical and financial guidance, as well as providing project or venture capital funding. To add a frisson of excitement, STI is managed by Statoil employees who bring experience in technological development as well as a wide range of supportive skills to inspire colleagues.
These three steps are essential in making innovation exciting and effective. They provide a framework for successful innovation engagement and will give organisations the tools to bring knowledgeable people together to successfully engage with innovation.
Paul Johnson is an energy innovation specialist at PA Consulting Group