Sharing The Risk Of Technology Adoption Facilitates Uptake: Report

Despite its ability to create efficiencies and improve the competitiveness of the oil and gas industry, technology adoption can be a slow, methodical and challenging process in the oilpatch.

Unlike the tech space — where solutions are comparatively cheap and can be tried quickly —  new technologies likely to move the needle in the energy sector tend to be long-lead-time, capital-intensive solutions that are not easily tested and rolled out in the rigorous environment of a big iron sector.

As a result, technology adoption can lead to tensions in the supply chain structure, where tech developers have a hard time getting traction within the sector, risk taking is often discouraged and the rewards can be unevenly distributed, further stunting progress.

The situation has brought about calls for a deeper level of collaboration to streamline and improve the process in ways that benefit both operators and suppliers. But while the industry has long talked about ways to improve collaboration, insufficient progress has been made, according to participants at an Inspired Conversation event hosted recently by JWN Energy and Grant Thornton. (Click here to download the full report, Inspired Conversation: Uncovering real approaches to industry-wide collaboration.)

Between producers and suppliers, the lowest-cost bid procurement process is seen as one barrier stifling greater levels of collaboration. Further, there is a need to encourage a greater level of technology adoption —  recognizing that the service sector develops many of the industry’s technological solutions —  by ensuring risk and reward are appropriately balanced.

Sharing risk and reward

For example, an Inspired Conversation attendee from a large service and supply company said his company could engineer a solution that would reduce costs in a full cycle environment, lowering costs per barrel of production. To get its foot in the door, the company agrees to do the first jobs for free or at a discount to have the technology field-tested. But after it becomes a commercial success, other companies replicate the technology in six months time, before the company could recoup its initial investment in developing the technology.

“There is really no shared risk at that point; the service company is really bearing all the risk and all the cost,” the attendee said.

Conversely, a participant from an operating company noted the problem works both ways. His company shared the risk in working with a service company to advance a new technology, only to have the service company abandon them and take the technology to the United States where they could make more money.

Higher levels of collaboration and transparency can go a long way to resolving the issue, said another attendee. “After implementing [a new technology], we learned that the savings were going 10 per cent to us and 90 per cent to [the company they were collaborating with]. But once we managed to get that transparency, it went to 50-50,” he said.

Where cost cutting innovation benefits both sides, and the industry as a whole, it behooves them to meet in the middle to encourage investment in new technology wherever possible, attendees said. Often, this can be worked out as part of the procurement process if reforms can be implemented.

Among their recommendations, they advised companies to look to creative models to introduce new technologies, such as offering the first use/job for free, while ensuring both sides profit from any benefits eventually derived. Start by establishing balance of risk and reward between all parties so as to avoid one party benefitting from the investment of another. Operators ought to be rewarded for taking a chance on new technologies —  by receiving a discount for offering up a wellsite for testing, for example —  while service providers need to know they will have a chance to recoup their investment such as through long-term contracts when a new technology is successful.

It was also suggested companies take a long-term view to technology development, working to even out R&D investment over a full cycle —  in good times and bad. In the oilpatch, when times are good, companies put all their efforts into increasing production and put technology development on the back burner. When times are bad, they cannot spare the capital for investment in technology development. Companies that keep their focus on research and development over the long haul are the ones that emerge most strongly from the downturn, and remain resilient in any price environment.

A shared risk/reward environment at the R&D stage, testing stage and initial deployment stage, to create a truly “earned” trust environment within the supply chain, helps all sides to reap the rewards that come with that technology advancement and implementation.

For more details, download the report here.

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