Collaboration can produce work of the finest order. Look no farther than the music business for examples of linkups that have produced outstanding results—Lennon and McCartney immediately spring to mind. In the case of the upstream industry, collaboration in all its various forms has likewise enabled R&D that has eventually produced many commercial technologies that have added crucial new strings to its bow but which, if not tackled with the help of deep consortium pockets or seed-funded by government departments, would likely never have seen the light of day.

Shared risk and reward

Oil and gas companies by nature tend to come together to form joint ventures (JVs) as a simple mechanism to not only share financial risk and access new resources but also to gain entry to larger, high-value projects that they could not aspire to otherwise.

However, by no means have all such collaborations worked. Many fledgling projects with promise have broken down at the nascent stage due to clashes between intransigent partners with histories of commercial rivalry, different regional or corporate cultures, an unwillingness to “give away” potential technological advantages, or just a simple lack of funds during a downturn.

The latter is particularly the case today, with cash-challenged operator and service company budgets leaving little to invest in long-term technology developments that might not produce tangible returns until many years into the future and with the reduced funds that are available today largely being targeted on innovations that produce quicker returns on the investment.

Research projects

RPSEA President Tom Williams has held positions throughout his career directly involved in fostering collaborative programs (Read RPSEA's sidebar "Consortium Success" by Tom Williams). “I have been involved in the oil and gas research community since I worked at the U.S. Department of Energy [DOE] in 1989, and then, working for a few technology organizations, I managed some cutting-edge research projects co-funded by the government, was part of several joint industry projects, led a corporate technology and research team, was active with a leading offshore research consortium and then worked with two not-for-profit research consortium organizations,” he told E&P.

Williams outlined seven drivers of oil and gas R&D:

  • Addressing a grand challenge;
  • Gaining a competitive advantage;
  • Taking advantage of requests for proposals for outside funding;
  • Corporate or association response to political and public actions;
  • Addressing a major event;
  • Economic necessity; and
  • Training the next generation.

“I believe there is both a need for and public value in government-funded oil and gas research investments for some of these drivers,” he added.

Faster returns on investment

Referring to the industry’s shorter term faster return approach of current times, Williams held up the shale revolution as a prime illustration. “There is no better example,” he said, for demonstrating how research conducted through a multidiscipline consortium has contributed notable accomplishments.

Other good examples are documented in the 2016 RPSEA final report covering the recently concluded “Section 999” program (which ended at the close of 2016). This documents the process of collaborative efforts through a consortium and the advantages over a traditional government approach.

He said government investments in R&D should only be done when the research would a) not be otherwise conducted by the industry; b) where there could be potentially high rewards benefiting the nation; or c) in circumstances where safety or environmental protection would benefit.

Accountability

Williams went on to give what he describes as some “politically incorrect” insights into the whole process. “The universities did not want the type of accountability nor be forced to plan up front for commercial success as did the operators and vendors,” he said. “Operators sometimes did not believe universities were capable of identifying or delivering solutions to their challenges without being told what to do. Neither wanted to lose control of their established territories and processes.

“The process for conducting small producer research needed to be different than ultradeep water. Accountability with end users involved in the process was incorporated as well as the need of having measurable milestones with all parties involved in the process.”

RPSEA succeeded, he said, because the organization succeeded in building a network of experts with the “culture and desire to cooperate.” The program had its struggles, Williams said, as the DOE “had a hard time understanding how all the industry experts could understand research priorities better than the government. Because of the process RPSEA established, in contrast to traditional government-funded R&D, good research projects were initiated with the ability to adjust and move quickly to take advantage of demonstration sites of opportunities, and the time from concept to commercial application was significantly shortened. It all worked out.”

Shale world payoff

In the shale world it becomes possible to increase production without committing to giant capex projects that take years to come online and have to show adequate returns from the capex commitment.

“Cutbacks in R&D are to be expected in difficult times,” said Peter Lovie of Peter M. Lovie PE LLC. “However, a shift occurs in the need for new methods, away from overcoming the ongoing longer term challenges in difficult deep waters and ever deeper wells, of the kind that get engineers going and dreaming. And which often took many years to bring to market. Improvements in the shale world get attention, and the payoff might be better and faster.

“I would suggest that free market demand for technology advances works best.”

Innovation through collaboration is not just related to the development of new technologies, however—it also can equally apply to a region’s entire approach.

Recognizing the value

The U.K. North Sea has been through a painful period of readjustment during this downturn, but according to the head of an industry forum on decommissioning, collaboration is the key to its future success.

Decommissioning models are receiving more attention as economic realities challenge the continued commercial viability of assets in many cases well beyond their design lives. However, the bill faced by operators to decommission them is huge. The North Sea is estimated to be facing a bill of up to $82 billion from 2016 to 2040, with about $51 billion of that in the U.K.

The Norwegian Petroleum Directorate estimates total decommissioning costs for Norway of about $19 billion, while the equivalent forecast for the Gulf of Mexico is $26 billion, according to DNV GL Oil & Gas. With experience still relatively limited, according to Graeme Lamont of DNV GL Oil & Gas, “This presents opportunities for greater collaboration, knowledge sharing and clearer guidance to minimize disruption to neighboring fields. Activity needs to be carried out in a safe, environmentally conscious and cost-effective way.”

"The sector is realizing that effective collaboration can achieve things much more cost-efficiently and effectively than going it alone."

The technical advisory company is assisting with an online platform being developed by the U.K. industry forum Decom North Sea (DNS) to facilitate knowledge sharing, with DNV vetting and managing the quality of content produced by collaborative efforts to make it easier and more cost-effective for operators to comply with the U.K.’s regulations. The development with the help of operators, contractors and other stakeholders of DNS’ late-life planning portal signals a change in the mindset of these companies. “They are starting to understand the value of collaboration,” according to Karen Seath, general manager at DNS. “The cost and complexity of decommissioning is forcing a long, hard think about how best to utilize capabilities and resources. The sector is realizing that effective collaboration can achieve things much more cost-efficiently and effectively than going it alone.”

Service sector linkups

The oilfield services sector is perhaps the best example of how the industry is taking collaboration to the next level, not so much from an R&D perspective but on a wider “needs must” approach.

The changed business environment has seen companies scramble to form JVs, alliances and partnerships during 2016, mainly in the offshore space, for the purposes of reducing costs, improving their ability to tackle larger and more complex projects, offering a wider range of solutions for operators and positioning themselves for emerging regional or technology markets (like subsea power and floating LNG).

According to analysts Bernstein Research’s latest offshore report, 24 JVs and alliances had been formed by the end of November 2016 (including four in that month alone). The analyst said 18 had been set up as alliances and six as JVs, with the quartet in November consisting of the Fortuna JV formed between OneLNG and Ophir Energy, a 50:50 JV between Rowan Drilling and Saudi Aramco, and alliances between Maersk Drilling, GE and NOV, respectively.

Improved win-rate

“There has been a growth in collaborations in the oilfield services sector in the past two years, especially in JVs and alliances,” the report stated. “In theory, they offer to improve win-rate amid weak demand from oil companies and reduce the costs to serve. In reality, they can also allow management to claim purpose in a sector otherwise devoid of strategic clarity.”

JVs tend to involve a new business entity with clear service offerings to be formed, while alliances are typically general agreements revolving around resource sharing, the report stated.

Bearing in mind the fact that 71% of upstream investment in the world’s biggest 365 oil and gas megaprojects in 2015 was spent by operators via alliance or JV relationships, according to a report by Ernst & Young, the industry’s players are increasingly recognizing that they must work closer with their clients and peers if they are to survive and prosper into the next decade.

Comments