A recent forum at Houston's Rice University discussed new technologies and the funding needed to develop them.

Attendees of The Rice Alliance "Energy Technology Forum" held on Sept. 12 could easily have been convinced that technological innovation in the E&P industry was the sole command of the entrepreneur. This event provided a venue for upstream technology start-up companies to present to potential funding sources, industry technology managers, service providers and an assortment of people curious to see who is gutsy enough to start a company in this industry environment. More than 20 companies showcased their offerings, and six individuals presented to the almost standing-room-only crowd in Rice's Shell Auditorium (390 had pre-registered for the event). In addition to the entrepreneurs proposing their concepts, technology venture fund managers and financiers offered their guidance on financing the early-stage energy technology start-up. In contrast to the confidence and optimism of the entrepreneurs, the keynote speaker, Ricardo Rodriquez of Shell Technology Ventures Inc., conveyed a more sobering reality of the potential for funding and success of their efforts.

Technologies

The scope of technologies presented was representative of the diversity of technology domains that is the upstream petroleum industry. The spectrum ranged from "finding the next decade's oil through rotary steerable drilling technology" to "recovering last decade's oil through a sprayed polyurethane oil spill recovery technology." Three prevailing technology themes seemed to emerge from the variety of concepts. Five companies offered seismic data collection and processing technologies. Four companies proposed downhole and surface sensor technologies as well as sensor platforms. Finally, three companies presented pipeline-related technologies addressing coatings, repairs and inspection. Information technology was noticeably under-represented. Excluding the seismic processing technologies, only one energy-specific IT-based venture was offered.

Advice and insight

Although Rodriguez' keynote presentation was titled "Financing the Energy Technology Start-Up," it was really a commentary on the necessity of technology development and why the cards are stacked against the energy industry entrepreneur more so than in other industries. Rodriguez began with a brief case study that conveyed technology's tremendous role within the industry. He used the production history of the North Sea, where approximately 50% of the reserves had been recovered and technological advances had already greatly extended that region's productive life. He said even greater innovation would be required to further extend the envelope of recoverable reserves in the North Sea. Global supply and demand statistics such as predictions of a 70 MMboe/d worldwide production gap by 2010 bolstered his argument.

He detailed the industry's failed response to the innovation challenge. Research and development (R&D) investment by E&P companies has been cut in half in the last 10 years, from the US $800 billion invested in the early '90s to close to $400 billion today. In addition to their funding role, the major E&P companies had been the technology gatekeepers, deciding which technologies gain commercial acceptance. Of 15 E&P technologies tracked from idea to commercial acceptance by McKinsey and Company, the majors and smaller E&P companies contributed 64% of the resources for those technologies to move from the commercial availability stage to the 50% market penetration stage. In contrast, 63% of the effort to develop the initial concepts was committed by sources outside of the majors, independents and Oilfield Service Providers (OFSs). In other words, the majors aren't the "idea" people, but they do make the good ideas happen. Unfortunately that gatekeeper role diminished along with the R&D budget as the internal technology evangelists disappeared from the majors.

Finally, Rodriguez suggested that the elapsed time from the idea stage to the 50% market penetration stage is not conducive to the entrepreneur's success. The time to adoption of a technology in the energy sector averaged 25+ years versus 7 years for consumer products. Prototype development in the energy industry averaged 4 years versus 9 months for a consumer product.

He offered his diagnosis on why it is so difficult to successfully introduce and commercialize an innovation within the industry. He focused on three of the major players in E&P technology - the major E&P companies; the OFSs; and a group called innovators that includes entrepreneurs, academics and subject matter experts. There are notable issues with each:

• Majors - E&P companies have reduced their R&D budgets, they are generally unwilling to share the value of success, the cost of failures are still very high, and there is an erosion of internal skills.
• OFSs - The oilfield service companies face a lack of incentive to innovate fearing erosion of the current pricing regime.
• Innovators - Individual innovators face a lack of funding and limited market access.

The suggested solution to this "malady," as he termed it, is the corporate venture capital funds within the industry that have evolved since their proliferation during the dot-com era. Shell's Technology Venture Group (STV), according to its self-description, "is a catalyst whose role is to accelerate the introduction of new E&P technologies to the industry, and it seeks exit when it adds no further value to its portfolio companies."

Technology presentations

Six companies were invited to present their technological innovations. They included:

Seafoam - the Latest Oil-Spill Recovery Technology. Seafoam, a highly modified polyurethane applied as a sprayed liquid, is capable of encapsulating 95% of spill pollutants within 5 minutes of application on land or sea.

Smart Pipe - A New Life for Aging Pipelines. Smart Pipe is a high-strength reinforced thermoplastic pipe (RTP) that is manufactured and installed as a tight fit liner in an underground pipeline using a portable, site-based manufacturing system.

VMonitor - The Virtual Oilfield. vMonitor's integrated low-cost technology solutions for remote operations and Web-based data management offer substantial value to the oil and gas industry.
SONE - "Phase is the DNA of Seismic." SONE's seismic technology will directly aid in the search for deep natural gas using a revolutionary and patented frequency modulated seismic sensor and a corresponding interferometric imaging technology to map phase information.

Drilling Solutions - Next-Generation Rotary Steerable Directional Drilling Tools Based on Continuously Variable Transmissions (CVT). Drilling Solutions offers a technology which replaces existing systems at a fraction of the cost, thereby capturing a significant portion of a US $1.65 billion market.

Davidson Instruments - Fiber-Optic Sensors Will Revolutionize Industrial Process Control. Davidson has developed a family of fiber-optic sensing systems that offer significant cost, safety and performance advantages over conventional electronic instrumentation used throughout industry.

For more information about the forum, visit www.chuckrussell.com/publications.htm. For information on future Rice Alliance events, visit http://www.alliance.rice.edu/.

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