We spoke with LUX chairman and oil & gas industry veteran Laurence Ormerod about why he sees the need for a more holistic approach to oilfield technology development
Q: The essay you co-wrote with Micheal Sequeira of OTM Consulting Ltd and Hani Elshahawi of Shell International E&P Inc for the Offshore Technology Conference 2017 is drawn from your and your co-authors’ experience with in-house innovation in exploration and production, and with startups, is that right?
A: That’s right. I worked formerly with Edinburgh Petroleum Services, which was purchased by Weatherford, and I’ve run my own consulting service since 2010. Working with LUX Assure, also, where I’m chairman, has helped show me how startups develop technology compared to the way big companies innovate. But both kinds of organizations are essentially doing the same thing: they have an idea for how to improve efficiency or reduce costs, they’re fairly certain that their idea can solve a problem for customer, and they try to develop that idea from the lab up to full commercialization. What my co-authors and myself are doing in the current paper is looking at the process for how that’s normally achieved, and proposing a new way to innovate: one that we believe will increase the likelihood that a greater number of promising technologies will reach the market.
Q: It’s not been an easy time, these last few years, for oil & gas companies to invest in innovation, given the downturn.
A: Yes, I think everybody would agree that the last 2.5 years in particular have been a very difficult time to get R&D funding: that’s because organizations are seeking to make cost reductions that won’t have a negative impact right now, or next week. So investment in innovation drops, as does investment in staff training. But this is absolutely the time to invest in innovation. Downturns are cyclical, and often lead to organizations losing a lot of their most skilled people. When the upturn comes, customers will have fewer skilled staff and an increased need to work more efficiently and reduce costs: that’s when your innovative product or service should be ready to help those customers. If you have an innovation that can improve efficiency, customers will be ready to buy, but you need to be working on innovation right now.
Q: Would you say that innovation in the oil & gas industry is a business process that’s broken?
A: “Broken” is probably too strong a word, but it has been common to see innovation efforts that have no clear alignment of the commercial with the technical. Innovation efforts tend to be too science-heavy, with not enough business focus. For example, let’s say you’re a small company with a really innovative offering but – in order to reach the customer – your offering will have to be integrated with what another supplier is doing in the supply chain. In that case, it’s imperative that you have those conversations with the other supplier at the earliest possible stage, before money and the time is invested – that just makes good business sense.
Q: You talk a lot in your paper about the need for communication, collaboration and shared risk, especially engaging at an early stage with the target customer. What’s the major benefit of engaging early with customers?
A: It’s about making sure that the other people in the innovation landscape have “skin in the game,” so to speak. If you’re hoping to sell your innovation to a big oil company, don’t just gauge their interest and then go away and develop your product in isolation. If they truly are interested, will they work with you to fully develop your idea? You don’t just want an idea of whether they will buy it down the road, you ideally want their collaboration and assistance right now. That might mean a financial investment to cover the cost of letting you hire the right people, and perhaps a guarantee of time on their offshore rig as part of your development. That way, the customer is investing time, money, and resources in your idea and are part of the “proving up” of a concept as it goes through the development process.
Q: You’ve mentioned that it’s also important to abandon innovation projects if they are proven to not work.
A: Absolutely. If, for example, you’re engaging and codeveloping with a customer as a collaborator, and they had anticipated that they would save $10,000 but are actually only saving $500 using your innovation, stop there. That’s the right thing to do: drop it. And don’t forget, it’s also vital that you engage with a large enough subset of your potential customers, not just one customer. That way, you manage the risk that you might be developing an overly niche product for which there is no true market. This kind of engagement is something my co-authors and I cover in the paper, as part of the “Commercial Readiness Level” concept.
Q: What is the Commercial Readiness Level and what are you proposing for it?
A: The Commercial Readiness Level has its roots in the idea of the Technology Readiness Level – TRL – a concept which comes from organizations like NASA, where you look at a potential space technology, bringing it all the way from an idea in the lab to launching on a spacecraft. TRL has been adapted by the oil & gas industry, and it is a well-established set of milestones for examining whether an innovation is ready to be deployed in the field. We’ve co-opted the idea of the TRL to develop a CRL: integrating commercial readiness as a concurrent set of milestones that need to be met while the technology is being developed. We believe the CRL will be a useful guide to companies as well as to investors, as they assess the commercial aspects that need to be prepared, and whether those are being coordinated with a developing product’s technological readiness. So that means marketing, sales, support – do you, for example, need field service people or suppliers involved? All those elements are part of the product’s commercial readiness, and they can’t be afterthoughts.
Q: What’s the next step for your concept of the Commercial Readiness Level?
A: We encourage oil & gas industry professionals involved in the innovation cycle to get in touch with us, as we’re proposing to form a larger representative working group on this topic. Collaboratively, we want to formulate the commercial readiness levels and the associated guidelines – similar to API RP 17N. We believe that the adoption of these levels could absolutely benefit the entire industry at large. I’ll look forward to speaking with anyone who’s interested in helping us move this forward.
Thank you, Laurence for answering our questions. See the full text of his and his co-authors’ paper, “OTC-27806-MS – A More Holistic Approach to Oilfield Technology Development – M. Sequeira, OTM Consulting Ltd; H. Elshahawi, Shell International E&P Inc.; L. Ormerod, Ormerod Consulting Ltd.” via the OTC 2017 website at http://2017.otcnet.org/Content/Technical-Program.
Laurence Ormerod is an oil & gas industry veteran and chairman of LUX Assure, a producer of innovative monitoring and management solutions for production chemicals. For more information on LUX Assure, visit www.luxassure.com. Contact Laurence Ormerod on LinkedIn [https://www.linkedin.com/in/laurenceormerod/] or at firstname.lastname@example.org