Technology Uptake in the UKCS Planning and Implementation Challenges John Barwis Well Engineering Manager, Shell U.K. Ex

1. Technology Uptake in the UKCSPlanning and Implementation Challenges John Barwis Well Engineering Manager,Shell U.K. Exploration and Production Chairman,Industry Technology Facilitator

2. The “KNOW HOW” to apply science and engineering to a business problem to enhance our capabilities and performance. TECHNOLOGY means:

3. INNOVATION means: • Introducing new tools, or • Using old tools in new ways, or • Working differently • Through innovation we seek to: • accomplish the previously difficult or “impossible” • reduce cost, time, risk, or uncertainty • Innovation often involves technology • Innovation need not imply invention or R&D

4. The Technology “S Curve” Embryonic: proof of concept Growth: developing prototype Mature: improving reliability Ageing: commoditisation Maturity (design-change frequency, reliability) Embryonic Growth Mature Ageing Effort (ideas, work, time, money)

5. Generations of Technology Management 1st 2nd 3rd Beyond R&D driven Project driven Partnership between R&D supplier and user. Co-creation by R&D supplier and user. (traditional) (supplier - buyer) after Roussel, Saad & Erickson, 1991

6. Technology Development – Strategic Choices Plans and Targets 3rd Generation R&D Business Input - Value and Problem Statements Identify Technology Needs Create R&D programme to fit budget and execute Classify Technology Needs Decide on best procurement option for each technology Generate Acquisition and Development Options

7. Technology Procurement Options HIGH Develop In-House Manage In-House,Farm OutNon-StrategicElements NEED FOR COMPETITIVE ADVANTAGE Ignore, or Obtain from Market Collaborate via JIPs COST OF DEVELOPMENT LOW HIGH

8. Idea to Business: Attrition Rate Shell ITF 400 (339) 120 (85) 35 (40) 3 New Business Incubate Funding Panel Screening Panel Guide Ideas Test Mature 32 Existing Business Develop • < 10% of ideas become usable products • < 50% of products will be taken up by a single user • 80% of value will come from 20% of the implementations

9. Directing Innovation: R&D Planning • Better direction and screening low on the “S-curve” will increase the uptake of “proven” products later on. • avoids “nice-to-haves” with low added value • previews product NPV before it’s built • generates customer “pull” for implementation • improves transparency of implementation risks • ensures early provision of an implementation plan

10. Guiding Innovation: Mentorship • No shortage of proposals; solid ITF evaluation process • ITF brokered 40 projects worth £10.1 mln • Poor take-up by Universities • Most SMEs have poor business plans • Most operators see no clear path to commercialisation • Service companies could play a key development role • Government focus should be on incubation, not handouts

11. The Road to “Proven” Technology The Developers Perspective Proof of concept Implementation ‘Not Invented Here’ Maintenance time Skills Failures Fever Team Development Old work practices stick

12. Expandable Casing Failure

13. Crossing The Chasm The Marketing Perspective Chasm Early Failure Pit EarlyMajority34% Late Majority 34% Laggards 16% Innovators 2% Early Buyers 15% Technical Sales Commercialization and Crusaders BD managed account teams and sales group focus on economic buyers and influencers Early Market Bowling Alley Mainstream Market End of Life after G.A. Moore, 1991

14. Value of “Proven” Technology • EMV = Ps(PVPs) – Pf(PVCf) • Ps : probability of success • PVPs : present-value profit given success • Pf : probability of failure • PVCf : present-value cost, given failure • includes cost of rework • includes value of deferred production

15. Framing the Cost of Failure • Low • lost opportunity but no collateral damage • usually involves “learning the limits” • example: inappropriate 4D reservoir characterisation • Medium • delay and extra expense, but project not jeopardised • may be justified by later pay offs • example: expandable casing failure • High • project delivery jeopardised or entire NPV destroyed • profoundly impacts future missions and relationships • example: loss of a well in a one-producer field

16. The Technology “S Curve” Embryonic: proof of concept Growth: developing prototype Mature: improving reliability Ageing: commoditisation Maturity (design-change frequency, reliability) Embryonic Growth Mature Ageing Effort (ideas, work, time, money)

17. Barriers to “Proven” Technology • Oil and gas E&P may be the least risk-averse endeavour in the industrial world. Operators are not averse to risk – but they will and should avoid risk they don’t know about. • Operator skills shortage: under-recognition of opportunity • Service provider skills shortage: implementation failures • “Good oilfield practice” includes risked decisions • All operators have different screening criteria • Lack of data on the probability of failure hinders uptake • Cost of failure is higher in high-cost basins

18. Encouraging Innovation & Implementation: Tax • Tax-code recognition of the full R&D life-cycle • include commercialisation of technology • include novel applications and improvements • include field trials • Tax credits (e.g. US, Canada, France) • Payroll tax relief for R&D (e.g. Netherlands) • Tax relief for University funding (e.g. US) • Tax payers should not directly assume operator’s risks