HOUSTON—Technological innovation has transformed life in the oil patch, and startups are playing a role in that success.
But developing technology for the oil and gas industry has its challenges: long development times, high capital intensity, complexity and the sheer scale of the industry, said Carolyn Seto, director of upstream technology and innovation for IHS.
“Despite all of this, innovation still happens,” Seto said.
Top executives from a handful of technology startups gathered at IHS CERAWeek to speak about their roles in bringing innovation to the industry, their experiences and ways to improve the process. The Feb. 24 talk was delivered as oil and gas companies continue seeking game-changing technologies and better ways to develop existing resources more efficiently amid lower profits.
Startups, panelists said, bring flexibility and speed.
“There is a certain agility that comes with a startup environment,” said Steve Sliwa, CEO and founder of the Seeq Corp. software company that offers an analytics platform for processed data. “With our product cycles, we do a new [soft] release every three weeks,” working with partners to constantly review and improve the product.
“Innovation in very large organizations is very difficult. There are all sorts of checks and balances in governance in place that actually stifle innovation,” added Eric van der Meer, CEO of Airborne Oil & Gas. He noted that innovation involves perseverance, trial and error and requires an entrepreneurial mindset, something that does not always go hand-in-hand with large organizations. “You need smaller, entrepreneurial companies to bring the innovation forward.”
Panelists pointed out that smaller companies, for example, led the North American shale revolution, introducing new technology and techniques such as hydraulic fracturing and horizontal drilling among other innovations that enabled companies to successfully free hydrocarbons from shale rock. Lower commodity prices have driven more companies toward technology in hopes of cutting costs.
Yet, Seto noted that although oil and gas is a long-term business, some people are thinking short-term and in many instances cutting R&D spending. “We’re seeing double-digit declines in R&D spending in both the service companies and also the oil and gas companies,” she said.
For Airborne, as well as others, the downturn has equated to lengthier delays in closing deals, van der Meer said. Although Airborne, which manufactures a lightweight, corrosion-free thermoplastic composite pipe, landed Chevron Corp. (NYSE: CVX) as an investor in December, he spoke to the reality many startups still face.
“In a downturn, it’s about cash and there is less cash,” van der Meer said. Then, there is the more general problem about technology acceptance. Plus, what could be quick technology pickups are being stifled because needed buy-in is spread across multiple disciplines.
“We really must change the way we deploy technology” and reset the baseline of cost, he said.
Panelists seemed to agree that the ability to save money—millions in some cases—has not sped up the decision-making process for some oil and gas companies, exceptions being the likes of Chevron, Saudi Aramco and Schlumberger Ltd.
Sliwa explained how a potential client tried an online demo of the company’s software, liked it, even fixed a problem it had been experiencing, and wanted to continue the trial. But four months have passed, and the two are still in the trial phase—stalled in the approval process.
“My observation is that you have some things in the culture that have to be slow because of safety issues,” Sliwa said. “Saving a million dollars a month, you’d think you’d want to go faster.”
So startups are taking steps to speed up what could be a 12- to 18-month approval process, a time frame some said is unprecedented in other industries.
“It was difficult before. It is even more difficult now,” said Iain Maclean, CEO of Zilift, a developer of artificial lift systems. Just negotiating a contract can take a year, he said, noting the company cannot give away intellectual property. The company is taking more of the development process into its own hands paying for a field trial, which can be critical to a technology’s adoption.
The oil and gas industry could learn a lesson from other sectors, taking up new business models and approaches that are less expensive, easier to adapt and less cumbersome:
- The download-and-go approach from the IT sector allows companies to experiment with new digital technology, Sliwa said.
- Compartmentalizing R&D and pilot activity, and running new technology in parallel with existing systems, is something the life sciences industry does well, said Kevin Knopp, CEO of 908 Devices, a high-pressure mass spectrometry specialist.
- Give customers exactly what they want. Previously in the drone business, Sliwa said, the company’s secret ingredient was selling pixel hours instead of drones.
“Lead initiation is relatively easy,” van der Meer added. “Lead conversion is very, very difficult.”
Velda Addison can be reached at vaddison@hartenergy.com.
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