We Need to Pick up the Pace!
In 2017, I retired from full time work as a VP for a major oil and gas producer in Calgary. It was the right time for me - it felt like I just kept dealing with variations on the same old issues. In the next phase of my career, I wanted to be involved with some things that had the potential to really change the way we did things. I was looking for the opportunity to make step-change improvements as opposed to the incremental, continuous improvement approach that I, and the industry, had been following.
Since that time, I have become involved in the energy technology sector. I have had the chance to work with Acceleware and other companies that have the potential to make big gains in the areas of capital and operating cost and environmental performance. I now have a much better understanding of the challenges facing the sector.
Most challenging of all is a story that I have heard again and again. It goes something like this:
- Some very smart entrepreneurs and scientists come up with a new way to do something – lower costs, reduced environmental impact, or both.
- They recruit some industry veterans to vet their initial lab and market research and get great positive feedback.
- They participate in one of the excellent incubators and accelerators in town, refine their value proposition, get promising feedback and even get some initial investors.
- They may even get agreement to do some small-scale field testing with an oil and gas company.
- And then … they plow into the snow drift. Industry says the technology still looks promising – but aren’t able to move forward to the next step because of a) capital constraints, b) the technology needs to “mature”, c) it’s not a priority for the asset team, d) it’s still too risky or some combination of the above.
If the team has enough staying power, and can hang on long enough, they may be able to move into a testing phase and then, with success and some luck, move into a deployment phase – although that can be a prolonged exercise that resembles number 5 above.
Of course, concepts fail at every step and that is an expected piece of the evaluation and adoption process. What bothers me is when I see quality teams with quality products successfully move through the initial steps and then stall in navigating step 5 above. It seems like they just need to get a couple of breaks to have a major positive impact – the kind of impact I was looking to support when I left full-time work.
I now realize that this problem existed while I was working for E&P owners as well – but I didn’t notice it as much from “the inside”. We were mainly focussed on hitting our own challenging targets centered around production, costs and activity. If anything, we tried to avoid being the group that “gets” to test new technology, because it would be a distraction and steal valuable resources – money, people, time - from our core activities. The best way to play the game was to wait for others to deploy first, watch over the fence and then copy what works. That said, there were technology groups or individuals who kept track of what was going on externally but didn’t have the budget or the assets to test technologies themselves. As a result, there was a chasm between technology teams and asset teams that was difficult for technologies to cross. I’m not sure it’s much different today.
Industry does devote huge resources to collaborative efforts including COSIA, CRIN, and PTAC, and these groups have contributed a lot. But it is very difficult for joint industry efforts to move quickly. So many people have to agree to so many things that the pace of progress is limited. Companies also tend to assign members from their technology groups to roles on these collaborative teams so the adoption gap between technology groups and asset groups tends to remain. I have heard the phrase “the echo chamber” used more than once to describe the fact that technology groups tend to talk to each other but there is little reach into the asset/line functions of an organization.
For most of my career, I thought the careful, slow adoption approach to new technology was a good strategy. We progressed by making small incremental improvements over time. Significant technology advances didn’t really come into industry use until after many years of tentative trials and a possible boost from government funding or regulatory pressure. Asset teams were focussed on delivering business plan results as promised. Some of the most successful companies in the industry worked this way. It helped Canadian energy companies become global powerhouses.
The problem we have now is that the slow and steady approach doesn’t really work when there is a need for rapid change. Our industry is struggling. Economics are challenging, investors are looking to have money returned – through dividends and share buy backs - rather than re-invested. We are the target of anti-fossil fuel policies and attitudes around the world. The risk of chronic, large scale asset write-downs looms.
Fossil fuel producers and our provincial governments are valiantly defending the industry. They correctly make the case that fossil fuel demand will be significant for many decades to come and that Canadian oil and gas should be filling that demand. We deliver among the most responsibly produced energy in the world. Our industry leaders are predicting eventual zero emissions performance. That’s a great aspirational goal but we need to be making more significant progress towards it. Even those with an open mind on the issue will note that our actual performance shows emissions intensity going down by a few percent per year and total emissions increasing. In order to build more positive support for our oil and gas industry, we need to show speedier progress. Continuous improvement won’t work this time – we will run out of time and support. That means emissions and costs must come down much more quickly. We need to demonstrate step change impacts in order to help change the national and international narrative on oil and gas. Net zero emissions is a great target, but if we don’t get there for 50 years, it’s not going to be that meaningful. We need to show that Canadian oil and gas is part of the global solution. That means promising technologies must either be adopted or rejected at a faster rate. That’s the way technology and innovation works in many other industries – fast adoption or fast fail is a necessity of survival and I think more of that thinking needs to come into the oil and gas business.
Many in the industry will say we are already doing a lot. Most companies have a list of examples of new technologies that are under development. It’s just that the pace of this development is way too slow. Progress is not enough to catch the attention of even objective observers. The impact on company valuations is already being felt but as comments from Mark Carney and Larry Fink catch the headlines, the industry needs to match that with headline grabbing progress or things could get a lot worse.
In order to incorporate new technology at a much faster rate, I think we need to fundamentally change the way our companies work:
- Innovation, investigation and adoption of new technology must be included as a responsibility of line functions (those tied directly to asset performance) as well as of technology groups. Incorporation of new technology needs to become a key metric of asset teams just like production, cost, and safety.
- There needs to be more of a push for integration between the line and technology groups. Conferences and seminars that are typically attended by the technology folks should encourage attendance by line groups. Internal technology review meetings should always include asset team representatives.
Aspirational goals are great, but we are going to have to drive a lot harder to get there. There may be better ideas than mine for how to do it, but to ensure the health and future of the industry, we need to pick up the pace!
About the Author:
Mr. John Howard is a proven industry executive with 38 years of experience in the energy sector focused on conventional and thermal heavy oil production. He has held several executive leadership and operational roles across numerous companies including Shell Canada Ltd. and Numac Energy Ltd., most recently serving as a Vice President with Canadian Natural Resources Ltd. until his retirement in 2017. Mr. Howard has held board positions for energy companies, and also co-founded Verdant Energy Ltd., a renewable energy company providing waste-to-energy solutions. He provides volunteer advisory services to WaterNEXT, a water technology accelerator, and has served on the board of Autism Calgary, New Heights School for Children with PDD/Autism, and the William G. (Bill) Howard Foundation. He also served on the Capital Fundraising Committee for the Society for the Treatment of Autism. Mr. Howard holds a B.Sc. in Electrical Engineering from the University of Alberta and an MBA from the University of Calgary and is a member of the Canadian Heavy Oil Association, the Association of Professional Engineers and Geoscientists of Alberta, the Institute of Corporate Directors and The Chancellor’s Club of the University of Calgary.