Just as finding and developing oilfields is key to the financial health of producers, developing new technology is key to the financial health of oil service companies. To this end, oil service firms spend billions of dollars each year on the search for new tools and techniques that will more safely and efficiently find and produce hydrocarbons. But just as operators risk drilling a dry hole in their exploration program, oil service firms risk developing a new product or service which works well but fails commercially. How can oil service firms lower the chance of a “dry hole” in their R&D programs?
I once knew a man in Louisiana who labored for years – 15 or more – developing a “perforating drill”, a mechanism that would take about 15 minutes to drill through the casing and cement and out into the rock 18 inches and could be used on either coiled or conventional tubing. After a hole was drilled, the tool and bit could be retracted, repositioned, and a second, third, etc. hole drilled, perforating the pipe to access the reservoir.
The idea was to reduce the cost of perforation by substituting lower-cost rig time for higher-cost perforating charges. He would call me every few months to talk about how Weatherford was interested, then Baker, then Cudd. He’d get the occasional lab test, but enough years passed that he died broke without ever seeing his tool commercialized.
Is there a way he could have known that the effort to develop a perforating drill was unlikely to pay off so he could have put his time and money to better use on another project?
Our firm developed a simple template to estimate how quickly a new technology would be adopted in the oilfield. The model boils down to these five issues:
VALUE: Does it easily demonstrate value and is the cost of failure low?
NEED: Are there several immediate applications and does the customer perceive the job could be done better?
WORK: Is the new technology easy to deploy within the existing infrastructure and is it easy to understand?
COMPETITION: Will the buying authority within the customer company have to change to use it and are there lots of well-entrenched existing alternatives?
RESISTANCE: Is the customer base known for embracing new technologies and does the old technology wear out quickly?
Almost everything about the perforating drill, when tested against this adoption model, was negative. Tens of millions of shape charges are fired each year on wireline, blowing a hole through the pipe, the cement, and out into the rock about 18 inches accurately, efficiently and cheaply. And the industry has been doing this for decades. The key factors were that there was little perceived NEED and the COMPETITION was well entrenched.
Few new technologies presented to the oilfield have ranked high in our adoption model, meaning that they would be expected to quickly be adopted by customers. One of the highest ever was sliding sleeve frac tools. The key factor for this product was that potential users were dealing a new type of hydrocarbon resource (oil/gas shales) – meaning that NEED was high – for which existing technology did not easily transfer – meaning that COMPETITION and RESISTANCE were low. Most new ideas, however, are geared toward use in existing resource applications and as a result face an industry not fond of embracing change and competitive alternatives that are well entrenched and profitable, meaning their commercial uptake is slower and more expensive.
Moral? A careful evaluation of commercial adoption potential is necessary to make R&D spending cost-effective, and even before jumping to developing a solution, identify a unique problem with potential.