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

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

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

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

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

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

8. Idea to Business: Attrition Rate Ideas Mature Test New Business Incubate Screening Panel Funding Panel Guide 400 (339) 120 (85) 35 (40) 3 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 Shell ITF

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 its 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 Development Not Invented Here Proof of concept Fever Team Implementation Maintenance time Old work practice s stick Skills Failures

12. Expandable Casing Failure

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

14. Value of Proven Technology EMV = P s (PVP s ) – P f (PVC f ) P s :probability of success PVP s :present-value profit given success P f :probability of failure PVC f :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. Effort (ideas, work, time, money) The Technology S Curve Maturity (design-change frequency, reliability) EmbryonicGrowthMatureAgeing Embryonic: proof of concept Growth: developing prototype Mature: improving reliability Ageing: commoditisation

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 dont 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 operators risks