Research and Development in the Energy Industry

Demos Pafitis of Schlumberger and Raul Valdez with Shell International E&P examine the state of R&D in the energy industry.

Does large R&D investment translate into competitive advantage?

DP: Schlumberger’s position is based on commitment to technology and the belief that this forms the basis for our competitive advantage. The investment is largely determined by R&D program needs.

RV: Major international oil companies (IOCs) see R&D as the key enabler to secure a future in the oil/gas business, especially in a limited resource environment. I do believe that the industry is embarking on a new trend, recognizing the dawn of the new energy/climate era and realizing that only through R&D will we survive. The companies that can innovate will be the most competitive and successful in the future.

Have you seen changes in the industry mindset regarding R&D over the past couple of decades? Are there any trends in R&D investment that are related to oil prices?

DP: Since the mid-1980s, the main change has been the tacit shift in upstream R&D investment from the IOCs to the service companies in response to the sudden and dramatic fall in the price of oil. Over the same period, the NOCs have been growing fast and maturing in their operation, often with the development of significant R&D facilities. Government spending on oil and gas R&D has significantly decreased over the last three decades.

RV: I think R&D was less important in the 1990s vs. the 1970s and 1980s during the embargo days and the early-1980s economic recession. Nowadays, most major oil companies still conduct and maintain large R&D programs, while smaller companies improve execution efficiency and costs. The same holds true for service companies:  larger ones maintain high levels of R&D, and in some cases much higher than even supermajor IOCs (in terms of R&D spending as a percent of income). R&D budgets are certainly impacted by the economic environment; however, large IOCs tend to maintain constant or slightly lower levels of funding, even during an economic crisis. Some IOCs even have separate funding programs outside of the annual budget cycles to ensure funding over several years.

Through what processes do companies identify the technologies on which they need to focus their R&D efforts?

DP: New-technology identification is typically based on E&P customer needs, and forecasted industry trends. Increasingly, customers are involved in collaborative projects, some of which include academia, which leads to clear technology development.

RV: IOCs will typically look within their own portfolio and identify technical challenges and use those to guide their R&D efforts. Exploring new frontiers also provides guidance to R&D programs, such as exploration of the Arctic or ultradeepwater environments.

What are the current trends in research programs?

DP: Products and services suitable for deepwater and other harsh environments are high on the agenda, as are techniques to improve recovery from tight and unconventional reservoirs. Also, there is an increased attention in R&D on obtaining a step change in the reliability of new technology.

RV: Tight gas plays have really taken off in North America. Fracturing technology has advanced and a lot of R&D is ongoing to characterize these types of reservoirs. CO₂ enhanced oil recovery (EOR) has gained interest in recent years and also, to some extent, as a means of demonstrating CO₂ sequestration. More and more chemical EOR processes are being considered as a natural next step in a mature waterflood. Thermal EOR research is largely represented in more novel strategies like solvent-assisted steam drive or steam-assisted gravity drainage in fractured reservoirs.

What technologies have the most room for significant near-term improvement?

DP: Starting at the earliest phase of the reservoir life cycle, I expect to see further improvements in the fidelity of land/marine seismic data and the efficiency with which it is acquired. Efficiency in general should also be the target of near-term improvement.

RV: These will be the technologies that require simple modifications, for instance, polymer flooding. I’ve had a saying that whoever can cost-effectively solve a field’s conformance problem will win the Nobel Prize. Focus should go to better control of vertical and areal sweep, which will ensure better overall recovery.

Is the current R&D effort in the industry sufficient to sustain the shift from conventional to unconventional resources?

DP: It’s difficult to say whether the effort is sufficient, given the time required to bring new resources into production. However, it’s a fact that unconventional-resource production will be more technology-intensive and that R&D efforts have increased. Schlumberger has increased spending on unconventional resources over recent years.

RV: Being in R&D, it never seems like enough. However, most large companies and universities recognize that the opportunities for easy oil are limited and, therefore, have begun to refocus money and resources to explore for unconventional oil and gas. R&D in unconventional resources requires long-term commitment, despite ups and downs in the oil price. At the moment, resources have been scaled back in general.

How do you view the interplay between incremental and revolutionary technological changes?

DP: It’s true that much R&D is evolutionary, rather than revolutionary. However, from time to time, we see the kernel of a revolutionary technology or product that changes the way we think and work. From an R&D-management perspective, we look at our portfolio and ensure that we don’t simply take the low-risk, incremental technology route. Without exception, in all of our business groups and R&D teams, we maintain efforts on game-changing ideas.

RV: I see mostly incremental changes. The market condition is not yet in place to yield a revolutionary technology. The oil embargo in the 1970s sent the world, particularly the US, into a revolutionary mode. Within a decade or so, CO₂, thermal, and chemical EOR saw intense efforts and money, along with government economic incentives. Exploration and development in the deepwater followed soon after. With prices oscillating, often abruptly, it is difficult for many companies to take risks in R&D, as the return is too uncertain. As price stabilizes and the low-carbon era begins, with the focus on reducing greenhouse-gas emissions, then companies will begin to innovate on a level that will yield revolutionary changes.

How would you describe the interaction between business units and R&D centers as it relates to implementing new technology?

DP: Today’s operating teams have to absorb and apply much more technology, much more quickly than past generations, particularly in the development of unconventional resources. Part of the solution is to move R&D closer to the field operations and harness available academic expertise. At the same time, there needs to be a link between the field and R&D to determine how best to apply new technology. At Schlumberger, we have developed a network of regional technology centers to do this, and as it happens, each center focuses on a different type of resource development—shale gas, heavy oil, gas condensates, carbonate reservoirs, etc.

RV: This interaction is key and typically well established in large IOCs, whereby new technologies are deployed rapidly, if tied to specific resource challenges. Some service companies have developed their own testing facilities to rapidly progress new technologies from concept to the field. Ideally, it is the business needs that should drive most of an R&D portfolio.

How do you measure success in long-term R&D programs?

DP: Of primary importance is the ultimate impact on solving important industry problems. It’s also vital to achieve “connectedness” between the researchers, engineers, and the business stakeholders.

RV: By the maturing of technologies in the field and seeing real incremental gains in recovery, cost improvements, improved efficiency, and/or profit. Extending field life is another way to measure the success. It is also, in simple terms, the ability to use R&D to mature reserves, from being a possibility to being realized.

Does the oil and gas industry share information with other high-tech industries? Are there strong ties with academic research centers?

DP: Very much so. Typical research partners are the aerospace, automotive, and biomedical industries. Such associations open up concepts in structures, using novel materials; sensors capable of working under extremes of temperature and pressure; and nanotechnologies that could be of value in monitoring applications. There are also very strong links between R&D centers and academia.

RV: At least for large IOCs and service companies, much collaboration is maintained with academia either through direct funding and/or consortiums. Furthermore, many IOCs have visiting professor programs for taking positions within the company, either on sabbatical, or as part of their ongoing R&D programs.

What is the role of entrepreneurs in R&D?

DP: Entrepreneurs have a key role to play in developing technologies, as they have the flexibility to fast-track development. Public cofunding and/or venture capital are needed to create an environment for entrepreneurial innovation. Schlumberger maintains a strong “technology watch” to identify promising entrepreneurial technologies and develop partnerships.

RV: Entrepreneurs will play an increasingly important role as the oil and gas industry is forced to adapt to a new climate/energy era.

What were the R&D projects where you were involved that had the most impact on your company and the industry as a whole?

DP: In the late 1990s and early 2000s, I was part of the Schlumberger team that launched rotary-steerable systems into a much broader range of applications. That journey is still unfolding and I’m still excited about what remains to be done to make the next step change in that arena.

RV: I started my career working on the largest CO₂ flood in the world, the Wasson Denver Unit. I studied optimizing water-alternating-CO₂ injection schemes and pattern configurations. I was also part of the first implementation of CO₂ into paleoresidual zones (or transition zones), which is nowadays standard practice in west-Texas carbonates.

What do you enjoy most about your work in R&D? Why?

DP: R&D is fundamentally about developing knowledge and turning it into useful inventions that bring value to the end user. The sense of achievement when an engineer, scientist, or other member of the technical team sees their own work get to the field is great.

RV: I enjoy the collaboration with all facets of the business, be it upstream or downstream. These days, a lot of R&D involves integration: taking knowledge from different areas and putting it together in uniquely different ways. I like the pace of R&D where I get a chance to delve deeply into problems and then find ways to translate this to the field. What I most enjoy is seeing that connection of new technology to field application.

Many young professionals (YPs) express early career interest in managing operations. Must one make the choice to be dedicated to R&D only, or can someone be involved in operating activities while still focusing on research?

DP: Both are possible. At Schlumberger we have an active “tech and field” recruiting program that allows people perhaps more interested in working in R&D but wishing to sample the field, to do so in a formal manner. The reverse is also possible. Such a program makes it possible for the choices you mention to occur. We also like to challenge our talent, and it’s quite common, when there is a capable and willing employee, to make career moves across functional boundaries. I’ve personally done that and found the challenges interesting and stimulating, regardless of them being technical, commercial, or operational.

RV: My personal philosophy is that if you are good, the opportunities will present themselves, and you must make the most of them. I think what is more important is being good at something. I’ve managed projects, but when a recession hits or the price is low, it is important to have a solid technical foundation to fall back on. Personally I believe a mix of R&D and operations in one’s career is more enriching, as it enables you to understand each other’s drivers and needs. If one is set on the manager track, then I would still advocate a mixed career to establish perspective within the organization—how work gets done—and understand how to bring people together from varied backgrounds, interests, motives, etc., to deliver on a project.

Is it possible for YPs to become involved in R&D early in their careers? Is a PhD mandatory?

DP: There is no reason for this not to be possible. The Schlumberger “tech and field” program is partly designed with this in mind. Another possibility for one’s involvement is championing the introduction of new technologies. For a research career, it’s true that a PhD is often the preferred path, but this is not always the case.

RV: I think having a PhD helps in the sense that an engineer or scientist has already demonstrated his interest in R&D. And for many R&D groups, it is a way to screen candidates for jobs in R&D. However, a PhD is by no means mandatory. In fact, two out of three of my line managers do not have PhDs. The best way to get involved in R&D early is through internships with companies, even before you have graduated. While already in a company, attend R&D seminars, do your own personal reading, attend conferences like those of SPE, network with people in R&D, request a mentor who is in R&D, and express a desire to work in an R&D environment or project into your annual or long-term plan.

Is there any special benefit for YPs to start their career in R&D?

DP: In terms of longer-term career progression, there is no explicit advantage to starting on one path or another. However, we do see that those staff selected to take a “tech and field” starting point in their career might have a highly accelerated learning experience relating to the final application of product and service development.

RV: Since I started in operations and then moved to R&D, I can say I prefer this route as I have a better perspective on the needs of the field and how to execute in a field environment. I have routinely pushed engineers working for me to have exposure to operations, either through short-term assignments or organized field visits. If someone is leaning toward R&D, i.e., has a PhD, I would suggest beginning in R&D, but have a plan in place to get field exposure.

Demos Pafitis is vice president, Engineering, Schlumberger. Before assuming his current position in December 2007, he held a variety of Schlumberger management positions in corporate research, product development, and Drilling and Measurements. Pafitis holds a PhD from Cambridge University and is a UK registered chartered engineer.

Raul Valdez is principal engineer for reservoir engineering, Shell International E&P, and a Shell subject-matter expert in gas-injection enhanced oil recovery (EOR). In his current assignment, he serves as subsurface R&D lead for novel-solvent injection, based in Rijswijk, The Netherlands. Valdez joined Shell in 1991, working on the world’s largest CO2 EOR field. He spent several years working on various large CO2 EOR projects for Altura/Occidental and then rejoined Shell, working on a global studies team examining gas-injection EOR and other oil and gas problems. Valdez is part of a Shell EOR research team looking into the next generation of gas injection. He received a BS degree in nuclear engineering (fusion focus), with a minor in mechanical engineering, from Massachusetts Institute of Technology.