Economist's Corner

Changing the Game To Change the Bottom Line: Leveraging Innovation for Earnings in the Petroleum Industry

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“Everyone who has ever taken a shower has an idea. The person who gets out of the shower and does something with that idea is a winner.”

Nolan Bushnell could have added another sentence to his words of wisdom: “The person who executes the idea and makes money from what he or she does with that idea is a true innovator.”

Bushnell should know. He is an engineer and entrepreneur who turned his love of arcades and entertainment into commercially successful game changers. He founded Atari, the video game and home computer company, which was primarily responsible for the formation of the video arcade and modern video game industries. He also founded Chuck E. Cheese, the chain of American family restaurant/arcade/entertainment centers. Innovation is the process by which an idea or invention is translated into marketable goods or services. Nolan Bushnell is a true innovator.

The goal of innovation is to create value—for individuals, companies, communities, and industries. In today’s upstream oil and gas industry, we need innovation to pull us out of the current market situation (which, by the way, came about at least in part as a result of previous innovations that drove production successes in unconventional oil and gas plays). Regardless of commodity costs, our industry needs to deliver the 90 million barrels of oil and the 350 Tcf of gas needed every day by the 7.2 billion people on our planet. And we need to do it more safely, economically, efficiently, and sustainably than ever before.

Our industry faces more complex challenges now than at any other time in our history. Today every hydrocarbon asset is a marginal asset that must provide acceptable return on investment. We can no longer compete—or, in some cases, even survive—with business as usual. The time for incremental change has passed. We need something totally transformative—a “sea change” in business jargon—not only in hardware, sensors, and software, but also in processes, procedures, and culture. We need a totally new way of thinking and looking at problems as well as developing and executing commercial solutions. What we need is innovation.

How Does Innovation Happen?

Innovation occurs by thinking differently and creatively. Too often people are asked to solve problems or look for opportunities for their business by reflecting on the existing mentality; they think harder about what they already have thought about, again and again. Thinking differently is about allowing yourself to observe the unobservable; it is about connecting seemingly unrelated ideas, putting them together in unrelated ways, and producing something original. Familiar terms to describe this cognitive ability include creative thinking; lateral thinking; right-brained thinking; and associational thinking, or association.

Bushnell made associations between two seemingly unrelated ideas—arcade games and video technology—to spawn video gaming. Steve Jobs associated computers and art to develop Apple. Larry Page and Sergey Brin associated the Internet with organizing information to launch Google.

Innovation requires knowledge. It requires thinking about things you know well and then looking around and asking, “What’s wrong? What causes pain? What would the ideal look like?”

In 2004, home movie and video game rental company Blockbuster had more than 60,000 employees in 9,000 stores across America. But, as demand for video rental by mail grew, the video home system (VHS) cassette was too bulky and costly to mail, and Blockbuster members became increasingly frustrated with due dates and late fees. Netflix developers Reed Hastings and Marc Randolph leveraged these pain points and bundled different attributes to form their DVD (digital video disk) mail subscription service. DVDs were lighter and less expensive to mail, and the Netflix queue concept had no due date and no late fees. Today Netflix serves over 190 countries with streaming and mail-service video.

My company, like others in our industry, was founded on innovation by Howard Hughes Sr. and Reuben C. Baker, who conceived and commercialized ground-breaking inventions that revolutionized the way we produce oil and gas. More than a century later, innovation is still a part of our DNA, and new product commercialization remains a core discipline. 

Idea Incubators

Ideas that spawn innovation can come from anywhere—from new technology, current trends, and business models; from aerospace to medicine to academia. They just need to be fit-for-purpose to impact our industry. Pumps & Pipes is an idea and technology exchange program that leverages Houston’s local brain trusts in oil and gas, medicine, and aerospace to encourage innovation among all three industries. Similar programs are springing up throughout the world.

Petroleum engineers and medical researchers collaborated in the creation of a heartbeat simulation flow loop. Complex control algorithms used in the oil industry to simulate the strain and deformation of rock under stress led to the replication of the movement of blood through heart valves. Source: The Houston Methodist DeBakey Heart & Vascular Center.

One key area of cross-industry collaboration through Pumps & Pipes is “flow assurance.” In the oil and gas industry, the flow of hydrocarbons can be slowed or stopped by the buildup over time of wax, asphaltenes, scale, and other solids in flowlines. The medical profession faces a critical challenge from the buildup of plaques in arteries and in the brain. Collaboration between the two industries holds promise for cures in both. Viscosity modifiers—in the form of generating in-situ surfactants for heavy oil and bitumen, and anticoagulant drugs such as blood thinners—are another realm in which investigating seemingly unrelated ideas may yield game-changing innovation.

The oil and gas industry is beginning to leverage nanotechnology, which has been used successfully in medicine. While the technology is still in the exploratory phase for our industry, we are seeing some early evolutionary results. Among these is a patented, high-strength nanocomposite technology known as controlled electrolytic metallic (CEM) material that combines two seemingly unrelated ideas—high strength and chemical disintegration—to form the basis of fracture balls and plugs that can withstand differential pressure sufficient for reliable diversion of stimulation treatments into the formation and then completely degrade in situ at predictable rates, based on wellbore fluid temperature and salinity. The CEM-based devices reduce time and risk, both during and after hydraulic fracturing operations.

Innovation: Making It Commercial

Technology alone is not innovation if you don’t capitalize on it. What makes innovation commercial is its desirability to users, its viability in the marketplace, its economic soundness, and its basis in workable technology.

For the petroleum industry, innovation must improve well reliability and efficiency, optimize production, and increase ultimate recovery. It must also address current industry pain points and both current and future challenges. Today we are heavily focused on developing and commercializing technologies and approaches that safely reduce exploration and development costs. We need to address lower prices and growing global energy needs. Furthermore, innovation requires accomplishing all of these objectives in a sustainable way; that is, in a way that addresses the social, economic, and environmental needs of Earth and its inhabitants, both today and far into the future.

Innovation Enablers

Our industry has traditionally been highly competitive. For innovation to flourish, we need to establish a culture that embraces new ways of working together. Through collaboration, we can implement change more rapidly and effectively, and we can shorten the cycle time for acceptance of new technologies and methods.

Innovation requires knowledge, and today the knowledge needed to enable innovation is everywhere. Innovation cannot take place in a vacuum. It requires working across multiple departments, disciplines, companies, industries, universities, agencies, labs, geographies, cultures, and genders. Moreover, it requires openness to diverse ideas, thoughts, and methods.

Innovation is fueled by vision, diversity, environment, and empowerment. Vision is the Big Picture, the Whole. Diversity is the recipe for success: the formula that nurtures more ideas, better decisions, and better performance. Diversity of culture, gender, age, academics, and expertise can create a platform for real innovation. If you combine all of this diversity and mix it in the right proportion, season it with a little guidance, and let it simmer for 5 to 6 months while people learn from one another, the results can be exquisite. 

Some people believe that creativity is innate in only a few fortunate individuals. To the contrary, I believe that all individuals have a certain level of creativity that lies dormant until stimulated.  The work environment can be a great stimulus for creativity; a fun place to work, with interesting projects and all the latest tools and toys.  Don’t ever discount the value in giving someone a software package or instrument he or she thinks will make work more productive.  It can literally open the door to creativity. 

But the most powerful stimulus and innovation enabler by far is empowerment.  It motivates people like nothing I have seen before. It unleashes creativity and fosters innovation exponentially.  It makes people believe the vision is theirs.

On the other hand, if you want to stifle or kill innovation, start micro-managing people.

Tips for Future Innovators

Innovation drove the production successes that contributed to the current market situation for oil and gas. Innovation will also pull us out of this situation, stronger than before. This innovation will come from you and your peers, and it will involve having ideas and converting those ideas to commercial offerings that will create value for you, your companies, our industry, the communities where your work, and Earth and its inhabitants.

Think about what we will need to withstand harsh environments and volatile markets in terms of high-performing and reliable technologies; monitoring and control; manufacturing capabilities and practices; recruiting and retaining the best people; education, training and certification; creating and maintaining a culture of safety, quality, and future innovation.

You do not need to be the best and brightest, or have special training. You do need to have tolerance for risk and ideas, and lots of them. They do not need to be big ideas; they just need to be good ideas. Remember that you must have many bad ideas to get to a good idea.

The typical half-life of an idea is 24 hours. So, when you have a good one, act on it. Look beyond your boundaries, because what we did in the past likely will not work in the future. Develop an entrepreneurial spirit, and learn to tap into it. Nurture your creativity. Work—and play—well with others. Be persistent and optimistic. Take risks, and remember that failure is the first step to success… if you learn from it. Failure only occurs if you stop or give up.

Take a tip from Mary Pickford, a legendary silent film actress. She was also a writer, director, and producer and cofounded United Artists and the Academy of Motion Picture Arts and Sciences. She said,

Failure is not falling down; failure is staying down.”

Related Reads

Cross-Industry Collaboration Ramps Up Flow of Ideas. Oil and Gas Facilities. March 2015.

Nanotechnology Solutions for the Oil and Gas Industry. The Way Ahead. July 2016.

Rustom K. Mody is vice president and chief engineer enterprise technology for Baker Hughes.  He has more than 35 years of experience in drilling and completion. Mody holds 16 patents and is the author of several articles, technical presentations, and publications. He has won several awards for engineering innovation. Mody is a member of SPE, American Association of Drilling Engineers, International Association of Drilling Engineers, and American Society of Mechanical Engineers. He serves on the board of advisors for the University of Oklahoma Engineering Department, University of Oklahoma Mewbourne School of Petroleum and Geologic Engineering industry advisory board, and Texas A&M TEES (Texas A&M Engineering Experiment Station) executive board, and advisory board for Pumps & Pipes, an organization made up of professionals from medicine, aerospace, and energy industry. Mody holds BS and MS degrees in mechanical engineering and an MBA in finance. He is a registered professional engineer in the state of Texas.



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