Early-stage technology companies need funding to develop their concepts, and in the oil & gas industry that’s an additional challenge due to the complex nature of the systems and equipment involved. But is adequate funding available for oil & gas industry innovation in the UK?
The oil price crash certainly made it more challenging. Not only did operators look to cut back on areas that wouldn’t immediately hurt the bottom line, such as R&D investment, but they also scaled-back things like industry memberships.
At the same time, however, in the UK the price crash meant there was a recognition that the future of the Scottish economy and the local Aberdeen economy were both at stake. This led to the creation of a number of bodies which are slowly changing the innovation funding landscape: now there’s not just the Industry Technology Facilitator (ITF) but also organisations like the Oil & Gas Technology Centre (OGTC) and the Oil & Gas Innovation Centre (OGIC), who help fund R&D within the UK.
Other sources, however, have dried up. The venture-capital sector, who did invest in early-stage companies in years past, now tends to make funds available only when a company is making at least £1,000,000 EBITDA. The oil companies have their venture-capital arms, and these are still active in earlier stage companies, but they don’t have any more money available today than they used to.
How are industry bodies levelling the playing field?
The impact of bodies such as OGIC and the OGTC has so far been positive. The £1.6 million invested to date by OGTC has been for three projects so this represents a significant level of funding for each. Perhaps even more significant, however, may be OGTC’s recent announcement that two major operators (Chevron and Total) have made their facilities available for eight field trials to be completed during 2017. Access to field facilities can be a major obstacle to qualifying any new technology, as operators typically want to know where a technology has already been deployed before agreeing to try it themselves.
Since its foundation in 2014, OGIC has funded over 30 projects. Whilst the typical level of financial support per project may be less than that from OGTC, what OGIC brings is access to the wealth of expertise and facilities (both often hidden) within Scottish Universities. Working in industry/academic partnerships can enable hard-pressed companies to develop ideas that otherwise might not be progressed.
ITF, which was founded in 1999, has to date enabled well over 200 projects to be undertaken in partnerships between developers and oil and gas operators or service companies. These partnerships often continue long after the initial project and can sometimes lead to opportunities to undertake field trials.
Although the funding landscape seems complicated, it is good to see these organisations working together on some initiatives and also in collaboration with other sources of funding such as Innovate UK and some venture capital funds.
Will any of these organisations encourage the industry to become truly enthusiastic about deploying innovation or disruptive technologies?
Certainly technology is very much talked about as a means to securing the future of the industry in a low price environment. It remains to be seen however whether these organisations can lead operators and the oil service sector to take the risk of embracing fundamental changes.
So how can we foster and support innovation?
It’s a positive development that the UK now has an independent regulator that has more teeth: the OGA. It’s still early days, but it has bold ideas. The regulator is seeking to encourage deployment and offering carrots, trying to get companies to provide their offshore facilities where ideas can be tried out and trials undertaken.
I am seeing investment again in oil & gas innovation, and there are new projects happening. My general feel, however, is that many companies developing oil & gas innovations try to jump forward to establishing a company too early.
My general advice is to stay in the incubation period for longer and get your technology really robust. A lab-based proof of concept is not the same as a field trial. As you move through the prototype and trials, you will uncover lots of problems, so why not do all that while you’re benefiting from support?
What are the next steps?
The biggest challenge is always going to be deployment – getting your customers to try out your technology. Another challenge is this pattern that the industry has got into: when oil is at a high price, they are in a hurry to produce and don’t want technology to get in the way; when the price is low, they’re too worried about saving money to invest in innovation. The same is true for service companies – when prices are high they don’t need to innovate; but in a low-price regime, service companies’ survival really requires them to come up with something new.
I think we are seeing service companies beginning to embrace innovation. One major service company I know said they realise they can’t rely on finding the best ideas in-house and need to partner with someone from the outside. I’m seeing some of that partnering going on, but not as much as I’d like.
And we still see examples of companies who develop an innovation only to have it acquired by an established player who put it on the shelf so as not to disrupt their current service offerings. It can be depressing, actually: I know of several examples of good innovations that were never put into play.
The thing that will really make a difference to the way the industry sees innovation is if a really revolutionary technology is developed and deployed bringing its users significant competitive advantage. Some of those ideas are right here, being developed by local SMEs and start-ups: all that’s needed is for the industry to give them a chance.
Max Rowe is Honorary Professor at the School of Engineering, University of Aberdeen and a non-executive director of LUX Assure, a producer of innovative monitoring and management solutions for production chemicals.
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