Consolidation should not cripple R&D

Oct. 1, 1999
A new cycle is underway in the series of cyclical highs and lows that define the oil and gas industry.

A new cycle is underway in the series of cyclical highs and lows that define the oil and gas industry. The industry is just emerging from one of the most severe depressions the industry has ever experienced, and that downturn has triggered a massive amount of consolidation among service sector businesses and among their customers - major oil companies and independents.

While consolidation is not new to the industry, the scale ($25-$30 billion in deals last year) on which it is occurring certainly is. The main driver behind these consolidations has been - and will continue to be - the need to lower and control the industry's cost structure.

The fate of R&D

However, some in the industry are questioning whether the recent massive wave of consolidations will ultimately disable the industry's technology initiatives, which are so vital to the effectiveness of the energy industry.

The answer is no. In fact, consolidation and restructuring should lead to better-focused, more practical research and development

(R&D) that avoids re-creation, spurs innovation, and produces higher returns on the R&D investment.

We have witnessed this development after the downturns of the past two decades, which have typically been followed by successful advances of new information-based or mechanical-based technologies that significantly improve the economics of hydrocarbon recovery. These have included 3D/4D seismic, measurements-while-drilling (MWD), directional drilling, horizontal drilling, and multilateral drilling technologies and equipment, to name a few.

Moving forward

So how to manage technology in an industry where restructuring will continue to be commonplace? Currently, roughly three quarters of the industry's investment in "R&D" goes toward minor innovations or basic product modifications. That represents a lot of money and time spent with limited prospects for satisfactory returns. Technology and the innovation it brings requires both money and time, which will continue to be scarce commodities in our industry.

Therefore, we must focus technology initiatives and efforts as much as possible to achieve the greatest rate of return. The following priorities are good starting points to consider:

  • Aim for the essential at the core: In other words, be skeptical of science projects. We need practical technologies to address the industry's needs - technologies for deep water, production enhancement and reservoir revitalization. The solutions we engineer must be economically viable.
  • Minimize reinvention of the wheel: Much of the industry's historical R&D work has been highly duplicative. A major benefit of consolidation is to significantly reduce "me too" developments that add little or no new value.
  • Do not overlook the importance of mechanical technology: The growth of information technology has significantly outpaced our ability to develop matching mechanical capabilities. We need these mechanical solutions to successfully get at and tap the resources.
  • Cooperative technology development is the future: The industry must seek out more cooperative development/alliance projects that will lead to truly new innovations in the industry and not simply recreations of the wheel. These partnerships should include not only service companies and producers. They should extend beyond that to include service companies with service companies.

Through ups and downs

With regard to this last point, we are seeing the benefits of this type of relationship in the development of sophisticated multilateral systems for deepwater applications - systems that would have required tremendous redundancy if the companies had chosen to develop them separately.

The facts are as follows: With regard to technology, restructuring and consolidation should no longer be viewed as mere byproducts of down cycles. They can and must enhance technology, if our industry is expected to be viable well into the 21st century.

Bernard J. Duroc-Danner
Chairman & President
Weatherford International, Inc.

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