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Technical innovation

An E&P business perspective

Energy Research Center, Columbia University, Palisades, New York, U.S.

Corresponding author: anderson@ldeo.columbia.edu

The first 20% of the full text of this article appears below.

Technical innovation in the E&P business is surprisingly difficult. It is a puzzling anachronism because the improved performance that the use of high technology brings to the industry is often counted on to improve our collective performance in the future. In any industry, it is easy to identify the financial benefits that accrue from an overriding philosophy supporting innovation, and it is fair to say that the present technology and information world outside oil and gas has been built on just such a foundation. It is my view that our difficulty arises not from a lack of infrastructure but from the inherent complexities of our "manufacturing" process. There are just simply so many variables that can go wrong during implementation of an invention in our business.

In this article, I present two case histories (one in E, one in P) that illustrate the complex unknowns that must be accommodated during the exploitation phase of an innovation if the new technology is to succeed in the marketplace. I want to first dispel a rather commonly held view that it is difficult to quantify the financial benefits that new technological innovations bring to our industry. When successful, the results are quite spectacular. For example, those companies that invested the largest percentages of their E&P budgets in R&D over the last 15 years have clearly outperformed their competitors.

We at the Energy Research Center at Columbia have studied the performance of 27 publicly traded E&P companies using the 12 business metrics most commonly followed by Wall Street to track success. We have monitored profit, profit per barrel, reserves size, new reserves discoveries, reserves replacement %, reserves replacement costs, production, production costs, return on capital employed (ROCE), net present value (NPV), Capex, and market capitalization for all 27 companies. We have compared these to . . . [Full Text of this Article]