Hidden Risks, Challenges and Solutions Relating to Commercialization of Technologies for the Extractive and Utility Industries

 

Technology is helping reinvent how the energy industry approaches extraction, power generation, regulations and sustainability in its business operations. A surge in technology innovation is reflected in investment trends into innovations targeted to help the oil and gas and electric utility industries respond to increasing regulations, an increase in the number of patents relating to the extractive industries and an increased number of business models focused on technology deployment.

Integrating new technologies that can facilitate extraction, minimize environmental impact and positively impact a company’s bottom line are increasingly sought after and new business models that involve multiple stakeholder engagement can expedite the process. A Bain report highlights development of “globally competitive clusters” defined as geographic concentrations of interconnected companies, specialized suppliers, service providers and associated institutions in related sectors to increase productivity and lower the cost of doing business. In another example, national oil companies play a big role in driving technology development. Brazil’s Petrobas has developed leading-edge technology for deep-water exploration, development and production.

While technology deployment represents huge business opportunity, commercialization of technology can pose a number of legal challenges to companies in the energy industry and those that are approaching the energy industry. In particular, there are key issues that every company should be aware of, for example: (1) the consequences of public disclosure; (2) the consequences of a failure to define ownership of technology; (3) the difference between trade secret and patent protection and the impact on talent acquisition; and (4) the challenges that may arise from employee developed technology - just to name a few. Beyond the intellectual property issues, testing technology under real world conditions can raise challenges in the regulatory arena. For example, achallenge can arise when an early stage innovator asks a utility or a company in the extractive industry to modify an existing permit so that they can test technology under unique parameters. In effect, the innovator is asking the utility to put their permit or “stack” at risk, a scenario referred to as “stack risk”, and asking the utility to accept the uncertainty of the regulatory process.

It's further no surprise that access to financing is often a barrier to these emerging companies. Power generation and natural resource extraction are cost intensive industries. For some technologies, the fully deployed cost could be $200-$300 million. A number of energy related venture capital firms fund promising startup companies in energy technology, materials and related businesses. Large corporations fund some of these venture capital firms and many have created venture funds of their own. Chevron Venture Capital for example, finds and makes investments in early-stage companies offering technology valuable to Chevron, then helps Chevron business units implement that technology. Chevron Venture Capital searches for technologies that will enable Chevron to operate more efficiently, expand operations, or launch viable new businesses.

More specifically, Chevron seeks investment opportunities in four critical and broad categories, namely: the spectrum of oil and gas (including infrastructure, enhanced oil recovery and water remediation to name a few), emerging/alternative energy, advanced materials, communications and networking to support industrial and remote applications and information technologies.

Shell created Shell Technology Ventures to promote and accelerate advanced technologies and game-changing innovation. The Shell Technology Ventures team invests in companies across the energy sector to speed up the development and deployment of new technologies that they foresee will complement their business. Shell seeks to make investments in early-stage technology companies that accelerate deployment of oil and gas technologies, investments in early-stage technology companies and projects focused on future energy technologies, as well as Shell spin-off technologies.

For technology companies, the ultimate goal is to move from proof of concept to market integration. There are a number of organizations that were established to assist with market confirmation and to accelerate deployment while also often providing additional access to capital. It is also important to note that not all innovation involves new technology and sometimes the fastest solution is adaptation of existing technologies. The Oil and Gas Innovation Center was established to identify new technology ventures that might apply to the oil and gas space. The Oil and Gas Innovation Center also provides the opportunity for emerging technology to confirm with industry a need for their technology solution another critical element to commercialization.

Another organization that recognizes the importance of adaptation of existing technologies is the Research Partnership to Secure Energy for America (RPSEA), a non-profit established to cooperatively find solutions to energy production in the United States and offer funding opportunities in specific technology areas. “Their mission is: to facilitate a cooperative effort to identify and develop new methods and integrated systems for exploring, producing, and transporting-to-market energy or other derivative products from ultra-deepwater and unconventional natural gas and other petroleum resources, and to ensure that small producers continue to have access to the technical and knowledge resources necessary to continue their important contribution to energy production in the U.S.”

In summary, the energy industry presents huge opportunity for new technology ventures. It is critical however, for companies to protect their intellectual property, define ownership up-front and confirm that their solution directly comports with the identified problem.

At de la Torre Law, LLC we understand intellectual property and the energy industry. We can help you confirm opportunity and protect your interests. Contact us today to learn how.

 

 

Energy 101: Why do we need to fracture anyway?

This is the first in a series of blog postings on the Lifecycle of Oil and Natural Gas based on the certification course offered through The University of Colorado's School of Global Energy Management. 

Why do we need to fracture rock to retrieve oil and gas?

The answer lies in where oil and gas is found – sedimentary rocks.  Sedimentary rocks are rocks that comprise different sediments like pieces of other rocks, shell material, and salts.  Sandstone, limestone and shale are sedimentary rocks.  The key to sedimentary rocks is how they formed.  Over time, sediments were deposited in basins and layers of sediments built on top of each other, resulting in thick accumulations of sediments.  Tens of thousands of feet of sediments accumulated in some basins and the weight caused grains to compact, realign and break.  Compaction, combined with pressure and fluids moving through sediment deposits worked to cement in between grains to form sedimentary rock.

Although the rock is compacted and cemented together, the rock comprises sediments of different shapes that don’t fit together perfectly.  These irregular shapes create holes or pores in the rocks.  These pores house water, oil and gas.  Permeability is a measure of the rock’s capacity to move fluids through the pores.  The more porous a rock is, the easier it is to move fluid.  For example, in the photo below.

On the other hand, the smaller the pieces of the sedimentary rock, the closer these pieces can be compacted and the smaller the pores and channels for fluid removal.  Shale, for example, has tiny pores and the connections between the pores are also tiny.  Introducing open fractures, however, dramatically increases permeability.  Fractures are artificially induced in wells to increase the production rate and ultimate recovery of gas and oil from shale rock.  For example, see the picture of shale rock below.

Shale Rock

 

What types of sedimentary rocks are geologists looking for?

The two rocks of interest are reservoir rock and source rock.  Reservoir rocks have the ability to store fluid and transmit the fluid held within pores in economic volumes.  That is, these rocks are porous and permeable, for example, sandstones and carbonates.  Source rocks comprise fine grained sediments that contain organic material that can become oil and gas.  These rocks have tiny pores and low permeability, for example, shale rock. 

America's rich oil shale deposits likely hold 1.5 trillion barrels of oil, according to Jack Dyni, a geologist emeritus at the U.S. Geological Survey. According to the Rocky Mountain Energy Forum, “that amount is 4 times the proven reserves of Saudi Arabia. And, it’s greater than all 12 OPEC countries combined, which have proven reserves of about 911 billion barrels of oil.”  To put it another way, “Colorado, Utah and Wyoming have as much oil as Saudi Arabia, Iran, Iraq, Venezuela, Nigeria, Kuwait, Libya, Angola, Algeria, Indonesia, Qatar and the United Arab Emirates combined.”

Oil and gas are less dense than water so as oil and gas generates within the sedimentary rocks in the basin it moves upward through fracture and pore systems until something stops or “traps” it.  A trap is an impermeable layer of rock that surrounds a permeable rock, either vertically or laterally.  One type of trap is a structural trap.  In this mechanism, an impermeable rock seals the oil and gas trapping it so it can’t escape.  Another type of trap is a fault trap.  In this mechanism, the plates in the earth shift up or down displacing reservoir rock against impermeable rock so that the oil and gas can’t escape.  Geologists can locate these traps and drill to access the trapped oil and gas.

How did the oil and gas get there?

Although a common misconception, oil and gas does not originate from dinosaurs.  Plant matter and planktonic organisms were deposited over time in deep oceans, swamps and lakes.  These deposits are made of organic carbon molecules containing carbon and hydrogen or hydrocarbons.  Organic carbon exposed to high temperatures for a long period of time will yield oil and/or natural gas depending on the temperatures.  The type of hydrocarbon produced depends on the type of organic matter that was deposited. 

The role of the geologist, petrophysicist and geophysicist is a critical component in identifying and validating resource plays.   With technology, these experts can identify areas of potential interest and characterize the reservoirs geometry, continuity and variability.  The data collected is used to develop drilling plans and select locations.  In the next posting we’ll walk you through the process involved in identifying the next big play.  Stand by!

Image credit: www.123rf.com

Approaches to Global Resource Development with Spatial Terra and ICOSA: Addressing the Social Space

A recent report by the Canadian Energy Research Institute (CERI) entitled “Global LNG: Now, Never or Later,” predicted that “Africa could be considered a dark horse in gas production with the potential to increase production dramatically over the long-term.”  The report explains that while African producers have also had political disturbances, the International Energy Agency (IEA) expects Egypt and Algeria to increase development.  “In addition,” continues the report, “East Africa is expected to start developing gas reserves of its own and there have been indications that Nigeria and Angola may increase output as well.” 

According to the IEA, “the factors that drive natural gas demand and supply increasingly point to a future in which natural gas plays a greater role in the global energy mix.”  The CERI report, citing to the IEA’s “Golden Age of Gas report,” further highlights the role of developing countries in this expansion and explains that “global natural gas demand has increased by over 30 percent since 2001, and amounted to 113.8 TCF in 2011. By 2035, natural gas demand could exceed 180 TCF, with developing countries accounting for the vast majority of incremental natural gas demand growth.” According to the Golden Age of Gas report, “the strongest centers of growth in natural gas production are expected to be the Middle East, Russia, Caspian, North America, China and Africa.” 

While these centers of growth have yet to be defined, one thing is certain – the Golden Age of Gas presents opportunities for global resource development.  These environments, however, can be particularly challenging to companies when it comes to risk assessment and mitigation.  That’s where SpatialTerra comes in and we had the opportunity to talk to Scott Kesterson and Pete Gillette, co-founders of SpatialTerra Consulting Group, LLC, about their business model on ICOSA radio.

According to Kesterson, organizations make decisions based on traditional corporate competitive intelligence.  To mitigate risk and maximize profits, however, traditional competitive intelligence is not enough. To mitigate risk, corporations must pay attention to a community’s social dynamics.

Gillette goes on to explain that in the globalized economic, social and political spheres, all problems are local. Hyper-networked communications have outpaced even the most sophisticated government controls and corporate talking points.

“Today, any organization is but one Twitter feed away from crisis.”

 

In nearly every global flashpoint crisis in recent years, be it commercial or governmental, the core contention could be traced to social dynamics — impacts to individual and collective health, welfare, traditions, security or justice. The factors that have been dismissed as “soft science” were, in fact, the consistently and immediately identifiable drivers in events as diverse as the uprisings in Libya and labor disputes in Brazil to community pushback on the Keystone Pipeline in Nebraska and hydraulic fracturing in western Pennsylvania.

Failure to take into account consequences at the local level results in a gap between the outcomes envisioned by the organization and the actual outcomes during local implementation.   The gap highlights the unexplored understanding of the social space. This amorphous gray space poses the most complex risks to corporate ventures, both overseas and domestic.

How does this apply to the global natural gas market?  In the next several decades, companies will be entering new markets and every corporation entering an emerging market tells a story – the key is to match this narrative with the local language.

Without a grasp of the narrative and a sound exploration of the social sphere, a vast gray space emerges.  If left unbridged, the impacts to revenue and brand can be catastrophic. A quick examination of domestic hydraulic fracturing or international energy operations reveals the multitude of potentially devastating scenarios. In these and other cases, the roots of dispute lie squarely in competing narratives. Corporations have frequently failed to speak “the local language.”

Every place in the world has a distinct local culture, with traditions and values. There are common fears and desires that compel people toward or away from potential outcomes. Collectively, these become the motivations that define the community and form the local narrative.

More than language translation or historic ethnography, narrative sets the conditions for an organization seeking entry into a community. The ability to embrace and craft the evolving narrative determines whether innovative products and services gain acceptance.

Spatial Terra identifies the core motivations for the local narrative and shapes the business environment to the client’s benefit by bridging the narrative gaps that impede effective operations.

Consider the hydraulic fracturing debate.  In spite of potential benefits to the US economy and security, energy companies face significant resistance in some local areas. The scene is familiar: Concerned residents rally, emotionally citing empirical evidence to reject hydraulic fracturing outright. Energy firms dispatch world-class engineers to counter the concerns using complex technical data and use other methods to undermine local resistance.  Rather than acknowledging the public’s concerns, lowering the tone of the debate and building cooperative trust, these firms accelerate the collision.

“Fueling contention does nothing to bridge the narrative gap.”

Spatial Terra has helped shape some of the most hostile and austere environments on the planet. They believe the solutions, while not necessarily easy, are a very simple sum of component parts. They have explored the gray spaces and bridged the narrative gaps that determine the success or failure of technical innovation and strategic objectives. That outcome depends on how one tells the story. 

Join us on ICOSA’s Driving Force radio for Part I and Part II and to listen to more about how Spatial Terra is working with companies to tell their stories in a way that will mitigate risk, and maximize profits.

ScottKesterson:  CEO of Spatial TerraConsulting Group, LLC.  He is an award-winning combat videographer/filmmaker.  For the past 6-years, Kesterson has worked as a Subject Matter Expert and Consultant for the Department of Defense, US Special Operations, Department of State, and private corporations pioneering work in the areas of cultural narrative, visual education and social media program development.  He has worked in the Middle East, Afghanistan, and Europe.  A graduate of Oregon State University, he currently lives in Portland, OR.

Pete Gillette:  Founding partner at Spatial Terra Consulting Group, LLC.  He is a 16-year veteran of military and government service, with experience as an Army paratrooper, Foreign Service Officer for the Department of State and special advisor for US operations in Afghanistan and Iraq.  Pete has worked throughout the Middle East, Asia, Africa and Europe.  A graduate of the University of Colorado, he earned his Masters in foreign policy from Georgetown University. He lives and works in Washington D.C.