Oil company research and development (R&D) can add tremendous value. Conoco has studied 318 projects spanning a 20-year period (1979-1999), with a total cost outlay of about US $180 million. The results indicate the payoff in corresponding dollar terms was more than 12 times the investment.

Oil companies engage in R&D not so much to be competitive with a manufacturer of proprietary products as to realize value through strategic application of results. R&D efforts address the following objectives:
l maintain technical competence or readiness for routine operations by keeping up with industry trends;
l apply breakthrough technologies that are ready either in new projects or existing operations; and
l explore enabling technologies for future growth opportunities in frontier areas.
Until recently, most of the majors allocated significant resources toward internal R&D, with the remainder awarded to outside institutions in the form of dedicated or joint industry projects (JIPs). The 1990s, however, saw a marked increase in external R&D - at the expense of internal R&D - which was highly touted to add value via leveraging. This shift was principally justified on the basis that much of the benefit of internal R&D by one company is "shared by many" by virtue of being applied to partnered licenses in operations. The collective psyche of the oil companies' management saw fit to reduce R&D budgets significantly, focus activities within a few core areas and shift the emphasis to shared activities such as JIPs. The resulting R&D program in a typical oil company today is a balanced portfolio of internal and external projects.
The question facing every oil company technology manager is how to realize value. For company-specific projects, the answers are readily forthcoming and even documented as required. JIPs are an entirely different matter. While JIPs are attractive in terms of leverage and costs, value realization depends on several factors:
l a given company's focus on a particular technical issue may be pushed aside within the constraints of a shared agenda;
l to get a meaningful return on the resources allocated to a JIP - monetary or otherwise - active participation by oil company representatives is critical for producing beneficial results as well as applying them to meritorious field candidates; and
l the timeframe for availability of results is important if they are to be of relevance.
Conoco Inc., via its subsidiary Norske Conoco AS in Stavanger, Norway, launched a retrospective study spanning the period 1979-1999 to examine the value created through its ongoing R&D program. The primary objectives of the study were to:
review strategy;
verify and document significant accomplishments;
assess monetary and nonmonetary value of applications or new businesses generated;
establish best practices;
present the results in a format that would be readily understood by a wide audience such as Conoco stakeholders, government authorities, the service sector and Conoco's business units; and
document lessons learned.
Technology needs
Conoco Norway Inc.'s (now Norske Conoco AS) R&D program initially was established in 1979 to develop technology to take advantage of deepwater prospects around the world.
A frame agreement was signed for offshore petroleum technology research and development activities with the Norwegian Ministry of Petroleum and Energy in November 1979. Norway's long history as a maritime nation had fostered the development of institutions and organizations with unique experience and skills applicable to the development of technology for the offshore oil industry.
Conoco's upstream management had the foresight to spot a good match of Conoco's technology needs and Norway's technical capabilities and initially committed to spend $20 million during 4 years on R&D in Norway. When the original spending objective was reached, Conoco decided to continue the R&D program in the country as long as it made good business sense to do so. Quality was emphasized over quantity in terms of number of projects and average dollar outlay. Over the past 20 years, Norske Conoco spent more than $180 million (1999 dollars, considering an average exchange rate of 7.2 NKr per US $1) on the R&D program, including contract costs and internal technical support (Figure 1).
The approach to managing research projects was simple, yet effective. Conoco's staff worked closely with the potential contractor to develop the project's scope of work and milestones. Contracts were signed only after both parties had a thorough understanding of the project and its objectives. The oil company's personnel monitored progress, and they were available to assist the contractor when difficulties arose. This approach helped transfer technology from Conoco to the contractor at the beginning of the project and back to the operator on completion.
In September 1999, a review of the R&D program was conducted, consisting of the strategy employed and the impact these 318 projects had on Conoco's operations, industry in general and the contractors.
The top 10
Since 1979, Norske Conoco's R&D program's cumulative total contract costs have been $74 million. Including ongoing projects, this is equivalent to more than $107 million in 1999 dollars. Technical support and local administration brought the total cost to about $180 million, or $9 million per year over 20 years.
The 10 largest projects based on total costs are shown in Table 1. Most of these large projects were a group of two or more related projects with one contractor tied to a single technical objective. Seaject, the largest project, was actually made up of four projects, all related to developing and commercializing a technology for removing oxygen from seawater. The Deepwater TLP Design project was again a set of multiple projects contracted to two organizations over a 10- to 12-year period.
Projects with the highest costs are not necessarily those with the highest payback. Sintef and Veritas were awarded the lion's share of the R&D budget, with good reason. These institutions possess the infrastructure to justify multiyear, high-cost, large-scale projects. For smaller players such as Compipe and Fluenta, Norske Conoco was instrumental in seeding meritorious engineering concepts. The oil company followed through with a steadfast commitment over several years until commercial products emerged.
Value realization
Seventeen projects were identified as having a sizable impact on either Conoco's operations or the contractor's overall business revenue (Table 2). This is only 5% of the total number of projects in the R&D program. However, most of these 17 identified projects are part of a group of related projects. The number of such related projects - 64 - is 20% of the total number.
The total payoff to Conoco's activities of these 64 projects was estimated to be $500 million, about three times Norske Conoco's total R&D investment. The total payoff to the contractor's business revenue and the operations of other oil companies was estimated to be $1.7 billion. Another 25% to 50% of value probably will never be captured and recorded for a variety of reasons.
Four projects shine
The Erosive Wear project generated data that was essential in justifying higher production rates for Heidrun's Upper Fangst production wells. The data also was used to establish tolerable sand production rates for the Britannia field and the fields feeding into Conoco's Lincolnshire Offshore Gas Gathering System pipeline network in the UK. The Olga software will continue to grow in value as it is improved and applied to more pipeline systems around the world. Scandpower, the Olga marketer, believes the total payoff impact of Olga is 10 to 15 times the amount ($104 million) claimed by Conoco.
The Well Completion Equipment project is an excellent example of a modest investment ($400,000) in a series of five projects that resulted in significant savings to Conoco because the results were applied at the proper time in a large project. The savings for the Heidrun project were 250 times Norske Conoco's investment in the five related projects.
Sesam and Tujap have made Veritas a commercial software powerhouse and are used on a global basis. Sesam is an integrated suite of computer programs capable of solving design and analysis problems ranging from conceptual design to fracture mechanics to structural reliability. The Sesam/Tujap programs have saved Conoco about $40 million. The industry payoff is conservatively estimated by Veritas to be more than $400 million.
Collective impact of smaller projects
Many R&D projects have upgraded Conoco's overall technical capabilities in many areas by becoming part of the technology infrastructure. This happened in the reservoir, exploration, corrosion and oceanography areas.
For example, the oceanography series of projects has produced results that are used on every major Conoco project requiring an estimate of extreme environmental criteria or fatigue and operational criteria. Other projects have led to rule changes by the International Standards Organization, the American Petroleum Institute and the Norwegian Petroleum Directorate, resulting in increased safety and reliability of structural designs.
The corrosion projects are another example of how many small projects have been incorporated into Conoco's engineering guidelines and used to influence revisions of recommended practices issued by certifying agencies. The total payoff to Conoco was estimated at $13 million. The Seacorr/CP projects developed the industry's finest marine cathodic protection analysis software. CorrOcean has been successful in providing this software as a service to oil companies around the world since the mid-1980s.
Advanced materials
The Norske Conoco-DuPont-Kværner alliance was set up to facilitate the application of advanced materials to the oil and gas and shipbuilding industries.
The alliance's primary goals were to reduce weight on future deepwater installations and provide lower life-cycle cost through the use of advanced composite systems. Advanced fibers like Kevlar and Nomex as well as advanced production technologies like Seeman Composite Resin Infusion Molding Process (Scrimp) were made available through the alliance. Today work is focused on developing lightweight, high-strength tether and riser systems made of carbon fibers. Conoco spearheaded the CompRiser JIP with the goal of installing a 22in. drilling riser joint on the Heidrun TLP this year.
Safety, environmental impact
An example of a project with a wide impact is one that established a local chlorofluorocarbon (CFC) gas recycling plant in Stavanger. This project led directly to rules governing the whole of Norway regarding the recycling of ozone-depleting CFC gases from old cooling and refrigeration units. The equivalent of 100,000 to 150,000 tons of CO2 was saved annually as a result of this project. This equals the annual CO2 emission from 100,000 to 150,000 cars.
The large investments ($1.1 million) Norske Conoco made from 1988 to 1994 in safety research and education at Norwegian Institute of Technology will have an impact in future years on the overall safety awareness and record of students exposed to this program. As these students enter industry and government, there should be an increase in the efforts made to improve safety on and off the job.
External technology transfer
The involvement of Conoco's technical staff during the projects helped the contractor overcome the inevitable problems that arise in the development of new technology.
Four examples of technology transfer in the Norske Conoco R&D program follow.
Seaject. Conoco received a patent for the catalytic deoxygenation of seawater in the early 1980s. This concept had the potential to greatly reduce the size and weight of the equipment required to remove oxygen from seawater prior to injection into a hydrocarbon reservoir. A project was initiated in Norway to evaluate the engineering aspects of this concept and develop it into a viable commercial product. Norsk Process successfully demonstrated the practicality of this concept, which is in use in the Gulf of Mexico and the North Sea. The total value to Norsk Process was estimated to be $10 million.
Laser microprobe. Conoco developed a unique tool for analyzing the composition of minerals in the boundaries of rock grains found in reservoir core samples, which can lead to an improved understanding of the origin of the reservoir rock and the migration of hydrocarbons. This technology was transferred to a European institute that could provide this as a service to Conoco and others. The Institute for Energy Technology has used the laser microprobe technology to evaluate the stability of rock formations being considered for the storage of radioactive waste and solve the problem of environmental degradation of buildings and cultural treasures.
Composite spoolable pipe. The Advanced Materials AS (AMAT), Compipe and NAT family of companies has benefited from extensive transfer of technological know-how from Conoco. In 1988, AMAT, a small composites company, requested advice from Conoco on what products would be most beneficial to the oil industry. Conoco's composites experts suggested that AMAT develop spoolable composite pipe for use as coiled tubing for downhole maintenance operations, flow lines and injection lines. This idea finally became a commercial reality in January 1999, when NAT Compipe (successor to AMAT) received an order from Statoil for several kilometers of 3in. ID composite methanol injection lines for the Åsgard field.
Scrimp composite production technology. The Norske Conoco-DuPont-Kværner alliance transferred certain advanced composites technologies to Kværner for use in the shipbuilding and offshore oil industries. The patented Scrimp process was made available to Kværner as a means for the environmentally "friendly" manufacturing of large, complex structural parts. The Scrimp technology is an important improvement in building high-strength, low-weight laminates and structures through a production process with no polystyrene releases to the atmosphere, thus contributing to the healthy composite workplace of the future.
The Scrimp technology has been used to produce 30% of internal and deck panels for the Norwegian Navy's new prototype Skjold-class MTB, a high-speed, lightweight craft under extensive testing prior to planned production this year. More complex structures, like the topside mast, also have been produced. The result is that 5 tons have been shed from the vessel's weight, contributing to increased payload and speed.
Lessons learned
The review of the Norske Conoco R&D program strategy and accomplishments revealed many things:
the value of project results is generally not proportional to the money spent;
when assessing the value of a project, a longer time frame is more apt to capture the full value;
thorough planning and periodic technical reviews generally produced the most successful projects;
having a Conoco or contractor champion is vital to ensuring successful application of project results;
commercialization will move more rapidly if Conoco uses the technology or provides a field test;
many Norwegian R&D institutions are world-class organizations;
software development never ends. Sufficient resources must be allocated to ensure project success on a continuing basis. Software developers at research institutes are not equipped to commercialize and support the final product;
multi-institute projects are rarely successful because of the inability of the main contractor to work effectively and productively with the subcontractors;
estimates of payoff should be documented at the time the project results are used;
beware of awarding large, multiyear contracts to relatively small companies. Project delays, requests for additional funding and a search for a partner or financial "savior" may ensue;
do not underestimate the time (5 to 10 years) and cost required to develop a good idea into a commercial product or service;
frequent companywide restructuring has a negative impact in generating value in R&D projects due to loss of continuity and enthusiasm, and reduced budgets; and
many offshore-related projects have a beneficial impact in other industries.