Oil sands firms look to partner on innovation

Collaboration is the new norm for overcoming environmental challenges

February 20, 2012

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Illustration by Sonia Roy

Even the biggest of Big Oil’s corporations know that in today’s industrial landscape – where the easy barrels of crude are long gone – doing everything in-house isn’t a wise strategy. Take French energy giant Total SA. When it started poking around Alberta looking to enter the oil sands, it wasn’t interested in starting its bitumen business from scratch.

“We could look at our own project and do our own thing, like the kind of model from a decade ago, or we could partner with others,” says Leo Piciacchia, vice-president of sustainable development and HSE (health, safety and the environment) with Total E&P Canada – the French firm’s Canadian arm. “But if you have five, six or 10 players, you have access to a bunch of resources and intellectual knowledge.”

Total has embraced that collaborative strategy with gusto in the oil sands sector. It owns a 50 per cent interest in the Surmont steam-assisted gravity drainage project with ConocoPhillips Canada, as well as a 50 per cent interest in the Northern Lights asset in partnership with SinoCanada Petroleum Corporation.

Then there is the ballyhooed joint venture with Suncor Energy Inc. on the Joslyn lease. Total will be the operator of the Joslyn project with a 38.25 per cent interest. The Joslyn North Mine, which received its Order in Council from the federal government in December 2011, is scheduled to produce 100,000 barrels of oil per day with a potential to expand that to 200,000. The two companies are also partnering on the Voyageur Upgrader and the Fort Hills mine, with Total having a 49 per cent and 39.2 per cent interest, respectively, in those projects. These unions will see Total and its equally high-powered partners share knowledge on best practices and technological breakthroughs. For Total, clearly there is strength in numbers, and in collaboration.

 

There was a point in time when the world’s largest oil and gas companies kept to themselves. Such behavior was expected. After all, the sector is fiercely competitive and companies are always on the hunt for an edge. That meant innovation was often done within corporate walls and collaboration with industry rivals was frowned upon. Thus, companies outfitted large research labs with the latest technology that was used by large teams of engineers, researchers and PhDs from various disciplines.

But this opulence did not last. The recession in 1986 caused a number of firms to trim their operations, says Robert Peterson, director of the oil and gas business for Boston-based consultancy firm Charles River Associates. Producers’ research and development efforts got even leaner when another recession hit in 1998. After that, the oil and gas sector started to rely on service companies to help them develop new technological breakthroughs. “The oil and gas firms realized all that slashing and burning made them too lean. They needed to develop some R&D, but not to the full extent of the past. You aren’t going to see a 2,000-person research facility like BP used to have.”

Peterson says this thinking reflects the reality of research and development in the commodity business. “It’s not like a pharmaceutical company where you need to spend $10 billion just to survive,” he says. “In the oil and gas industry, the biggest spenders like Exxon or Shell probably spend about 0.5 per cent of their top line revenue on R&D. One of the reasons they look for outside partnerships is to leverage internal spending.”

Partnerships with universities, service companies and other producers through joint venture agreements have long been common approaches to collaboration in the energy sector. But in an effort to further mitigate the risk of taking on innovative but unproven projects, as well as bringing a fresh set of eyes to vexing industry challenges, more partnerships are being developed between producers and large industrial firms. The industrial company provides the majority of intellectual property work and technological development, while the oil and gas partner provides expertise to tailor the solution to a specific problem.

“More and more, traditional operators are augmenting their staff capabilities by partnering with firms who are good at developing these game-changing technologies,” Peterson says. “The technological problems we face are significantly more challenging than before with the advent of unconventional oil, heavy oil, tight gas and deep water drilling. In order to develop new capabilities, we have to go outside the industry.”

GE Canada is one firm that’s established strong ties with the oil patch on technology development and innovation. Formed in 1892, one of the world’s most recognizable firms has been operating in the energy sector for 40 years through its work in motor development, water research and pipeline solutions. But as the industry increasingly focuses its attention on heavy oil, GE Canada is positioning itself to be the petroleum industry’s “go-to” partner when it comes to innovation around this plentiful, but difficult to extract, resource.

Proof of this strategy can be seen in the company’s move into Eighth Avenue Place in downtown Calgary. Included in the company’s new three-floor office space will be the GE Innovation Centre, which will also be home to the new GE Global Heavy Oil Centre of Excellence. The Innovation Centre will provide technology capabilities that could aid collaboration on solutions to challenges facing a range of sectors, from energy to health care. The Heavy Oil Centre of Excellence will be dedicated solely to developing innovative ways of producing and upgrading heavy oil.

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