To enhance its technology management model and planning, the Gazprom Neft Company formulated a technology strategy, which focuses on moving from a “smart buyer” approach to a “strategic goal-setter” effort that emphasizes technological development through partnerships. The company is now focusing on a fast search, adaptation, and adoption of new technology strategy, which is a priority of the company. To gain that, it was necessary to realize our technological challenges in order to expand resource portfolio access and maximize invested assets.
These efforts are based on the underlying principles of technological development created by the upstream division. The technological strategy is a vital element of the Technology Management System (TMS), an integrated system used by the company to manage the processes of search, selection, trial, introduction, and replication of technologies. Currently, about 80% of the entire project portfolio involves purchasing and adapting ready-made technological solutions.
From Production to Implementation of Project Portfolio
Know-how and competencies in technology management are the keys to profitability and competitiveness of the industry’s market players. All international oil companies (IOCs) have long realized the value of technology as key to determining economic performance and the degree of access to the resource base.
Despite the fact that IOC investments in technological development continuously grow and reach billions of dollars, the focus on optimizing the technology projects portfolio increases. Forming a consolidated approach to technology management and maximizing return on investment have now become key to realizing the most value from technology. At the same time, as noted in the research, there is no direct correlation between shareholder return and expenditure on research and development (R&D). The implication is that a company’s ability to correctly identify priorities and challenges in technological development is more important than the amount of investment. In other words, “the way you invest is more important than how much you invest.”
From our point of view, technology leadership is determined not so much by the size of investment in R&D, but by the ability to apply technology to engage a wide range of new reserves and reach the technical limit of current recovery targets.
Key Challenges of Gazprom Neft
The strategy of Gazprom Neft is to achieve production of 100 MMt per year by 2020 and maintaining that level for at least 5 years. To reach this goal, the company needs to expand geographically and bring new types of reserves into production, which will require solving a number of technology problems. The company determined that its current technology is unable to solve these key challenges. The major challenges faced by the company are as follows:
- Improving declining levels of production on current assets with poorer reservoir properties
- Increasing current recovery factors
- Ensuring effective infrastructure management at depleted fields
- Ensuring optimal use of existing infrastructure to maximize reserve recovery
- Adapting to extreme operating conditions of the far north
- Ensuring efficient exploration
- Optimizing development patterns and construction, ensuring effective cost management
These challenges are typical for the entire Russian oil industry, and Gazprom Neft aims to become a country leader in all of them.
Upstream Technology Strategy
Technology strategy will be one of the enabling elements in reaching Gazprom Neft’s strategic goals. The strategy is a comprehensive plan for the technological development of the company, which contains the target level of technology maturity and approach to coordinate efforts of various departments to achieve their strategic goals. The technology strategy is the governing document that serves as a basis for forming technology development plans for all of the company’s assets. The main goal of the strategy is to centralize all technology efforts into a single portfolio, further refocus initiatives with regard to current and future company needs, and organize an integrated system of project management in order to maximize return on technology investments.
The first stage of this work was to formulate a list of upstream technology challenges. More than 30 challenges were identified, which were then grouped into nine long-term focus areas of technology development that will have the maximum effect for the company (Fig. 1). To date, the target projects portfolio for the approved nine focus areas consists of more than 50 projects running and 150 planned with the introduction horizon until 2025.
The Technology Management System
The technology strategy is a key component of the TMS, which is a structured set of methods, standards, and supporting tools that rule the company’s technology development. The system represents and governs new technology through the full technology development cycle, which includes search, selection, development, implementation, and full-scale rollout of the company’s assets.
To maximize value from the application of technology, it is especially important to develop and implement a set of support processes in technology and portfolio management. This is especially important if the company decides to implement a “smart technology buyer” approach. Knowledge management, management of external partnerships, and timely best practice sharing will be the processes that contribute to achieving this objective, where 80% of technology solutions in the company are conventional technology, ready for purchase.
Knowledge Management
Gazprom Neft Upstream is actively developing a Knowledge Management System (KMS) to help coordinate knowledge-management and -sharing processes in decision making. The KMS was created for the purpose of collecting, processing, and managing knowledge in order to maximize the benefits of new practices and technologies implemented on the company’s assets. The KMS is implemented in the form of an information system with a number of modules that help obtain the necessary information on various aspects of work throughout field development.
The KMS systematizes information on best practices used in Gazprom Neft exploration and production (E&P), which allows the user to carry out a comparative analysis and select the optimal technical solutions in accordance with the required criteria. It also stores information about all technology trials of new equipment carried out within the company.
The KMS is one of the tools designed to create an innovative climate within the company. To date, the number of unique users of the system is about 2,600 people in 46 subsidiaries of Gazprom Neft.
Management of External Partnerships
External relations development is be-coming one of the most important elements of new technology implementation, allowing the use of unique knowledge and competencies of E&P partners. The main resource of Gazprom Neft in this area is the Gazprom Neft Scientific and Technical Center, which is working closely with the world’s technology leaders. The key projects that emerged as a result of this partnership include
- Pilot operation of tertiary enhanced oil recovery (EOR) and pilot horizontal wells in the Achimov formation (Shell)
- Optimization of field development models by means of data analysis and using artificial intelligence tools (IBM)
- Development of a surfactant with predetermined properties to increase oil recovery (Norkem, Tyumen State University)
- Development of proprietary information technology (IT) technologies and software used for processing and interpretation of seismic data (Yandex Terra)
- Development of a proprietary hydraulic fracturing simulator for Bazhenov formation conditions (Moscow Institute of Physics and Technology, Skoltech)
- Trials of new drilling technologies, refracturing (Schlumberger)
- Joint development of new technologies in well construction, forecasting, and mitigating drilling risks in fractured reservoirs (Halliburton)
- Joint technology projects for recovery factors improvement and tertiary EOR methods (CNPC).
Technology Management Principles in Gazprom Neft Upstream
Having studied the lessons learned by IOCs, Gazprom Neft is basing its work on overcoming technology challenges with regard to the following key principles:
- Investments in technology are ranked taking into account the strategic objectives of incremental production, reduced capital and operating expenses, and increasing recoverable reserves.
- Technological projects are implemented only for clear business objectives broken down on a time horizon: short term, medium term, and long term.
- Technological projects are implemented in accordance with stage gate logic and are formalized in the IT system for monitoring their progress and achievement of key performance indicators.
- Each asset should implement a technology development plan that is associated with a complex asset development plan and a business plan.
Investment Ranking
Gazprom Neft Upstream adopted a technology ranking tool using a seven-point criteria system (Fig. 2). This transparent approach helps identify significant technological projects for acceleration, and is automatically updated once new projects appear in the technology strategy portfolio.
Two groups of technological projects with different time horizons were formed in line with this approach. Group I included projects with short- to medium-term effect (75% of the total annual amount of funds for new technologies). Group II comprised projects that give effect in the long term (25% of the total annual amount of funds). Those are, for example, the projects for tertiary methods of EOR, the development of nonconventional reserves, and exploration and resource base development.
The process of technology control and monitoring starts at the initial stage of a search for possible solutions. After all possible solutions are evaluated, the best ones are selected for rollout as technology projects. A layout of the innovation/technology project life cycle is shown in Fig. 3.
The Asset Technology Plan
The asset technology plan is a portfolio of the proposed technological solutions of each upstream subsidiary based on actual challenges of this subsidiary. The plan combines the strategic challenges of the asset as well as local challenges, and fulfills two key roles: a tool for planning the technological development of the asset, as well as a knowledge management tool.
The asset technology plan is the primary source of technology challenges for updating the Upstream Technological Strategy. To update the upstream technology portfolio, the results of the technology sessions with external partners, content from the KMS, as well as visits of specialized technology forums and scientific and technical forums and conferences can also be applied.
The Organization of Technology Development
Gazprom Neft created a new role within the framework of implementing its upstream technology strategy: a technology leader, whose duty is to ensure comprehensive technological development of the whole function.
New specialized corporate bodies also play an important role: the Steering Committee for the Upstream Technology Strategy and the Upstream Technology Committee. The steering committee manages key issues of upstream technology development and is chaired by the head of the upstream and includes upstream top management and chief executives of all subsidiaries.
The Upstream Technology Committee controls all primary and secondary processes of developing, updating, and implementing the upstream technology strategy. The chairman is the director for upstream technology and regular participants are technology leaders, representatives of the economic service, invited independent experts, and representatives of the New Technology Department of Gazpromneft STC.
Lessons Learned
Due to the formation of a single target budget for innovation, there was a need to identify an optimal balance between the implementation of strategic challenges of the function and strategic requirements of all assets. It is important to have an independent unit capable of performing this task within assets. In Gazprom Neft, such a task is addressed by the New Technology Department of the Scientific and Technical Center of the company, which ensures the search and support of the introduction of new technology as well as ensures comprehensive support of innovative development of functional areas.
Under current macroeconomic conditions, flexibility becomes an important criterion for the projects portfolio, i.e., effective monitoring of the achievement of key performance indicators, as well as the efficiency of decision making related to the need to terminate or suspend projects in case of deviations from the planned parameters.
The involvement of all departments, functions, and subsidiaries in the technology project implementation process is also extremely important as it is rather difficult to manage the technology portfolio of more than 150 projects solely from the Scientific and Technical Center. Therefore, with an increase in the number of projects, renewed focus was put on effective cross-functional interaction and establishing the necessary organization and tools in the subsidiaries.
In today’s conditions, cost reduction is a key challenge. Studies have shown that a large number of technology initiatives fail at a stage of commercial deployment due to a variety of reasons. However, many industry players do not realize this fact. For some, a project’s success is reflected in the successful transition between stage gates without considering the business case and execution time. Gazprom Neft is well aware of these risks and sticks to the approach of “an early mistake is a nonexpensive mistake.”
The ability to manage and systematize the technological development of Gazprom Neft described in this article enables the company to provide flexibility in the development and updating of its technology portfolio of projects, taking into account both the evolving macroeconomic situation and the strategic objectives of Gazprom Neft.