Quantifying the Value of Exploration And Producing Technology
Authors: Heinemann R.F. , Hoefner M.L. , Donlon W.P. 
Published: March 2010

Given today's business environment, investments in technology must deliver value which significantly exceeds the cost of developing and applying the technology. Quantification of this value is a significant challenge. Quantification of the value of technology enables prioritization of diverse technical efforts when coupled with strategic considerations related to a specific asset base. This prioritization can be used to maximize the impact of investment as well as help to balance research and development against application of existing technology.

Upstream technology investment at Mobil has been reduced significantly in the past five years, in part because of our inability to quantify the value of technology. Decisions to resize technology efforts are driven by cost rather than value-to-cost considerations. Recurrent cycles of reduced investment cannot comprehend the resulting loss of value.

A quantitative value-to-cost analysis was performed for the upstream technology portfolio at Mobil for the period 1993 - 1998. The overall cost of developing and delivering various technologies was quantified as was the net present value from technologies applied to 30 major assets. The value captured was classified into four general categories:reduced capital costs,reduced operating costs,increased hydrocarbon production, andincreased proved reserves.

This paper details the methods used to quantify the value-to cost of upstream technologies and the results of the thirty asset analysis. Examples of the value of technology to specific assets will be presented. Finally, a method of incorporating strategic considerations and business alignment to set overall program priorities will be discussed.

Why Quantify Technology Value?

The pressure to continually operate more efficiently has forced petroleum companies to examine every piece of their business for potential improvement. The need to reduce costs is driven by business pressures from competitors who are reducing their costs, and by the need to maintain market-share within an environment of no potential for real price growth in the foreseeable future. The industry as a whole has been extremely successful at improving efficiency. Producing costs at Mobil have been reduced steadily since 1990, even though producing operations have become more complex and locations have become more remote.

All of the major public oil companies, and many state-run companies, maintain a technology organization that provides technical service support to their operating divisions and performs some level of research and development. The cost of providing this technology support is highly scrutinized in the search for efficiency improvement. Within Mobil, technology centre spending was reduced significantly from 1992 to 1995. R&D spending bore a disproportionate share of the reductions, indicating not only a downward trend in technology investment, but also a shift in emphasis away from R&D and toward technical service.

The environment in which these technology organizations function is rapidly changing and is in part responsible for the reduced spending. Alliances with universities, government laboratories and partner companies are strategic endeavors to provide technology at lower costs. Outsourcing of non-core technology to low-cost, specialty providers is also very efficient since companies are no longer willing to invest in every area of technology and since the quality of outside technology continues to improve.