Decrypting Innovation

A practical approach

A presentation at the Oil and Gas Tech Week

Rio de Janeiro, August 21, 2017

D E L O I T T E C O N S U LT I N G L L P
Extraordinary
times of change…
SENSOR STATS

Exponential affordability (price from $22 to $1.4 in last 25 years)

Exponential computational power (doubles every 3 years)
Exponential miniaturization (size halves every 5 years)

2030
BY

2007 2013 2022 OVER

10M
SENSORS1
~20B
SENSORS2

Late 1990s
1T
SENSORS3 10T Today
SENSORS3 3
4
BOV CONTROL ASSESSMENT

Connecting the dots between cattle, ranchers who own them,

companies that buy the beef, and consumers

RANCHER BUYER CONSUMER

Plan for pregnancies, Track product origins, Know where the filet
know when to best sell ensure ethical and mignon came from and
based on weight, etc. environmental practices, how it was raised
and choose the rancher

brf
5
ORBITAL INSIGHT

Using algorithms to calculate how much oil is in tanks by

examining the rise and fall of roofs

6
 No “fuel” aside from electricity 350 Km per charge
 No fuel additives USD 35.000
 No oil changes, no lubricants Waiting List: 500.000

7
 Cost of Solar Power
USD / kWh
77.67

0.12

1977 2017 8
 SO WHAT? THE INNOVATION IMPERATIVE

Companies are growing faster than ever…and becoming

irrelevant more quickly as well
The average time to
Life expectancy of a F500 company reach $1B valuation
60
for is 20 years;
recently we have seen
50
several getting there
Years (rolling 7-year average)

in less than 1
40
RICHARD FOSTER
Yale University
30

20
projected

10

0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

9
Source: “Creative Disruption Whips Through Corporate America”, Innosight / Richard N. Foster / Standard & Poor’s, Winter 2012
Trends in your
industry…
 TRENDS IN YOUR INDUSTRY

Innovations have helped Oil & Gas companies navigate turbulent

times and explore challenging reservoirs
2012 2015
BP conducted UAV Repsol deploys Cognitive
2011 pipeline inspection Computing in Upstream
Ultra-deep-water tests in 2012 in Alaska Operations
drill ship,
2013
Dhirubhai KG2 2016
Kongsberg and BP
1997 2000 2006 sets a world Shell launches Sensabot, first
deliver real-time well-
160 1991 1994 First Intelligent Well First marine seismic Shell's pilots water-depth
monitoring and early resident mobile robot
First guideline-less First 4D completed at acquisition using single- Smart Fields record, drilling in certified to work in difficult
warning system to
140 subsea tree installed seismic Snorre field, sensor, calibrated sources Technology 10,194 feet water
support well and hostile environments
by Petrobras performed Norway and steerable streamers construction operations Shell deploys 3D printing to
120 1993 2004
develop prototypes at the
1996 1998 US GoM
First subsea electrical ESP High-performance
100 installed (Schlumberger)
First commercial
sonic imaging job
Mitchell Energy
demonstrates water-based mud Columbia Pipeline Group
introduced (Baker introduces “Intelligent
First floating production (Schlumberger) slickwater
80 facility (Shell) installed in fracking in the
Hughes Drilling 2014
Pipeline Technology"
Fluids) Schlumberger pilots
the US GoM Barnett Shale
60 use of wearables in
upstream operations
40 Baker Hughes and
2017
Shell pilot the use of
artificial intelligence Mercuria, ING and Societe
20 Generale test blockchain
for first large oil trade
0

Europe Brent Spot Price FOB (USD per Barrel)

Sources: EIA; Society of Petroleum Engineers; Deloitte Analysis
11
 TRENDS IN YOUR INDUSTRY

After rising by 10-30% in December, stocks across the O&G

sectors have been on a downward spiral
Equity Performance of O&G Sectors (October 2016=100)
140
OPEC-led production
cut announcement
130 Drilling Index

120

R&M Index
110

Midstream
Index
100
Equipment & Services
Index

90 E&P Index

80
Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17

Source: Bloomberg, as of April 25, 2017

12
 TRENDS IN YOUR INDUSTRY

The changing operating environment makes innovation

imperative for the Oil & Gas sector

‘Giant fields’ (~60% of global

Rising costs amid depleting Challenges production) are in decline; for
‘easy barrels’ have resulted in
diminishing returns
in O&G OPEC giants the decline rate is
6.5% annually

Skill shortages, especially in Safety and efficiency are

critical roles such as engineering,
design and geoscience is one of
the biggest concerns
major factors as every O&G
Over the last two and-a-half years,
operator seeks to reduce Incidents,
oil prices have fallen to less injuries and fatalities
than USD 35/boe, before a recovery
pushed to USD 50/boe

Sources: Oil & Gas Journal; CNBC; IOGP Safety Performance Indicators 2015
13
Digital disruption in
Oil & Gas
 Alert: Blowout Preventer

Equipment Failure Predicted

- Maintenance schedule notification
- Potential Blowout Preventer maintenance required

Flow Pressure vs Time

100
80
60
40
20
0

Flow Pressure: High

Temperature: High Flow Pressure 60%
80% 90%

Flow pressure levels may reach dangerous

levels according to predictive algorithms
15
 Automated Drone inspection
- Situation assessment within
10 minutes
- Visual data gather
- Collateral assessment

IR

Quick Response Assessment

- Situation requires technical expert
- Low risk of blowout within 2 weeks
- No hazardous chemicals identified

16
 Job Instructions Worker Monitoring Ticket Monitoring
- Maintenance Manager 1 - WorkID: 0001
- Hours worked: 5 - Job forecast: 2 hrs
- Shift length: 12 - Ticket RFID check-in: Yes
- Expertise: - Ticket RFID check-out: No
- Sensors - Ticket approver: Site Manager
- High-pressure valves - Date of approval: 01/01/2016
- Approver: - Ticket Attachments:
- Rig Supervisor
- Vitals
98.6°F

Copyright © 2016 Deloitte Development LLC. All rights reserved.

17
18
19
DIGITAL DISRUPTION

Digital can revolutionize the entire O&G value chain…

Upstream Midstream Downstream
Drilling &
Gas field Power Network Customer Marketing Customer
Exploration well Extraction Trading Transportation Refining Distribution Billing
Development generation Mgmt Acquisition & Sales service
completion

3D Microgeneration Mobile
Virtual Pricing Connected
Smart Spare parts 3D Printing Workforce
Reality analytics homes
Glasses Commodity Printing Big Debt
Wearables
& virtual data analytics data analytics
Reality Smart grids
Safety
Intelligent Asset Nano- Analytics Smart Single view of stock Responsive
Development technology Transportation web
Crowd
sourcing Machine to
machine
communication Smart Smart energy
Cities management
Asset Smart Predictive
Smart performance Exoskeletons Internet
of Things metering asset Digital
Real time project Safety Demand management maintenance customer
management Real-time analytics engagement
digital gas field
management RFID for
logistics and Predictive
transportation Wireless Field force
risk
Crowdfunding power Robotics optimization Social
analytics
charging Media
Collaboration
Ambient tools
computing Outsourcing
Demand and Capex
pricing Supply chain Next gen fault Smart
Intelligent Planning and
optimization and vendor reporting and network scheduling
risk and Material Delivery Home energy iBeacons
optimization management
compliance technology management

20
 DIGITAL DISRUPTION

…with a clear business and economic impact

EXAMPLES OF DIGITAL IMPACT
“Faster problem 11% 50% 20% Virtual Cameras & Cognitive
resolution” lower CAPEX Reality Drones Processing

Improvement in % of, O&G supply chain By 2019, 25% of By 2020, 80% of large oil
No. 1 business Result of effective use By 2020, 50% of
Bottom-Line for a jobs to be eliminated companies will and gas companies use
benefit of IoE in of digital technologies companies will
USD50 billion O&G through automation, leverage modelling, Cognitive/AI Agent capable
Oil & Gas in the oil and gas monitor and inspect
company, resulting robotics and new simulation and 3D of problem solving
sector assets
from IoE technologies Virtual reality

These Digital drivers could unlock $1.6 trillion for the Oil & Gas industry, its customers,
and wider society

230
$580-$600 billion $260-$275 billion $430 billion
Kbbl of oil

Upstream Downstream Lowering Emissions Avoiding Oil-spills

Sources: World Economic Forum

21
DIGITAL DISRUPTION

Digitally maturing organisations share “Digital DNA”…

O&G companies score particularly low in digital maturity
DIGITAL DNA
1. Compelling digital vision

2. Strong leadership and governance

3. Culture of innovation & exploration

4. Data-driven decision making

5. Distributed decision rights

6. Agile way of working

7. Rigorously driving down complexity

8. Operating in different speeds

(Bimodality)

9. Fast learning and collaborative

Notes: Companies in S&P 100 respectively, ranked on Digital Maturity using Deloitte’s Digital Maturity Index (DMI) Framework. Monitor Deloitte developed the
Digital Maturity Index (DMI) based on a study of the digital capabilities of the S&P 100 companies
10. Participating in ecosystems Sources: eMarketer, Nielsen, Monitor Deloitte Analysis

22
DIGITAL DISRUPTION: WHERE TO START

Do not start with the technology….

It’s normal as we seek to ‘get digital’ to start with what’s out there and look for ways to apply it

DATA INSIGHTS
Using advanced analytics, artificial Typical approach
intelligence and machine learning,
what insights can we gather to Not recommended
create new sources of value?

X
DIGITAL TECHNOLOGY MARKET IMPACT
What technologies exist in the How did our use of technology and
market today, and how can we analytics impact our markets and
employ them? value chain and what was the
result?

23
DIGITAL DISRUPTION: WHERE TO START

Focus on business objective and user behavior first

Start with the users: to maximize impact and growth, first identify the behavior you seek to change

DATA INSIGHTS
How can we use data and advanced A superior approach
analytics to constantly monitor
behavioral outcomes and course- Recommended
correct as necessary?

Start here

DIGITAL TECHNOLOGY USER BEHAVIOR to drivemarket impact

What technologies exist that will What behavioral shifts will have the
most efficiently help us drive greatest impact on our economics?
desired behaviors and how can Who should we focus on?
we access them most cost-
efficiently?

24
Innovation is almost
painfully hot…
 INNOVATION MYTHS

Breakthrough innovation is plagued by many myths

1. Start with brainstorming!

2. Mostly enhance your creativity…
3. Innovation = great products…
4. Speed is everything—we have to beat competitors to market!
5. Great entrepreneurs trust their gut—you can’t study innovation!
6. Great innovators work alone...
7. It takes lots of ideas and experiments to get one good innovation...
8. Protect your patents—don’t trust outsiders...
9. Think outside the box…

26
BUZZWORD BINGO

Innovation
Innovation is a is (almost painfully) hot right now

Top 5 out of 20
challenges CEOs are focusing
only 5%
on in 20161
of their innovation
$680Bn projects actually
R&D spend by top
1000 firms in 20162 succeeded2
but... 27
1: The Conference Board Review 2016 CEO Survey 2: Strategy&, 2015 Global Innovation 1000 report , Doblin analysis
TEN TYPES OF INNOVATION

A more expansive frame for innovation

Network Process Product System Channel Customer

Connections Signature or Complementary How your offerings Engagement
with others to superior methods for products and are delivered to Distinctive
create value doing your work services customers and users interactions
you foster

Profit Model Structure Product Service Brand

The way in which Alignment Performance Support and Representation
you make money of your talent Distinguishing enhancements of your offerings
and assets features and that surround and business
functionality your offerings
28
 TEN TYPES OF INNOVATION

Integrating more types of innovation can help deliver superior

financial returns

200 5-Year Indexed Stock

Stock Price (indexed to 100)

Price Returns of the Top 5+ Types of Innovation

Innovators vs. S&P 500 45 companies
150 3–4 Types of Innovation
59 companies

1–2 Types of Innovation

100 34 companies

S&P 500

50

0
2007 2008 2009 2010 2011
29
FORD MODEL T INNOVATION ASSESSMENT

Henry Ford innovates to replace horses…

8 TYPES:

30
TESLA MODEL S INNOVATION ASSESSMENT

Introducing a new vehicle brand, challenging industry orthodoxies

8 TYPES:

31
UBER INNOVATION ASSESSMENT

Harnessing predictive data modeling to create an efficient, effective,

new model for urban personal transport and logistics

6 TYPES:

32
UBER INNOVATION ASSESSMENT

Looking inside the Uber model: 7 specific innovation tactics

+ +

6 TYPES AND 7 TACTICS:

33
 TEN TYPES OF INNOVATION

Better building blocks: Innovation tactics

Premium Merger/Acquisition Organizational Process Superior Product Complements Try Before You Buy Diversification Co-Branding Process Automation
Cost Leadership Consolidation Design Standardization Ease of Use Extensions/Plug-ins Guarantee Flagship Store Brand Leverage Experience
Scaled Transactions Open Innovation Incentive Systems Localization Engaging Product Bundling Loyalty Programs Go Direct Private Label Simplification
Microtransactions
Secondary Markets IT Integration Process Efficiency Functionality Modular Systems Added Value Non-Traditional Brand Extension Curation
Forced Scarcity
Supply Chain Competency Center Flexible Safety Product/Service Concierge Channels Component Experience Enabling
Subscription
Integration Outsourcing Manufacturing Feature Aggregation Platforms Total Experience Pop-up Presence Branding Mastery
Membership
Complementary Corporate Process Automation Added Functionality Integrated Offering Management Indirect Distribution Transparency Autonomy and
Installed Base
Switchboard Partnering University Crowdsourcing Performance Supplementary Multi-Level Values Alignment Authority

Auction Alliances Decentralized On-Demand Simplification Service Marketing Certification Community and
User-Defined Franchising Management Production Environmental Superior Service Cross-selling Belonging
Freemium Coopetition Knowledge Lean Production Sensitivity Personalized Service On-Demand Personalization
Flexible Pricing Collaboration Management Logistics Systems Conservation User Context Specific Whimsy and
Float Asset Strategic Design Customization Communities/Supp Experience Center Personality
Financing
Standardization Intellectual Property Focus ort Systems Status and
Ad-Supported
User Generated Styling Lease or Loan
Licensing Recognition
Predictive Analytics Self-Service
Metered Use
Bundled Pricing
Disaggregate Pricing
Risk Sharing 34
Analysis of the
innovation activity in
Oil and Gas
 INNOVATION ASSESSMENT: O&G INDUSTRY

Oil & Gas companies are focusing a majority of their innovation

efforts on offering
FOCUS OF OIL & GAS INNOVATION
Relative Incidence The key challenge for oil and gas
companies is to drive innovation
beyond technical and R&D groups
and into the wider organisation

Source: Deloitte Study “Innovation in Oil and Gas, Canada, 2016” 36

OIL AND GAS INNOVATION ASSESSMENT

Innovation exemplars across the Ten Types

Extended Lean Six Sigma Using 3D printing for rapid Launched a digital Moves product Using its computer game,
program to suppliers to prototyping of engineering platform to predict through pipeline to Quest for Oil, to build brand
enhance collaboration designs to test oilfield equipment ship, rather than presence with stakeholders and
with business partners components on small-scale breakdown pipeline to refinery recruit potential employees

Shifting the Globally pooled its Skystrat technology Osprey Reach allows for Has launched a new
“procurement-driven” support services to enables access to remote, visual validation range of co-branded
business model to an sustainably improve remote exploratory of alarms and checks for lubricants with Tata
“integrated services efficiency across all drilling locations leaks and spills Motors
management” model businesses

37
DEVON INNOVATION ASSESSMENT

Revolutionizing operations with big data: a shared system with one

single truth to internal customers (drilling, completion, production, etc.)
• Speed and location of vehicle fleet
• Worker evacuation due to hydrogen sulfide
• Reduction of non-productive time
• Analysis of seismic data

4 TYPES:

38
SAUDI ARAMCO INNOVATION ASSESSMENT

Enabling real-time reservoir mapping and management with

nano-bots, reducing time, cost and uncertainty

4 TYPES:

39
CENOVUS INNOVATION ASSESSMENT

“Picture a drilling rig. Now, picture a flying rig” – it is SkyStrat™.

Increasing access to remote exploratory drilling locations year-
round, while reducing environmental footprint

THE MIDDLE OF NOWHERE

3 TYPES: ONE PIECE AT A TIME

40
OSPREY INNOVATION ASSESSMENT

Intelligent Well Monitoring in exploration and development: faster

response times, less environmental damage and lower clean-up costs

5 TYPES:

41
PETRONAS INNOVATION ASSESSMENT

Liquefying natural gas on a ship longer than the Eiffel Tower

“ Ittransform
is a move that will
the global
energy market…
…PFLNG SATU will help
reach natural gas
reserves in locations
where conventional rigs
1.5 million tons of natural gas per year
Max operating depth of 1.5km and pipelines don't
make economic – or
environmental – sense. ”
4 TYPES: – BBC

42
FIELD UPGRADING ASSESSMENT

Turning heavy oil into marine fuel in landlocked Alberta

4 TYPES:

43
TOTAL INNOVATION ASSESSMENT

Crowdsourcing the design of the serving station of the future

4 TYPES:

44
SPOT THE INNOVATION

Design an engaging experience for gas station customers at the

point of purchase
…I’d rather go under
than over…
… I go to the station
most days to get milk
for the baby

…I focus on getting
on my way as fast
as possible…

…most times it is garbage

[screen], if it were more
relevant, I’d watch it

8 TYPES:

45
CLIENT A

46
VOLKSWAGEN – SHELL – SAP INNOVATION ASSESSMENT

Creating a connected car ecosystem

Spot the gas station, be
identified upon arrival,
receive fueling, and
seamlessly pay for it
without leaving the car

Find a parking spot and

seamlessly pay for it

5 TYPES:

47
PURPLE – INNOVATION ASSESSMENT

Making refueling easy flipping an industry orthodoxy

PURPLE PLUS PURPLE FOR BUSINESS

7 TYPES:

48
Managing an
innovation system
 INNOVATION AMBITION

Successful innovators manage a portfolio of initiatives across

ambitions
WHERE TO PLAY (MARKETS & CUSTOMERS)
NEW

TRANSFORMATIONAL (5+ Types) See the May 2012

Developing breakthroughs
and inventing things for
markets that don’t yet exist
ADJACENT
issue of Harvard
Business Review
for “Innovation for
the Risk Averse”

by Doblin
ADJACENT (3-4 Types)
Expanding from existing
business into “new to the
company” business
EXISTING

CORE (1-2 Types)

Optimizing existing products
for existing customers
EXISTING INCREMENTAL NEW
HOW TO WIN (PRODUCTS & ASSETS)

50
 INNOVATION AMBITION

Revolutionary opportunities exist at each level of ambition

TRANSFORMATIONAL Hybrid Air Vehicles fill a gap in the transport technology

spectrum that will open new opportunities for oil and gas
WHERE TO PLAY (MARKETS & CUSTOMERS)
NEW

companies by enabling cost effective transport to and from

mine sites 24/7, 365 days a year.
Other Example: Recovering minerals from oil sands waste
ADJACENT
Plasma deep drilling technology is one of several different
ADJACENT

variants of recently explored new drilling technologies which

would be able to substitute contact-based rotary systems.
Other Examples: Eliminating tailing ponds; Thermal Assisted Gravity Drainage

CORE
A multi device, Smartglass solution could provide field service
EXISTING

workers hands free access to contextual, real-time

information about the machinery in front of them.
Other Examples: Rupture detection technology; Dual fuel haul trucks
EXISTING INCREMENTAL NEW
HOW TO WIN (PRODUCTS & ASSETS)

51
INNOVATION AMBITION

Successful innovators are explicit about their activity and

resources across different ambition levels
TRANSFORMATIONAL

10%
The right balance is going to vary by firm
ADJACENT
70% and situation, based on 6 contextual factors:

20% Industry Company

CORE
• Rate of change • Risk tolerance
• Level of maturity • Stage of development
20% • Relative organic growth goals
• Relative TSR goals
70%
10%
RETURN ON INVESTMENT
52
INNOVATION AMBITION IN OIL AND GAS

We asked executives in Oil and Gas about their current and

desired ambition…
TRANSFORMATIONAL
Focus has been on core innovations with a
3% 12% strong emphasis on technical solutions to
optimise old techniques to reduce cost and
ADJACENT
increase production.

CORE
11% 24% Less integrated companies may have
difficulty spreading their risks and are less
likely to adopt Adjacent & Transformational
innovations in-house… but may be more
86% 64% successful through an external ecosystem.

Current Balance Desired Balance

53
INNOVATION CONFIGURATION CHOICES

Different ambitions require different configurations and capabilities

APPROACH ORGANIZATION RESOURCES & METRICS &

COMPETENCIES INCENTIVES
CLOSER TO Starting with many Can be managed within Can be funded Measure with
THE CORE ideas can be the existing structures and by BU P&L economic metrics
name of the game leadership (NPV, ROI)

TRANSFORMATIONAL It’s all about fewer, Needs to be separate and Needs separate Measure with non-
bolder initiatives protected from existing protected funds economic metrics (time
structures to first prototype; # of
3rd parties engaged)

54
INNOVATION MANAGEMENT SYSTEMS

12 levers form the foundation of an innovation system

APPROACH ORGANIZATION RESOURCES & METRICS &

COMPETENCIES INCENTIVES

1. INNOVATION STRATEGY 4. SENIOR LEADERSHIP 7. FUNDING 10. FINANCIAL AND

Goals for innovation, How senior leaders engage Financial resources and NONFINANCIAL REWARDS
opportunities to pursue with innovation mechanisms for access Incentives, formal and
informal recognition
2. PIPELINE & PORTFOLIO 5. GOVERNANCE 8. TALENT MANAGEMENT
MANAGEMENT How and by whom Attracting and deploying 11. INNOVATION METRICS
How innovation initiatives decisions are made the right skills at the right Indicators to guide
are managed in a portfolio time decisions and measure
6. COLLABORATION progress
3. PROCESS Connections across 9. INNOVATION TOOLS
How innovations move the organization Protocols, techniques 12. EXTERNAL ATTRACTION
from hypotheses to for innovation How other organizations
businesses participate in your
platforms

55
 O&G INNOVATION MATURITY ASSESSMENT

Industry players are yet to fully develop innovation capabilities

1 NOVICE 2 SPORADIC 3 COMPETENT 4 ADVANCED 5 EXCELLENT 6

2.4 4.1
2.9
Low Average High

APPROACH ORGANIZATION RESOURCES & COMPETENCIES METRICS & INCENTIVES

3.1 2.8 3.0 2.8

Know which innovations to Current decision making Funding is a significant Companies lackeffective
focus on in their own BU…
process do not support hurdle, along with innovation metrics and
however lack
a holistic
innovation due to slow attracting the right incentives. Industry does
understanding of
and inadequate senior talent and leveraging cross- not know how to work
innovation goals that functional skills. However, were
are aligned with strategy leadership support with 3rd parties outside
good at leveraging individually their traditional ecosystem
relevant technologies

Source: Deloitte Study “Innovation in Oil and Gas, Canada, 2016” 56

THE INNOVATION ECOSYSTEM

An integrated external innovation ecosystem is essential to

address the pace of change and disruption

Canadian Example: Some

Resources Available in Oil
and Gas

Canadian Oil Sands Innovation

Alliance (COSIA)

Institute for Oil Sands

Innovation (IOSI)

Communitech

Alberta Innovates

Industrial Assistance Research

Program (IRAP) – National
Research Council Canada

Sustainable Development
Technology Canada

57
Parting thoughts
 PARTING THOUGHTS

What an innovation journey might look like

INNOVATION JOURNEY

MINDSHIFT FOCUS EXECUTE SUSTAIN

Inspiring people Providing Moving the needle to Running an
to change their direction and achieve desired outcomes; innovation
ways of thinking intent for what’s demonstration pilots organization
possible

Inspire new Set a clear Respond or Create new Develop an Run an

USE CASE

ways of direction or capitalize on businesses or innovative innovation

thinking intent a trend offerings culture organization
6

59
PARTING THOUGHTS

Articulating a clear intent, that is consistently reinforced and

communicated

60
Thank you!

Francesco Fazio
INNOVATION PARTNER
Deloitte Consulting
+1 (312) 203-9306 mobile
ffazio@deloitte.com

61