Panelists: Oil and gas industry certainly part of the ESG and energy solution

“What we see today is organizations have reshaped how they look now, compared to what it was a year back,” he said. “They also changed their setup to address these problems. So you can see a lot more focus from companies with these [ESG] goals and empowered teams that want to act on these goals.”

He also mentioned the “younger generation” wants ESG goals “front and center” in a company in which they are employed, which has put more pressure on the industry to act swiftly. ESG also isn’t solely a C-suite or executive-level goal to accomplish, he added, but rather a companywide initiative.

 “There’s definite momentum,” Parthasarathy said. “What I see is real tactical change happening, where they want to start addressing bite-sized problems as well as the big problems that can provide real change to how they address these issues. So it's not just the top-level leadership talking about it anymore, but also within the organization, people actually take ownership and want to make a change in how they intersect.”

Keeping up with the competition

Parthasarathy said a lot of focus is being put on the E in ESG but emphasized ESG altogether is critical to pay attention to. In fact, many measurement systems have already been put in place.

“For instance, Scope 3 emissions being tracked is a key part of being able to impose that, and it's going to take time to get all of that sorted out,” he said. “But, to me, governance is one that's going to have the big push, potentially, to move the wheel.”

The measurement part of ESG on the supplier/contracting side is a key player in this, according to Parthasarathy, because companies are going to be evaluated on that.

“Opportunities are going to be based on how you're doing good on the goals you've established and measured on it,” he continued. “That's going to be one of the big plays. So again, even from a service provider perspective, it becomes important for us to lay down the goals and make sure that we're acting on that. Otherwise, five years from now, it's going to be hard for us to compete in the market.”

Why is decarbonization happening now?

There are a number of major drivers behind the decarbonization agenda for oil and gas players, McKinsey's Helstrom explained, such as protecting the right to operate (i.e., anticipating regulation, proactively responding to stakeholder concerns and meeting market commitments) as well as ensuring ongoing access to capital and potentially securing lower costs of funding. Additional drivers include creating a differentiated green premium for low-carbon barrels, generating investor and regulatory backing to become a partner of choice, and enhancing returns by improving operational efficiency and reducing costs, he added.  

ESG has become a global priority for operators and service companies. Helstrom said there are four types of strategic archetypes that oil and gas players are aligning with: low-carbon pure play, transition front-runner, transition late-adopter, and resource specialist.

“There are energy security things that have to happen,” he said. “There is a lot of demand that's out there that’s continuing to grow, and there has to be a supply side to meet all that demand because gas is going to be critical through the transition itself.”  

The evolving CCUS space

Carbon capture, utilization and sequestration (CCUS) is a somewhat newer space that comes with its own engineering challenges.

“From the Talos perspective, it really goes back to our industry's entrepreneurial approach, right? We have historically solved complex global problems,” Talos’ Pribilski said. “I would argue that the ESG journey and our participation is merely the latest one.”

He boasted that the industry has both the talent and technology to “make an impact” in the CCUS space, be a “first mover” and “an enabler across the entire value chain.”

“There certainly is this aspect of chicken or the egg, given that some of the capture technology specifically is potentially in the bench or pilot test scale,” Pribilski said. “But those are, ultimately, what I would almost equate to the fracking technologies of the last decade. Those continue to rapidly get better and better. But as we stand today, there are projects that are buoyant in the market, meaning that we have established capture. …We can deploy these new technologies and help incubate them to ultimately create an even lower cost of capture, while we go ahead and do the sequestration aspect.”

McKinsey’s Helstrom added that it’s not an either/or situation.

“You don't have to abandon the E&P side of your core business,” he said. “You are also now developing the new cleaner ways to make sure that it’s sustainable going forward.”

Collaborative relationships

Helstrom also pointed out that there are no longer “fully independent operators” but rather partnerships and collaborations between the service provider and operator to solve problems together.

“Our relationship for many years has been ‘you tell us what to do and we do it, and it's not a partnership,” Wood’s Parthasarathy added. “In fact, today it is about finding the answers together, because some of them need the brainpower on both sides.”

An additional perk, according to Parthasarathy, are the service providers that work in multiple industries and can reference and adapt innovations, such as robotics, from other sectors that have the potential to crossover to the oil and gas industry.

“You’re essentially leveraging technology that's been deployed in other spaces,” he said. “You really work with an operator who's willing to invest their time [and] a service provider that's willing to innovate and work with the operative to test it out. And so there's recognition that for new technologies to be operational, you need to form a partnership.”

Talos’ Pribilski added that his company has historically not been “customer facing” but has had a shift in its mindset.

“That alone generates alignment with some of our service providers,” he continued. “But I also would just simply suggest that the sum is greater than the parts, right? We’re identifying one another’s blind spots and looking to supplement or bolster those, because ultimately this is a global initiative, and it requires a global solution.”

Pribilski said Talos’ goal is to become a “reliable, cost-effective CCS-as-a-service provider,” which entails leveraging the company’s partnerships and fully understanding capabilities on both sides and what each partner does well.  

“That particular alignment is what accelerates these solutions,” he added. “That’s what gets us to first injection in a quick manner and really puts us on this journey to decarbonizing.”

Collaborative relationships in the oil and gas industry, which are critical to lead to successful partnerships and innovative technologies, aren’t a new concept, Pribilski continued.

“I come back to the parallels to what we do historically in oil and gas,” he said. “It just positions us so well to be a part of the ESG story. Because in the deep water, you have to partner, you have to diversify your portfolio and you really have to leverage those technology providers to come up with bespoke unique solutions. Because listen, it's really expensive out there, so efficiency and effectiveness are key.”

Government assistance and policies

Reid explained that government collaboration and assistance has been both a blessing and curse.

“It’s not natural for us in oil and gas to think any handout is a good idea in business, but there have been some positive moves,” he said. “The downside is government is actually not good at that innovative, you know, 'let's keep trying new things.' They kind of get caught in that 'this is where we're going; we'll support that.' And that's where they need us at because they will invest in innovation. But usually it's like wide-eyed, crazy ideas that have at least a decade before they're going to help us. And that's their problem is there's no bridge between that and we need to do this now.”

Reid said NOV is having conversations with government groups to do projects on scale.

“These small proven kind of projects are just giving people good press releases; they're not giving us an answer,” he added. “What you need to do is do some scale work, and that's where we're going to learn how to get the cost out.”

He said our industry’s norm for tackling new ideas “is to just go” and do it. For example, “we did deep water in two years when originally it was a government idea to drill at 10,000 feet for research. And as soon as that project started, within two years, we were doing 10,000 feet drilling. And seven years later, they had their first vessel. And that's the difference between us and government is we actually can move fast. We can get motivated. But the reality is we need that right now.”

McKinsey’s Helstrom added that the government-industry relationship has evolved.

“I see it a lot in the Gulf of Mexico with BSEE and operators, in particular, when we talk about decommissioning, you know, kind of understanding who's got the expertise, but then what's the right check or balance to make sure that it's done in the proper way,” he said. “The long-term effect and the long-term benefit is definitely going to outweigh some of those weird, awkward new relationship things that we’ll definitely overcome.”

But is there a single policy change that's going to enable more of this? What will be a catalyst to help offshore ESG and decarbonization happen more quickly?

“Investment is required for innovation and ultimately unlocking these particular projects,” Talos’ Pribilski said. “So certainly, domestically, the 45Q tax credit is the revenue source specifically for CCS as well as EOR. And you know, ultimately, this is a nascent industry. This is not proliferated in a commercial manner.”

He said Talos is focused on execution and understands there are learnings and efficiencies to be had.

“We understand that there will be some lessons learned, not all of which will be pleasant,” he continued.” But that's the purpose is, look, can we push this forward? Can we take those learnings and ultimately then apply them to scaled or larger projects and do this again on a broad commercial global scale?”

Domestically, Talos is focused on the sequestration aspect, and 45Q makes for buoyant projects, according to Pribilski.

“Capture is one of those technologies that we talked about that is a very large expense in these particular projects, specifically on the retrofit side of things,” he said. “The capital investment also on the transportation and sequestration side can be challenged, in some instances, depending upon the geography or the jurisdiction. So that bipartisan support and pushing forth, again, a stronger tax credit or revenue source, potentially also with direct pay, would accelerate some of these projects.”

Pribilski said he and the company’s hopes are that legislation that has been proposed, which is enabling for the projects domestically, gets pushed through.

“We would love to see it by year-end or at least in 2023 so we may reach that inflection point and begin doing these projects at scale,” he said.

Talent acquisition and industry optics

As McKinsey’s Helstrom pointed out, “Energy is critical. That has to happen. And you’re not going to flip the switch overnight into wind or something like that. But what skills are more critical today? What types of profiles [are operators] going after, and how easy is it to do that?”

According to Talos’ Pribilski, talent is becoming scarce.

“Given the ebbs and flows over the course of the past five years—it's also been to the industry's detriment—in the core of it, I genuinely feel like it's a matter of education for the public,” he said. “It's not something historically that the industry has typically done very well.”

Pribilski said it is important to educate the broader public, potential talent and younger industry participants that the luxuries that people are afforded today ultimately are enabled by energy, and oil and gas companies can participate in the overall conversation in “a very responsible manner.”

“Cheap energy provides the opportunity for growth for these emerging economies and others who simply do not have the opportunities we do,” he continued. “We are a part of the greater good, we are a part of the solution and we can have a grand effect. I think that is ultimately something that is very enlightening and intriguing.”

For Talos, the company has been successful in its outreach and talent acquisition initiatives.

“The outreach specifically within our organization and amongst our peers has been tremendous,” he said. “Everyone wants to help. They want to be a part of the solution.”

He also emphasized the importance of stakeholder and community outreach. He stated that his traditional skillset that he was taught as a petroleum engineer and at university is still applicable today. Incoming participants would prove beneficial if they could meld these engineering skills with digitalization, Big Data, machine learning and AI skills to help the industry come up with a collaborative solution.

“Understanding the various aspects of the value chain [and] understanding that we can reduce our carbon intensity while producing cheap, affordable, reliable energy that's required in our daily lives is something that's mission critical I think for the industry at large,” he said.

Wood’s Parthasarathy added that the industry has solved extremely challenging problems over the past 30 to 50 years, and the industry will continue to need problem-solving capabilities to address the next big challenge of the energy transition.

“What's exciting for me is that we can attract new talent into the industry now because of the change that's happening,” he said. “I was worried about it three years back, but I think I'm much more positive.”

He said the industry can attract great talent to solve bigger problems. He also pointed out that similar problems can apply to a different area, and this can provide something aspirational for the next generation.

Cultural enablement

The industry has witnessed cultural shifts over the past five or so years, as more people embrace all that ESG has to offer a workplace, a contractual partnership or a technology collaboration.

“It's been a journey,” Reid said. “You see a generational shift inside the organizations where those who have been around a long time in oil and gas have felt a bit defensive as if they're being attacked for, you know, helping the world evolve as we have. And then the younger generation is just chomping at the bit to do something to make a difference in new energy. And so that tension is quite real.”

“I really kind of think social media hasn't helped anybody when it comes to their perspective and dialogue,” he continued. “Everyone's getting fed whatever they already believe in, and it's making people extreme in their views rather than more balanced.”

This leads to polarizing views. For example, he said the renewables industry’s focus is “we’re going to save the planet,” and the oil and gas industry’s focus is “we’re going to save the people and care about their energy poverty.”

Reid continued, “The truth is the oil and gas people care about the planet, and the people looking at renewables also care about energy poverty” and it’s important to “understand culturally that we are the energy people.”

A renewables business approached NOV as it was going offshore in the U.K. and asked NOV for assistance, realizing there were offshore aspects it was not good at and acknowledging NOV had plenty of experience from its oil and gas projects, Reid shared.

This opened the conversation between the two companies, and NOV began assessing how they could help cut costs for the renewables business. Reid said the renewables business was focused on low-cost manufacturing and materials to push costs down.

“If there’s one thing we learned from shale, it was investment that pushes costs down is not the same idea getting cheaper but actually new ideas,” he said. “That's what we have to bring—the logistics and the capabilities, the industrialization of things. I mean, there's so much we can bring into that industry.”

Reid emphasized the importance that the oil and gas industry “own” the energy industry and become more comfortable with the term.

“We're used to being oil and gas, and we have to own the term energy,” he said. “It continues to be the same thing. We're trying to solve the world's problems. And I think it is a cultural change to take on new language, especially when you're being polarized.”

Working with the renewables sector

With NOV’s move into renewables, Reid explained how relationships and the processes to accomplish goals have changed compared to oil and gas partnerships.

“Relationships are very, very different, and we're kind of learning it from being in the renewable space,” he said. “Being over in that part of the business, the way people look at things is very different, though, because we're dealing with such a world problem. Everyone is trying to solve it; there isn't a clear, easy solution. And so that means there isn't anything but collaboration that you can do.”

He said the oil and gas industry’s established relationships are “a hierarchical system” in which “everyone knows what they're doing and what their place is.” Previously, he said, NOV was solely a “supplier amongst suppliers” but are now viewed as a partner. Reid also explained his team was not used to having conversations with governments but has enjoyed the different types of work.

“Our position at the table is very different,” he said. “Secondly, we’re spending time with governments, which is something we would have never done or had any interest in.”

Reid also said NOV has categorized all tasks and goals into buckets so the team can easily understand what activities they are trying to accomplish while in the energy transition. For instance, one of the first items on the company’s agenda was to rejuvenate what it already had, “which is all about taking things that we already are doing in oil and gas and let them be more efficient, more effective,” he said.

Hydrogen a good bet

Some of the newer energies making headlines include wind and hydrogen.

“Energy density matters,” Reid said. “We know that from an oil and gas perspective, which I don't think everyone else understands the inefficiencies and ugliness of most of the systems. So the second thing we've learned that wind and solar and all these other great ideas is infrastructure matters too.”

He emphasized that infrastructure can present a set of challenges when trying to transition to renewable technologies and that hydrogen may be the easier route.

“One of the worst ideas out there is when people say, ‘let's take an offshore platform and put 15 different renewable technologies on it,’ which says, ‘I don't understand business in the first degree,’” Reid explained. “Because each one of these has costs and associated infrastructure and all these other things to break through. So what you need to do is bet on a few good things, which is kind of how we ended up down the wind and solar road. But even with the offshore wind, everything, we're looking at infrastructure as a problem.”

Reid said hydrogen offers a “flood of good things” but, like geothermal, companies are not investing too heavily in this space.

“Hydrogen is probably one of the better bets,” Reid said. “There are certainly challenges, not as much challenges as many other things. Hydrogen has a lot of interesting aspects to it, but it is not today and it's not tomorrow.”

He said there are technologies the industry could apply to improve hydrogen, but “it is pretty simple.”

“When we understand how to do hydrogen, it's really more to do with a few transportation issues, that most of which we have under control,” he added. “But it's infrastructure that kills you on these things. And even the ability to use hydrogen.”

He said Germany will be a great test case for hydrogen. He also listed shipping as an example of a sector that has started looking into hydrogen from the perspective of an ammonia-based fuel. Conversations are taking place where companies agree hydrogen is probably one of the right things to do, he added, but not enough companies have gone down this road yet to have a clear picture.

Talos’ Pribilski chimed in that hydrogen and ammonia are viewed as part of the energy evolution.

“As we think about hydrogen and ammonia today, feedstock is largely going to be natural gas, at least to do this at scale, or to do this in a material manner to fulfill our infrastructure needs and, ultimately, fuel needs,” he said. “So, as we see it, again, it's that evolution. The energy industry will play an absolute vital role in going through this evolution of fuel.”

On the CCS side, Talos views hydrogen as an enabler.

“We're able to take the CO₂, sequester that and ultimately lower the carbon intensity of that particular process,” he said. “But as David Reid said, energy density matters. And we have to also realize that if we're taking a feedstock that is produced that ultimately could be used as energy today, but then we're applying an expensive additional process that takes energy, how cost effective is that given what's available today? So I am in full agreement, I think we are going to absolutely evolve. I think technological breakthroughs are certainly on the horizon. But it certainly is not today.”

He added that the industry needs to begin its journey to arrive at a place where this can be done in a commercial scale manner that can ultimately support a nation, because "we're not there yet."

However, with government support, he questioned if the industry can accelerate a few of those projects.

“We truly do need alignment from service provider, technology provider, operator as well as our regulatory and/or government body to make these projects happen,” he added.

Digitalization and safety

“Digitalization” and “digital oil field” are buzzwords that have been around for at least a decade, and most digital companies will insist their technology can help solve the world’s problems.

With the demand for more remote work and operations, how are operating models shifting to develop new digital technologies? Is digital tech a one-stop shop answer or just one part of the puzzle to resolve the challenges facing the industry?

Wood’s Parthasarathy said there are different variables and problems to consider, such as personnel safety.

Reducing emissions is a top goal for companies worldwide across several industries, and Parthasarathy explained that digital technology for measuring emissions can help sort information to understand where problem areas are, such as at a corporate level, individual asset level and equipment level. The data from all of the above help guide investment strategies.

“The other thing is some of the problems, let's say, with optimization that you need to do, the scale of the problem that you need to solve gets really complex,” he added. “So the existing algorithms in that space aren't necessarily going to scale in real-time solutioning. And that's where you can use the power of the cloud and the cloud connectivity, because now you can scale problems at massive levels and then actually solve the problem rapidly.”

There are also deep reinforcement learning technologies that allow users to prioritize and study a problem, build a solution set and apply it, Parthasarathy said. For instance, emissions reductions “is not an easy problem mathematically to solve” and “requires a lot of computation.” All of this cannot be done via edge computing, so users utilize the cloud and artificial intelligence, he explained.

“That’s where the digital is going to be really useful in really taking large-scale problems that don’t have easy answers and existing systems don’t address them,” Parthasarathy said. “That's where you can really believe in digital.”

Machine vision is another “huge area” that allows users to do temperature/pressure sensing. However, he said what needs to be reviewed is the requirement to have humans in the loop to use that sensing technology.

“You can actually remove the humans in the loop [and] put them in a safer location,” Parthasarathy said. “And actually use machine vision to achieve that, because the technology advances in machine vision are remarkable.”

Looking ahead

Overall, the panelists agree there is a huge opportunity for the oil and gas industry and that it is part of the energy solution.

“We need to be practical and be able to understand what is a dream and what is possible,” Reid said. “But I do think in applying ourselves, we're already seeing some great breakthroughs.”

Pribilski echoed those sentiments and said he is proud to be within the energy sector.

“Our classical training, our entrepreneurial approach and our general openness to problem solve and to challenge the norm sets us apart from other industries,” he said.

Pribilski also believes the industry will lead the decarbonizing efforts across the globe.

“Everyone agrees that decarbonizing in some form or fashion is a good thing,” he said. “Although we may be polarized in other aspects, everyone agrees that we can be a part of a solution.”

ESG and the energy transition is part of the oil and gas industry’s present and future and not at all something the industry is shying away from, and it is eager to collaborate with others to develop innovative ideas and technologies.

“The energy industry needs to hold their head high and look forward to the future,” Pribilski concluded. “It's very bright.”

 06.14.2022