2. Idaho National Engineering and Environmental Laboratory Petroleum R&D Today and Models for the Future Dave Weinberg Fellow November 21, 2002

3. Idaho National Engineering and Environmental Laboratory Outline Components Where We Are –people –funding Models –Conventional Partnerships –Virtual Partnerships –“Norwegian” Model –“Hollywood” Model Some Challenges

4. Idaho National Engineering and Environmental Laboratory Components Challenges (Problems) Funding People

5. Idaho National Engineering and Environmental Laboratory Resource Triangle - Challenges Conventional Reservoirs Small volumes that are easy to develop Unconventional Large volumes that are difficult to develop Improved technology Increased pricing Modified from Holditch, 2002

6. Idaho National Engineering and Environmental Laboratory Major Energy R&D Investment Nine countries do 95% of the R&D –United States - Canada - UK –Japan - France –Germany - Italy –Netherlands - Switzerland US and Japan spend about $2 billion per year The other countries less than $1 billion per year Public and private sector energy R&D declining Battelle 1998

7. Idaho National Engineering and Environmental Laboratory R&D Funding by Private Industry From Larner, 2001 and Holditch, 2002 R&D as % of Net Sales 024681012 Drugs/ Medicine Comm. Equip. Transp. Equip. Aerospace Energy* * includes electric & gas industries Office Equip. Automotive Electronics Chemicals (~ $3B)

8. Idaho National Engineering and Environmental Laboratory Other Non-FE $34.3 DOE Fossil Energy FY01 Budget ($726.6 Million) EM $56.3 EE $50.4 Coal $221.7 CCT $69.4 Gas $116.6 Fuels $32.5 Oil $68.0 Other FE $77.2 Roy Long, 2002

9. Idaho National Engineering and Environmental Laboratory Recent Remarks by ExxonMobil To meet the energy needs of the world, the oil and gas industry needs to invest $ 1 trillion in next 10 years This amounts to $100 billion per year We are only spending $50 billion per year now My* Commentary –We will need more R&D expenditures as well –We will need more PhDs to provide the technology *Steve Holditch, 2002

10. Idaho National Engineering and Environmental Laboratory 0 5000 10000 15000 20000 25000 30000 35000 40000 c U.S. Oil & Gas Production and AAPG + SEG Members in Petroleum Industry U.S. O&G Production, MMB/Yr 2001 AAPG + SEG Members in Petroleum Industry 78198082848688199092949698200024682010121416182020 Courtesy Don Lewis/AAPG

11. Idaho National Engineering and Environmental Laboratory PEOPLE PIPELINE Most S&Es develop their professional interests in junior high school Seven years later (BS), few are yet employable Two to three years later practitioners (MS) graduate Three to five years later researchers (Ph.D.) graduate Geoscience enrollments at or near all-time low In last decade, only about one in four enter petroleum industry The researcher pipeline is 10 to 15 years long!

12. Idaho National Engineering and Environmental Laboratory The Idea Pipeline Modified from DOE-NPTO Lab-Scale Testing Feasibility/Concept Development EMBRYONIC STAGE 5- 30 yrs Field-Scale Prototype Field Scale Testing DEVELOPMENT STAGE 5-10 yrsCOMMERCIALIZATION 2-10 yrs Field Demonstration Meso-Scale Testing

13. Idaho National Engineering and Environmental Laboratory Just In Time Research is a MYTH! Researchers take 10 to 15 years to “grow” Ideas take 5 to 20 years to become commercial technology If We are to Solve Today’s Problems, We Need Use Some “New” Models

14. Idaho National Engineering and Environmental Laboratory What does the domestic future hold? Decreased US government funding for research Abundance of senior talent leaving industry Higher demand from middle sized companies More alliances with industry & service companies Modified from Ray Levey, 2002

15. Idaho National Engineering and Environmental Laboratory Models Conventional Partnering (between “fixed” entities) Consortia and JIPs Contracts to Academia Contracts to Public & Private Laboratories Strategic Alliances Virtual Partnering (between entities, individuals, and others) Partnering over the Internet Hollywood model Data/Information Mining

16. Idaho National Engineering and Environmental Laboratory A World Wide View Cumulative Oil Production – 900 Billion STB Current Oil Reserves – 1000 Billion STB Current Oil Production Rate – 27 Billion STB/yr Oil Production Rate in 2015 – 43 Billion STB/yr Ultimate Oil Recovery – 2-3 Trillion STB Current Gas Reserves – 5000+ TCF Current Gas Production Rate – 80 TCF/yr Gas Production Rate in 2015 – 160 TCF/yr

17. Idaho National Engineering and Environmental Laboratory Norwegian Model Investment into local infrastructure (physical and intellectual) required by hosting government Local technical personnel (often but not always university-based) execute projects of interest to funding entity Funding entity reviews projects for relavenceand performance Successful projects end in commercialization in the host country of the developed technology of a public/private entity Closest US equivalent is tax credits for research

18. Idaho National Engineering and Environmental Laboratory Hollywood Model Roles filled by individual “entrepreneurial entity” Projects of interest identified by X, Y, Z Necessary specialties identified and contracted Funding arranged Team assembled, project executed Compensation related to contribution and/or outcome Team disbanded, members go on to other projects Requires organizing entity to have sufficient knowledge to assemble the “right” team

19. Idaho National Engineering and Environmental Laboratory SOME CHALLENGES The communication “gulf” between the information and technology providers and the independent operators –The operator notes that the well makes too much water –The researcher has a grand solution that has nothing to do with water production The financial “gulf” between information and technology providers and the independent operators –Operators are reluctant to spend money on information and technology developed by providers –Many providers do an ineffective job of cost-benefit analyses

20. Idaho National Engineering and Environmental Laboratory To Survive, Technology Development (R&D) Must Add Value! Do Whatever It Takes or we will be in the slide rule business. We must become creative in the Business of Technology, not just the Science of Technology.