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Abstract: Elf Aquitaine Exploration & Production: What R&D in a Low Oil Price Environment?

Eric Deliac

Elf Aquitaine, a major international oil and gas company, has recently undergone a thorough reengineering of its research and development in exploration and production division. The aim of this reengineering, was to align the company R&D with its business strategy, and also to give a clear picture of two major features for a R&D portfolio: a duration profile (short, median or long term?) and a partnership profile (do it yourself, cooperate, outsource or let do elsewhere?). In short, we were trying to answer a basic question: How can we adapt our R&D to a durable context of low oil price (eg $15/bbl)?

In our opinion, two preliminary statements ought to be made when dealing with the above issue. Firstly, R&D does not contribute equally to the factors of increased profitability, although it is certainly a major contributor to some of them (like obtaining new ventures, reducing costs, discovering new reserves out of current acreage, or improving the overall recovery of discovered fields). It cannot be separated from a global set of factors of company efficiency, including for instance its relationship with its contractors. Secondly, it should be stated clearly that R&D mainly serves two purposes: 1. directly enhance the global business strategy of the company, 2. maintain and improve the technical level of company professionals, while allowing new ideas for possible breakthrou hs.

The first component of our R&D will be called "strategic R&D" hereafter, as it is obviously part of the company strategy and should be tightly linked with our business objectives. The second one is considered very important for the efficiency and the quality of our operations. Because of Elf's tradition of rotating professionals from operations to research and technical service, it ensures that state-of-the-art technology be used in all our subsidiaries. It is also a strong factor of internal cohesion within our technical groups. The allocation of resources is approximately 75% for strategic R&D.

It follows from the above that strategic R&D should directly impact the bottom line of the company, whereas it is impossible to assess the short term financial return of the second type of R&D. The method used to devise the strategic R&D program for 1995-1999 was based on a "top-down" approach. Firstly, strategic E&P challenges were defined, then translated into technology progress areas on one hand, and into technico-economical E&P objectives and indicators on the other hand. A careful screening of all possible progress areas led to the selection of only 30% of the initial list, forming the "hard core" of our R&D program. The selection was made by use of four criteria: business value, need for R&D, availability of results and company commitment. Then a por folio of R&D projects was elaborated, consisting of a mix of integrated multidisciplinary and pluriannual projects as well as smaller specialized projects. Each of the major projects, planned for a period of two to five years, has a quantified objective in terms of either reduced costs of additional reserves, which was obviously a decisive element of the final selection of our portfolio.

In addition, due to an increasingly opened attitude of companies to cooperative R&D and exchange of results, we have devised a cooperation strategy with other oil companies or service companies, also involving major research institutes. It must however be clear that cooperation should be very carefully used if it is to be successful to all parties. Our policy towards cooperative R&D is detailed in this presentation. In short, the priority should not be the well known financial leverage effect, but rather the exchange of two strengths or the impact on cost reduction by a better standardization of technologies or by a reduced failure risk of R&D projects on complex subjects (related to information technology, for instance). Furthermore, technical cooperation is not the panac a, as companies are not equal and compete for new acreage where technology can definitely give a competitive advantage.

As a conclusion, we feel that our new R&D portfolio, in spite of a 20% budget reduction compared to 1992, is probably holding more promise than it was at that time, and should give our company a competitive and profitable business at $15 a barrel of oil.

AAPG Search and Discovery Article #90956©1995 AAPG International Convention and Exposition Meeting, Nice, France