Wayne Sim
CEO - Aucerna
Part of the Spotlight on Energy Tech

Transforming the Industry from the Top Down

Takeaways

  1. The digital transformation of Canada’s oil and gas companies offers tremendous opportunities for better resource identification, execution, scheduling, capital allocation and more. However, Canadian oil and gas companies are lagging behind their international counterparts.
  2. Canadian energy tech companies need to be less conservative and must start developing their commercialization strategy, build their global go-to-market organization, and generate local sales capability from day one.
  3. Canada is strong in terms of incubating innovative technology, but lacks a technology ecosystem to back its innovations and turn them into the next global leading technologies.

Action

To the government I would suggest setting up a low-bureaucracy institution with a mandate to drive Canada’s economic development strategy. This institution should be populated by experienced and successful industry people with a special focus on entrepreneurs who have taken their new idea to build a $100 million or $200 million global company.


How digitized is the oil and gas industry today and what are the opportunities going forward?

An important thing to highlight is that digitization and digital transformation are very different things. Digitization means just taking the status quo and moving it to an electronic form. This is not the same as digital transformation, which means changing the way a company fundamentally works. We are in the initial stages of the oil and gas industry’s digital transformation and the industry is about 10 years behind most others like banking, telecommunications, automotive, aerospace and manufacturing.

“There is almost no place in oil and gas where digital transformation is not going to add value in terms of driving better decisions, more efficient executions and a smarter use of capital. We need to transform the entire industry from the top down.”

There are many specific opportunities for digital transformation in oil and gas. I will start where we are focusing, which has been an underserved part of the marketplace over the last 15 to 20 years. We are focused on the front office workflows, which we split into three primary cases: plan design, execution and operations. There are also significant transformation opportunities in the technical layer of oil and gas production in terms of automation and digitization. This includes the application of artificial intelligence, pattern recognition and big data to more accurately identify oil and gas resources to get fewer dry holes, better execution, better scheduling and more. There is almost no place in oil and gas where digital transformation is not going to add value in terms of driving better decisions, more efficient executions and a smarter use of capital. We need to digitally transform the entire industry from the top down.


How is AI going to affect jobs in the energy industry?

AI will affect the nature of jobs, but not necessarily the number of jobs. AI is really good at pattern recognition and interpolation, but not at analytics. So, AI will replace a lot of the menial repetitive tasks that people currently do. That means that people can focus their time on high-value activities as opposed to low-value activities. For example, 70% of the time of employees in the planning division of the oil and gas industry is spent on data manipulation, harmonization and cleansing. That is a place where technologies like AI, big data, as well as integration can streamline processes.


How advanced is the Canadian oil and gas industry when it comes to its digital transformation?

We are no longer leaders in that space. We are falling behind in terms of innovation and adoption. Oil and gas companies in Northern Europe and the US are much more willing to transform their operations and adopt new technology. In Canada, the drop in oil prices led to a few side effects. Firstly, there was a big flight of older intellectual capital from the industry and a much younger demographic filled that vacuum. It was the independent companies that suffered the most from this loss. Canada’s energy sector is still dominated by the oil and gas industry, so it is still living the economic downturn. However, the rest of the world has moved from a barrel focus to a value focus, but Canada has not yet made the transition.Companies in Canada also have a lot of constraints on our marketplace and our ability to impact commodity markets.

“The rest of the world has moved from a barrel focus to a value focus, but Canada has not yet made the transition.”

Another side effect of the slump in oil prices is that the investment community has gotten much more sophisticated. Investors are now becoming operators, shareholders as well as debt providers. Their knowledge of the industry is significantly higher than that of traditional lenders and they are taking a lot of time to make their bets. They have been driven to understand their risk profile much more because of more than $100 billion in value destruction over the past 4 years. There has been a fundamental shift in Canada’s oil and gas sector and we will not go back to our old models.


As someone who has successfully exported Canadian energy-focused technology, what advice would you give other Canadian energy tech entrepreneurs looking to grow internationally?

The very first thing I did was drop the conservatism. Be less conservative about commercializing and marketing your technology. From day one, companies should understand their commercialization strategy, build their global go-to-market organization, and generate local sales capability. It is difficult to cross the border to sell into the US out of Canada. You need to sell to the US out of the US and to Europe out of Europe.

“The first thing we need to do is establish Canada’s technology brand.”

Secondly, companies should also start with the end in mind. They need to have a 5 or 10-year plan.

Finally, they should come up with an investment strategy so that they do not have to operate on a shoestring budget, which would add an extra five years to reach market. This becomes a trade-off in terms of how quickly you want to grow and achieve success versus complete ownership of the equity in your organization.


How can Canada become more competitive globally?

Canada does not have a brand in the international technology space. While Canada is a great incubator of technology, it is not good at the commercialization of technologies. Fundamentally, Canada does not have a technology ecosystem. Although we produce some outstanding individual technologies in Canada, our lack of broad capabilities in oil and gas technology is a by-product of a system that does not support technology.

I do not think Canada’s lack of a technology ecosystem is a collaboration issue; it is an institutional issue. For example, Canada has a number of technology incubators, which are bureaucratic and spread the money too thin. Early on in this company, we took a grant and it literally cost more to manage and report on the grant than the grant was worth. Those institutions end up turning great technology people into really bad CEOs. Even Canadian academia does not have a technology exploitation or licensing strategy, which could help move technologies from the labs into the markets. In terms of financing, not a single private equity firm or bank in Canada can provide a critical mass, mid-stage company with funding to grow. Canada is too conservative and Canadian companies would rather buy from American companies than Canadian companies. We actually sold into Canada from the US because we could not sell to Canada from Canada.

“Canada’s lack of a technology ecosystem is [not] a collaboration issue; it is an institutional issue.”

We need to understand that technology is going to drive Canada’s future economy. If we do things right, Canada can be a technology leader in the world. We already excel at innovation, so we just need to put in place a technology ecosystem which can support and promote Canadian technology. The first thing we need to do is establish Canada’s technology brand. As a government, I would start a program around branding and letting the world know that Canada is open for business and technology development. I would then start to promote that brand in fast moving markets like the US and Europe. Today, most of the technology that we compete with is Canadian technology that has been bought in the US and Europe.

To the government I would suggest setting up a low-bureaucracy institution with a mandate to drive Canada’s economic development strategy. This institution should be populated by experienced and successful industry people with a special focus on entrepreneurs who have taken their new idea to build a $100 million or $200 million company.

We need to pick our bets in terms of technology investments and focus on them first. But, getting Canada to the top of tech is going to take a lot of individuals and this is not just a government or academic responsibility.