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Preprints, Working Papers, ... Year : 2005

Technology Strategy in the Upstream Petroleum Supply Chain


This study focuses on technology activities in the upstream oil & gas industry. Data from the period 1984 to 2002 is studied for evidence. The objectives are to describe technology strategies within this sector and to develop an understanding of how technology-related tasks and the control of technology are distributed throughout the supply chain. Frameworks for decision-making around technology strategy are presented. Firms that operate internationally and with the widest range of technological capabilities (so technology strategy is not modified strongly by any specialisation) are studied. These firms are large, private international oil companies and large integrated service and supply companies. Technology has different and distinct capabilities; it is a response to growth opportunities, it is a way to lower costs and it can lower the risks of certain business activities. Firms engage in Research and Development (R&D) to provide new technology. However, R&D is risky due to its typically long payback period and during this time many changes to forecasts and unforeseen paths may arise. These unforeseen circumstances provide unexpexted benefits or expenses. In the context of this report, technology is defined as something that gives the user competitive advantage. Evidence points to having access to technology as a source of competitive advantage but oil companies and their suppliers have very different competitive objectives and strategies around technology. The former compete over the acquisition, exploration and production of crude oil and natural gas; competition is based on having some lead-time and/or cost advantage in terms of integrating the best technologies into any project. The later compete for the supply of products and services; competition is based on their technology content, quality and price. The international oil companies (IOCs), who are the traditional big spenders on technology, have reduced their technological activities. Increasingly, the integrated service and supply companies (ISCs) now provide the industry with its technology and related expertise needs. Precise data is difficult to find and often not wholly comparable, but some global figures in Table 1 suggest the transfer of technological activity from the oil firms (technology users) to the supply sector (technology providers). Drivers for the IOCs to divest activities have included the move to asset-based organisations and downward pressure on discretionary spending. Table 1 highlights that since peaking most recently in the period 1991 – 1992 the R&D budgets of the IOCs have fallen quite steadily and over the period 1984 – 1997. IOC patenting has declined. Since around 1995 R&D spending by the ISCs has risen steadily, as has their patenting from 1984 to 1997. How this spending and patenting have evolved is consistent with the emergence of collaborative networks between the two groups. These collaborative networks have delivered real and evident benefits, including leveraging of IOC R&D budgets. However, these networks have their limitations and weaknesses and their present forms may not always be optimal or sustainable over the long term. The distribution of spending on technology between oil firms and their suppliers is dynamic. It is driven by oil companies reviewing which activities must be in-house and which can be outsourced. The decision of inhouse over outsourced depends upon three factors: the nature of the firm including the preferences of management, the nature of the technologies concerned and the stage of development of those technologies.
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hal-02468377 , version 1 (05-02-2020)


  • HAL Id : hal-02468377 , version 1


Nadine Bret-Rouzaut, Michael Thom. Technology Strategy in the Upstream Petroleum Supply Chain: Cahiers de l'Economie, Série Analyses et synthèses, n° 57. 2005. ⟨hal-02468377⟩
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