Thread by @dmcdougall

Venkat has now successfully trolled me into publishing some hot takes on the fossil fuel industry

I've been working with Oil & Gas clients over the last 2+ years to help embed innovation in their organisations. I'm excited to do this for new projects & new clients in the future.

https://twitter.com/vgr/status/1205985234975485952

Some oil & gas companies have explicit strategic mandates that preclude them from working on renewables, because the ROI isn't there.
(This shouldn't be a secret, as many of these companies are all public -- I imagine their quarterly reports / earnings calls say as much)

BUT, there are lots of individuals within these companies trying to build renewable ventures! The game is political in 2 ways:
1. How long can this fly under the radar?
2. How much political capital am I willing to spend, in case *my project* is what changes the strategic filter?

The decision-making processes of any sufficiently large company tend toward myopia, which is why "innovation" is necessary, but also why "innovation" projects often die once submitted to the core business' strategic filter

the decision-making problem is primarily structural, not about individuals. What futures can the org see, and what paths can they see to get there?

Companies devoting resource to renewables/green are betting on different futures than those that exclude these projects.

They're different responses to 2 key questions, and an ancillary one:
A) Will we be regulated into submission in the near term?
B) Can green tech approach oil for energy density in the near term?
and
C) On what time horizon do we want our investments to pay out?

Most of the industry thinks the answers to the first two questions are No and No - and they're probably right

Oil and gas are super efficient, portable sources of energy! Solar/wind/etc are getting better, and battery infrastructure is improving, but we're not there yet in the current environment
(there's a debate to be had here about subsidies etc)

The companies that get vilified for doing "most of the world's pollution" are filling a need created by the current state of global industrial technology. There's no way around this without abandoning all of modern technology

For "green" energy sources to make inroads, we need to *radically* adjust subsidies, and/or implement substantial global carbon taxes, and/or wait for huge technological imporvements

back to oil & gas innovation generally:

There is *enormous* short term potential for efficiency gains by deploying even relatively simple technologies -- this applies to profits as well as to environmental impacts

One challenge of oil & gas innovation is that the industry is based on minimizing downside risk.

This makes perfect sense when a small mistake can cost someone their physical safety, or lead to tens of millions of dollars of lost productivity

Every safety box needs to be ticked to deploy in even relatively controlled environments. This leads to lots of confusion about what constitutes an effective "Minimum Viable Product"

So, avoiding "Downside risk" is deeply embedded in the DNA of every single employee, but "Upside risk" is often not considered

The oil & gas industry often thinks of itself as an exploration wing (which literally *pulls money out of the ground*) and an org which services this to ensure steady flow of capital, resources, and finished products.

Exploration is the part of business that most matches how tech firms think about what they do:
it's experimental, and is about capturing upside risk.

A good VC investment has a .01% chance of being the next Airbnb. A good oil well has a .01 % chance of being the next Ghawar

(note: numbers not to scale)

So, how does innovation succeed in O&G? If it
a) makes exploration more effective
b) increases efficiency/safety anywhere
c) can rethink the answers to the questions posed earlier, by forestalling regulation or by accelerating profitability of new energy sources

The overlap of these two subsets of (c) is massive

You earn the political capital to explore renewable energy sources if the C-suite & board have serious, short term concerns about incoming future regulations

(note to activists☝️)

How do O&G companies gain the ability to be innovative? Some key elements:
- culture change (mindset)
- innovation skills development
- defined innovation processes

These three pillars mutually reinforce each other

culture/mindset starts with taking the upstream exploration approach to risk and applying it to other parts of the business -- which means having a sophisticated understanding of different kinds of risk, and understanding what risks are good or bad for each specific case

For the right skills to take hold, innovation needs to be treated as a discipline to be learned. It doesn't happen in a classroom -- it needs to be applied.
I've built a few successful models, but they all rely on agency, effective mentorship, and a desire for learning

Process is how you know that *good decisions are being made at the right stages of each project*

A well-defined process gives you the cover to avoid politics and opinions, and enforces structure & discipline on go/no-go decisions for each phase

Incentives are tied to both process and to culture, and are often the hardest part of embedding innovation in legacy companies (other than finding the right people). "Success" and "failure" need to be radically redefined for innovation to work

I've been using the word "innovation," which strikes me as inadequate. I mean something like "finding ways to deploy new technologies, or invent new business models" rather than "play with the coolest new tech" -- H1 and H2, not really H3

I've found a lot of these lessons broadly true of my clients in other industries, but O&G has an advantage that using the language of upstream exploration can offer shortcuts to expressing what good looks like as far as culture, skills, process

I think I broke the spirit of Venkat's challenge by just typing out a stream of thoughts rather than 100 numbered hot takes - not sure if I should keep this thread going, or do 100 numbered hot takes, or both?