Double-Edged Sword: Is collaboration in the oilsands possible?

Blog inukshuks

One day, you should ask me to tell you the story about how the editors at Alberta Oil sold me on this story… It’s a good tale. The challenge in writing about the tight-rope/tension between competition and collaboration (and hey, could that be corporate espionage? No? Yes? Of course not. But…) was to not use the word cartel. I failed; the editors thoughtfully took it out. Along with some other words. But what remains is a rather interesting examination of what I called “the slippery slope of collaboration.”

Here’s the central idea:

The language of collaboration is a… comparatively thin veneer on a culture of intense competition.

That’s how it has to be and that’s what shareholders demand. But it makes the actual practice of collaboration the industry engages in incredibly challenging. While convincing some stakeholders (including their own employees, who are participating in the joint projects) that they are truly and genuinely collaborating, the companies need to reassure shareholders (and regulators) that they are competing as intensely on the fronts unrelated to environmental and sustainability initiatives as before. Every time they deliver that message, critics hear: “We’re not sharing what really matters, promise.”

Featuring quotes from Harvard Business School’s Michael PorterChris Seasons, president of Devon Canada Corp., BP Canada CEO Christina VerchereMartin Kratz, intellectual property lawyer with Bennett Jones LLP, Murray Gray, scientific director for the Centre for Oil Sands Innovation at the University of Alberta, COSIA CEO Dan WicklumEddy Isaacs, executive director at Alberta InnovatesSuncor spokesperson Kelli Stevens, and Syncrude’s manager of research and development Glen Rovang.

The last paragraph is kind of killer, but I’m going to make you read the whole piece to get to it. For the record, I think collaboration among the oilsands producers on environmental and sustainability initiatives is not just a good idea–it’s critical. But… there are issues within issues within issues.

Wanna explore them?

Full text at Alberta Oil: Double-Edged Sword

… and below

Double-edged Sword: Is collaboration in the oil sands possible?

by Marzena Czarnecka, Alberta Oil, February 17, 2014

It used to go like this: one company’s scout, with binoculars at the ready, would get as close as he could to a competitor’s well without actually trespassing on the competition’s leased land. He would watch carefully. Let’s call a spade a spade: he was spying. How far down is that drill bit going? How much activity is there on site? Can he get enough information about how much resource is coming out of that well to put an accurate value on that patch of land – and to determine whether his company should start buying up adjacent parcels? At what price?

The companies being watched would know he was there, because they were watching too and deciding – how much should they scare him? How big a flare should they produce? A really big one might send the scout scurrying back to his truck with the information he was after, albeit without his eyebrows. That’s the way it was in the old oil patch: gloves off and scruples low, because the stakes were high.

Today, the stakes are arguably even higher, from the cost of entry through to the size of potential pay-off. But the continued competition for the coveted resources in the patch is now accompanied by the language of collaboration and, at least as far as environmental technologies and issues pertaining to sustainability are concerned, actual practice.

This increased emphasis on collaboration isn’t unique to the Canadian oil patch. It’s part of a global business trend that’s snagged the attention of the heavyweights of the business world. Harvard Business School’s Michael Porter, one of most influential thinkers on modern day competition, innovation, strategy and corporate social responsibility, sees industry collaboration as a key part of the “new capitalism” – which, incidentally, he sees as the world’s best, if not only, bet for tackling current social, environmental and economic problems.

Its lynchpin is the concept of value creation, which Porter defines as “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.” Not a new concept, of course – the public relations machines of all major companies with even the thinnest wedge of conscience and awareness of the importance of having social license to operate have drawn on it for years. What’s new and unique to the Canadian energy sector, and specifically the oil sands subsector, is the extension of the concept of shared value creation (that is, collaboration) to the entire industry.

The flagship initiative in this area is Canada’s Oil Sands Innovation Alliance (COSIA), the vehicle through which the 13 oil sands producers who control 90 to 95 per cent of the industry’s current output, have come together to share and develop technologies related to land, water, tailings and greenhouse gases. It’s the latest and most ambitious in an evolving series of collaborative efforts oil sands competitors have engaged in. Earlier vehicles include the Oil Sands Leadership Initiative (OSLI), the Canadian Oil Sands Network for Research and Development (CONRAD) and the Oil Sands Tailings Consortium (OSTC).

Industry participants are enthused. As Chris Seasons, president of Devon Canada Corp., puts it, “To get 13 companies to agree to something and not even talk about what it’s going to cost us and launch it and move it along, that is the best indication of progress. I have never seen it in my career.”

Critics call it a public relations exercise and outright greenwashing. COSIA turns two in March 2013, and it has shared more than 560 technologies worth a total of $900 million; the partners are working on 185 joint-industry projects worth $500 million. But it hasn’t revolutionized any one practice or process. It hasn’t yet had a quantifiable environmental impact.

Will it? The documented benefits of collaboration are substantial. As Martin Kratz, intellectual property lawyer with Bennett Jones LLP, explains, collaboration provides enormous economic leverage for the brutally expensive, failure-ridden field of research and development. It allows participants to share the risk of technological failure. By sharing past failures and successes, it accelerates technological development.

There are persuasive reasons to pool resources, especially in difficult economic times. And while the producers insist their path to COSIA-level collaboration was gradual and almost inevitable – the child of many joint ventures, cross-licensing agreements and shared-risk pilot projects– it’s notable that collaboration efforts among oil sands producers were accelerated significantly after the 2008 financial crisis hammered cash flows and froze investment. Not coincidentally, the resulting slowdown, at the same time, gave industry opponents more time to examine and challenge its practices.

This scrutiny continues. Despite the amount of shared data the members have put on the table, the competitors haven’t convinced everyone that they are walking the talk and sharing truly valuable technologies.

Murray Gray, scientific director for the Centre for Oil Sands Innovation at the University of Alberta, believes they are, and that what’s being shared within COSIA is both worthwhile and unique. “Collaboration occurs most often where a group sees a long-term strategic need for fairly fundamental work to be done in order to drive process improvements in the industry – pre-competitive research that helps all companies do a better job,” he explains. “In the second model, one industry partner would work with a research institution one-on-one in order to develop proprietary, competitive technology. What we’re seeing with COSIA is a third type of collaboration, and the rarest. The companies have said there is no competitive advantage to keeping our environmental technologies proprietary. Environmental failures are everyone’s failures.”

That the companies are sharing and co-operating on costly on-the-ground pilot projects is, to Gray, one of the signs that they are clearly walking the talk. But too much collaboration is a problem too. “There is a tendency among organizations that share extensively to become an in-group, and they have to watch that they don’t become an exclusive group that uses their IP rights for anti-competitive purposes,” says Kratz. COSIA’s legal framework addresses those issues extensively. But that’s not the key reason its members keep on stressing how “fierce” competitors they still are. When, at COSIA’s November 26, 2013, first performance update, BP Canada CEO Christina Verchere said getting the industry players to move in the same direction was “like herding cats” and COSIA CEO Dan Wicklum escalated the metaphor to that of herding lions and tigers, all gathered CEOs preened. The language of collaboration is a newer and, for all the industry’s claims to a long history of collaborative ventures, comparatively thin veneer on a culture of intense competition.

That’s how it has to be and that’s what shareholders demand. But it makes the actual practice of collaboration the industry engages in incredibly challenging. While convincing some stakeholders (including their own employees, who are participating in the joint projects) that they are truly and genuinely collaborating, the companies need to reassure shareholders (and regulators) that they are competing as intensely on the fronts unrelated to environmental and sustainability initiatives as before. Every time they deliver that message, critics hear: “We’re not sharing what really matters, promise.”

Gray believes what the oil sands producers are sharing on the environmental front really matters, and they are responding to a real and mounting pressure to deliver results from that collaboration. “At some point the companies may have thought there was a competitive advantage to developing proprietary technologies that affected their environmental performance,” he says. “But in fact events have proven that was a complete illusion. If a company had a technology that would remediate a mine site at a cheaper cost than anyone else – on the face of it, that looks like a competitive advantage.” But the public doesn’t differentiate much among the major oil sands producers. “The laggards in the industry color the perception of the entire industry,” Gray says. Wicklum echoes the sentiment. “Sectoral environmental performance is only as strong as the poorest performing company. It’s in all the companies’ best interest that all companies help each other to improve performance.”

On this front, Eddy Isaacs, executive director at Alberta Innovates, is pragmatic: “Collaboration works when there is a really good reason to do it. Collaborating for the sake of collaboration doesn’t work.” The successful collaborative projects Alberta Innovates has facilitated between industry, government and other stakeholders have all been characterized by a shared, overarching and often urgent goal. Isaacs points to the Tailings Technology Roadmap and Action Plan, which mapped every technology related to tailings that existed among the partners – and beyond them, as Alberta Innovates extensively canvassed the public to get as full a list of technologies as possible – to identify gaps and guide future research and investment as a flagship collaborative exercise in the field. An even more ambitious project, and one that effectively transformed the economics and potential of the entire industry is the research into steam-assisted gravity drainage technology that was pioneered by the Alberta Oil Sands Technology and Research Authority (AOSTRA) back in 1984.

The payoff for effective collaboration can be huge, even though genuine collaboration is rare. According to Deloitte’s Future of Productivity study, only 23.3 per cent of well-established Canadian companies are likely to engage in collaborative efforts, and this with non-competitive organizations such as universities or government agencies. When competitors collaborate, the tensions increase dramatically. Wicklum, despite his role as official oil sands collaboration cheerleader, continues to reference frictions; everyone who’s ever been in a room full of COSIA’s “lions and tigers” knows the difficulty of balancing individual egos with the theoretical buy-in into the shared value concept. Ensuring all competitors feel the process is fair is harder still. Wicklum says the alliance uses the language of equitable and fair, not equal; its structures make allowances for the size and clout of each member. But, ultimately, for the game to work, the largest players with the deepest pockets (and the most technologies to bring to the table initially) have to be willing to give more.

Industry critics and COSIA skeptics make much of the months of wrangling and the size and number of the binders of legal agreements that define COSIA’s sharing relationships. But as Suncor spokesperson Kelli Stevens says, “At the end of the day companies have a fiduciary duty to our shareholders.” Porter’s shared value creation must enhance the competitiveness of a company – otherwise it doesn’t work. Can they do it if one of their overt messages to front-line operations people and research and development teams is one of collaboration? Syncrude’s manager of research and development Glen Rovang thinks so. The agreements that govern each of the four so-called environmental priority areas and each project are “clearly articulated,” he says, and abetted by additional training COSIA has developed and each collaborator goes through.

Collaboration is a slippery slope. COSIA’s partners conduct workshops, ask questions, help each other figure out how to apply a shared technology to competitors’ operations. They visit each other’s sites and offer each other’s sites for pilot projects. “It’s real boots-on-the-ground information sharing,” Rovang says – and as far a cry from the binocular-equipped scout of the oil patch as you can imagine.

They’re doing all this because, despite COSIA’s lack of a “game changer” environmental technology to date, they know the leverage and potential for success it delivers is real – AOSTRA’s steam-assisted gravity drainage experiment proves that. But the consequences of collaboration are not predictable. When you start sharing information freely, you don’t know where you will end up. Put the oil sands’ most inventive thinkers and capable technicians in one room. Repeatedly. Tell them to share. What will happen? The more they work together, the more trust they develop in each other, the more they will share – the actual limits and provisions of the legal agreements that govern this sharing notwithstanding.

That is, and should be, terrifying to each collaborating competitor. The end result of that level of collaboration gives each competitor unprecedented insight into the innards of its peers. It also makes each more vulnerable. Not just because the wall between protected, competitive information and shared “all-for-one-and-one-for-all” information will shift, but simply because the more you know about any aspect of a competitor’s operations, the more you understand its culture, its way of thinking, its values – the better you are at competing with them.

And yet, given what’s also at stake – effectively, social permission to continue to extract the resource, which is nothing less than social permission to continue to exist and to contribute to the national and global economy – it’s a risk they have to take.

Marzena Czarnecka is a Calgary-based freelance business writer.

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