By Maureen McCall
James Graham, President & CEO at GuildOne recently accepted the Outstanding Achievement in Information and Communication Technology award from the Alberta Science and Technology Leadership Foundation. Graham co-founded GuildOne in 2001 and has since been innovating the Energy industry by delivering complex data management and business intelligence solutions to the market. He has led GuildOne’s progress into emerging technologies including blockchain, machine learning, and artificial intelligence to capitalize on these trends and position the company as a pioneering technology company, worldwide.
EnergyNow sat down with him to talk about his presentation at the recent Canadian Heavy Oil Association (CHOA) Fall Conference 2018 on Blockchain in Oil and Gas.
James , First let me say congratulations on GuildOne’s award from the Alberta Science and Technology Leadership Foundation this week. Let’s start with some key factors influencing supply and demand and the operating characteristics of the Industry – we’ve got transportation bottlenecks, price differentials for WCS, increased regulatory and Carbon pricing, increased focus on capital discipline and cost reduction- what kind of environment is this for Blockchain technology?
I think the most interesting concept and why it is challenging is that we have built these elaborate systems, from regulation through to business processes, in each of our organizations, from government bodies to operators to titled parties where we all culture our own set of facts. And we spend a lot of money culturing this set of facts. At some point in time, these various organizations and entities have agreed on terms and conditions.
But then we spend a lot of time culturing different views of the operation environment, the terms of the contract, the regulatory requirement and the compliance. In doing so, we’ve actually formed a membrane between us. We’re in our own bubble. So the challenge that you represent is accurate, but I think that it actually fuels the need for something like a distributed ledger whereby we start culturing the facts together and we share the key facts. I believe that the rationale for blockchain is inherent in the challenge that you are raising.
We are becoming aware of the problem of being in our own information bubble, we talk about silos of information, how will Blockchain improve integration?
I think the key is to have true information integration. Let’s look at a scenario where two counterparties agree on a particular contract. The sustainment of that contract is the purview of systems inside that organization, and those systems have actually been invented not necessarily to put those contracts into effect but to disseminate information locally about the contract. So, we need to culture these things co-dependently between counterparties. The second that we do, our disputes will be eliminated because we are forced to come to terms with the fact that we are encasing the contract in the same system.
The amount of duplication and work that goes on on both sides of the contract when they disagree is a result of the way the systems are built. The systems are built to dispute in a sense. Let’s take a land contract for example. Two land negotiators make a fairly nuanced contract with each other, but then they hand it to administrators who code it into two different schema. And these schemas might have different granularity in terms of how the information is stored. So because of that, calculations based on those contracts will never agree from that point forward. Blockchain mitigates that by encoding the terms of the agreements into smart contracts before execution, so that when the terms of the contract are met, execution is automated and not open to dispute.
On the subject of contracts, Blockchain promises a dramatic impact on the financial and transactional aspects of how the sector runs -how will it be employed in supply chain where they use contracts as well ?
The interesting thing about supply chain is that there is a series of contracts that are in effect over the course of a product or asset’s path to monetization or commercialization. So, when you look at supply chain as a discrete thing, it’s very difficult. There is no discrete aspect to supply chain. Almost everything is modellable. A supply chain person will tell you they can take any kind of process and understand the vendor relationship. So what I see is a great standardization of the terminology because the differences between the hydrocarbon measurement regime and a supply chain regime are really jargon-based . Because the system that needs to execute these contracts and to actually settle them is based on and affected by, that jargon, there’s value in blockchain in the context of instant settlement, the reduction of AP and AR, and the reduction and elimination of disputes.
The interesting thing is around the measurement system. We do a lot of work in oil and gas to understand our flow regime , our measurement, our Directive 17 compliance. All of that technical capacity is separate from the supply chain and provisioning and procurement. But they are really the same kind of problems. If you can assign a common identity to an asset, and a shared interpretation of the terms, and then a sharing of the facts in a safe and secure way(all of which blockchain does), there is no difference when you boil the systems down to those three principles. A supply chain system and a hydrocarbon measurement regime are just changes of state of an asset as it moves to market.
So we see that Blockchain is bigger than just secure and verified transactions. Does it have the potential to positively influence the operational dimensions of Oil and Gas production and extraction processes?
We’ve had a lot of press and some good rewards for transacting the royalty contracts on blockchain. It was a world’s first, a pioneering thing and we’ve got to thank companies like NAL, Prairie Sky, Crescent Point and Freehold that are moving along with it.
If you look at a royalty transaction, the terms and conditions of the contract are important but so is an ascribing of the asset, an understanding of the measurement system that we view as the source of truth and an understanding of the kit that we use as a source to measure the system. When you look at the transaction through that lens, those are the exact pieces of data that we need to operate the company effectively. By starting with the royalty transaction, our theory was that we are going to encounter the definition of the asset, the definition of the contract, the definition of the license, the definition of the lease, the definition of what measurements, what the system is, what products we’re talking about, what time frames we are talking about, any caveats, and so on. In doing so, we then express all these other forms of research into all of the key pieces of data that are actually used to operate.
So, then we come from the other side with our hydrocarbon ledger, which we presented at the CHOA conference. This is the new proof-of-concept project to demonstrate how we ledgerize measurement data and turn it into a flowing hydrocarbon ledger, so that we can actually input the right data into all of these calculations that we’ve now agreed on in the royalty transaction.
So, I see it as two ends moving toward the middle but it’s starting with the financial transactions – the intellectual and conceptual domain of blockchain to execute the royalty contracts. You need to have a good handle on the asset definition, the identity, what we are using for measurement and all of the terms and conditions between the counterparties. They go hand in glove. The royalty contract only executes directly if we feed all that right operational data into it.
The idea of the hydrocarbon ledger is interesting as it relates to midstream and straddle plants extracting NGLs and measuring the products.
Yes, there is a state change of one product stream into multiple product streams, say at a straddle plant or a fractionation plant or ethane extraction plant. It’s good that you’ve mentioned midstream in this context, as one of the largest supporters of the Hydrocarbon Measurement Ledger right now is Tidewater Midstream.
Tidewater has twenty six plants I believe today- there might be more as they are a fairly aggressive acquirer. From their perspective, it’s very important to have the ability to have visibility up to the wellhead through their partner in the Tidewater plant, which is NAL – a company that has been very innovative, very progressive and of course we are working with them on a couple of fronts, including the Royalty ledger. Tidewater is very focused on the concept that blockchain can give them the ability to have transparency about what is coming their way or could be coming their way.
I think the leadership and the progressive nature of both NAL and Tidewater is serving the project well. We, the technologists, need the purpose that these companies give us. We need that purpose to show the right application model through to them. I’m happy to report that we have found five or six really interesting applications of blockchain and the technology we’re working on. From the beginning of the Hydrocarbon Measurement Ledger and the Royalty Ledger to working through the gaps, through to the execution of the royalty contract.
With IOT we will have thousands of sensors sending data. Will Blockchain technologies help companies manage the volume and complexity of data to manage project construction costs and timelines?
I guess the value of oil and gas companies being slower to adopt blockchain is that most of these models to scale are being proven out by large banks, large syndicates, large insurance companies, large trade and finance companies. I happen to work in a network called R3, which consists of 110 banks, 90 regulators, and a bunch of technology companies, of which we are happy to be one. and we are proving those questions of scale out day to day.
The other thing I would stress about IOT is that there is tremendous potential. Blockchain is not the solution to every question. I think that part of the mystery around it is due to the fact that companies start to research it and they are quickly faced with narratives about what it is or what it could be and fewer narratives about what has been proven about it. That mystery is causing a lag in the market.
Calgary. the local oil patch and the Alberta Energy Regulator – the best regulator in the world – , need to exercise our value on what we do well, which is data regulation. We have more data produced in our patch than most because our regulator demands more of it. I think we have a tremendous opportunity to demonstrate that value. What I will say about IOT is I think we have that opportunity with the IOT. I think we have a very particular granular view of the world here in Alberta, not only from a sensor perspective in the field but also from what 2D and 3D, surface rights, production zones, and targets all actually look like. I think there is tremendous potential to converge these technologies.
So, as much as blockchain isn’t the only answer, it is almost always a component of the real solution to these really challenging issues. The biggest takeaway is this is happening. This is the fastest adoption I’ve seen and there has been nothing moving as quickly as the current smart contracts -distributed ledger technologies- blockchain world.
Disregard it at your peril. Does it answer all the questions- no, but it answers some very key ones.
Great insights on new blockchain and other new technologies and the good news is that Canadian companies are on the leading edge of development.
We look forward to more innovation from James Graham and GuildOne as blockchain technologies evolve.
Maureen McCall is a EnergyNow contributor and freelance writer that has over 14 years experience in the oil and gas industry from operations to land and joint ventures