RSE/BP Hutton prize in Energy Innovation Dr.

David Wright, School of Geosciences, University of Edinburgh MTEM: From PhD research to commercial exploration tool The University of Edinburgh spin out company MTEM was formed by Prof. Anton Ziolkowski, Dr. Bruce Hobbs and Dr. David Wright to commercialise a new technique for oil and gas exploration on land and offshore. In a turbulent period of just 30 months the company went from start up with initial venture capital funding of 7.4m to sale to Norwegian oil service company Petroleum GeoServices for 137m in June 2007. This lecture tells the story of MTEM from its origins in a research project which began in 1992 up to the latest developments over twenty years later. However, in order to put the MTEM story into context it is important to provide some historical context on how the science of oil exploration has developed over the past century and why the ideas behind MTEM were not developed sooner. A crash course in exploration geophysics (How do we find oil?) If we go back about a century the search for oil and gas before the birth of what is now known as exploration geophysics was a rather hit and miss affair. Oil wells were drilled in what might appear to be a random manner with the chances of finding an oil field with over one million barrels of oil no more than 1 in 50, to put that into perspective the Forties field in the north sea had reserves of 5,000 million barrels. Following a successful well further wells would then be drilled at regular interval of about 50m. The use of hydrocarbons for lighting and heating largely replaced the use of whale oil as a source of fuel and with it much of the whaling industry. Oil and gas fields are found in permeable rock formations such as sandstones, these reservoir rocks are then overlain by impermeable rocks known as seal or cap rocks and prevent the oil from migrating to the surface. Geological structures which can act as traps for oil and gas include anticlines, faults and the flanks of salt domes. The development of the seismic reflection prospecting technique in the 1930's applied some science to the search for oil and gas. The technique uses a source of sound waves which on land may be generated by dynamite and offshore by an airgun which generates a pressure wave. The sound waves travel into the earth and are reflected back from contrasts in the rock type. The arrival time of individual reflections can then be used to determine the velocity of sound through individual geological layers and hence the depth to these layers. From this a structural image of the subsurface can be created. Over the past 80 years seismic surveying has developed into an extremely sophisticated technique for mapping geological structures up to 10km beneath the sea floor. Modern seismic survey vessels are the largest moving objects in the world with up to twenty two 8km long receiver streamers towed behind the ship, the day rate for such a vessel is about $1m per day with a global market of over $6bn. Having identified geological structures in the subsurface that could potentially contain hydrocarbons a well must then be drilled to determine whether the fluids in the rock contain oil or water. The global market for offshore drilling is worth $70bn annually (3000 wells). The success rate for exploration wells just 20 years ago was only 1 in 8. With the advent of 3D seismic surveys in the 1990's where an array of streamers is employed rather than just 1 single streamer (2D) the success rate today is now 1 in 4. In spite of all the huge advancements that have been made in reflection seismology it may seem incredible that 75% of all exploration wells find nothing but water. To understand why this is the case we must consider the composition of a reservoir rock at the microscopic level. A reservoir rock is made up of two components known as the rock matrix and pore space, pore space is filled with fluid and the fluid may be water or hydrocarbons. The percentage of the rock volume occupied by the pore space is known as porosity and viable reservoirs have porosity of more than 15%. Seismic data are sensitive to the density and seismic

velocity of the rock volume, however replacing water with oil in the pore space has very little effect on these properties. As a result seismic data has primary sensitivity to the rock properties and not to the fluids within the rock which we are interested in. As a result the only way to determine if a structure contains hydrocarbons is to drill into it at great expense. Electromagnetic (EM) methods transmit a current into the earth and measure the potential difference between a pair of electrodes some distance away. EM measurements are sensitive to the electrical resistivity of the rock volume. As water is replaced with oil in a reservoir rock the electrical resistivity can increase by more than two orders of magnitude, salt water is electrically conductive while oil and gas are electrically resistive. This discovery has made in 1927 by the Schlumberger brother Conrad and Marcel when they made the first ever measurement of resistivity within an oil well and detected a dramatic increase in resistivity through the oil layer. Schlumberger is now one of the largest oil service companies in the world employing over 115,000 people but despite the success of measuring resistivity over very short distances in a well the use of EM measurements over large distances on the surface of the earth never took off despite that fit has primary sensitivity to the fluids in the pore space we are interested in. To understand the reason for the failure of EM methods to become established exploration tools it is useful to make an analogy between the propagation of EM energy and heat flow. Consider a dish of lasagne comprising layers of pasta, cheese sauce and tomato sauce, we place a source of heat such as a poker at one end and measure the change in temperature as a function of time with an array of very sensitive thermometers on the surface. Based on these temperature readings we want to determine the depth and thickness of the individual layers of pasta and tomato and cheese sauce beneath the surface. It is immediately obvious that the diffusive nature of the propagation makes it impossible to identify reflections or arrivals from individual layers as is the case with seismic data. The death of EM methods in the oil industry in the 1950's was due to the inability to interpret the data in terms of a layered earth structure of varying resistivity. The interpretation of EM data requires the creation a model of the subsurface resistivity and then simulating a survey over this model in a computer to generate what is known as synthetic data. The synthetic data are then compared with the measured data and the model adjusted until the difference between the two is below a pre-defined threshold. This model explains the measured data, however another problem with the diffusive nature of EM data is the problem of equivalence. Equivalence means that there are numerous models which can explain the measured data and without extra information there is no way of determining which of these models is closest to the truth. One of the factors that has led to the emergence of EM as an exploration tool in the past decade has been the rapid developments in the power of computers which make such complicated modelling possible in a reasonable time.

The MTEM story The MTEM story begins in 1991 when Anton Ziolkowski was Professor of Geophysics at Delft University and an expert in reflection seismology He was project leader on a 3.4m project to combine seismic and EM data in order to detect hydrocarbons from surface based measurements which was a collaboration with Compagnie Gnrale de Gophysique (CGG),Deutsche Montan Technologie (DMT) and the University of Cologne. The EM technique to be used involved injecting a transient source waveform into the ground measuring the potential difference along a densely spaced line of receivers. This dense spacing of receivers was new to EM data and based on the layout of a 2D seismic reflection profile, the technique was called Multi Transient EM (MTEM). In 1992 Anton moved to the University of Edinburgh and took the project with him. There he teamed up with Bruce Hobbs who was a world expert on electromagnetic induction who joined the project. Over the next six years two EM datasets were collected within the project. By the end of the project in 1998 there were no results and money ran out with the team still struggling to make sense of the data. In January 1999 I wrote to Anton to ask if he had any PhD projects on offer for the next year. Immediately Anton and Bruce thought about the 2 EM datasets and I started my PhD in October 1999. Over the next two years I studied to data in great detail and after finding timing errors and correcting for them obtained a result which appeared to show the presence of electrically resistive gas 500m below the surface. It was clear that the result could have great significance and the three of us wrote a patent application in September 2001 on how to correctly acquire such data. A patent application can be used by the owners of the patent to give them exclusive use of the patented technology or a license can be granted to others in return for a fee to enable them to use the technology. It quickly became apparent that a technology as immature as this was never going to be licensed, the technology did not exist. We concluded that the only way this was going to work was if we commercialised the technology ourselves. After the decision had been made to start a company an application was made for a Scottish Enterprise Proof of Concept fund award. The award would allow us to develop and build a new acquisition system based on the specifications in the patent application and on what had been learned from my PhD research. It would also allow us to develop software for acquisition and processing of the data as well as enabling us to carry out a field test over a known hydrocarbon reservoir and process and interpret the results all in 18 months. The application was rejected. Following input from Bill Bryan who was a consultant to Scottish Enterprise the proposal was re-written and re-submitted in 2002. During 2002 Anton and Bruce also obtained permission to form a company from the head of college. In March 2003 the proof of concept proposal was successful, we had to do everything in the original proposal but in twelve months not eighteen, the budget was 200k. A condition of the award was that the university had to own all the intellectual property relating to the award. As a NERC funded PhD student I owned my own IP, so in exchange for the University granting an exclusive option for an exclusive license to any company we set up in the future I signed over my IP, by May 2003 I had submitted my PhD and started work on the proof of concept project. In January 2004, at the invitation of Total, we employed the equipment at an underground gas storage reservoir in France with the objective of detecting known gas. The equipment worked and we got some data. We could show both equipment and data to potential investors. Throughout the POC project I worked full time on software with Graham Dawes developing the hardware while Anton and Bruce worked on a business plan and speaking to potential investors. The initial plan sought 1.5m , however it quickly became apparent that more money was needed and that a CEO was needed with a business background to convince venture capitalists to part with millions of pounds. In April 2003 Anton approached Leon Walker who was a senior executive in Schlumberger, by October Leon had left Schlumberger and by January 2004 he has working full time on the project with no salary, Anton & Bruce then engaged Simmons and Company

International as financial advisors with a 100,000 contingency fee which they were liable for. The business pan was then re-written, much more money was needed. The plan for the company was to commercialise the technology for use onshore and offshore By April 2004 a consortia of 3 investors were interested. In July 2004 the lead investor pulled out. The two remaining investors Energy Ventures and Hitec Vision were still interested and a new consortia was formed with Scottish Equity Partners joining with three equal partners. On 11 November 2004 a deal for investment of 7.4m was signed and MTEM Ltd was up and running with Anton and Bruce leaving the University to work full time for MTEM. The investment money was staged and the key milestones had to be met to release the next tranche of money. The first milestone after only 4 months was to return to the South of France for a full 3 week survey of the reservoir we surveyed within the POC project and obtain a letter from Total to state that the technology worked and the survey was successful in detecting the gas reservoir. Just three weeks after signing the deal we were back in France. The survey was a great success and we obtained the letter from Total. Milestone two came after 6 months and required a letter of intent from a customer to pay for a survey once a commercial system was ready. This was also achieved and for a few weeks the pressure was off. While the POC project had enabled the technology to be demonstrated the equipment was built on a tight budget and was not suitable for commercial use. An entire product development team were recruited to bring the hardware up to commercial standard and to develop a system for offshore use. So far all our experience had been on land and over fairly shallow reservoirs, the milestone at the end of 12 months was to successfully demonstrate a prototype marine system. This would release the final 4.2m for year 2 in order to develop and deploy a fully commercial marine system for use in the North Sea. The marine trial took place in the Firth of Forth at the end of October 2005. At exactly the same time the first commercial land crew job was starting in Canada. The demands of achieving the marine trial milestone and starting the first paid land survey placed huge demands on everyone in the company. The milestone had to be met or the company would be finished. As well as being a very stressful time it was also incredibly exciting to be at the centre of a new technology and seeing it developed and tested. There was a huge amount to learn about operating underwater and the effect it has on your data but after 10 days at sea we had enough data to achieve the milestone. The results were shown to the head geophysicist of Statoil for independent verification and the milestone was ticked off. Year two would require the development of a fully commercial marine system and a demonstration over a North Sea oil field. This would require a huge effort from product development including developing a source capable of generating 750 amps underwater, the source in the initial trail was just 40 amps. At the same time development was ongoing on the age old problem of how to interpret the data, this involved developing modelling codes for use with marine data as well as implementing the processing algorithms into commercial software for real time data processing in the field. A full time land crew was now in operation and a third generation land system was in development. In September 2006 this new system was deployed for the first time in Wyoming USA quickly followed by India and Trinidad. Towards the end of 2006 it was apparent that we would run out of money before, the investors put in another 3.3m in tranches again with milestones attached. In March 2007 the marine system was deployed in the North Sea and a survey was carried out for a client. The results clearly showed the resistive oil reservoir and sparked great excitement. In April 2007 a Norwegian company called EMGS floated on the Oslo stock exchange, they were a spinout from Statoil and had commercialised a different version of controlled source EM for detecting hydrocarbons, following floatation EMGS were valued at $1.6bn five years after forming. This set the market value for EM technology and having proved the technology offshore MTEM became a target for takeover. Meanwhile a plan was being prepared to raise 22m from new investors to expand the company and grow the business, the new capital was required by July 2007. Several expressions of interest had been received from potential buyers including PGS who met Anton and

Bruce in April 2007. A cash offer from PGS was received in May and by June 29th a deal had been completed to buy MTEM for $275m. PGS is a multinational geophysical service company specialising in marine seismic data and were ideally positioned to take the technology to the next level. The economic downturn since late 2008 had a dramatic effect on the EM business. As a niche new technology which had still to gain widespread acceptance it was heavily impacted. The technology had been proven over relatively simple shallow targets but in order for it to be applied more widely it would need to detect targets more than 2km below the seafloor and in complex three dimensional geological settings. Again the problem of interpreting the data was becoming an issue. Computational modelling of the earth now required to be far more sophisticated in order to represent the complex three dimensional nature of the earth. Another issue was the rate of data acquisition. The MTEM system was proven with data acquired while source and receiver were stationary on the seafloor. While this allowed for excellent signal to noise ratio data the rate of acquisition was very slow compared to a fully towed seismic survey which has a constant towing speed of about 4 knots. Even before the purchase of MTEM PGS had begun researching the possibility of a towed EM system. This effort was accelerated with the acquisition of MTEM. The attraction of a towed system is an increase in data acquisition rates of at least a factor of 5 and the clear economic benefits that would bring. However, the problem is extremely challenging with less time to acquire the data and more noise than for a static system. After more than five years of research and development the PGS towed system acquired its first commercial data in October 2012 having demonstrated the technology over several known oil and gas fields in 2010 and 2011. For the first time ever EM and seismic data have been acquired simultaneously from a single survey boat offering the prospect of eliminating the need for a dedicated EM survey. Since 2004 MTEM has provided over 200 man years of employment in Edinburgh and continues to employ 30 people at the PGS office in Edinburgh. After the sale to PGS the University of Edinburgh share of the sale was 8.4m, a total of 2.4m of this has since been invested in 164 PhD scholarships. In March 2010 the University of Edinburgh and PGS entered into a strategic research alliance with myself and Anton Ziolkowski returning to the School of GeoSciences to focus on long term research into MTEM, the agreement over three years was worth about 1m and included three fully funded PhD studentships. Current research at the University includes investigating how to combine seismic and EM data to maximise subsurface information. Conclusions Over 20 years since it began the MTEM story continues with further research and development of the technology at PGS and the University of Edinburgh. While there was a key moment when I produced the original result in 2001 the patentable idea could not be exploited without the formation of a company. It also relied on the talent and dedication of the employees of MTEM to respond to the pressure applied by the board and thrive on seeing the results as the technology developed. The problems of data interpretation which ended the use of EM methods 60 years ago have been overcome for many geological settings but research continues on the interpretation of EM data in complex geological environments The MTEM journey has been a very risky one which may well have turned out differently. It required a lot of luck and good timing as well as a lot of hard work. The rollercoaster of the days at MTEM have been replaced by a more secure research environment within PGS and the University of Edinburgh but the work is far from over. Finally I must end by acknowledging the following people without whom there would be no MTEM story to tell. Anton Ziolkowski and Bruce Hobbs for having the vision and taking the huge risks needed to get MTEM started. The fantastic staff at MTEM who helped make it all happen. Finally to the families of everyone involved with MTEM who knew we were doing something important but started to wonder where we were.