Oil and Gas Firms Turn to Technology to Weather Low Energy Prices

NEW YORK (TheStreet) -- With some oil exploration and production companies already suggesting they are rethinking capital expense plans for 2015 due to weaker prices, pressure for innovations to boost efficiency has never been stronger. Historically slow-moving in the adoption of new technology, companies in the sector are finding they can dramatically reduce costs by expanding on existing investments in robotics, sensors, virtual reality and software solutions. 

Technology-laden investment ventures are already more commonplace in the E&P sector than in years past. ConocoPhillips (COP)  launched its own Technology Ventures group and also established Energy Technology Ventures, a joint venture with General Electric  (GE)  and NRG Energy  (NRG) . Chevron  (CVX)  has been active through Chevron Technology Ventures and Chevron Venture CapitalStatoil  (STO)  is using revenue from its global operations to seed and support commercially viable technologies to lower costs and boost performance through its Statoil Technology Invest (STI) division. 

Technology helped BP  (BP)  extract 20% more oil from its Prudhoe Bay field in Alaska using a combination of cutting edge tools. In 2012, the company deployed a new horizontal drilling technology on a JV project with Russian company TNK that shortened its drilling cycle by 210 days and saved $19.2 million. According to the company's Head of Technology, David Eyton, "BP is increasingly taking into account the long-term impact of technology on its portfolio choices. In 2013, we carried out a long-term technology view which indicates, for example, that the global potential of unconventional sources of energy is very significant and likely to become a growing part of the industry's focus." 

BP is also working with DuPont (DD) and the Energy Biosciences Institute to study whether micro-organisms could actually help stuck oil to flow, a focus for Glori Energy  (GLRI) . GLRI just announced an extended technology partnership with Statoil and praised how its low cost, low capital investment technology could "significantly" lower the average cost of barrels of oil produced. 

Further investment opportunities abound for E&P operations. Maintenance-free fibre-optic sensing solutions can use acoustic sounds to better gauge flow quantification of oil and gas reservoirs. Real-time diagnostics, automation, 3-D imaging, flexible piping, temperature measuring sensors, optical object fingerprints for subsea sites, wireless reservoir surveillance and radar to measure spills can all make exploration and drilling much more efficient. Software and database solutions can help lower costs for complex projects and improve overall decision making.

In a video on the Hess  (HES)  Web site, Doug Valleau, director of Unconventional Technology, said, "New technology at Hess is the fuel to keep the company moving forward and competitive in the oil and gas industry." Hess works with the University of Wyoming and the University of North Dakota to maximize reservoirs and improve production volumes, cost control and return on capital. The company also works with MIT on research, along with companies such as Schlumberger  (SLB) , BP, Total (TOT) , Weatherford (WFT)  and Exxon Mobil (XOM) . 

Further investments in technology could make enhanced oil recovery a bigger story in coming years and potentially even lead to new market opportunities such as turning biomass into natural gas or gasoline, making natural gas from coal or fuel from biochar in what could become a future carbon negative energy source. It could lead to lead to advanced biofuels and more natural gas liquids being refined high octane gasoline blendstocks.

Robotics can also play a pivotal role in the development of the drilling rig industry. Schramm, a company making drilling quicker and safer, is developing advanced robotics that can literally move an oil rig from one drill hole to another. Nabors Industries (NBR)  has been tapping software to boost drilling efficiency and safety. The company is automating more and more of its drilling process to lower operational expenses.

In 2008, Statoil invested in Robotic Drilling Systems, a company developing autonomous robotic drilling rigs for unmanned drilling operations. While such moves may have gone unnoticed by investors at the time, now, when E&P companies may cut back drilling plans due to poor economics, such attention to efficiency is becoming critical.

Another way for energy companies to embrace new technologies is by adopting crowdsourcing as a means to cut R&D costs. Royal Dutch Shell (RDS.A) through its GameChanger platform allows entrepreneurs to submit proposals for technology ideas that could help Shell overcome a specific challenge relevant to its businesses.

The platform has led to the advancement of a modular floating liquefied natural gas (FLNG) plant in Australia that can sustain the impact of a category 5 storm. GameChanger also helped Shell identify and bring to market Swellfex, a crowdsourced idea to hold back water in an oil well in order to significantly boost oil recovery. Swellfex helped Shell recover tens of millions of barrels of oil since its inception just a few years back.

Then there's virtual reality. Virtual reality is literally taking E&P players to places never seen and helping energy companies interpret seismic data, create more precise designs that cut design costs and time to market. This technology also helps companies like Shell develop training for drilling rigs which also lowers operational costs.

Now that energy prices are much lower across the board, operational efficiency becomes the new battle cry for today's energy companies who are strategically evaluating whether or not to continue some projects and pursue others. That investment will put value in the E&P space for investors.

At the time of publication, the author had no positions in stocks mentioned.

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This article is commentary from an outside contributor, separate from TheStreet's news coverage.


TheStreet Ratings team rates CONOCOPHILLIPS as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate CONOCOPHILLIPS (COP) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its expanding profit margins, good cash flow from operations and increase in net income. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

You can view the full analysis from the report here: COP Ratings Report

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