Striking oil or gas is just the first step for a company like ConocoPhillips (NYSE: COP). It must then invest millions of dollars to drill each and every well to extract those resources. From there, the company must battle the natural decline in production at each well. That process forces it to invest more money just to keep up with the production drops. With returns and profitability tied to production, it's important to try to collect every additional barrel of oil or cubic feet of gas as it can from its wells.
That is why there is a plot under way at ConocoPhillips to figure out new ways to increase production. One of its latest creations is a new proprietary software that yields information enabling it to improve the production of optimized wells by more than 5%. The customized software is called the Plunger Lift Optimization Tool, or PLOT.
The software allows the company to optimize a well to its true capacity. It gathers data specifically related to Conoco's use of plunger lifts, which are installed inside a well to artificially lift accumulated fluids that are stopping the flow of gas. Conoco's software allows it to hone those lifts, as well as recognize sooner when the plunger lift might need maintenance.
A number of companies make these lifts, including Weatherford International (NYSE: WFT) and Lufkin, which is now part of General Electric's (NYSE: GE) oil and gas division. What's interesting is that neither company was able to provide Conoco with the solution it needed to make these lifts more efficient. In fact, Conoco even noted that it could not find a tool nor anyone willing to collaborate to develop one in a timely manner -- so it went solo on the work. That really shows how far a company will go to get more oil out of the ground.
That's not to say GE and Weatherford aren't interested in helping oil companies optimize and extend production. GE offers a vast portfolio of products to prolong the life of an oil and gas field. That was one of the key reasons why it purchased lift maker Lufkin. Its solutions enable enhanced recoveries that increase the return on investment for an energy company. Likewise, Weatherford offers customers a range of products and services designed to get more oil and gas out of existing wells. It also provides critical oil-field services to help optimize each well. It's important for both companies to pursue innovation in that direction, because with all the easy oil found the future of oil and gas will be fueled by increasing production from more complex reservoirs.
Investors really have to give ConocoPhillips credit for doing whatever it can to boost production. It's embracing technology and is on the cutting edge by developing its own systems when vendors don't have what it needs. That leads me to believe that the company should not have any problems reaching its goal to grow production by 3%-5% annually.
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