Technology Is Making a Big Difference in the Oilfield

Technology is increasing production and cutting costs, which is making a big difference for oil and gas companies.

Apr 21, 2014 at 12:00PM

Technology in the energy industry is evolving more rapidly than ever before. It took the industry nearly 60 years to figure out that hydraulic fracturing when combined with horizontal drilling was the key to unlock our massive shale resources. Advancements since that time have been coming fast and yielding increasing amounts of oil and gas production at much lower costs.

Going DEEP
ConocoPhillips (NYSE:COP) recently highlighted how technology is improving its results at its Analyst Day. One technology that is really providing a boost is called Drilling Execution Efficiency Platform, or DEEP. As the following slide shows, the company uses real time analysis in the wellbore to optimize its drilling so it can increase its drilling rate.

Conocophillips Deep

Source: ConocoPhillips Investor Presentation (Link opens a PDF)

By knowing what's happening in the wellbore ConocoPhillips can determine when it can speed up drilling. By using DEEP, ConocoPhillips has been able to increase its drilling rate by 20% in early tests in the Permian Basin and Eagle Ford Shale, which is saving it money. The company actually sees this technology, which was first utilized in shale plays, as being applicable across its global portfolio. That could allow the company to save $250 million per year, which is a substantial amount of money even for a company as large as ConocoPhillips.

Staying connected
Another innovation by ConocoPhillips is its integrated operations centers. The company has nine of these centers across the world, including a new one in the Eagle Ford Shale. These centers use real-time data, which alerts the company of trouble before it knocks a well offline and thus these centers work to reduce production shut-ins. These have been highly successful in the Eagle Ford as the chart in the right-hand corner of the following slide shows.

Conocophillips Oe

Sources: ConocoPhillips Investor Presentation 

As that chart demonstrated, ConocoPhillips was experiencing several hundred wells shut in per quarter before the center in the Eagle Ford opened. Now it's experiencing very limited well shut-in events despite more wells coming online all the time. Because of this success, the company sees these centers as being the standard model for emerging unconventional assets, which is important for the company as its growth is really being fueled by the unconventional portion of its portfolio. 

Overall these excellence centers enabled ConocoPhillips to realize an additional 6,600 barrels of oil equivalent production per day last year. While that's a minuscule amount compared to the company's 1.47 million barrels of oil equivalent production per day, every little bit still helps.

Further, it serves as a model for shale focused peers like Pioneer Natural Resources (NYSE:PXD), which experienced significant production shut-ins last year. At one point in late November over 50% of Pioneer Natural Resources' more than 7,000 wells in the Permian Basin were shut-in due to severe winter weather. While those production shut-ins are largely unavoidable, many other shut-ins are avoidable as ConocoPhillips has seen through its addition of integrated operations centers across its portfolio. As more of its peers like Pioneer Natural Resources realize the power of these information technology centers it should yield greater improvements to oil and gas production in the U.S. 

Investor takeaway
ConocoPhillips is one of the few global energy companies able to make high returns from America's unconventional resources. A good portion of the credit goes to technology, which is enabling ConocoPhillips to save money and improve production. That's yielding exceptional results for its investors. 

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Matt DiLallo owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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