General Electric (NYSE:GE) sees technology being the key to unlocking more of the world's oil and gas resources, and it's out to prove that by partnering with some of the industry's best energy companies to drive technological innovation. The goal is to enhance the performance and economics of oil and gas projects.
Building a foundation based on technology
Earlier this week General Electric signed its latest technology collaboration: Devon Energy (NYSE:DVN). The alliance will focus on artificial lift, advanced drilling technologies, and water treatment innovations. The underlying goal is to help unconventional shale projects to become more efficient and productive. This will be accomplished by developing technologies and processes that are better, smarter, cleaner, safer, faster, and more efficient. It's a tall order, but one that can really drive big improvements in the rapidly developing shale industry.
This is General Electric's second big technology partnership this year. Back in February General Electric formed a technology alliance with Chevron (NYSE:CVX). The focus of that alliance is to develop and commercialize technologies that can solve some of the current issues plaguing the energy industry. It's an alliance that builds upon a collaboration that had Chevron and General Electric working on flow analysis technology. That collaboration developed the GE Safire flow meter, which is being tested on Chevron's production lines in the U.S.
The driving force behind these agreements is to lower the cost of developing oil and gas resources. With energy being a commodity, the companies with the lowest costs are those that will earn the highest profits. With shale already a high cost resource play, driving those costs down could prove to be a big advantage for a company like Devon Energy.
History of innovation
Devon Energy really is a great partner for General Electric to bring on to develop technologies for unconventional resources. It's was an early leader in the shale revolution thanks to its acquisition of fracking pioneer Mitchell Energy in 2001. But that was just the beginning of Devon Energy's innovative approach to shale.
Another example was its development of the Cana Woodford Shale. The company was able to overcome considerable technical challenges during the exploration phase to find the keys to unlocking the oil and gas trapped within the rocks. That play is now one of the company's cornerstone assets, which it has grown to more than 300,000 net acres.
One of the keys to developing that field is Devon Energy's water reuse project. In the first nine months of the operation of that project Devon Energy was able to save nearly 5 million barrels of water. Because fracking uses millions of gallons of water per well this has proved to be a problem for the industry. All that water typically has come from freshwater sources and is hauled by truck. But by reusing some of the water that flows back after a well is drilled Devon Energy doesn't need to pull as much water from freshwater sources, nor does it need to haul that water from trucks. In just three months Devon Energy was able to reduce its truck traffic by an estimated 7,400 truckloads.
It's innovations such as these that the General Electric partnership is hoping to take to the next level. The goal is to improve the already solid production that Devon Energy extracts from core shale plays such as the Cana Woodford by finding the right artificial lift technologies to get more of the oil and gas out of those rocks. On top of that the companies will work to improve upon Devon Energy's already strong water recycling processes. The end game is to develop the right technologies to increase production, while decreasing costs.
Devon Energy has long led the way in unlocking America's shale resources. It is taking that to the next step with its collaboration with energy technology expert General Electric. It's a move that could have a big impact on the U.S. shale market as the technologies developed could increase the amount of oil and gas recovered from U.S. shale plays while also potentially reducing the water used and really improving the economics. It's game-changers like that which are fueling General Electric's drive to use technology to fuel gains in the energy sector.
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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Chevron. The Motley Fool owns shares of Devon Energy and General Electric Company. 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.