Technology has long been assumed to play a key role in oil and gas exploration and production. But in the 1980s, for instance, the industry's technological progress, while steady, often appeared to occur at nearly a glacial pace. More recently, however, you can't duck out for lunch without missing all manner of new wrinkles. For that reason alone, technological superiority -- along with geographic diversity -- is paramount in the energy sector.
One difficulty with targeting those companies at the top of the technology heap, however, is that there are lots of players deserving of such recognition. Halliburton (NYSE: HAL), for instance, merits much of the credit for perfecting the hydraulic fracturing -- today we all know it as "fracking" -- that has completely revolutionized U.S. gas and oil production onshore, and is rapidly expanding overseas.
In my rarely tentative opinion, fracking, along with the equipment and procedures that permit us to locate and drill for hydrocarbons in 10,000 feet of water, and the newly advanced subsea systems that facilitate production at those depths, constitute the key technological advancements for conventional energy of late. So while Chevron (NYSE: CVX) is clearly an advanced company (especially given its successes in renewable energy), my nominees for technological leadership in energy all hang their hardhats on the services portion of the industry. Indeed, I'm specifically focusing on Schlumberger (NYSE: SLB), National Oilwell Varco (NYSE: NOV), and FMC Technologies (NYSE: FTI).
Schlumberger
You, of course, know about Schlumberger, the kingpin of the services group. The big company, which serves as a figurative sidekick to most of the independent, international, and national oil companies, through approximately 115,000 employees in 85 countries, is also a veritable font of information on the industry. Have a question about any oil and gas term? Simply head for Schlumberger's website, and you'll find thousands of definitions relating to the often arcane world of fossil fuels.
As to the crucial role of technology in the search for and production of oil and gas, a company's likely to be a leader when it spends $1.1 billion dollars annually on research and development. Those massive expenditures finance key research efforts worldwide, from Brazil to Saudi Arabia to Beijing.
While the company provides many of the goods, services, and consulting assistance needed by the operators for well drilling and hydrocarbons production, its real leadership may be found in its seismic services. With the industry moving into all sorts of challenging new territories, advancements in seismic reflection -- identifying and defining hydrocarbon-bearing structures -- are becoming progressively more vital to operating successfully in these new areas.
National Oilwell Varco
For the past couple of years, it's likely that, as judged by investors' sentiments, National Oilwell Varco could have walked away with a "Mr. Popularity" award within the services sector. As you'd expect, in many ways its strengths are similar to those of the larger Schlumberger. As the quest for oil, in particular, careens around the world, the need for more sophisticated rigs and equipment -- especially offshore -- is similarly expanding exponentially. It's the manufacture and production of the newest generation of rigs and their parts that comprise Varco's primary strength.
Don't assume that my reference to the company as something of a smaller Schlumberger indicates a lethargic, slow-grower. During just the past quarter, management paid $2 billion to complete some half-dozen acquisitions and ended the period with an order backlog that had expanded year over year by fully 46%. Possibly of more importance was the geographic targeting that had 92% of the equipment on order headed for international markets, while 86% was bound for offshore operations.
FMC Technologies
If you've devoted time to monitoring the changing nature of offshore drilling, then you recognize that until recently 1,000-foot depths were considered the limit for safe and productive operations. Now, however, the industry regularly operates at several times that figure. Further, there has emerged something of a "golden triangle" in the world of deepwater operations. That triangle essentially consists of the U.S. Gulf of Mexico, Brazil's Santos Basin, and offshore Africa. I'm betting, however, that such other relatively untapped locations as the South China Sea will soon expand the triangle into at least some sort of four-sided figure.
Whereas drilling in extreme depths of water is obviously complex, subsequent production there may be even more demanding. That's precisely where FMC Technologies comes in. The subsea systems developed, manufactured, and installed worldwide by the company are highly sophisticated, necessitating the use of robotics for placement, before the vital processes of production and fluid control, measurement, separation and storage can begin. The demand for subsea systems is generally expected to grow five-fold within just the next eight years. Given its dominance among U.S. companies in this portion of the industry, could FMC Technologies be better placed?
The Foolish bottom line
Your conclusions about the technological leadership in energy may differ from mine. Nonetheless, I recommend that, if for no other reason than to maintain a firm grip on the expanding sophistication of the sector, Fools keep close tabs on Schlumberger, National Oilwell Varco, and FMC Technology. The ideal way to initiate that monitoring is to add the threesome to My Watchlist.
