Profiting From Energy's Technology Explosion, Part 1
Not long ago, I mentioned to Fools a couple of major technological improvements that have brought about tremendous increases in oil and gas reserve growth and production. At the time, I was referring to the ability to find and produce previously unreachable hydrocarbons in the deepwater and to the role of hydraulic fracturing in shale rock formations .
Each of these breakthroughs benefits from other developments that have in turn made them feasible. I'm referring to advancements that, when incorporated into deepwater operations or fracking, lead to jumps in productivity, efficiency, cost-effectiveness, and -- last but hardly least -- safety. In the two parts of this article, let's take a look at a few of these new wrinkles and at some of the companies that stand to benefit from them.
By the beautiful subsea
Subsea processing relocates many of the functions typically performed at or near the surface to the well site on the seafloor. There are numerous advantages to subsea production and processing. Two especially stand out: First, a single platform is able to service numerous well areas, thereby chopping the costs related to the construction, placement, and maintenance of multiple production platforms.
Second, the separation of water, sand, and other unwanted elements from the desirable oil or gas also occurs at the seafloor. The time and expenses related to the need to haul all of the produced hydrocarbons and contaminants to the surface, before beginning the separation process (and then returning the culled elements below), are thereby eliminated.
A promising partnership
Total outlays for subsea facilities were slightly more than $25 billion in 2011. That number is expected to rocket to about $130 billion by 2020. Among several companies that will benefit from this nearly five-fold growth are Schlumberger and Cameron International .
As you likely know, the pair recently hooked up in a subsea products joint venture called OneSubsea. Cameron owns 60% of the venture, with the remaining 40% Schlumberger's. I'll describe another reason why Schlumberger is technologically attractive in Part 2 of this article.
In my opinion, the new partnership boosts Cameron's attractiveness meaningfully. However, the company is no neophyte to subsea equipment manufacturing, which accounts for a part of its drilling and production systems unit metrics.
Revenues from that unit increased by 22% year over year in the first quarter of this year. They thereby made up 60% of the corporate total. Now, through OneSubsea, Cameron will benefit at least somewhat from Schlumberger's $1.1 billion annual research and development budget, a major plus for any oil-field services company.
No longer just lightbulbs
I'd be remiss if I didn't also mention $255 billion-market-cap industrial leviathan General Electric as another way to play the burgeoning subsea world. I'll also have more to say about GE in another area of oil and gas technology in Part 2.
For now, however, it's important to know that the big company is involved in a rapidly expanding array of technically sophisticated oil-field services activities. Beyond subsea solutions, it's also active in land and offshore drilling solutions and unconventional solutions. Oil and gas-related orders additions were especially strong during its newly reported June quarter.
Chevron's new baby
Operations in the deepwater will also benefit as time passes from a technological development called dual-gradient drilling, or DGD. The new advancement is largely the child of Chevron , and it clearly will benefit the second-biggest U.S.-based oil and gas major.
In traditional single-gradient drilling, the riser pipe, which connects the production platform to the subsea wellhead, is weighted by drilling fluid. This concoction creates hydrostatic pressure on the wellbore, which can make the well difficult to control. Under Chevron's DGD approach, the drilling fluid in the marine riser is replaced by seawater. Pressure on the wellbore is thus reduced dramatically, the well becomes easier to control, and safety is therefore heightened.
Chevron has been working hand-in-glove in implementing DGD with offshore rig operator Pacific Drilling . Pacific's drillship Pacific Santa Ana was specifically built to Chevron's DGD-enhancing specifications and is working for the big company in the Gulf of Mexico.
As Chevron noted in a release announcing the arrival of the new drillship in the Gulf, "Pacific Santa Ana is equipped with a DGD riser, a mud lift pump handling system, six mud pumps -- three for drilling fluid and three for seawater -- extensive fluid management system enhancements, and more than 72,000 feet of DGD-related cables."
Luxembourg-based Pacific Drilling sports a 2.0 (buy) consensus rating from the analysts who follow it. Given its leg up in acquiring DGD-compatible equipment and in working with Chevron on implementing this technological advancement, it clearly bears watching by Foolish energy investors.
All of the companies named above, obviously among others, stand to benefit from ongoing advancements in the technologically sophisticated world of subsea operations in the deepwater. In Part 2, we'll take a look at companies that are providing leadership in such additional challenging arenas as multi-well drilling pads, offshore gas liquefaction, and improvements to the world of seismic operations, where the quest for oil and gas begins.
The article Profiting From Energy's Technology Explosion, Part 1 originally appeared on Fool.com.
Fool contributor David Smith has no position in any stocks mentioned. The Motley Fool recommends Chevron and owns shares of General Electric. 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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