Will Oil Giants Lose Without This Cloud Technology?

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The cloud is deeply affecting the oil and gas industry.

In “Pemex CIO Fine Tunes Simulation to Find Oil,” an article in The Wall Street Journal’s CIO Journal, readers learn that the Mexican company is looking for ways to innovate.

Pemex is a state-owned enterprise, making up 40% of the Mexican government’s revenues and 7% of its export earnings.  Pemex, or Petroleos Mexicanos, as it is also known, is looking for ways to enhance profitability and to ramp-up production.  Its methods are ones that U.S. energy firms can adopt, if they have yet done so.

Increasing Production

Pemex CIO Abraham Galan is slated with creating oil field virtual simulations and analyzing seismic data that helps when modeling the production field.  “The aim is to accelerate oil production and time to market,” said The Wall Street Journal.

In June, Pemex struck a 30-year partnership with Schlumberger (NYSE: SLB).  The production services contract will unite the two firms in developing the Panuco oil field.  The overall aim is to reach 140,000 barrels of oil per day at six fields, up from just 13,000 barrels per day now.  For an idea of the results that Schlumberger helps oil drillers to achieve, see this interesting case study on its website.

Tools in the Cloud

Just as Salesforce.com revolutionized CRM using the cloud, other firms are now beginning to offer products utilizing the cloud.  Pemex, for example, is using VMWare’s (NYSE: VMW) virtualization toolkit, which allows users to run multiple virtual machines on just one physical machine.  VMWare sells its products to all of the Fortune 100 companies.

Hewlett-Packard’s (NYSE: HPQ) provisioning software is also an essential tool for Pemex.  For example, H-P offers its HP XP Thin Provisioning Software, which allows users to add virtual storage space to their machines.  The product permits a more “lean” structure, which is essential when operating in the field.  Finally, Pemex uses Schlumberger’s Eclipse oil reservoir simulation software to model. 

Combining these three tools can help to ramp up production in an industry that is highly time sensitive.  Just like Salesforce.com allows salesmen on-the-go to quickly and easily update their account information for all of their colleagues to see, these tools allow for effective collaboration between workers in oil fields and those in an office.

Tying it to the U.S.

With regulatory concerns rising and natural gas prices low, energy giants must find ways to nimbly maneuver.  For example, obtaining drilling permits in North Dakota, Ohio, and Colorado can take as little as 10, 14, and 27 days, according to the Institute for Energy Research.  But the time it takes to get on Federal lands?

A long 307 days.  And that is double 2005’s wait time.

When time spent producing energy is directionally proportional to revenues, firms must find ways to slim down the excess days before drilling.

Chesapeake (NYSE: CHK) and Exxon Mobil (NYSE: XOM) are two good examples of this.  Chesapeake has made a move from natural gas drilling to oil drilling, a strategy that takes time as it moves rigs into place and handles other major planning details.

Also, the company will need to do the reverse when it decides to more doggedly pursue natural gas drilling again.

Exxon is in a similar scenario.  The company is trying to pick up the pace of its planning so that it can begin drilling areas more quickly.  Exxon’s production was lower than possible last quarter because rigs needed to be moved.  Tying in extra virtual software and collaborating in the cloud could trim even more time off of Exxon’s lead time.

Summary

Overall, Chesapeake and Exxon likely use VMWare’s, Schlumberger’s (or similar services), and Hewlett-Packard’s planning and storage tools.  The idea is that widespread implementation of such tools could create even greater speed in the industry, helping the companies to overcome slower Federal permit times and other regulatory and environmental concerns.  This will be especially important if the current administration decides to take a hard stance against drilling and fracking.

Just like Salesforce’s cloud technology is becoming deeply entrenched in the sales space, oil and gas companies can benefit from deeply engraining – instead of just using – the software across their business units and offices. 

Pemex hopes to see major benefit, and I hope to have the same expectations for U.S. energy giants.


ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of VMware and ExxonMobil and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, short JAN 2014 $15.00 puts on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, and long JAN 2014 $30.00 calls on Chesapeake Energy. Motley Fool newsletter services recommend VMware. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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