Pressured for profit, oil majors bet big on shale technology

Global Stock Markets

For the last decade, smaller oil companies have led the way in shale technology, slashing costs by as much as half with breakthroughs such as horizontal drilling and hydraulic fracking that turned the United States into the world’s fastest-growing energy exporter.

Now, oil majors that were slow to seize on shale are seeking further efficiencies by adapting technologies for highly automated offshore operations to shale and pursuing advances in digitalization that have reshaped industries from auto manufacturing to retail.

The technological push comes amid worries that U.S. shale gains are slowing as investors press for higher financial returns. Many investors want producers to restrain spending and focus on generating higher returns, not volume, prompting some to pull back on drilling.

Production at a majority of publicly traded shale producers rose just 1.3 percent over the first three quarters this year, according to Morgan Stanley

Chevron Corpis using drones equipped with thermal imaging to detect leaks in oil tanks and pipelines across its shale fields, avoiding traditional ground inspections and lengthy shutdowns.

Ryan Lance, chief executive of ConocoPhillips  - the largest U.S. independent oil and gas producer - sees ample opportunity to boost both profits and output. Conoco also oversees remote drilling operations in a similar way to Shell. 

Shell, in an initiative called “iShale,” has marshaled technology from a dozen oilfield suppliers, including devices from subsea specialist TechnipFMC Plc  that separate fracking sand from oil and well-control software from Emerson Electric Co , to bring more automation and data analysis to shale operations.

Oil firms currently spend about $5.9 million to drill a new shale well, according to consultancy Rystad Energy. Shell expects to chop that cost to less than $4 million apiece by the end of the decade.  

 Anadarko Petroleum Statoiland others are using DNA sequencing to pinpoint high potential areas, collecting DNA from microbes in oil to search for the same DNA in rock samples. 

ConocoPhillips next year will start using magnetic resonance imaging (MRI) to analyze Permian rock samples and find the best drilling locations, a technique the company first developed for its Alaskan offshore operations.

EOG Resources Inc last year began using a detailed analysis of the oil quality of its fields. The analysis, designed by Houston start-up Premier Oilfield Laboratories, helps to speed decisions on fracking locations and avoid less productive sites.

Declines in energy and mining stocks after Chinese shares drop

Asian Stock Markets

Declines in energy and mining stocks led Asian shares lower after oil and metal prices extended a drop, and Chinese equities’ losses deepened. The dollar was steady amid uncertainty over the U.S. tax bill.

Chinese shares traded in Hong Kong fell amid concerns Chinese regulators will limit the flow of mainland funds into the city’s stocks. The yen pared gains after a rally partly fueled by a Kyodo News report that Japan detected radio signals suggesting North Korea is preparing for a missile launch. The Bloomberg dollar index inched lower as the U.S. tax debate gets underway. Oil fell for a second day after slumping from two-year highs. Copper and nickel led industrial metals lower.

China’s stocks have come under pressure in the last week after the government sounded alarm bells about a potential stock bubble and bond yields soared toward 4 percent amid efforts by authorities to reduce risk in the country’s financial markets. A gauge of Chinese shares traded in Hong Kong dropped more than 1 percent, weighing on the Hang Seng Index.

Stocks
The Topix index fell 0.3 percent at the close in Tokyo and the Nikkei 225 Stock Average ended flat.
Hong Kong’s Hang Seng Index fell 0.6 percent as the Hang Seng China Enterprises Index declined 1 percent. The CSI 300 Index of Chinese large-caps, which has born the brunt of the recent selloff, was down 0.1 percent after dropping as much as 1 percent earlier.
Futures on the S&P 500 fell 0.1 percent. The main gauge fell less than 0.05 percent in New York.
The MSCI Asia Pacific Index dropped 0.3 percent. A subindex of energy companies and a gauge of mining stocks were the biggest decliners among subgroups in the index as a drop in metals continued in Asia.

Currencies
The Bloomberg Dollar Spot Index fell less than 0.1 percent.
The yen dipped 0.1 percent to 111.18 per dollar after climbing 0.4 percent on Monday to the strongest in 10 weeks.
The New Zealand dollar advanced 0.4 percent to 69.38 per dollar ahead of a central bank financial stability review.
The euro was little changed at $1.1903 after its first decline in a week.
The pound traded at $1.3329.

Bonds
The yield on 10-year Treasuries held at 2.33 percent.
Australia’s 10-year bond yield fell three basis points to 2.49 percent.

Commodities
West Texas Intermediate crude extended a decline, falling 0.6 percent to $57.76 a barrel.
Gold was steady at $1,294.16 an ounce, around the highest in over five weeks.
Copper on the LME fell for a second day, down 1.4 percent to $6,846.50 a ton. Nickel on the LME dropped 1.7 percent.

Three Canadian energy stocks to watch amid the latest oil price uncertainty

Global Stock Markets

The S&P/TSX Composite Index may be up about 4.5 per cent for the year, but the S&P TSX Capped Energy Index is down more than 13 per cent

The macro picture for Canadian oil companies lately is a messy one, with intrigue in the House of Saud, threats of Norwegian divestment and a Keystone pipeline leak just the latest concerns for investors.

Amid the drama, the S&P TSX Capped Energy Index has tumbled more than 13 per cent on the year, while the S&P/TSX Composite Index overall is up 4.63 per cent, despite a 24 per cent rally in the price of WTI oil over the past year. With that in mind, here are three stocks that could have upside despite the uncertain market:

Whitecap Resources Inc.
Calgary-based Whitecap announced last week that it had struck a $940-million deal with Cenovus Energy Inc. for a majority stake in a Saskatchewan oil operation.

Shares of Whitecap are down 25.08 per cent for the year, closing Friday at $9.11, but the deal met with approval from some analysts.

After the deal was announced, Raymond James increased its target price on Whitecap shares, to $14 from $13.25, and maintained its outperform rating on the stock.

Obsidian Energy Ltd.
Has Calgary-based Obsidian Energy managed to put the past behind it? The company announced last Wednesday it had reached a settlement with the U.S. Securities and Exchange Commission over fraud-related allegations that stemmed from the company’s previous life as Penn West Petroleum Ltd. In agreeing to pay the US$8.5-million penalty, Obsidian did not admit or deny the accusations.

Shares of Obsidian gained 1.91 per cent Friday, closing at $1.60. They were still down 32.49 per cent for the year.

National Bank Financial called the settlement, “an unfortunate reality, but a net positive in the sense that the resolution removes a black cloud from over the recently transformed, Obsidian Energy.”

Enbridge Inc.
According to some analysts, the time to take a stake in Calgary-based Enbridge may be nigh — if you hadn’t already.

Enbridge reported earlier this month third-quarter earnings of $765 million, up from a loss $103 million for the same three months last year. However, shares of Enbridge are down 20.6 per cent for the year, and 13.31 per cent for the past month, closing Friday at $44.86.

BMO Capital Markets said Friday in a note — headlined “Once in a Multi-Year Buying Opportunity” — that the shares were trading lower “on the back of funding concerns and fears that the 10-12 per cent dividend growth guidance will be reduced.” BMO, however, said that the approximately $9-billion drop in market capitalization is “a material overreaction,” and kept its outperform rating and $70 target price on the stock.

FINANCE HIGHLIGHTS:

SANTOS — Energy firm Santos has put the controversial Narrabri coal seam gas project in NSW back on its list of major assets as the company looks to boost production as part of its turnaround plan.

ACCC NBN — National Broadband Network speeds could soon improve as retailers are now buying more bandwidth, the competition watchdog says.

HOUSING FINANCE — Lending to property investors took its biggest monthly fall in more than two years in September, a further sign of a cooling housing boom.

OPTUS — Optus is offering to compensate customers that have not got the National Broadband Network speeds they were promised.

CITIBANK — Citibank will pay more than $4.3 million in refunds to customers after failing to give back outstanding credit card balances and providing misleading statements about unauthorised transactions.

FLIGHT CENTRE — Flight Centre expects its international businesses to boost its first-half performance and flagged an improved full year underlying profit despite weakness in its Australian operations.

AUST CHINA — Australian superannuation funds will increase their exposure to Chinese markets despite the volatility and risks that have characterised China’s equity and capital markets in recent years, a regional investments expert says.

CHINA WELLNESS — China’s ageing middle class will provide the next export boom market for Australia through soaring demand for high-quality food and health products, a leading industry analyst says.

COOPERS — Coopers Brewery has achieved a 24th straight year of sales growth despite a fall in sales in its home state of South Australia.

NETWEALTH — Financial management software provider Netwealth is set to be one of the biggest listings on the ASX this year when it hits the boards in late November.

XERO — Xero has narrowed its first-half loss and posted positive pretax earnings for the first time, and announced it will delist from the NZX in favour of the ASX in February.

Energy stocks provide support as European shares open flat

European shares steadied in opening deals on Monday, helped by a rise in energy stocks prompted by growing tensions in the Middle East, while public holidays reduced activity.

The pan-European STOXX 600 index was down 0.06 percent, while Britain's FTSE, which hit a fresh record high on Friday, was up 0.07 percent, as sterling slipped after a deadly attack in London just days before a national election on Thursday.

Energy stocks provided the biggest boost to both the STOXX and the FTSE, as oil prices rose after top crude exporter Saudi Arabia and other Arab states cut off ties with Qatar, accusing it of supporting terrorism.

Shares in companies in which Qatar holds stakes were mixed. Miner Glencore was down 0.9 percent in a weaker mining sector, while Spanish utility Iberdrola, British bank Barclays and French builder Vinci were flat.

The German stock market and some other European bourses were closed due to a religious public holiday.