Big Oil Counts on Big Data for Bigger Profits
In today’s U.S. shale fields, tiny sensors attached to production gear harvest data on everything from pumping pressure to the heat and rotational speed of drill bits boring into the rocky earth. The sensors are leading Big Oil’s mining of so-called big data, with some firms envisioning billions of dollars in savings over time by avoiding outages, managing supplies and identifying safety hazards. The industry has long used sophisticated technologies to find oil and gas. But only recently have oil firms pooled data from across the company for wider operating efficiencies—one of many cost-cutting efforts spurred by the two-year downturn in crude oil prices.
ConocoPhillips says that sensors scattered across its well fields helped it halve the time it once took to drill new wells in Eagle Ford shale basin of South Texas. By comparing data from hundreds of sensors, its program automatically adjusts the weight placed on a drill bit and its speed, accelerating the extraction of oil, said Matt Fox, ConocoPhillips executive vice president for strategy, exploration, and technology. It is just one application, but if applied to the more than 3,000 wells ConocoPhillips hopes to drill in the Texas basin, those small sensors could lead to “billions and billions of dollars” in savings, Fox said in an interview. “We started using data analytics in our Eagle Ford business,” he said. “And everywhere we look there are applications for this.”
The cost and complexity of such systems vary widely. Oil giants such as ConocoPhillips buy a mix of off-the-shelf and custom programs along with data repositories. The Houston-based producer’s employees use Tibco Software Inc.’s Spotfire data visualization package to analyze information from well sites. Service firms, including Schlumberger NV and General Electric Co. oil and gas unit, sell sensor-equipped gear, data repositories, and software that help improve decision-making by producers. Back when oil traded at more than $100 a barrel—before the price crash in 2014—data analysis was an “afterthought” for most oil firms, said Binu Mathew, who oversees digital products at GE Oil & Gas.
Now, with prices at about $43 a barrel after recovering from a low of about $26 in early 2016, “the efficiency aspect is far, far more important,” Mathew said.
A survey by Ernst & Young last year examined 75 large oil and gas companies and found that 68% of them had invested more than $100 million each in data analytics during the past two years. Nearly three-quarters of those firms planned to allocate between 6% and 10% of their capital budgets to digital technology, the survey found.
Effectively mining large data sets could lead to supplanting workers with artificial intelligence and machine learning systems, according to firms selling and buying data-driven technology. Simple sensors already increase safety and savings by eliminating the need to send workers to rigs or production facilities to gather data. Automating drilling decisions can produce more consistent results by cutting out human errors, said Duane Cuku, vice president of sales for rig technology at Precision Drilling Corp. “The driller is now able to focus his attention on the well—and the performance and safety of his crews—as opposed to the manual manipulation of controls,” Cuku said. Occidental Petroleum Corp also uses an analytical tool to find the best design for hydraulic fracturing wells. A new version of the software analyzes data on well completions and geology to recommend whether injecting steam or water would produce more oil.
Abhishek Gaurav, a petroleum engineer for closely-held Texas Standard Oil, said he uses big-data analytics to help his company choose which properties to explore. Using Spotfire, the same program utilized by Conoco, Standard applies a combination of data science and petroleum engineering to rank asking prices for land based on a variety of completion, production and geological variables – such as the amount of sand that likely would be required to complete a well in a given formation. The technique, Gaurav said, has reduced the time needed for evaluating land parcels from weeks to hours, and resulted in better decisions. “We found value in properties when many other teams did not,” he said. Some of the information craved by oil firms is not so easy to gather or analyze. Surveys and maps that companies use to acquire acreage for drilling, for instance, are often not digitized. Older company data on wells may be unstructured or spread among suppliers using different storage formats, making integration and analysis a challenge.
General Electric and its oil-and-gas unit are moving aggressively into the business of digitizing industrial equipment for other firms, and have invested in large data processing centers for energy clients. GE sees huge potential for market growth: A company study estimated that only 3% to 5% of oil and gas equipment is connected digitally, and less than 1% of the data collected gets used for decision-making, the study found. Getting the industry more fully connected will take time. “There is a huge amount of data prep, data sanitization and data extraction needed for big data to be totally disruptive,” said Kate Richard, chief executive at private equity investor Warwick Energy. She projects a major payoff from the technology is still five or ten years away. Oklahoma City-based Warwick, which manages interests in thousands of wells across Oklahoma and Texas, is preparing for that payoff by hiring people from tech hubs in California, Richard said. “They all have computer programming and data science backgrounds,” she said.
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Following Brexit, Financial Firms Begin Move to the Continent
Britain’s financial power began ebbing away just days into the Brexit negotiations as the European Central Bank (ECB) sought authority over a key market and banks from Morgan Stanley to Nomura Holdings Inc. fleshed out plans to move operations from London to Frankfurt. The shifts underscore the threat posed to the U.K.’s financial industry by the decision to quit the European Union, made in a referendum a year ago. They will intensify pressure on Prime Minister Theresa May to safeguard the City of London in any trade deal she strikes with her EU counterparts, who may resist if they see an economic advantage for themselves.
Among the matters at stake in those talks, which began in Brussels recently, is whether London can maintain its status as a global hub for finance after Brexit or be forced to watch as business flows to the continent or New York. Such an exodus would jeopardize an industry responsible for nearly a tenth of the economy and some 1.1 million jobs. “There will be a lot of political pressure to get as much of the finance industry moved to the EU as possible,” said Tom Kirchmaier, a fellow in the financial-markets group at the London School of Economics. “The big question will be what the final role of the City will be in Europe.” The latest shot across Britain’s bow came early Friday when President Mario Draghi’s ECB said it will try to revise the statute governing its powers to gain “clear legal competence” over the clearing of euro-denominated financial instruments.
The Frankfurt-based institution said the change would secure “a significantly enhanced role” for the ECB and euro-area central banks in supervising clearinghouses, particularly systemically important ones located outside of the EU. The move would also help to clarify how oversight would be shared between the ECB and other bodies, such as the Paris-based European Securities and Markets Authority. The proposed amendment was sent to the European Parliament and to EU governments for approval.
Clearinghouses stand between the two sides of a derivative wager and hold collateral, known as margin, from both in case a member defaults. The dryness of their task belies their financial power. London’s clearinghouses alone hold about $174 billion of cash and bonds as collateral, compared with Frankfurt’s $62 billion and Paris’s $25 billion. About 75% of trading in euro-denominated interest-rate swaps now takes place in the U.K., according to Bank for International Settlements data from April 2016. Who should regulate them was a matter of dispute even before Brexit. The ECB lost a court case in 2015, after trying to bring clearing inside the euro area.
With Brexit looming, Europeapolicymakersrs are sounding increasingly assertive on the issue. Bank of France Governor Francois Villeroy de Galhau, an ECB Governing Council member, on Thursday pressed the case for forcing major euro clearinghouses to base their operations in the EU, while colleague Benoit Coeure on Tuesday hailed an EU Commission proposal on the matter. The squabble over location has spurred warnings from the industry of skyrocketing costs. Chief among the doom-mongers is Xavier Rolet, the chief executive officer of London Stock Exchange Group Plc, the majority owner of the world’s largest clearinghouse, LCH. He has warned stripping London of euro clearing will cost 232,000 British jobs and force investors and banks to pay an extra $100 billion over five years to trade off-exchange interest-rate derivatives. An LSE spokeswoman said she couldn’t immediately comment on the ECB’s statement. Just this week, Bank of England Governor Mark Carney and Chancellor of the Exchequer Philip Hammond united to warn against allowing Brexit to damage the U.K.’s financial industry, arguing that doing so could hurt Europe too. Hammond said the “fragmentation” of services would increase prices of financial products, while Carney called for a new system of cooperation between Britain and the EU over derivatives clearinghouses.
Such overtures were likely directed at May, who after a disastrous election, is being pressed to soften her approach to Brexit by focusing more on safeguarding jobs and trade rather than cracking down on immigration, as she previously planned. May was told Friday by officials in Europe that her plan to safeguard the residency rights of EU citizens in the U.K. didn’t go far enough. Banks are not waiting to discover the outcome of the Brexit talks, fretting that the ultimate pact will cost them their ability to easily service customers in the EU from bases in London. The U.K. capital could lose 10,000 banking jobs as a result of Brexit, think tank Bruegel estimated earlier this year.
Frankfurt is so far beating out other cities in luring business from London. Morgan Stanley is close to picking Germany’s financial capital as the EU hub for its broker-dealer business, while Nomura will also move staff there following Brexit, people familiar with the companies’ planning told Bloomberg News this week. Daiwa Securities Group Inc. also said on Thursday it will establish a subsidiary there. Frankfurt offers proximity to regulators at the ECB as well as easy access to the bloc’s most populous country and its biggest economy. “The move of the banks to Europe is a natural consequence of the tendency to move the regulation to the ECB,” said Kirchmaier.
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The Good News Is . . .
New U.S. single-family home sales rose in May and the median sales price surged to an all-time high, suggesting the housing market had regained momentum. The Commerce Department said new home sales increased 2.9% to a seasonally adjusted rate of 610,000 units last month. April’s sales pace was also revised sharply higher to 593,000 units from 569,000 units. The median house price rose to a record high of $345,800 in May, from $310,200 in the prior month. The average sales price last month was $406,400, also a record high.
FedEx Corp., a leading package delivery service, reported earnings of $4.25 per share, an increase of 28.8% over year-earlier earnings of $3.30 per share. The firm’s earnings topped the consensus estimate of analysts by $0.37. The company reported revenues of $15.7 billion, an increase of 20.8%. Management attributed the results to higher base rates, increased package volume and the inclusion of TNT Express results.
Casamigos, the tequila brand that George Clooney founded with his friends Rande Gerber and Mike Meldman in 2013, announced that it had sold itself to the spirits giant Diageo. The deal values the company at up to $1 billion: $700 million in cash upfront and up to $300 million more if it hits sales targets over the next decade. What began as a house spirit went commercial in January 2013, quickly translating to fast-growing sales. Casamigos said it sold 120,000 cases last year, and it is expected to sell more than 170,000 this year. Among the attractions of Casamigos for Diageo is the high demand for tequila, which has grown in popularity as the agave-born spirit has transcended its frat-house base. It supports Diageo’s strategy to focus on the high-growth super-premium-and-above segments of the category. Diageo expects to use its global strength to expand the reach of Casamigos to markets beyond the U.S. and capitalize on the significant international potential of the brand.
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Planning Tips
Guide for Making Spousal IRA Contributions
Generally, individuals who are unemployed are not allowed to contribute to retirement accounts such as IRAs because they do not have eligible compensation. However, there is an exception for individuals with spouses who are employed and meet certain requirements. The employed spouse is allowed to make an IRA contribution on behalf of a non-working spouse or a spouse who has little income. These contributions are referred to as “spousal IRA contributions.” Below is a brief guide for making spousal IRA contributions. Be sure to consult your financial advisor to determine if this is appropriate for your situation.
Eligibility – To make an IRA contribution for your spouse, you must meet the following requirements:
- You must be married.
- You must file a joint income-tax return.
- You must have compensation or earned income of at least the amount you contribute to your IRAs.
Age Limit – If you decide to fund a Traditional IRA for your spouse, he or she must be under age 70½ for the year for which the contribution is being made. No age limits apply to Roth IRA contributions.
Compensation Limit – While there is no cap on the amount you may earn to fund a Traditional IRA, this is not so for a Roth IRA. You may contribute 100% of your compensation or the tax year’s IRA contribution limit, whichever is less, to your IRA. Bear in mind that the contribution limit that applies to you also applies to your spouse. For 2017, the contribution limit is $5,500 for most Americans ($6,500 for those over 50).
Deductions – If you do not participate in an employer-sponsored plan, such as a 401(k), you will be able to deduct the full amount of your spousal IRA contribution. If you are covered by an employer-sponsored plan, your ability to deduct your spousal IRA contribution depends on your income and your tax filing status. If your modified adjusted gross income (MAGI) is over $196,000 for the tax year 2017, you cannot deduct your contribution to a Traditional IRA and cannot contribute to a spousal Roth IRA. If you can deduct your spouse’s Traditional IRA contribution–but not the Traditional IRA contributions made to your own Traditional IRA–you may decide to fund a Roth IRA for yourself instead if you are eligible to do so. One of the major benefits for contributing to a spousal IRA is the tax benefit. For couples in higher tax brackets, this can lower their taxes and provide another vehicle to save for retirement.
IRAs Must Be Held Separately – Unlike your regular checking or savings account, your IRAs cannot be held jointly. The IRA you establish for your spouse must be in his or her name and tax identification number. Similarly, any IRA you establish for yourself must be established in your name and tax identification number.
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