Electronic commerce on the Internet -- e-commerce, for short -- may not revolutionize the petroleum industry. But it's already changing the way the industry does business.
Last year, Internet business providers began chanting a mantra for their Web sites:
"Content, Commerce and Community."
That instant cliché helps to explain what e-business can offer the E&P professional:
Content - Anything you might want to read or look at, usually with a built-in timeliness factor. Everything from industry news reports to stock quotes and product-price updates.
Web sites want constantly changing content to keep you coming back.
Commerce - Sales, business processes and other transactions involving products, properties, services, software applications, financial instruments, data, information, etc. This is where most of the money changes hands in
e-business.
Community - Whatever makes you feel like "part of" a Web site. Message boards, feedback options, interactive personal features, even places to post your resume.
Online business isn't limited to buying and selling products. In upstream petroleum, the most visible e-commerce takes place in:
- Sale/purchase of products and services.
- Producing property and prospect transactions.
- Software application services.
- Crude oil, gas and futures trading.
- Data and information services.
Petroleum companies may also use e-commerce in less visible ways -- for technology acquisition, data management, personnel recruiting, accounts processing and other internal operations.
New e-commerce activities continue to evolve. Licensing rounds are taking place on the Web. Consulting and training services have begun moving to Internet delivery.
As of June 2000, the Web included 939,690 e-commerce sites, according to netfactual.com. By now that number has easily reached one million, with more e-business on the way.
e-Geologists
Geoscientists have founded or helped establish several e-commerce sites for the petroleum industry.
Geologist Mike McCormick is managing director for SpudIt.com, an Internet start-up that clicked open for business in October. SpudIt.com provides a way to track the locations of drilling rigs around the world and to find the specifications of individual rigs. Users can type in a search query or select a geographic area from a map.
The company provides Global Positioning System (GPS) transponders to track rigs. McCormick said it has the devices on 30 rigs and hopes to increase that number to 500 rigs by the middle of next year.
For drilling engineers, its primary target audience, the Web site can mean "less phone tag. Less dealing with individuals. Less dry leads," he explained.
As a new entry in the Web world, SpudIt.com exemplifies both the promise and the problem of e-commerce. The promise includes the Big Four advantages of Internet business:
- Improving the speed and effectiveness of information delivery.
- Reducing the time to complete tasks, transactions or processes.
- Providing efficiencies that reduce customers' overall costs.
- Enabling users to share an online resource.
Its problem lies in commercialization -- the ability to develop a service that will not only survive but actually make a profit.
There's a lot of talk about business models today in e-commerce. McCormick identified his biggest problem as overcoming "the negative perception that dot-coms have gotten.
"We're a valuable data service," he said. "Going that extra distance, saying you not only have to log on and register but you also have to pay for it, is going to be a hurdle."
In SpudIt.com's business model, listings are free for rig contractors while users will support the site on a pay-per-view model, McCormick said. But the service will be offered without charge for several months to make sure it's a viable approach, he added.
Say What?
E-commerce retains the vision of making a fortune for employees and backers by taking a company public in an initial public offering (IPO), despite the dot-com collapse in the stock markets earlier this year. Insiders get stock and options at little or no cost and reap a windfall as public shares rise in value.
Since the markets now favor financially successful dot-coms, B2B (business-to-business) e-commerce providers have begun searching for the elusive P2P: the path to profitability.
Three of the four founders of Oildex.com in Denver are former Amoco geophysicists, according to Rich Bosher, the company's vice president of marketing and sales. Denver has become a hotbed of petroleum e-commerce, largely because it's home to a lot of computer-savvy, laid-off geoscientists who don't want to move.
Oildex.com is an application service provider, or ASP.
In e-commerce-speak, an "application" is a software program for an end-user.
A "solution" is a program, or suite of programs, that enable a user-customer to perform a specific task or to complete a process.
An "ASP" maintains software applications and provides access to them for multiple customers, typically via the Internet but sometimes through direct networks.
A company's "ERP" is its enterprise resources planning system.
The term "cycle time" refers to the time it takes to complete a task or process from start to finish. "Reducing cycle time" means reducing the time it takes to perform an iterative task.
In e-commerce, people actually say things like, "You can reduce cycle times up to 70 percent by integrating your ERP with your ASPs."
Oildex.com offers its "Invoice Connect" applications for processing invoice information, and its "CheckStub Connect" service for allocating and tracking revenues and royalty payments. Both are available to customers over the Web.
The estimated, average cost of handling one invoice is $16 and the petroleum industry processes about 72 million invoices per year, Bosher said. If e-commerce can reduce that average cost by just 10 percent, it will save the industry more than $100 million annually.
"Invoice Connect" enables a company to receive, review and import electronic invoice information into its existing accounting system, according to Bosher.
"Even for independents, it's not a bad estimate that they can receive over 50 percent of their invoices electronically," he said, and using invoicing features on the Web can raise that number to 70-80 percent.
"Instead of the paperwork, the clerk goes to the (Web) browser and pulls up the invoices, maybe 20 or 30 of them," he explained. Invoices can be flagged for online review by the purchase initiator.
"It says, 'OK, you're a geologist and you've approved this invoice on the XYZ well,' And you can confirm that," he said.
All data gets captured for later analysis, and with a Web facility a company's invoice tracking becomes much less of a problem, Bosher said.
"That's the power of the Internet," he noted. "You've got an office in Dallas that can look at an invoice from a field office in Timbuktu."
"CheckStub Connect" offers similar features for revenue information and 70 customer-companies already use the application, Bosher said. Oildex.com claims the service can save users from 50-80 percent of their processing costs.
Bosher sees "the corporate culture in the oil and gas industry" as his biggest marketing problem. E-commerce is introducing new ideas to an industry not always known to welcome them.
"This is like 3-D seismic or horizontal drilling when they first came on," he said. "We're doing something that's never been seen in the industry.
"People are used to trading online with Schwab or E*Trade," he continued. "If you're comfortable doing that online, you're going to feel comfortable sending around 80 percent of your corporate information online. It's certainly safer than sending your information through the mail."
Major Advances
Despite the challenges, most large petroleum companies are developing their own e-commerce ventures through in-company initiatives or partnerships. All of the majors have announced some kind of online business participation.
Earlier this year, 14 energy and petrochemical firms said they will participate in a joint B2B procurement exchange. The group has plenty of E&P muscle, including BP, Conoco, Occidental, Phillips, Shell, Statoil, TotalFina Elf and Unocal.
Oil companies also are investing in or acquiring parts of independent
e-commerce providers. Those industry buy-ins include Halliburton, which recently acquired a 15 percent equity interest in Petroleum Place Inc. of Denver.
That relationship will enable the site to serve as an ASP for some applications from Halliburton's Landmark Graphics Corp. subsidiary, according to Kim Pickett, Petroleum Place director of marketing and communications.
Pickett said Petroleum Place offers a directory of 4,500 industry service providers, carries over 1,000 resumes and lists 17,000 pieces of surplus equipment, taking no commission when the equipment is sold or traded. It also produces its own online magazine, EnergyGate.
But the heart of the company's business is property transactions.
"We have one of the largest online inventories of oil and gas prospects available on our site," she said. "That includes producing and non-producing assets. We have electronic deal rooms, an electronic catalog and public listings."
Petroleum Place owns The Oil & Gas Asset Clearinghouse, a firm founded as a property auction house in 1992. It now conducts Internet and hybrid floor/Net auctions, and draws 300-400 buyers to once-a-month sales events in Houston, Pickett said.
With bids posted on the Internet in real time, any qualified buyer can participate in the hybrid-auction action.
Evaluation data is available through an e-catalog before the sale, according to Pickett.
The use of the Internet attempts to "bring price and process efficiencies to every part of the property lifecycle," she noted. Petroleum Place gets a commission from 1-10 percent of the sale price, depending on the size and complexity of the property transaction.
Petroleum Place now sells 25 percent of its offered properties to Internet bidders, she said, and it also provides a public online listing where anyone can list, or inquire about, a property for sale.
In Pickett's view, e-commerce already has arrived as an important element of the oil and gas industry. The Petroleum Place site gets 70,000 unique visitors and 2.7 million hits each month, she noted, and has auctioned properties with values as high as $6.1 million.
"It's certainly in full swing, from our perspective.
We've held six hybrid auctions plus two online-only events since March," she said, "and the response has been overwhelmingly positive."
Petroleum Place recently completed the acquisition of Paradigm Technologies and announced a definitive agreement to acquire Applied Terravision Systems, Pickett said. And true to the
e-commerce vision, it has filed a security registration for an IPO.
Things Change
The Internet rush has just begun. For every e-commerce business in operation, there must be 100 others considering a start-up.
Steve Henry founded GeoLearn Llc., a Houston training company, in 1993.
"I do a lot of training and I like to think that all of these electronic files could be loaded on the Web and sold," he said. "But I think that's about three years away."
Henry, who serves as chairman of AAPG's Geophysical Integration Committee, dreams of living in New Mexico where he would "write course notes and have checks mailed to me."
He knows it's not that simple.
"One of the concerns I've always had is that once you put something out electronically there's no security," he said. "If you send it once it might be copied a thousand times. You have to be so involved that you keep updating it all the time."
Still, he might consider Web-enabled training for more than the profit motive. Henry said one of his pet peeves is that "not enough people communicate knowledge back to the industry."
With small companies and even individuals joining the move to online business, an e-commerce boom seems more likely than a bust.
It's tough to start a sizable business that turns a profit, you say? That's true in every industry, not just e-commerce.
Get ready to hear a lot more about Internet enterprise in the near future. Luckily, part of the fun of e-commerce is using the cornball vocabulary of today's business-speak. You don't have vendors who sell you things. You have "partners in the supply chain."
Most of all, get ready for e-commerce to change your job, your workplace and your life.
It may not revolutionize the world -- but it's already changing the way the world does business.