Digits Offer Prospecting Medium

E-Commerce Still Developing

Remember when we all thought that e-commerce was an automatic way to make millions of dollars?

Well, you should, since it was only one year ago. E-commerce was the buzzword for business -- including the oil industry -- although the concept clearly suffered through a less-than-stellar "shakedown" period that left many rightfully wondering exactly how the Internet can produce profits.

Geologists, take heart: Unlike many retailers and other industries that have learned the hard way, it appears the Internet can in fact be a valuable tool for oil companies.

That's the message of one Dallas-based business development manager who says that an important use of the Internet emerged in the last year or so: online marketing and evaluating of producing properties and prospects.

The Internet, according to Perry White, with Petroleum Place Inc., provides a unique medium for companies looking to sell properties or prospects, allowing them to get their message to a wide audience - and in the last year more and more oil firms of all sizes have recognized the tool's potential.

"The Internet accelerates the marketing and due diligence process," White said. "When a company is selling either prospects or producing properties, they want to increase deal flow or deal velocity and compress the marketing cycle time.

"These are both goals the Internet and an e-marketplace can help meet."

White called the Internet "a great mechanism for putting out a significant amount of information, allowing people to look at that information and indicate their level of interest.

"Following that initial step," he continued, "companies can screen potential buyers and selectively allow them into deeper levels of data via electronic data rooms on the Internet and/or through a physical data room."

White is in a position to know. His company works with oil companies to establish electronic data rooms (EDR) where they can market prospects and properties, and buy, sell and trade assets through a marketplace supported by its subsidiary in Houston, The Oil & Gas Clearinghouse.

Know Your Audience

White's advice is this: Before jumping in and using the Internet to market a prospect, companies should determine what type of a prospect they have and define their target audience.

"Generally, oil and gas assets, whether it be producing properties or prospects, lend themselves to online marketing," White said. "Prospects, for example, have a great deal of geological and geophysical data that prove their value - and the Internet is an efficient medium to present this type of information. Additionally, according to how the data is presented online you can be creative with the story you want to tell.

"For example," he continued, "we have a prospect in the Gulf of Mexico we would expose on the Internet with a limited amount of information in the form of an executive summary, consisting of an index map, a brief geological and geophysical description of the prospect and contact information. An e-mail with a link to the electronic data room is then e-mailed to several thousand people who have indicated an interest in that type of prospect.

"We in turn might receive hundreds of visitors to the electronic data room."

Image Caption

Web pages like these depict the latest trends in the marketing of producing properties and prospects. Data can be discussed in online electronic data rooms - lending a modern edge to the art of the deal. Graphics courtesy of Perry White

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Remember when we all thought that e-commerce was an automatic way to make millions of dollars?

Well, you should, since it was only one year ago. E-commerce was the buzzword for business -- including the oil industry -- although the concept clearly suffered through a less-than-stellar "shakedown" period that left many rightfully wondering exactly how the Internet can produce profits.

Geologists, take heart: Unlike many retailers and other industries that have learned the hard way, it appears the Internet can in fact be a valuable tool for oil companies.

That's the message of one Dallas-based business development manager who says that an important use of the Internet emerged in the last year or so: online marketing and evaluating of producing properties and prospects.

The Internet, according to Perry White, with Petroleum Place Inc., provides a unique medium for companies looking to sell properties or prospects, allowing them to get their message to a wide audience - and in the last year more and more oil firms of all sizes have recognized the tool's potential.

"The Internet accelerates the marketing and due diligence process," White said. "When a company is selling either prospects or producing properties, they want to increase deal flow or deal velocity and compress the marketing cycle time.

"These are both goals the Internet and an e-marketplace can help meet."

White called the Internet "a great mechanism for putting out a significant amount of information, allowing people to look at that information and indicate their level of interest.

"Following that initial step," he continued, "companies can screen potential buyers and selectively allow them into deeper levels of data via electronic data rooms on the Internet and/or through a physical data room."

White is in a position to know. His company works with oil companies to establish electronic data rooms (EDR) where they can market prospects and properties, and buy, sell and trade assets through a marketplace supported by its subsidiary in Houston, The Oil & Gas Clearinghouse.

Know Your Audience

White's advice is this: Before jumping in and using the Internet to market a prospect, companies should determine what type of a prospect they have and define their target audience.

"Generally, oil and gas assets, whether it be producing properties or prospects, lend themselves to online marketing," White said. "Prospects, for example, have a great deal of geological and geophysical data that prove their value - and the Internet is an efficient medium to present this type of information. Additionally, according to how the data is presented online you can be creative with the story you want to tell.

"For example," he continued, "we have a prospect in the Gulf of Mexico we would expose on the Internet with a limited amount of information in the form of an executive summary, consisting of an index map, a brief geological and geophysical description of the prospect and contact information. An e-mail with a link to the electronic data room is then e-mailed to several thousand people who have indicated an interest in that type of prospect.

"We in turn might receive hundreds of visitors to the electronic data room."

Once company officials have a chance to determine "who's interested in your prospect ... a list of say 100 potential buyers might be culled to 20 who are selected as viable candidates.

"These are the companies that are provided access into the highly secure electronic data room where they can view economic projections, detailed geologic and geophysical data in an interactive environment and other information," he said.

That will likely lead to offers, and then the company "can negotiate with those companies directly or through us as an agent to consumate a transaction."

Step by Step

Marketing a prospect online, White said, involves several steps:

♦  First, a Web site developer meets with an asset group from the oil company to get an idea of what they are selling and what they consider the key highlights of the prospect or property.

♦  Based on this information, the service company can determine the architecture of the electronic data room, with the EDR customized to reflect the image of the company.

"It can take anywhere from a week to a month to put together an EDR, depending on how elaborate they are," White said.

♦  After the initial meetings, everything is done by virtual collaboration.

"Once we get the information, we can then build the EDR and then publish it on a secure site where only the client can view it. This allows us to fine tune the EDR with the client before it is viewed by the public," White said.

This service is viable for companies of all sizes, but any company should consider working with a service provider that can establish these EDRs.

"We developed 70 to 80 EDRs last year, and clients range from three- to four-person companies up to large independents, major oil companies, and national oil companies."

Online marketing, he added, is definitely catching on in oil companies.

"We are starting to see more and more oil companies with some type of e-commerce initiative - especially larger companies," he added. "They are at least establishing pilot programs to test the waters for different uses of this medium.

"It's difficult to ignore the Internet today when the number of people coming on line every month is exploding."

Family Business

In addition to marketing and evaluating prospects and producing properties online, companies are finding that the Internet can be an important internal tool to better manage their own business.

"We have discovered as we go through the process of setting up EDRs that often companies know the most about an asset the day they are ready to sell it," White said. "This has been very revealing for companies, and executives are beginning to understand what an important data management tool the Internet can be internally.

"The Internet is valuable for marketing and evaluating prospects, but there is probably equal or more value in being able to get a better handle on their own portfolio," he added. "It's taking a lot of different turns that people never thought about before."

Once the EDR is established, an e-marketplace can help oil firms in other ways -- such as providing statistical analysis of those entering the EDR.

"At the initial level we can determine who is visiting the EDR," he said. "This information may then be used by the seller to proactively market to those companies with the most interest, or where there may be the best fit," he said.

"Also, we can tell what pages a given company is downloading," he said. "If a company is selling a mature producing field in Louisiana and the key element to the project is recompleting wells to tap missed zones, by tracking the documents that potential buyers download we can determine if they understand the emphasis.

"Once a smaller group of interested companies has been identified, authenticated and administered a password to additional information, we can track detailed usage and access of this information," he continued. "That type of knowledge is very useful to sellers, and enables them to hone their marketing efforts."

An e-marketplace also can help an oil company get the word out to a large number of potential buyers as well.

"Putting something on the Internet is like building a billboard -- if you put it on a dirt road nobody is going to see it," White said. "The key is getting it on the interstate highway where people will see it. That's where an e-marketplace comes in ... We can get the word out to both a wide range of companies using the Internet and also to the right people within those companies by leveraging the immense amount of transaction data and buyer profiles that have accumulated over the many years both offline and online."

Money Matters

Of course, the big question is always how much does this cost - and how much will it save?

White said his company's business model is built on three components: a technical service fee to build the EDR and to market the asset, a monthly fee to host and manage the EDR -- including the creation of detailed usage reports for the EDR -- and a risk-share success-based transaction fee upon closing.

That cost is offset by other savings - personnel, document costs, travel and other expenses - that can be achieved through the Internet's accessibility and through the use of a marketing firm.

"Even though at some point many interested buyers still want to see the coffee stains on the real maps, we can dramatically reduce the costs associated with marketing a prospect by using the Internet," he said.

"If you are active and do several of these deals a year and you can cut a couple of months off the marketing cycle, that's quite a cost savings."

The Bottom Line

Marketing prospects online seems to be paying off for oil companies.

"We have cases where we have put an EDR online on a Monday morning and had 150 visitors by the first morning," he said. "Thirty of these visitors downloaded the confidentiality agreement and four executed the signed agreement back to the seller by noon on Monday.

"At the beginning of 2000 I saw a lot of companies put their toe in the water and post maybe one rank prospect outside of their core area as a low risk test of this new way of doing business," he said. "Over the last year we've seen the value of producing properties and prospects increase, the EDRs become more elaborate and more producing asset transactions closed online."

"Today we are seeing a good deal of repeat business from clients who have realized the value of this medium."

White said the North American oil industry is a very active acquisition and divestiture market, and that a big part of that business is being able to efficiently manage a portfolio while maximizing the value of all the assets within the portfolio.

"Marketing and evaluating producing properties and prospects online can offer that efficiency and value," he said.

But while technical hurdles to online marketing and evaluating have been overcome in recent months, business hurdles remain.

"For example, you can present a prospect in the deep-water Gulf of Mexico, but may or may not be able to get the seismic data owner to provide a license to actually view the data on the Internet," White said. "The geophysical contractor industry has not yet fully updated its contract language to reflect the capabilities of using the Internet to view and interpret seismic data.

"That's a pure business issue," White said.

They have to answer business questions like:

Are we going to let this information on the Internet?

Are we going to limit access - and if so, by how much?

What kind of business model can be put together based on viewing the data from a central location?

"It brings up some very interesting business questions for all sectors of the industry," White continued. "Today we are grappling with those difficult issues, because this is a cutting edge situation that's never been encountered before."

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