Like wildcatters scouting a hot oil patch, nearly everyone in the petroleum industry has drilled a stake into trading exchanges. Now, a new hub led by 14 of the world's largest energy companies is trying to drill the others into the ground.
Meanwhile, still plotting its own marketplace bets, and holding the market power to crown winners and losers, is the industry's largest player: ExxonMobil. Company executives hint its marketplace moves may be imminent.
So-called "Bubba-to-Bubba networks," a reference to the nickname given Texas oil workers, could save the oil industry $4 billion to $6 billion annually, according to analysts at Salomon Smith Barney. But there are lots of players going after the same market.
The recent announcement by some of the largest energy companies, led by Royal Dutch/Shell Oil Group and BP Amoco, follows earlier, separate moves by fellow industry giants Chevron Corp., Texaco Inc. and Schlumberger Ltd. All four exchanges aim to build critical mass.
The newest alliance (which also includes such well-known brands as Conoco Inc., Dow Chemical Co., Occidental Petroleum Corp., Phillips Petroleum Co. and Unocal Corp.) spends a total of about $140 billion annually. The entire industry accounts for about $180 billion in annual spending, according to a research report from Goldman Sachs & Co. Members of the as-yet-unnamed exchange are banking heavily on that combined clout.
"There have been other announcements within the oil industry, but ours has critical mass," said Del Clark, director of global e-business for Phillips Petroleum, Bartlesville, Okla.. "It will be large enough that other exchanges will have a harder time evolving."
In some ways, the oil business shakeout might prove an example, albeit crude, of the dynamics that will occur in other industries, said Calvin B. Cobb, a partner at Ernst & Young in Houston.
It breaks down like this: Front and center are several industry giants, coercing suppliers to get with the Internet trading program. Next up are a few early-start Internet trading exchanges, looking to hold on to themarkets they've already developed. And behind them are a few new ventures trying to make sure their pie-in-the-sky plans don't get eaten up by others before they even get started.
"We have an absolute explosion," Cobb said. "We're going to end up with a huge number of new companies, and in a year or two, there will be a huge consolidation. We won't need five different portals doing purchasing, five doing crude oil buying and selling, and so on."
Indeed, the alliance of 14 seems to have designs on an industry roll-up.
"We'd hope the other efforts would get folded into ours and become part of our exchange," Phillips' Clark said. The venture has been structured to allocate additional equity to new entrants deemed significant enough to warrant stock options, he added.
This latest oil exchange follows three other closely watched industry ventures. One, dubbed Houston Street, has a $6 million start-up investment from Equiva Trading Co., a joint venture of Shell, Texaco and Saudi Aramco. Modeled after a similar exchange in the utility industry, Houston Street, Portsmouth, N.H., aims to take the waste out of trading in refined gasoline, heating oil, jet fuel and diesel fuel. As such, it is not deemed a direct competitor to the new Shell-and-partners alliance.
Another exchange is IndigoPool.com, launched by oil services company Schlumberger. This is a true oil-patch trading play, focusing exclusively on the sale of oil and gas properties, said Rex Ross, VP of communications for Schlumberger. The oil exploration giant stands to benefit indirectly from the exchange, since its sells software for analyzing oil fields that is designed for use on the online exchange, Ross said.
Still another exchange is Petrocosm, launched by Chevron, San Francisco. So far, that exchange has focused on "rope, soap and dope"--the industry's term for basic, low-cost operating materials (dope is a term for grease used on drilling rigs).
Yet the industry's heaviest of heavyweights, ExxonMobil, has yet to set up a derrick in any plan, leaving some to speculate there's at least one more major play coming. One thing is certain: ExxonMobil opted out of the alliance of 14, but it is pursuing other e-com initiatives, said Ed Burwell, ExxonMobil senior media advisor.
ExxonMobil has left the door open, said analyst Cobb. If the single largest player in the $1 trillion oil and gas industry were to align with one of the exchanges, it might be game over, he explained. But the uncertainty the giant has created will allow smaller trading exchanges some time to prove themselves and build markets before any shakeout begins.
"No one knows just yet what will happen," Cobb said. "As a result, there's still time to capture some market. But just because ExxonMobil is not in this play does not mean they will not be in some play. They can't afford not to be."
And the playing field continues to swell, as other mid-market Internet companies look to capitalize on oil industry opportunities.
For example, World-Oil.com, Houston, is using a 72-year-old industry-standard catalog of equipment and services to build its own exchange, launched earlier this month. Lorne Bain, chairman-president-CEO of WorldOil.com, said he's comfortable building a business under the radar screens of the big boys.
"Have these new exchanges stolen the march?" Bain said. "The answer is no. E-commerce was already coming to this industry without regard to whether the exchanges were created or not. There are still good services to be done and business to be rendered."