Hurdles remain for service-supply sector use of e-commerce

March 12, 2001
It has taken a while, but the oil and gas industry's service and supply sector has reached a plateau regarding its use of-and comfort level with-electronic-commerce (e-commerce).

It has taken a while, but the oil and gas industry's service and supply sector has reached a plateau regarding its use of-and comfort level with-electronic-commerce (e-commerce).

For the electronic buying and selling of goods and services via the internet to continue to develop, certain restraints need to be addressed.

These were some of the findings from a survey conducted by the consultant Spears & Associates Inc. (S&A), Tulsa. S&A partner Kurt Minnich told a Mar. 1 Society of Petroleum Engineers' luncheon that, in the service and supply sector, e-commerce is emerging from a period of disillusionment, where both buyer and seller held misconceptions about each other's role within the e-commerce model.

Survey components

S&A's survey was prompted about a year ago, Minnich explained, when his firm started receiving calls from its clientele-almost exclusively service and supply firms-anxious about what was happening with e-commerce. "When they have anxiety, we have anxiety," Minnich said of his firm, which specializes in market research for upstream service and supply companies.

Realizing that a large sample would be required to gauge such a newly developing technology, S&A conducted 100 interviews with buyers and sellers of oil field services and equipment, asking each about their overall perceptions of e-commerce.

"Oil and gas typically leads a lot of areas of technology, but this is one area where oil and gas is not out there on the 'bleeding edge,'" Minnich noted.

E-commerce hit the market with a lot of hype, he explained. But presently, the hype level, or visibility, of e-commerce is starting to noticeably taper off. "If you look at statistics [such as those for] IPOs [individual public offerings]-in fourth quarter 1998, there were 30 IPOs. By the first quarter of 1999, there were 90," Minnich said. "And they continued to climb, andellipsein the fourth quarter of 2000, there were just 10."

When this line of visibility is graphed over time against the applicability of e-commerce-or how the technology is used-there is a shaded crossover region, which Minnich termed an area of disillusionment.

"By disillusionment, I mean the oil companies have a certain expectation that they can find any product, they can get it right at their fingertips, and have it delivered, and it's what they wanted."

Meanwhile, he added, the seller has an expectation that it can get a share of every transaction. Neither of these expectations is fulfilled in reality, he explained. But industry is now making its way through this disillusionment area.

Plateau reached

Minnich said that e-commerce is now at a plateau, with forces both helping it along and holding it back. Among the components aiding e-commerce's development, he explained, were time savings, improved management of business relationships, amount of information available, unit cost price, increased selection of items, and transaction costs.

Survey respondents voiced concerns about using e-commerce, which were identified as the forces holding back the technology's development. These were found to be lack of security, which included not trusting a particular system and not trusting the privacy of data; the creation of too many-and therefore unmanageable-customer relationships; mismatched orders; lack of proof of cost savings; possible requirements to change corporate policy; utilization levels-both equipment and staff; legal issues; and cost of implementation, such as adding staff and equipment.

Minnich likened the future evolution of e-commerce to a "weather front" that is trying to move over an area of land. By graphing unit cost vs. ordering frequency, he explained that the "topography" of the upstream industry's use of e-commerce can be viewed.

E-commerce begins with the ordering of an item with a low unit cost at a high frequency and then moves to the less frequent ordering of more expensive goods and services, he said. As for the prediction of this particular "weather front's" movement, Minnich said, "A good forecaster never tells you what and when."

Spears & Associates' Kurt Minnich

Regarding the upstream oil and gas industry's disillusionment with e-commerce, oil companies have a certain expectation that they can find any product, they can get it right at their fingertips and have it delivered, and it's what they wanted. Meanwhile, the seller has an expectation that it can get a share of every transaction. Neither of these expectations is fulfilled in reality. But industry is now making its way through this disillusionment area.