Managing oil and gas asset life-cycle projects with private exchanges

As with other industry sectors, large public marketplaces have evolved to create efficiencies in the purchasing process. However, while the public marketplace model can and has worked well for maintenance, repair, and operations (MRO) or commodity-type products used across industries, it falls short when applied to the rest of the industry's business needs.

It does not handle the complex and highly engineered services and products specific to the oil and gas industry.

The public marketplace model largely ignores the collaborative commerce and knowledge-sharing needs between market participants, which are integral parts of the oil and gas business. Now, the surviving marketplaces are recognizing that perhaps the real value of the internet is managing secure collaborative business interactions. In response, they have begun to retrofit by adding collaborative business functionality to their platforms.

New collaborative platforms are being developed almost daily, and of those becoming available, the private exchange is one of the more popular choices, and its use continues to grow. In 2000, 90% of business-to-business (B2B) electronic-commerce transactions were conducted through private exchanges, with tens of thousands of new exchanges currently being built. Although it is by no means the only platform that is catering to the collaborative needs of complex business models, it is the one that will be investigated in this article. This is due to its ability to provide many business benefits to the oil and gas industry's evolving search for valuable internet-enabled business capabilities.

It should be emphasized, however, that any company should thoroughly understand its business process needs first and then investigate the utility of a variety of collaborative platforms in terms of those specific needs before adopting a private exchange model or any other collaborative business platform.

Private exchanges defined

The private exchange is a one-to-many, "by invitation only" internet business model where internal crossdisciplinary teams, external partner companies, and external service and product suppliers are invited to participate in an exchange of information by a host company.

Private exchanges best serve companies that have specialized or complex products or services and that depend upon varied and sophisticated B2B relationships with their key suppliers and partners.

Private exchanges offer functionalities that include collaboration, content, and commerce services. They may include any or all of these, in any combination, and can expand to embrace new functionalities as the host company's online strategy evolves. Among these functionalities are:

• Collaborative environment. The private exchange enables a multidirectional flow of information among the host company and its partners and provides a secure environment for the exchange, development, and preservation of critical intellectual assets. This environment fosters innovation, deepens key business relationships between participants, and helps develop a functional knowledge base that speeds future development efforts and reduces work-flow cycle costs.
• Content services. Participants in a private exchange are offered industry or project-specific information sources, such as schedules and calendars, online training, geographically specific weather conditions, important information links, and project-specific contact lists. Proactive event notification can streamline the decision process by keeping decisionmakers alerted to important project incidents, both anticipated and, perhaps more importantly, unanticipated.
• Commerce services. Collaborative commerce functionality can be included in the private exchange architecture. The privacy, personalization, and security elements built into the platform allow participants to preserve, enhance, and protect their unique, preestablished business relationships. Pricing for products and services can be automatically customized for each supplier based on existing relationships or contractual rules, eliminating a more error-prone manual ordering process. Secure, accurate, and customized price information can be immediately available to each private exchange participant, as appropriate.

Value of private exchanges

Because of their complexity, projects that take place throughout the life cycle of an oil and gas asset present a number of challenges. To meet these challenges-whether technical or business-related-the online environment of a private exchange can be deployed to smooth the path and add real value to the processes involved.

Some of the values gained through the use of private exchanges include:

• Compressed cycle time. Today's heightened exploration activity encourages the oil and gas industry to compress project cycle times and drive out process inefficiencies. The use of a private exchange to efficiently and effectively solve problems and make decisions reduces these cycle times. While there is little documentation yet available for the oil and gas industry, in the construction industry, for example, decision cycle time has been reduced as much as 40%.
• Enhanced flow and exchange of information. Activities that take place around oil and gas asset life-cycle projects involve very complex processes. Improvements in real-time communication and historic knowledge preservation and sharing-both inside and outside the organization with partners and suppliers-can greatly enhance the success and operational value of even the most complex project. The private exchange's management of this communication and knowledge allows this success to continue even as participants, projects, and needs change over the lifetime of the asset.
• Effective work flow between partners and suppliers. Not only are oil and gas projects complex, but they typically involve a broad, complex cast of characters and business relationships. Partners and oil field service companies bring their own value to the tasks at hand. Finding new ways of effectively bringing them closer to the project and efficiently supplying and exchanging information helps drive down the project cycle time, increases the chances of success, and allows the participants to keep pace with the project's increasing activity rate.
• Leveraged global capabilities of existing personnel. With the reduction of available qualified personnel in the industry-resulting largely from losses during economic down cycles-companies often have no choice but to continue to ask the fewer remaining professionals to do more. Improving productivity without adding further operational and logistical burdens can be achieved by providing them with the techniques, tools, and technologies to extend their capabilities regardless of where they are located. Further, leveraging internet-based tools and technologies, such as through the use of private exchanges, may help to reposition the oil and gas industry in the minds of new young professionals and attract them to the industry.
• Improved efficiency of collaboration. As projects grow in size, complexity, and geographic scope, costs and service provision are shared with a growing number of partners and providers, and the need to communicate and collaborate efficiently grows, but at an even faster rate. The subscription services that a private exchange offers assure that those who need to be involved in critical activities are not excluded, regardless of location. The exchange provides efficient coordination of the communication flow between the exchange participants. Proactive notification informs subscribers that events have taken place and may need their attention.
• Management of complex relationships. Although participating companies in an exchange generally have an existing business relationship, the collaborative nature of the exchange allows users to leverage and extend these business and technical relationships while maintaining distinct business rules and security levels for different participants based on these existing relationships.
• Development of complex services and products. Services and products used by the oil and gas industry are very complex and highly engineered. A private exchange provides a platform through which participants-such as cross-functional teams, partners, and suppliers-can collaboratively develop the services and even participate in the design of new products with suppliers. With commerce capabilities, the exchange also can function as the central procurement site for these services and products.

In the field

In Fig. 1, an incident in the field has occurred, such as stuck pipe, unexpected drilling problems, equipment problems, or production problems. A decision resolution is needed, and it requires the input of an internal technical and management team, the project partners, and the project's service and product suppliers.

The collaborative exchange environment brings to bear the experience and expertise of all parties to develop the best possible solution and does so more quickly.

Ordinarily, the communication trail is blazed by phone, fax, pagers, and e-mail and would be littered with callbacks, missed messages, and difficulties in assembling the appropriate people and documentation needed to resolve the problem.

Often, decisions that arise from these conditions are rushed, incomplete, undocumented, and suboptimal, resulting in slowdowns in the field, lost revenues, lost know-how, or-in the worst case-a dangerous escalation of the situation.

In a private exchange scenario, a field professional might log onto this particular project's section of the operator's private exchange and post his concerns. Instantaneously, all personnel "subscribed" to this project are proactively notified, as illustrated by the dashed arrows in the figure. This notification can occur via e-mails, wireless phone, pager, or personal digital assistant device.

In private exchange implementations in other industries, such as in the construction industry, text-to-voice technology has been used to actually read the contents of the incident to the recipients on their cell phones, giving them a clearer understanding of the context of the incident.

After notification, project participants log onto the operator's private exchange. All the data and technical and business documentation relevant to the project are contained within the project-specific section of the exchange and are available to the appropriate personnel.

All the project participants-technical and business teams from the operator and partner companies, the key onsite perspective from the field, and the service and product specialists from the supplier companies-are present during the formulation of the decision resolution.

The exchange provides the immediate access to needed documentation, data, and information that are necessary to collaboratively reach a better decision more quickly. The process of reaching the decision, as well as the context of it, becomes part of the historical knowledge base of the project within the exchange, and is available for reference in the future or for similar current projects.

Finally, should the decision involve the need for additional services or products from the suppliers, the exchange-if set up to accommodate online commerce-would give the operator, the onsite personnel, and the supplier the ability to collaboratively develop the appropriate service or product specifications, schedule delivery, and complete the commercial transaction, all from within the exchange.

A new era

Although face-to-face interaction will always be valuable for building vital business relationships and establishing a working level of trust between individuals and companies, it is time to recognize the value of tools that facilitate the extension of business relationships into the global online environment.

The real value-adding "killer app" that the oil and gas industry has spent so much time searching for might just be in the area of online collaboration.

"Constructive business collaboration" capabilities are emerging, and the interest in global collaborative platforms is growing, changing the way we think about complex business processes and relationships, and changing the way we will use the internet.

The author

Dennis McMullin is the research director for Proxicom's energy practice in Houston. With over 30 years of experience in the energy industry, he specializes in business-to-business electronic commerce development and electronic-business strategy development. Prior to joining Proxicom, he had his own consulting practice working with a wide range of clients to develop their e-business strategies. He also spent over 11 years at Landmark Graphics Corp., where he focused on marketing technical solutions to the energy industry. In the 3 years prior to leaving Landmark, he was an internal consultant to Landmark and was involved in strategy development for the company's online and internet initiatives. He holds a BS in geology from the University of Cincinnati, an MS from the University of Texas, and an MBA from Houston Baptist University.