Internet promotes 'virtual integration' of energy companies

Collaboration across traditional business boundaries through internet technology is reshaping the energy industry in ways that few participants yet comprehend, said Robert P. Peebler, vice-president of e-business strategy at Halliburton Co.

Feb 15th, 2001


Sam Fletcher
Senior Writer


HOUSTON, Feb. 15�Collaboration across traditional business boundaries through internet technology is reshaping the energy industry in ways that few participants yet comprehend, said Robert P. Peebler, vice-president of e-business strategy at Halliburton Co.

Few energy executives fully understand how radically their business landscape is shifting or how to gauge their positions in a global marketplace increasingly dominated by the internet, he said Thursday at an e-business workshop in Houston sponsored by the Society of Petroleum Engineers.

When a business �discontinuity� occurs, such as the emergence of the internet, investors begin �looking across that fault line and trying to guess which companies have �got it��which will change their business models to take advantage of emerging technology to renew shareholder value,� said Peebler. �Shareholder value is about people�s belief in your future cash flow.�

The internet is at the center of a shift in business evaluation from assets to information. That shift �is really problematic for our industry, which is capital asset intensive,� said Peebler. In the new economy, he said, �It is now more profitable to own information about oil than to own the oil.�

The new ability to share information and conduct business across industry lines via the internet is replacing vertical integration of energy operations with a more collaborative strategy of virtual integration of several companies, said Peebler.

Vertical integration was based on the idea that a company can get a competitive advantage by doing everything itself. That concept of �hoarding the value chain� is difficult for many in the oil and gas industry to break, Peebler said.

�Core is what you do to create future shareholder value. Context is everything else,� he said. �The question is, �How do you get 80% of what you do focused on your core operations and get rid of everything else?��

His answer is the collaborative virtual integration of a variety of companies, with each making its own contribution toward the common goal. �What�s context for you is core for someone else,� Peebler said. �This is where the power comes in of the collaboration tools, of the internet tools.�

But virtual integration goes far beyond traditional outsourcing, with virtual partners and remote service providers becoming an integral part of an exploration and production company�s �value proposition.�

Those virtual partners �must be economically aligned and effectively integrated with the company�s internal systems, including its information technology. The �virtual IT� system of the future, therefore, must extend far beyond the corporation�s firewall,� Peebler said.

Moreover, there will not be a central command structure controlling that cooperative effort, as in current �master-slave� relationships. Instead, the system will be self-organizing that voluntarily aligns into a true collaboration, with each component contributing its own specialized work, Peebler said.

�Our industry has not got that idea yet,� he said. �The industry of the future will not be the service sector and the oil companies. Some day the oil company will be everything, and you won�t be able to figure out which is what.�

That concept, he claimed, �is right at the epicenter of what the new economy model will be like. And it�s one that people don�t like, because it says the way we are now is not the way we will be in the future.�

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