One company's greatest fear might be another company's chance to gain competitive advantage. Might e-commerce offer that advantage?
Once again we discuss e-commerce and the geophysical community, partly because of a recent conference I attended and partly because of a rumor about a large oil company trying to hold an online auction to bid a seismic survey. Details about the auction have been in very short supply, so I'm not sure it even happened. But the rumor put the fear of e-commerce into the geophysical contracting community like never before.
Contractors fight every day to keep seismic data, even spec data, from becoming commoditized, but the very nature of e-commerce makes commodity items the easiest to buy and sell over the Internet. And while these companies are fighting to somehow differentiate their data from a piece of casing or a production valve, their clients are applying pressure to join the computer age.
Shortly after the rumor surfaced, the International Association of Geophysical Contractors held a conference on e-commerce (no cause-and-effect relationship is meant to be implied here). The rumor was never publicly acknowledged, but just about every other aspect of e-commerce was - lessons from other industries, e-procurement, security, bandwidth and data management. I felt, though, that the more pertinent question to be answered was this: How can geophysical contractors make the best use of e-commerce to market their seismic data without losing the data's intrinsic value? They can't just bury their heads in the sand and hope the trend will pass them by; their clients won't let them.
One of the speakers commented that e-commerce in the oil industry is being driven by buyers who want to force sellers to accommodate their wishes. Eventually there might be a "sellers' revenge," in which sellers, including seismic companies, will have the opportunity to tailor the buyer-seller relationship more to their liking.
But this adversarial approach to commerce, e or otherwise, is as a conference attendee later commented, "not necessarily the healthiest business model."
E-commerce does offer opportunities to seismic contractors. Already some have benefited from streamlining their procurement of acquisition equipment. And most agree spec data readily lends itself to online sales; it's already a Web site offering from several companies. Dan Magyar of IndigoPool pointed out other opportunities as well - the potential to merge spec data sales with the online acquisition and divestiture markets, the creation of new multiclient business models, online data management and distribution, the use of application service providers for interpretation services, online collaborative tailoring of geophysical services and interactive geophysical data collecting and processing.
The e-commerce initiatives that have been attempted within the industry have been mostly successful. Recently an online licensing round took place for Gabon, and Magyar said IndigoPool hosts data rooms online for the acquisition and divestiture market. Additionally, it helped BP launch Virtual Prospect, a program that enables that company to offer undeveloped prospects for evaluation online. The successful pilot, which resulted in five blocks being awarded to five companies, allowed external interpretation teams to develop the prospects. BP plans to offer more blocks this month.
Magyar's conclusion was that e-commerce business models are evolving, and the sharing of the benefits remains unresolved - after all, one company's revenue is another company's cost. But the geophysical industry is well positioned for e-commerce, he said, particularly when it comes to spec data.
"There are concerns with data licensing and the preservation of the intellectual property that spec data represents," he said. "But there are tools that can display that information online without compromising the data and by offering a secured view."
Apparently, then, now is not the time to ignore e-commerce and hope it will go away. Instead, it's time to try to drive the business model in such a way that geophysical contractors don't get knocked out of the value chain. To do this they'll have to rely on their customers for help. "It's critical that E&P companies and geophysical companies make sure some of the value is preserved," Magyar said.
Spec still strong
Meanwhile, signs indicate the seismic market is finally strengthening and the spec model is, for now, still holding its own. TGS-Nopec announced record fourth-quarter earnings, with gross consolidated revenues up 76% over the fourth quarter of 1999 and an increase of 70% in net revenues. Late sales from the multiclient library increased 64%, and Gulf of Mexico sales were particularly strong.
Chief Executive Officer Hank Hamilton attributed the "extraordinary" data library sales partially to oil companies underspending their 2000 budget funds, their realization that prospect inventories are starting to decline and their preparation for upcoming licensing rounds.
Veritas DGC earned a "strong buy - speculative" recommendation from Dain Rauscher Wessels in light of expected high demand for seismic data. Analysts Jim Wicklund and Kevin Pollard wrote demand for Gulf of Mexico survey data is expected to rise as the majors and large independents begin to focus on their larger-scale deepwater projects. They also expect demand for contract and multiclient land surveys to be strong.
Even Input/Output, chronically plagued by poor analyst outlooks, got a "buy" rating from Johnson Rice & Co. LLC. "Management has done a commendable job of minimizing costs and improving margins in a depressed industry environment," the report stated. "As revenues increase, we expect these efforts to show up in rapidly expanding margins and help drive I/O's bottom line."
Last but not least, Seitel got a warm show of support from a CIBC World Markets report that attempted to distance Seitel's fortunes from those of downward-spiraling Petroleum Geo-Services (PGS). "The problems of (PGS) have called into question, yet again, the value of multiclient data," the report stated. "This issue has surfaced several times in the past 10 years, every time to be resolved in favor of the Seitel business model. We find this time to be no different...Seitel's business is run with a lower risk tolerance and, maybe now that high-flier (PGS) has crashed and burned, will be more favorably evaluated for this strength."