By

Dr Ward Goldthorpe 

Lapis Capital and Development Pty Ltd

Originally published in SPE News, Australasia, November 2000

The E&P business environment is an extremely dynamic and volatile one. Success requires a balancing act between reduction of costs and cycle times and growing the value of a business through the combined management of technology, people and politics. The interconnectivity between all kinds of activities and businesses facilitated by the Internet has added another potent tool to this mix and is thus creating new opportunities and new threats.

e-Business can be simply defined as "Internet-enabled" business. Hence any business activity that can be performed, enhanced or modified by use of the Internet (including intranets and extranets) can be an e-business activity. The different business activities can be implemented with what we will call e-business components. Some examples include materials and services procurement, data and information acquisition, resource sharing, collaboration, asset trading, commodity trading and financial transactions. Use of the Internet causes these e-business activities to become far more transparent so their impact can flow through an organisation more readily. Using and optimising e-business components therefore has to be treated as an integral part of the strategic management of an enterprise.

Figure 1 shows a holistic business model of an enterprise. This model applies equally well to E&P companies or to service companies. Outside an enterprise is the business environment in which it operates. The company itself, which can be thought of as a "community", has a number of internal elements and transforms "inputs" into products or "outputs". We will have a look at the internal elements later. Examples of E&P inputs include equipment, materials, services, data, information and finance. Examples of E&P outputs include oil, gas, LNG, interpreted data, studies, contracts, exploration permits, and developed fields.

From a strategic perspective, the business environment determines the type of community we need to have. If we have the "wrong" community we won't be competitive and will lose investors or market share. The community itself must be efficient and adaptable to the changing environment. It must also be capable of delivering the outputs to high quality standards. Inputs to the community have to be purchased, and must meet quality and timeliness guidelines. Outputs from the community are sold or traded in various markets.

Using our model let's look at where some common e-business components fit and what impact they can have within a holistic framework.

1. Exchanges. Electronic exchanges can be used for buying and selling almost anything from goods and services to commodities and futures contracts. New exchanges are now available for the trading of E&P assets and even intellectual property rights. Hence, the transactions required for many inputs and outputs for an E&P company could be, in principle, almost entirely Internet based. Ease of access to these exchanges requires that new internal controls have to be established and new types of knowledge have to be captured and made available by the company. From a holistic point of view this means that the inside workings of the company (the community) need to be adapted to optimally interface with these inputs and outputs and the new market forces must be taken into account in a company's strategic plans.

For example, high expectations exist for a reduction in costs arising from electronic procurement using online marketplaces. Whilst this may be good for buyers, it may not necessarily be good for the suppliers unless their market share increases. On the other hand, the value of some assets may increase if sold online as greater accessibility brings more bidders into a marketplace. There are governments who have already benefited from increasing accessibility to bid rounds by using the Internet. In another example, some energy trading exchanges have seen phenomenal market growth as lower transaction costs have driven higher trading volumes. Obviously, all company processes and strategies can be influenced by such changes to the business environment so use of exchanges cannot be treated simply as an add-on.

2. Data and Information Transfer. Data and information are amongst the most important inputs to an E&P company. Using the Internet it is possible to find and access vast amounts of information. Powerful search capabilities can now be provided using engines based on virtual intelligence. Network and communications hardware and software are capable of handling large amounts of data, enabling almost real time transfer from field operations and analysis and feedback to modify those operations. This reduces cycle times within a company for those processes. On the output side of the company community appropriate information can be made available readily and freely to the many stakeholders (including external communities and interest groups) in a company's operations. There are thus new interactions possible with the business environment.

Looking holistically, when the cycle time of a process is decreased there are other effects that need to be managed. For example, faster cycle times mean the activities of the community speed up. This also means an error can propagate through the community faster. Quality control processes and systems therefore need to be able to respond faster and better. Internet connectivity means that partners and regulators will be able to obtain their copies of information and data faster. Hence decision-making and approval processes get altered and relationship management changes. So already a company's processes need modification to cope with all the flow-on effects of simply being able to get real-time access to operational data.

3. Collaboration. Internet-based collaboration and management software is going to provide one of those fundamental changes in work practices that have the potential to create substantial business benefits. Advances in data transfer, security and system standards and compatibility now make it technically possible to work across geographical and company boundaries. Hence one company community can be both internally optimised and interconnected with other communities to share inputs and jointly generate outputs. Interaction with the external environment can also be made consistent when two or more communities are connected together for a given project. However, once these communities are connected together a range of new issues comes into play.

Suppose that two E&P companies are going to work collaboratively using the Internet. The first big issue will be security and how to partition the two networks. One neat and simple solution is to establish a special purpose project website with various access controls. Where this site actually resides doesn't matter, but it must be integrated with each company's community. What flows into and out of this site must also be able to pass through the internal workings of each community independently. Only by each company taking a holistic view of this e-business activity as a combination of two interlinked communities, will it be possible to make the two communities work together for the benefit of both companies. In other words, new relationship issues arise and old ones become manifested in a different form.

A view inside the E&P company community is also shown in Figure 1. At the macro level there are four main elements: strategy, a knowledge store, operations, and input and output interfaces. The strategy element ensures the community is adaptable and responsive to the external business environment. The knowledge store contains the central memory of the community. The operations component produces the outputs, and controls the efficiency of the community and the quality of the outputs. The interfaces are used to route inputs and outputs, and information and knowledge about inputs and outputs, through the company as appropriate.

Optimising the performance of the company community in Figure 1 requires that strategy, operations and the interfaces be connected through the knowledge store. To achieve this Internet and intranet-enabled systems can be used for collecting, storing, retrieving and sharing knowledge and to facilitate delivery of integrated processes and tools. This is "internal" e-business, and the components used are "Knowledge Management", integrated technical and business enterprise systems, and intranet-enabled collaboration.

e-Business activities are characterised by a high level of interconnectivity and transparency. When these activities are used in an enterprise experience has shown that the flow-on effects and interactions with other processes can be quite dramatic. Successful implementation and integration of Internet-enabled activities within a company and between a company and its stakeholders therefore requires that management take a holistic approach. Also called a systems approach, the crucial concept to grasp is that all activities in a business system ultimately impact each other. Recognition that the Internet accentuates this impact is perhaps the single most important factor in adding the "e" to business activities.