Oil Companies Pump Investments into B2B Start-Ups

Oil companies have had a boom-bust relationship with high technology since the high-profit days of the 1970s, when several oil companies, most notably Exxon, pumped millions into largely unsuccessful high tech start-ups such as Zilog, Qwip and Qwix.

When the profits ran dry after the OPEC oil embargo ended, so did the high tech investments. Now, with profitability rising as oil prices near post-Gulf War highs, oil companies are again starting to pump some of those profits into high tech investments. This time, the money is being used to develop business-to-business (B2B) e-commerce sites on the Internet.

Shell Oil and the Norwegian government’s Statoil, for example, have both recently announced what seem to be competing B2B Web initiatives.

Statoil, one of the world’s largest crude oil companies, has hired enterprise software giant SAP AG (NYSE: SAP) to build a global online marketplace for the oil and gas industry. Shell Oil announced an agreement with Commerce One last week to develop an online trading community for energy companies, their suppliers and customers.

In addition, two smaller oil companies announced deals in which they are trying to create specialized B2B Web sites to serve niches within the crude oil and gas industries.

Statoil Shooting for General Industry Marketplace

Statoil said it will use its site to enable leading oil and gas companies to collaborate and do business online. The company added that it will use a handful of its suppliers in a test-run of the site to both ensure its viability and enlist their support. The site is slated to open in the second quarter this year.

The online marketplace will be hosted at SAP’s mySAP.com, a site that provides space for businesses in a variety of industries to create alliances and buying-selling relationships.

SAP said that the “Marketplace for the Oil and Gas Industry” will be open to all members of the industry. However, its initial focus will be on procurement of equipment and services for upstream and downstream business, including maintenance, repair and overhaul goods and services, spare parts, equipment and oil field services.

Statoil, which reported procurement costs of $4 billion (US$) in 1999, said it expects to realize “substantial cost savings” from the site. For buyers, SAP claims that the marketplace will provide reduced transaction costs, quick and easy evaluation of product alternatives, simplified handling of calls for tender, increased market transparency and up-to-date product information.

Shell Also Aiming at Industry B2B Site

Shell and Commerce One agreed to form a joint venture in which Shell will hold a majority stake while Commerce One and a group of joint venture partners will own the rest.

Shell said the new site is based on Commerce One’s B2B Marketplace Portal. It will be open to energy companies, their suppliers and their customers, and will also help small and medium-sized regional enterprises enter the global market, the company said.

Smaller Fry Jumping In

On a smaller scale, Denver, Colorado-based OilExchange, Inc. launched OilExchange.com, an online oil and gas property transaction service. Unlike the Statoil and Shell Oil sites, which will deal in all types of oil-related products and parts, OilExchange.com is designed solely for buying and selling oil and gas properties.

OilExchange said that producing and exploration properties of any size, in any geographical location, can be presented, screened, reviewed and sold on the site. OilExchange added that the site plans to add an online clearinghouse for oil companies that seek financing for acquisitions and development of producing properties. Accredited financial institutions and investors will be able to review the projects online and bid to provide financing for this $40 billion per year market, the company said.

Meanwhile, Competitive Analysis Technologies is keeping track of thousands of individual Web sites operated by players in the oil and gas industry. The company says more than 3,800 such sites are now in its database of upstream and downstream companies.

Major players like Shell, Saudi Arabian Oil Company (Aramco), Ranger Oil in the United Kingdom and the American Association of Petroleum Geologists use the downloadable database to direct their various offices to online companies available for business.

High Tech Investments Ran Dry the Last Time

The last time oil companies crossed industry boundaries with high tech investments, their pockets dried up as soon as profits turned down. While the Shell and Statoil are not taking the same kind of plunge that Exxon, in particular, took in the 1970s, it still remains to be seen whether they can successfully mix oil and the Internet.