This is the first ever issue of Oil IT Journal! It behooves me therefore to take stock, look forward and pontificate generally on what we are trying to do here. First I’d like to quote briefly from the old Petroleum Data Manager (PDM) - Vol. 1 N° 1. Back in July 1996 we said, “PDM will cover the fields of geology, geophysics, reservoir engineering and IT in general; and standards activity both within E&P and outside. We take a broad view of what ‘data’ means; from bits and bytes through the whole gamut of definitions including knowledge and even as some would have it ‘wisdom.’”
Wisdom a rare commodity?
Well, six and one half years down the road, 66 issues later, I think that we have kept reasonably close to those goals - although I’ll pass on how much wisdom we have managed to collect - that’s been something of a rare commodity through the dot-com days and into the Enron era, but I’ll get back to Enron in a minute.
If I had to tweak that early mission statement, it would be to extend the scope beyond the G&G and engineering focus. Like most everyone in upstream IT, we rode the e-business wave as it built up and came crashing down. This extended our coverage into financial systems Enterprise Resource Planning and Allocation, which we cover on an occasional basis, and into the field of on-line portals - still current as witnessed by this month’s issue.
My part in Enron’s downfall!
So Oil IT Journal is not just about the upstream. Actually, it’s not just about IT either. Our holistic view takes in the industry at large. Which brings me back to Enron. I learned with astonishment from the New York Times that one factor contributing to the Enron debacle was that the company seemingly confounded investors by reporting sales of other people’s commodities as its own revenue stream. This very same confusion was the subject of my editorial in Oil ITJ Vol. 6 N° 1 - published in January 2001, several months before the Enron collapse. I demonstrated using easily obtained public data that the true value of a market - I used the London Stock Exchange as an example - was a miniscule fraction of the money passing through it. At the time my remarks were directed at a few enthusiastic speakers at oil and gas tradeshows who seemed to be getting carried away with the upside potential of the exchanges. I never imagined that a large corporation, its advisors/auditors and most of the financial community could possibly share, or want to believe this strange notion.
As I said earlier on, we take a broad view of what constitutes good material for Oil ITJ readers, and we reported, back in our March 2001 edition, from the then Enron president Jeff Skilling, who spoke at last year’s Cambridge Energy Research Associates’ (CERA) week. Skilling advocated the de-capitalization of assets as a route to enhanced profitability. In the same way that Ford Motor company no longer owns its own tire plants (it used to own its own rubber plantations!) the truly modern enterprise should ‘disaggregate*’ - de-verticalize, de-capitalize and focus on specific activities where ‘benefits of scale and competitive advantage can be realized.’
Independent of Enron’s financial shenanigans, Skilling’s theories raises interesting issues - some of which were taken up by ex-Landmark president Bob Peebler at the 2001 SPE ACTE last October. Peebler, now with start-up Energy Virtual Partners, wants to remove the oil-price related uncertainty from the oil and gas business with a ‘new model for the industry.’ Peebler noted that historically, the E&P business has ‘destroyed capital.’ But what’s worse is that while in the past, oil stocks rose and fell with the oil price, today they seem on a one-way track, decoupled from oil price rises. According to Peebler, they fall when the oil price falls, but don’t bounce back when the market turns around and the oil price heads north.
Virtual, not vertical
One problem in evaluating an oil and gas corporation is the mismatch between the high tech, knowledge-based nature of the business and the ‘commodity nature’ of the .. um .. commodity - oil. Peebler’s theme, echoing Skilling, is to use high-bandwidth connectivity to de-materialize the E&P knowledge work team – ‘virtual, not vertical integration.’ To separate core from non-core. Peebler further notes the evolutionary nature of this process. What’s core today becomes context tomorrow. Peebler believes that the oil and gas service industry itself could benefit from some disaggregation, citing the case of ‘ a small software company operating as a division of a large construction company.’ (I wonder who he could have been referring to?) The problem is that the small unit has virtually no effect on the behemoth’s bottom line.
Baby and bathwater
All of which makes me wonder if, now that everyone is beating up on Enron, are we in danger of throwing the baby out with the bathwater? What is the current thinking on disaggregation, decapitalizing and focusing on knowledge work? Will these ideas continue to having currency in the wake of Enron, and in the face of the relentless, on-going consolidation of oil and gas corporations? (Of the service sector too - Schlumberger has just bought out Norwegian VR shop Inside Reality - more on this next month). So if you’re attending the CERA week next month please ask the folks there what the current thinking on decapitalizing and disaggregation is, and report back to us here at Oil IT Journal!
* Interesting semantics here - the consultants have dreamed up ‘disaggregation’ as the opposite of integration. The more obvious ‘disintegration’ might have been better in Enron’s case.
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