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Buying and selling oil and gas properties used to be done over handshakes and cigars. Today, an increasing number of those transactions are being done with the assistance of the Web. In the process, the Web is fostering new sources of competition and lowering costs, industry insiders say.
Over the past two years, a trio of Web sites — IndigoPool.com, The Oil & Gas Asset Clearinghouse and Oil & Gas Journal Exchange — have sold some $4.5 billion worth of oil and gas properties. And some industry officials believe the Web will soon be the dominant method for selling these properties, because it saves participants time and money.
In the past, energy prospectors had to travel extensively to review geologic information, seismic maps and production data on properties they were planning to purchase. A buyer had to spend days in the sellers office, poring over the maps and charts on each property, because sellers were often concerned about the security of their data and didnt want it released to potential competitors. In addition, the amount of data about oil properties is often voluminous, and therefore, difficult to disseminate.
Using the Internet, companies can post their production, geologic and seismic data on a password-protected Web site that is only available to prescreened buyers. Sellers get increased security and are freed from the responsibility of dealing with buyers visiting their offices. Buyers benefit because they can analyze the data at their convenience.
“Its just a very efficient way to buy and sell,” says Kyle Stallings, general partner of Permian Basin Acquisition Fund, an independent energy royalty company in Midland, Texas, that has bought and sold properties through The Oil & Gas Asset Clearinghouse. “It saves us travel expenses and time.”
IndigoPool, which went live in April 2000, appears to be the largest and best-financed Web site in the sector. The company has nearly 9,000 registered users, who represent about 500 exploration and production companies. So far, the site has helped sell oil and gas properties worth about $4 billion, including several properties that sold for more than $100 million each. And because IndigoPools owner, oil services giant Schlumberger, is a global company, the site is getting a good bit of overseas business — including listings in Asia and Africa.
Some of IndigoPools most prominent recent listings include lands being offered by the Alaska Division of Oil and Gas, which is putting up for sale leases on more than 2 million acres on the North Slope and the Beaufort Sea.
IndigoPool is, in essence, a very sophisticated classified advertising system. The site charges sellers $500 to $5,000 per month to list their properties. In return, it provides sellers with “data rooms,” where they can post data about their properties, as well as economic analysis tools. If buyers want to purchase properties, they negotiate directly with the sellers.
Net Auctions
While IndigoPool is pursuing a classified ads-type approach, the Oil & Gas Asset Clearinghouse and Oil & Gas Journal Exchange are pursuing auction-based businesses that put them into the middle of transactions. The two companies analyze the sellers properties, then post information about those properties on their Web sites. After that, the companies auction off the properties, taking bids over the Web and from live bidders at the auction sites. The companies then take a percentage of the final sale price, usually ranging from 1 percent to 10 percent, depending on the size of the auction and the amount of technical work thats needed on the properties. The companies also handle negotiated sales between buyers and sellers.
The Oil & Gas Asset Clearinghouse, a subsidiary of Petroleum Place, has sold $330 million worth of property since it began selling properties on the Web in June 1999, according to Ken Olive, the companys president and CEO. Of those sales, more than $50 million have been sold exclusively over the Web. The oil industry has long been tech-savvy, Olive says. Oil companies are “amazingly receptive to using the Internet for bidding,” he notes. “Plus, they like the data dissemination ability, and the ability to screen opportunities.”
Olives main competitor in the auction market is the Oil & Gas Journal Exchange, which is almost identical in name and concept. Backed by PennWell, the publisher of the Oil & Gas Journal, the company began auctioning properties early last year, and is now holding auctions every few weeks. It held its first Web-enabled auction in July. The company is also selling used oil field equipment through a site called the Oil & Gas Journal Property Exchange.
Steve Decatur, a staff development deployment leader in the Houston office of oil giant BP, says use of the Web in oil and gas properties deals is almost certain to accelerate. In years past, oil industry people depended on their network of friends and acquaintances when buying or selling properties, Decatur explains. “But they all called the same people. By going to the Web, you go beyond the old networks,” he says. “So you create more competition, and you get more offers than you might have gotten before.”