When Oil Gets Connected

On a frigid winter day last year off the coast of Norway, a

BP Plc exploration geologist discovered a more efficient way to find oil on the

dangerous Atlantic seabed.

The secret–by changing the position of the drill heads, he

was able to better aim the equipment and reduce the number of misses.

The Norwegian employee posted a description of the new

process on the oil giant’s intranet for everyone in the company to see. Within

24 hours, an engineer working on a BP well near tropical Trinidad spotted the

posting and e-mailed, asking for details. After a quick exchange of messages,

the Caribbean team was able to save five days of drilling–and $600,000. Oil is

a dirty, greasy business that requires lots of sweat and muscle, but it is being

overhauled by the Web. BP, with $150 billion in annual sales, has 100,000

employees working in more than 100 countries. The Net helps the London-based

company knit together those disparate operations and turn its global scale and

gargantuan size to its advantage. Along the way, the Internet has helped BP save

$300 million this year and boost innovation at every step–from oil exploration

in Siberia to running gas stations in Atlanta or London. "The Net allows us

to stop being a conglomerate and become a single, smooth global

corporation," says John Leggate, BP’s group vice-president for digital

business.

These days, that’s more important than ever. Since the

terrorist attacks of September 11, demand for energy has plummeted and oil

prices have fallen by almost a third, to $19 a barrel. The dual drop has cut

into oil company profits. On November 6, BP announced a 20% decline in Q3

earnings, to $3 billion, even as oil and gas production rose 3%. But BP’s Web

efforts lessened the quarter’s pain: Savings and added revenues from BP’s

Net ventures reached some $75 million in the period. And with war continuing to

rage in Afghanistan and the world economy heading for a recession, BP will need

all the help it can get.

BP isn’t the only global oil giant moving onto the Net, but

it’s the one moving fastest to get there. It has won a reputation for being

nimble and entrepreneurial, in comparison to its more risk-averse, bureaucratic

competitors. "Shell and Exxon still act like they’re run by committees,

while BP is fast on its feet," says an oil analyst of Commerzbank in

London. As the Norwegian-Caribbean drilling exchange illustrates, it already has

made sharing knowledge online a central part of its corporate culture. BP also

is spearheading the creation of oil industry electronic exchanges to buy

supplies, trade energy, and auction off empty seats on helicopters flying to oil

rigs. It’s even bringing the New Economy to filling stations, installing

Net-linked pumps that provide motorists with up-to-date travel information.

Dreams vs reality



To be sure, those who dash ahead sometimes push too hard. A year ago, BP

said it hoped to move an astounding 95% of its $25 billion in procurement to the

Web by the beginning of 2001. That target was unrealistic. The company will

manage to complete just 4% of its purchases online this year, resulting in

savings of some $100 million. Online exchanges for buying and selling supplies

and components–a key part of initial purchasing plans–have proved hard to

get off the ground. And the assumption that the company could save money on

everything it buys by shifting purchases to the Web proved false.

"We could buy coffee cups online, but when we looked

closely, who would care?" says Mark Stanke, BP’s vice-president for

global e-procurement. He says it will take several more years before even half

of BP’s purchasing takes place online.

Then again, what company isn’t finding that virtual dreams

collide with realities? The opportunities look immense, but realizing them is

often a hard slog. A step forward often means taking a half-step back to

evaluate whether you’re still heading in the direction you want. Consider BP’s

attempt to transform the old corner gas station into an online retail center.

Last year, BP launched an ambitious $200 million project to install Web links at

gas pumps and Net-linked kiosks inside stations. But at a test facility in the

West London, the manager said that only about 10% of his customers use the

service. And many are dismissive of the whole notion.

More than outright failure, BP’s missteps reflect a

hard-driving, risk-taking corporate ethos. BP was a stumbling state-owned

company until 1987, when the British government sold its final 30% share. Even

then, BP labored under a debilitating debt load until new management arrived in

1992. Out went the company’s classic pyramid organization; in came a family of

150 entrepreneurial business units, with managers’ pay based on the unit’s

profits. In the late 1990s, BP embarked on a $100 billion shopping spree as the

industry consolidated and Big Oil got even bigger. In 1998, BP announced a

merger with Amoco. The next year, it bought Atlantic Richfield. And in 2000, it

took over Burmah Castrol.

The Web has played a key role in helping BP digest these

acquisitions. On January 1, 1999, shortly before the Amoco deal closed, Leggate

was named the company’s digital director. His first task: integrating the two

companies’ computer systems so all employees could have access to the same

data.

Shiny brain



Leggate cut through the tangle of systems and software packages BP had

inherited in the mergers. He settled on one accounting program and a handful of

suppliers, and slashed overlapping tech projects that had been initiated by

teams at both BP and Amoco. Leggate produced $500 million in savings in 11

months–less than half the time the company had given him to cut costs. That

success, plus his shaved head and quick mind, prompted colleagues to dub him

"Shiny Brain." And his focus and drive have given him a reputation for

being a taskmaster.

After trimming fat for a year, Leggate began using the Web to build muscle.

Last year alone, he spent $250 million on initiatives aimed at getting the

company online. He gave two-thirds of full-time employees–everyone from top

management to roughnecks working on oil rigs–Net-linked laptops. And he

constructed a Web-based employee directory called Connect. This is no mere phone

book or e-mail system. It’s a corporate Who’s Who containing personal home

pages for virtually every BP worker. Click on John Leggate and his picture, work

address, and phone number will pop up. Readers learn about his 20-year BP

career, and discover that the ultraserious tech boss has a strong interest in

knowledge management programs such as the Connect system he created. BP

employees searching for information about drilling in the Caspian Sea might land

on Joshua Turner’s page. While they’re there, they’ll discover details

about his work as a structural geologist as well as his love of sailing,

mountain climbing, and squash–not necessarily useful for BP business, but a

potential ice-breaker with Turner that could help create a more personal bond

between employees.

Spiral of help



Such simple ideas are a powerful tool in a global company created from

enormous takeovers. One sign of success: The number of hits to BP’s intranet

has more than doubled in the past 11 months. That’s leading to more sharing of

information–and a growing payoff. When the British Nitrate Business Unit

needed to translate its safety video into French, it saved 80%, or $8,000, by

using the Web to find French BP employees who could help out. South African

marketing manager Fumu Mondoloka needed to prepare an offer to supply fuel and

lubricants to a new facility South African Breweries was building in Zambia. So

he searched on Connect for other BP employees who had dealt with the beverage

industry, locating the terms of an offer made to a Scottish beermaker. "The

process yielded an incredible spiral of help," says Mondoloka, who nabbed

the contract.

BP also is wielding Web technology to reinvent its most basic business–finding

oil. Drilling for crude traditionally was an expensive, time-consuming,

hit-or-miss affair. Battalions of rig builders, engineers, and drillers were

airlifted into far-flung, often dangerous, sites. Now, before a major well is

started, teams gather in any of 15 3-D imaging rooms from Anchorage, Alaska, to

Aberdeen, Scotland. There, geologists and engineers tap into data sent over the

Net that allows them to view images of the far-off Caspian seabed or deep below

the Canadian Rockies.

"Decisions on where to drill that often took us weeks now can be made in

hours," says a project coordinator. Better yet, the supercomputer images

can help BP avoid brutally expensive mistakes–such as dry holes or clogged

wells–that require million-dollar repairs. Saunders further reveals that

British Petroleum saved some $45 million on one drilling project in the Gulf of

Mexico alone, and the company expects savings of $150 million annually from the

program.

Virtual HR



The Web works for BP in more modest ways, too. The company has moved almost

its entire human resources department online. In 1999, BP set up a Web system

that allows employees to track their benefits, follow company job listings, and

update their records. Overall savings are about 20%, or roughly $100 million

annually. A single salary payment system linked globally by the Internet is

being developed from the inherited jumble of seven different systems. The new

links speed up communications and help to vastly improve services that the HR

department provides.

When offered a new posting anywhere from Azerbaijan to Zambia, employees fill

in an online form with personal details such as their marital status and number

of children. In less than a minute, a proposed housing allowance and other

benefits pop up. A benefit: BP has cut its HR staff by 60% since the system went

online.

Sharing seats



BP is even planning to use the Web to more efficiently get roughnecks out to

oil rigs. Helicopters cost more than $10,000 an hour to run, and more than

50,000 seats each year go empty on flights shuttling between Scotland and North

Sea platforms. The solution? Heliseat.com, a Web site BP founded with rival

Shell that will help the companies and other industry players share seats. BP

expects to see some $5 million annually in savings and new revenues. Its

investment: Just $2 million for its 50% stake.

Indeed, for every step BP takes on the Web, it’s learning to adjust its

digital dreams to the reality of a complicated marketplace. BP has made big

strides in bringing its global organization online, demonstrating that the Net

can transform even the heaviest of old-line industries. But this transformation

won’t take place overnight. And in its enthusiasm to embrace the Web, BP has

sometimes stumbled or overreached. It will take patience, concentration, and

much more hard work for the Net to reach its full potential and drill a steady

stream of oil-producing gushers for BP.

By William Echikson; Contributing: Andrew Park in Dallas in

BusinessWeek. Copyright 2002 by The McGraw-Hill Companies, Inc