When Oil Gets Connected

BP's Net ventures will have a $300 million impact this year--just as times turn tight

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 more 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 (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 Nov. 6, BP announced a 20% decline in third-quarter 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. "The value of every penny saved is becoming clearer," says Leggate.

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 oil analyst Steve Turner 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.


  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 real-world 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 neighborhood of Hammersmith, manager Davinder Birdi says only about 10% of his customers use the service. And many are dismissive of the whole notion. "I wish they would just get this bloody pump to work and not worry about the Internet," says painter Patrick Burke, as he struggles to fill his tank.

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 (BPAQF ). 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 Jan. 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. "When the merger went live, it was crucial that everybody across the world could speak to each other online," says Leggate.

It was a new world for Leggate, who trained as an engineer and worked in nuclear power before joining BP. When he was offered the job as Net chief, Leggate was in Azerbaijan, negotiating a multibillion-dollar pipeline across the Caucasus Mountains--a politically charged project on which the latest James Bond film, The World is Not Enough, is loosely based. "I felt like I was in a Bond movie, except I didn't get the girl," Leggate jokes in his staccato Scottish accent. Since stepping into BP's top tech job, Leggate has become a technology evangelist: He requires subordinates to submit reports electronically, and his central London home boasts a computer server in the basement managing a network that he and his four teenagers use to share files and get online.


  Although his new job in London appeared less swashbuckling than his Azerbaijani adventures, Leggate infused it with Bond-like flair. He 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. "Send John an e-mail at midnight, and he responds the same evening," says e-procurement chief Stanke.

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 who might be thousands of miles from one another. "A common way of communicating creates a common culture," Leggate says.

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 PLC (SBWRF ) 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. "Fumu's story may sound small, but multiply it by 100,000 and you get a sense of Connect's power," says Chris Collison, a former BP employee who has written a book about the company's knowledge-sharing programs.

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 Mike Saunders, 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 says BP 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.

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 the service 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. "This used to take us dozens of phone calls and weeks of haggling," says Dave Latin, who spearheaded BP's online HR effort and now works on developing new oil and gas wells in the North Sea. An added benefit: BP has been able to cut its human resources staff by 60% since the system went online.


  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 (SC ) 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. However, when the service was launched in November, it only gave flight information and could not yet accept reservations. "It has proved harder to get everybody on board than expected," says Brian Cavan, the BP executive in charge.

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. "We still have a long journey ahead," Leggate admits. 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.

Contributing: Andrew Park in Dallas

By William Echikson

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