You are the director of a small exploration and production (E&P) company looking to find and sell oil and gas - that is to say you are an upstream company. Unlike BP or Royal Dutch Shell, you have no low margin downstream activities such as refineries and petrol stations. Your aim is simply to find oil and gas and sell. To do this you usually raise money on the stock market. It can cost anything from £20,000 (e32,000) to drill a well if the operation is in west Texas, to £14m (e22.5m) if the well is in deep water off west Africa.

As an industry average, something like nine out of 10 wells come up if not dry then non-commercial. If you are lucky and strike oil, and the oil price is high, you can make a lot of money quickly. You can now get oil out of the ground for as little as $4 (£2.80) a barrel. Even after your administrative overheads and transport costs, there is still a large profit margin if oil sells at $29 (£20) a barrel, as it has been doing recently.

Mark Abbott is a director of Egdon Resources, a small UK E&P. It recently won five licences in the latest, ninth UK landward licensing round held by the Department of Trade and Industry (DTI). It had already won two licences in the eighth round. Two of the new licences are in northern Cleveland; the other three are in France, north of Paris.Egdon raised £495,000 (e795,000) on the stock market last July. As it costs anything from £500,000 (e803,000) in the UK to drill, even in West Sussex, Egdon has had to "farm out" its licences to partners and an operator.

It holds interests of between 8 and 45 per cent in its licences. Seismic tests indicate the West Sussex basin could hold something like 300m barrels of oil, but only drilling will tell. Egdon expects to drill its first well in West Sussex in the third quarter of this year.

Where the internet comes in

How do you go about setting up such an operation, and does the internet make a difference? Mr Abbott says: "The internet does make a difference in that you do not physically go to offices and libraries to look at data. You need information on acreage, on seismic and geomagnetic data. The first port of call for us is the DTI. And then to the British Geological Survey. Another site we use is the Onshore Geophysical Library. That is very useful since it allows you to print out maps." But does the company avail itself of some of the industry sites that have sprung up, which offer everything from contract advice to procurement of oil rigs and safety helmets? "Not really," says Mr Abbott. "Perhaps our operators use them, but I have no call for them at the moment."

Charles Jamieson is chief executive of Premier Oil, one of the bigger UK E&Ps. It has a market capitalisation of £325m (e522m), and is best known at the moment for its gas operations in Myanmar (Burma) and Indonesia. His company does not use industry websites or marketplaces."Though capital intensive, the oil industry is actually a small one," he says. "There are probably 100 or 200 US concerns which are capitalised at $100m (£69.6m) or more. You know how many are quoted here - not many There are probably 20 Australian companies of any consequence. There are lots of Canadian companies but most are tiddlers. In the places we operate we tend to know what is available. In Pakistan, for example, there are probably only two companies that would have the kind of rigs we need."Recruitment of key personnel is done through an in-house database, Mr Jamieson adds. But with the energy industry spending $500bn (£348bn) a year, surely a one-stop site that covers everything from licensing rounds to data, to procurement to legal contracts, is bound to happen?"I am sure it will. In fact, the Americans with their interests in the Gulf of Mexico and suchlike probably use the sites," Mr Jamieson says.The sites mentioned most often by oil men are Trade Ranger, Schlumberger and IndigoPool, which is an offshoot of Forbes magazine. A new site, PetroCosm, counts Chevron and Texaco as shareholders. Breda Nolan, PetroCosm's spokeswoman in Houston, says the site went live last July and had 6m hits in the first month. Subsequently there have been about 1m hits monthly. The site has 600 registered suppliers and a catalogue of 1m items. It expects to make money by taking a commission on deals but is not yet profitable. So far it has executed 1,200 deals.

The tentative conclusion must be that although the potential seems vast B2B sites in the oil industry are still in their infancy.

Rope, soap and dope

Amossco is 50 per cent owned by the small UK E&P Aminex, and is an add-on to the established warehouse operation. The company has a warehouse in the UK and another in Houston. Mark Steeves, the managing director, says: "It is a rope, soap and dope operation." It sells anything from ropes to helmets and all the supplies an oil company needs. Their website is shortly to go live. Mr Steeves is reluctant to divulge the turnover of the existing bricks-and-mortar operation. It is probably in the low millions. He says: "I have hopes that the site could increase turnover tenfold over time. The advantage of being online is it can cut eight processes or so, billing and the like, down to one."

Another site that has been live since last July is Exploration Data. Part owned by Northern Petroleum, another smallish UK E&P, the site has both services and data. It features, for example, the Libya National Oil Company advertising its licences. Tadeusz Brozozowski, the managing director, says the site has about 1,000 hits a day and makes money from subscribers. Perhaps the most intriguing of the lot is Theoilsite. Michael Doherty, the chief executive, claims this is a unique site since it is totally independent. It offers suppliers, contracts, properties, equipment procurement and legal services. It is a pure marketplace and has no inventories. In March last year, just before the dotcom bubble burst, the company raised £2m (e3.2m) on Ofex, a UK exchange that trades shares of unlisted companies. Theoilsite boasts 7,000 categories of supplies and 950 suppliers signed up. It plans to make money by charging 1 per cent of tenders taken up. The Latvian Development Agency recently promoted its first round of licences on the site: Theoilsite charges advertising rates in this case. Mr Doherty says that with 250 hits a day and an average time of 28 minutes online, the sums involved in deals can be in the millions.

The company made a loss of £395,096 (e634,500) in the six months to June 2000. But Mr Doherty is talking about breaking even in the third quarter of this year, and profits in 2002. It will be interesting to watch.

E-mail Stewart Dalby at dalbygray@cs.com

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