I have 2,500. Do I hear 3,000? I have 3,000, now do I hear 3,500? The bidding is at 3,500. Is there 4,000 out there? Do I hear 4,000? Going once, going twice-sold at $3,500 to the gentleman in the second row. These are the sounds of a typical live auction. Only now-through the Internet and the growing ease of online auctions-the sounds of the new-generation auction are strokes on a keyboard, not the fall of a gavel. The Internet is providing oil and gas producers with a new venue for the sale and acquisition of properties and brings with it some efficiency. Bidding may be from any location. Viewing of the details of a property can be done for several days. And, sellers can be contacted for more information about any of the properties for sale, if that data is not already disclosed online-an option not available during the fast pace of a live auction. Most important to sellers, the Internet enhances the ability to reach a larger and broader range of buyers who might not otherwise travel to an auction site. As the idea gains acceptance, several online oil and gas auction houses have entered the business, including TheOilAuction.com, Oil & Gas Journal Exchange, EnergyNet.com, The Oil & Gas Asset Clearinghouse and OilProperties.com. Why online auctions? Most companies believe it works. "With our unique ability to provide due diligence information online-currently more than 55,000 documents-we are having trouble seeing why anyone would need to go to the expense or take the time to go to a live auction," says William Britain, president and chief executive officer of EnergyNet.com, which is an online-only auctioneer. Amarillo, Texas-based EnergyNet.com has sold 2,486 properties in 775 lots worth $15.1 million, with its largest deal at $1.26 million. The company has 2,412 registered users with a total aggregate bid allowance of $215 million. Bank of America, the largest institutional manager of oil and gas properties in the country, has used online auctions with success, says senior vice president Michael Canale. He believes EnergyNet.com's more than 2,000 registered users feel they are getting fair market value for each property they sell through the service. Flexibility is a main advantage-it gives the seller the ability to customize the sale-he adds. Bank of America has had approximately 400 separate closings through EnergyNet.com. Keith Sackett, managing partner at Oklahoma City-based TheOilAuction.com, says advantages of online auctions include efficiency in time and costs, in evaluation and in maximizing the value of a property to the buyer and the seller, as well as expanding the marketplace. He says TheOilAuction.com, owned by industry professionals, is profitable and has sold $4.5- to $5 million worth of assets online. It also is currently handling a negotiated sale of approximately $4 million. Internet auctions provide other advantages, according to Bill Marko, president and chief operating officer of Houston-based Oil & Gas Journal Exchange. "It may be that sellers can establish minimum sale prices for even very-small-value properties. But this is a bit of a double-edged sword(unknown minimums can chill bidding as buyers are concerned they will spend a great deal of time evaluating and bidding on something for which they cannot meet the seller's expectations." He says Oil & Gas Journal Exchange, which also offers negotiated-transaction services through the business formerly known as Madison Energy Advisors, is profitable but it will not disclose figures. The Exchange is owned by PennEnergy, a business of Oklahoma-based publishing firm PennWell Corp. Houston-based Oil & Gas Asset Clearinghouse, a long-time live-auction house, has added online bidding to its business. The firm is a business of Denver-based Petroleum Place Inc., which also offers negotiated-transaction services through Petroleum Place Energy Advisors Inc., Houston. Ron Barnes, Clearinghouse senior vice president, says the line-up makes it a one-stop-shop for buying and selling properties. He says the Clearinghouse is profitable too, and its sales have grown from $3.2 million in 1993 to $408 million in 2001. To date, it has sold $70.5 million worth of properties to online bidders, including a $6.1-million deal. It began offering live-and-online auctions in early 2000. Its online buyers have placed bids on approximately 60% of the lots offered in hybrid auctions. Global reach The Internet reaches people across the world, some of whom would not typically attend a live auction. Online auctions also cut out buyer agents and fees. Britain with EnergyNet.com says, "We have customers who have never attended and said they will never go to a live auction, and some who have attended live auctions in the past, but say they will never attend another one." One buyer, Joe Richardson with JCR Operating, says, in a testimonial at the EnergyNet.com site, "I can't believe how easy it is to login and start bidding. I attended a couple of live auctions and swore I wouldn't do that again. They were expensive and time-consuming, not to mention the confusion and hassle." Some observers believe the Internet cannot compete with the thrill and large turnout of the live auction. Also, live auctions are believed to promote higher bids due to an enthusiastic auctioneer's talent for coaxing people into higher bids. Paul Smart is a fan of the live format. In 1987 he and brothers Tom and David founded Ebco, an oil and gas auction house, and a few years ago, sold it to PennWell, forming the foundation for what is now Oil & Gas Journal Exchange. Paul Smart is back, having recently started Black Gold Trading, based in Edmond, Oklahoma, to conduct live auctions again. "From an auctioneer's point of view, I want a large turnout," he says. "A crowd means anxious bidders who are concerned with the level of competition. A good auctioneer can convert this nervous energy into enthusiastic bidding. For every Internet bidder, I have one less person in the room. What if 75% of my bidders came from the Internet and I only had 100 people in the room instead of 400? The seller paid me good money to draw a crowd. The second problem is with the bidder who questions the authenticity of the absentee bidders or doesn't want to compete with an unknown bidder. The third problem is that I have a much smaller crowd from which to generate bids. "I cannot talk an Internet bidder into bidding as I often can with a live bidder." Smart acknowledges the advantages online auctions can offer. "I see the Internet being a venue for having an exclusive auction. There are also certain circumstances where it is appropriate. But I don't think the Internet auction will take off until you introduce international markets." Black Gold Trading does have Internet-assisted bidding capabilities but is not planning any online auctions presently. "Until we are completely convinced it will benefit our auction we will most likely keep it on the shelf. For the convenience of our buyers who cannot attend our auction, we would be happy to recommend an agent," says Smart. Understanding when to hold an Internet auction is important, says Oil & Gas Journal Exchange's Marko. "We have a three-part test for Internet applications: No. 1, does it reduce costs? No. 2, does it decrease cycle time? No. 3, does it add value? If the answer to all is 'yes' then the Internet application is sound. If the answer is 'no' then we question the use of the Internet in that particular instance." Robert Ransone, president of Dallas-based A&D firm Wellspring Partners, says auction and negotiated-sale services are complementary. He was an acquisition and divestiture manager at Petrus Oil Co. LP, privately held by the H. Ross Perot family, and at Bridge Oil (U.S.A.) Inc., handling the sale of hundreds of properties worth several million dollars. Later he worked for Ebco as vice president of mergers and acquisitions before forming Wellspring, a negotiated-sale service. "Using an auction service is good as long as the asset for sale is not complex, meaning it does not have upside that needs to be quantified or qualified, and there are no legal issues," says Ransone. "If the property is complex it needs engineers, financial experts, geologists and other trained professionals to do a thorough evaluation and explain everything in a dataroom for the buyer." In a negotiated deal, an entire corporation can be sold, which would be difficult in an auction. "Negotiated sales are really a sealed-bid auction." Online or not A seller through Oil & Gas Journal Exchange, Gordon L. Smith III, vice president of the oil and gas division of North American Royalties, Chattanooga, Tennessee, says the service allowed buyers across the country to view data. "We saw bids greater than $4 million for our property. Though the high bid came from the floor, these online bids were instrumental in driving the final selling price." Oil & Gas Journal Exchange online bidders can bid on live-auction properties in real time and listen to the calling of the auction as well. The firm receives Internet bids on half the lots it offers and almost 20% of the winners come from the Internet. "Including online auctions has been very good. A significant number of bidders have come from online," says Rob Carpenter, general manager of domestic exploitation for Tulsa-based Vintage Petroleum. "We were pleased with the overall results both from a value and percentage of total properties sold." Vintage participated in The Clearinghouse's hybrid auctions in October, November and December 2001, selling more than 200 lots. The type and size of properties offered online typically resemble the same assets that would be sold live. "Our properties have been in most of the producing states," Britain says. "The interests sold vary from overriding royalties to operated working interests to nonproducing mineral rights. We generally have at least 50 assets up for auction or due diligence on any given day." Some companies have discovered it is easier to deal with larger properties online than at a live auction. Carrie Calahan, general manager, Oil & Gas Journal Exchange, says registration continues to climb for each online auction held. "The ability to conduct a simultaneous live/Internet bidding session is a real winner as it attracts hundreds of potential buyers." EnergyNet.com claims to be the only E-Bay-style oil and gas property auction house. The company is owned by 28 stockholders including Toreador Resources Corp., Dallas, which holds a 35% interest. The "E-Bay" online method it uses means the seller sets the sale closing date. Buyers look at the assets for sale, check the information and ask the seller questions. The auction ends at the scheduled time, whether bids are being placed or not. At TheOilAuction.com, bidding does not stop until all bids are cast. If bidding is to end at 3 p.m. and a bid is made in the last 60 seconds then the auction is open another 60 seconds until all bidding has ceased for one minute. Then the next property or package is available for sale. Sackett says, "We schedule the time when your lot of interest is up for sale, so that you can logon minutes before, view the results, then get back to your business of making money without any significant loss of time or money." Potential bidders have a three- to four-week window to evaluate the properties and on auction day, logon to bid on the properties of interest. The bidder also has the option of placing an autobid (the system will bid in the buyer's absence) at any time prior to the auction. The bidder sets a maximum bid and dollar increment and the system will bid for him only when bid against, and only in a preset increment. Once the buyer succeeds, the funds are deposited into an escrow account awaiting distribution to the seller. "We also offer the advantage of postauction negotiations to give sellers a second opportunity to sell his or her property at a price they feel is fair, not what the company or bidder feels is fair," Sackett adds. The future Some firms are constantly evaluating several new ways to auction properties online and determine what suits the market, and how they can create the best possible value for seller and bidder. "Not all of these applications are successful but we continue to probe the market," Marko says. For example, Oil & Gas Journal Exchange undertook marketing more than $50 million of offshore Gulf of Mexico properties for Apache Corp. in May 2001. Each of the 17 fields was evaluated, marketed and available for purchase individually. Apache established a very aggressive timetable to attempt to sell these properties. The Exchange used all three of its methods: negotiated sale, auction and Internet. "The process worked extremely well but was probably too aggressive for a market that was more comfortable with a process that allowed more time for evaluation, due diligence and closing," Marko says. "It is something we will undoubtedly apply again in a different situation or when the market is more mature." Some companies are continuing to add services. TheOilAuction.com added a complementary site called the OilAuctionMinerals.com, offering ownership as well as listings of minerals available for lease. Competition amongst the online auctioneers is acknowledged and encouraged. None would say there is too much. "Competition within any industry is an advantage," says Sackett. "In this case, it is positive for both the buying and selling parties, as well as the companies providing a divestment or auction vehicle. For the buyers and sellers, this means realizing the best possible relationship with the listing company as well as cost savings [i.e. if you don't like the way you are being treated, you have other choices]. It forces us to offer a superior product and buying or selling experience for those doing business with us." The dot-com bust seems to have overlooked the online oil and gas auction companies, but what does the future hold? Barnes says, "I can say confidently that online auctions are here to stay. They are extremely effective tools for buyers who are unable to travel to live-auction sites."
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