When EMK3 launched an online petroleum marketplace early this year, oil buyers and sellers were given the opportunity to participate in an innovative “at the well” e-trading system. Natural gas traders soon asked where to click on the Web site. Responding to potential customers, Gary Wittsche, president and founder of EMK3, with his team of technology and energy industry experts, added natural gas trading. EMK3, that’s energy marketing for the third millennium, is the first online energy marketplace offering domestic buyers and sellers of oil and natural gas the ability to electronically purchase and sell production at the earliest possible point in the supply chain. Wittsche said, “There are other places that are marketing gas production on the Internet but they’re not at the well site. They are downstream. That’s where you’d find Enron Online, Houstonstreet.com or Enermetrix.”
Using technology to organize the oil and gas marketing system into a few mouse-clicks, EMK3 automatically manages the steps required for presenting a company’s oil and gas lease production online, reducing transaction costs and improving fair pricing. EMK3 allows end users, like electric utilities, to use the marketplace as the aggregator, thus, bypassing middlemen. Energy companies, including some of the largest companies in the oil and gas industry, have been joining the EMK3 online marketplace since the company launched.
While EMK3’s technology-based oil trading gradually took hold of traditionally relationship-based oil trading, the gas side of trading garnered more interest at the outset. Wittsche commented, “I think we’ve had a lot more interest in gas and specifically with the utilities because you’re dealing with a more technologically savvy, faster moving marketplace.” Busy meeting with current partner producers and fielding interest from large producers, Wittsche said, “We were pretty excited that gas took off with that kind of excitement.”
“This is just a commodity-all that matters is price. And that’s what our marketplace is designed to facilitate, market-clearing prices,” said Wittsche.
EMK3’s marketplace price aggregation provides macroeconomic benefits for the energy industry. According to Wittsche, the marketplace, by definition, distills market-clearing prices and functions as a safe harbor from pricing conflicts that can arise among different parties, like the working interest, royalty interest, or government.
The marketplace also provides price transparency. “We see the marketplace as potentially being a real kind of safety net, if you will, for the industry-and that industry also includes the utility industry as it purchases natural gas. They’re going to know better if they paid a fair price or not. They can justify it,” said Wittsche.
The open, online marketplace can safeguard against litigation by protecting both sides of the equation. While sellers, accepting a range of bids, are almost assured to be selling at the best possible price, the marketplace protects against price-gouging, since market prices are visible, comparable, and justifiable. Furthermore, the EMK3 marketplace keeps a record of its market information and transactions providing a great source of historical data, including bids and acceptances.
At what price?
EMK3’s marketplace provides the tools for seller and buyer to make the best deal with little investment. For the seller EMK3 provides a homepage, downloads leases, provides bidder screening capability, and allows lease posting in a public area. Buyers use the online exchange to select and bid on production that meets their needs. Buyers can search for lease information using a variety of parameters, including county, field, pipeline or gravity, for example.
“All kinds of ways to sort information makes it very efficient to bring the buy. That’s what the aggregating system does for the buyer. And so what our system can do is to bring it from the well site into these very liquid common delivery points on behalf of the end users,” Wittsche commented.
While the seller pays nothing, buyers only pay a fee when a transaction takes place. Only when the seller clicks the “accept” button is a transaction fee due to the marketplace. As of this writing transaction prices on the Web site at www.emk3.com were, on actual volumes: crude oil transaction fee, $0.025 per barrel; and natural gas transaction fee, $0.0075 per MMBTU.
In order to give buyers and sellers, from giant corporations to small companies, maximum access, security, and flexibility, EMK3 embraced technology and developed its own “distributed marketplace technology.” This unique technology provides for customer data security and facilitates integration between the marketplace Web site and customer company sites. With the distributed marketplace technology firewall mechanism, companies have a window into the marketplace and can actively trade, while keeping their data behind their corporate firewall. In addition, EMK3 can integrate its Web site into other sites so that companies can market production in a Web environment that may already be familiar to some of its customers or established business partners.
Having been involved in Internet technology for the past three and a half years and being part of the energy industry for a generation, Wittsche commented, “I think the marketplace could potentially be a whole new world of oil and gas marketing. That’s never been possible before.
“It was so exciting to be part of the Internet when it was soaring. And then about nine months ago we came up with this idea and we put this marketplace together for an industry that I’ve been living for the last 20 years. And that’s really been exciting also-to have something from my industry to share with the whole industry. I don’t think there’s another application that could possibly be as great as what we’ve done here. From the personal satisfaction of doing something that nobody else has done; but also something we really believe is going to benefit the industry. I don’t think anything can top that.”
Gary Wittsche is president and founder of EMK3, the first online energy exchange to auction oil and gas production directly from the well. Wittsche brings over 25 years of petroleum industry experience to the company. Visit the Web site at www.emk3.com.