EMK3 Exchange to Sell Oil & Gas at Wellhead

At a time when online energy exchanges are beginning to consolidate their portals, EMK3 has announced that it has launched the world's first online energy exchange that offers domestic buyers and sellers of oil and natural gas the ability to electronically purchase and sell production at the very beginning of the supply chain: the wellhead.

EMK3 said its marketplace automatically manages all aspects of presenting a company's oil and gas lease production online, reducing transaction costs, increasing revenues and potentially eliminating fair-pricing conflicts.

The company said its system replaces all the hassles and phone calls involved with the old "word of mouth" system of buying and selling production by putting all the pricing and production information online.

"Because trading alliances in the energy industry are based more often on affiliation rather than on price, there is a great opportunity to eliminate market inefficiencies by simply making price information more widely available," said Gary Wittsche, president of EMK3. "The EMK3 exchange does exactly that; it gives major and independent oil and gas companies the best possible access to market-clearing information about production and prices."

The system works by sellers authorizing the start of the marketing process. Buyers bid on the lease production, and when bidding is complete, the seller closes the transaction by accepting the bid of their choice. After a transaction is completed, contract information is automatically produced that can be integrated with nominating, scheduling, metering, balancing, royalty distribution and billing systems. The seller pays no fees for the deal, but buyers pay a small transaction fee, the company said.

"Picking it up at the wellhead entails so many more intrinsic expenses relative to the wholesale pool," a Houston-based risk manager said. "Buying gas at the wellhead involves transportation and really eliminates a lot of people. This was the way business used to be done from about 1986 to 1992, but now a lot of people are really only set up to do wholesale pools. However, the mega-marketers may like that it is an opportunity to deal with producers directly. It should be interesting to see if the system works, because purchasing at the wellhead only adds value for the producers, while buyers are likely to be left with a headache."

Currently, the EMK3 marketplace only offers oil and condensate, but starting March 1 the platform also will open up to natural gas buying and selling at the well site. Gary Wittsche said the site already has some big and small oil companies signed on in its first week of commercial operation.

"We've developed the ability to electronically transfer lease information directly from a market participant's legacy system to the EMK3 system, so it's easy for companies to start transacting business on our exchange," said Bill Wittsche, EMK3's vice president of technology. "Once a company's leases are entered on the EMK3 system, selling and purchasing lease production through EMK3 only takes a few mouse-clicks."

EMK3 should reduce concerns related to fair-pricing issues, the company said. Prices are set via the online marketing process, which EMK3 said ensures that contract sale prices always meet current market conditions. "EMK3 creates a win-win situation for sellers, royalty owners, governmental taxing authorities and buyers," said the company.

"We all think about the Nymex and how nobody questions that it sets fair market values for commodities, and we look at the New York Stock Exchange and nobody questions it sets fair market value for stocks, both of which are open outcry systems," Gary Wittsche told NGI in an interview. "This in effect, is a digital open outcry system at the well site, and so it is as perfect of a determinate of fair market value as you can possibly get.

"We intend to build the largest and most liquid marketplace for selling oil and gas production at the well," added Gary Wittsche, "that reflects the market sentiments of oil and gas users all over America."

Gary Wittsche and son Bill Wittsche developed the EMK3 marketplace last year. The privately owned company has offices in Dallas, Midland and Corpus Christi, TX. For more information visit EMK3's web site at www.emk3.com.

Alex Steis

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