Sunday, September 6, 1998

Major oil companies spending barrels of money to beat Year 2000 bug

By MARK BABINECK

Associated Press

HOUSTON -- Big Oil will sink more than $1 billion to try keeping the Year 2000 computer glitch from jeopardizing the world's energy supply -- and companies' bottom lines.

Embedded computer chips that will read the year 2000 as the year 1900 could hamper or even shut pipelines, offshore rigs and refineries if not corrected by Dec. 31, 1999.

"As you might imagine all phases of the oil and gas industry depend on information processing in one phase or another," said Harry Woodstrom, vice president of consulting services with SIG Inc., a Houston firm assisting several energy companies with their 2000-related computer problems.

"They range from everyday accounting systems to process control systems to embedded systems for oil discovery, drilling, platforms, pumping, transportation, processing, refining, and even the point of sale at the pump," Woodstrom said.

Called Y2K in computer lingo, the problem is simple: Older equipment was designed to read years as two digits with a prefix of 19 assumed. The problem arises in 2000, which unrepaired systems will read as 1900.

For instance, a pipeline valve with a Y2K-afflicted chip might shut, thinking it had gone without routine maintenance for 100 years. Entire offshore drilling rigs could grind to a halt if their operating systems aren't cleansed of the bug.

"You're talking about huge numbers of operations and transactions. Oil is not as homogeneous as other industries," said Fadel Gheit, an oil-industry analyst with Fahnestock & Co. in New York. "In the oil business, there are different operations that deal with different groups and sectors of the economy."

Unaddressed problems could "paralyze" the entire industry, said Gheit, who predicts that companies will spend as much scrambling to repair problems occurring after Jan. 1, 2000, as they are now trying to prevent them.

Despite the oft-volatile nature of the materials the industry handles, it insists the glitch poses more of a danger to profit margins than to workers and citizens.

"These systems are designed to fail safe," said Ron Quiggins, director of Shell Oil Co.'s Renew 2000 effort. Most petroleum equipment susceptible to a computer glitch is designed to shut without spilling material or endangering people, he said.

Shell is spending about $150 million to solve the 2000 puzzle, he said. Exxon Corp., the world's second-largest oil producer, is spending between $250 million to $300 million to make its systems compliant, according to a recent Securities Exchange Commission filing.

Quiggins, who estimated the 40 largest oil companies will shoulder about 90 percent of the Y2K burden, said it was too early to estimate the overall cost. Based on an analysis of what the giants plan to spend, the total could eclipse $1 billion.

According to SEC documents filed by some of the country's biggest producers, the problem is expected to cost Amoco about $100 million, Texaco about $75 million, Phillips Petroleum around $58 million and Unocal as much as $30 million.

And they're just the tip of the iceberg.

"We're a large industry, but that also means we have a lot of resources to work on the problem," said Kendra Martin, manager of electronic commerce and information technology for the American Petroleum Institute, the industry's trade group. "Although we're certainly all competitors, because we're so intertwined and all dependent on each other, we've really approached this problem in a cooperative manner."

Part of the API's effort involves a database of Y2K-related information in which its member firms share their experiences in dealing with various kinds of equipment.

"We as a petroleum industry consider this 2000 problem a non-competitive issue, and we're approaching it that way," said Quiggins, who chairs the API's Y2K task force. "I believe (competitive pressures) gets in the way of other industries to a certain degree. One of the major objectives of the task force is to share learning."

Shell has developed a Y2K guide to be used within in the company and, for what Quiggins called a nominal price, for anyone else looking for help in exterminating their bugs.

Companies also are pressing their suppliers and customers to shape up their systems, because it doesn't do a firm any good if one of their major vendors' computers is stricken.

"A company could spend hundreds of millions, but then a small contractor in Abilene, Texas, hasn't fixed the problem and, guess what, the connection isn't going to be there," said Gheit, the New York analyst. "They're going to be trouble shooting for 24 hours a day, maybe for months."

Gheit likened the turn-of-the-millenium in the oil industry to a "traffic jam with no cops and no traffic lights. They're going to be using hand signals and horns for a while."

SIG, the Houston consulting firm, has benefited from the multimillion-dollar Y2K industry that has emerged since the mid-1990s. Woodstrom said his company has dispatched workers to service clients all over the world to solve an array of computer-related problems.

While the expenditures are staggering, Woodstrom said companies had little alternative. The amount of memory it would have taken to leave space for all four of a year's digits would have come at an exorbitant cost. Only recently has memory become affordable enough to leave room for the entire number, he said.

"It's not a difficult problem by any stretch of the imagination," Woodstrom said. "The difficulty is that it's so pervasive, it's so commonplace. It's so everywhere you forget where it might be." End Advance