Deja vu, all over again.

A number of years ago I did some analysis on Petro Canada that remains some of the most popular content on this blog. I thought since they did not make any material changes as a result of the analysis. I would just link the posts in this one entry.

Petro Canada Q2 Earnings
Petro Canada Piles it on Again
Petro Canada's accountability framework
Oil and Gas Reserves of Petro Canada
Top 10 Management Excuses from Petro Canada
Petro Canada Garage Sale continues
Petro Canada's First Quartile
Petro Canada Definitions
Maturation of Petro Canada
Petro Canada Options
Petro Canada news management
Petro Canada is more disturbingPetro Canada Series
Petro Canada Executive
Petro Canada
Petro Canada Definition of Value
Anti-Petro Canada
Petro Canada Some Clarifications
Petro Canada's Conflicting Statements
Petro Canada's Reserve Report
Petro Canada Earnings
Petro Canada Believes 


Enjoy!

Technorati Tags: People's Management Failure

"Petro Canada was forced to make a hostile bid."

Its 1982 and Canada has just passed its new "Liberal" governments budget. Petro Canada, being the product of the Canadian government's attempt to emulate the rash of 1970's style third world countries. Commenced the nationalization of petroleum assets. Venezuela, Mexico's Pemex and Libya were the prototypical examples that the Canadian government used to nationalize the Canadian oil and gas industry under Petro Canada's "management". Under the premis of a "back-in" Petro Canada was handed many of the most handsome oil and gas properties in the country. The fact that they were owned by other companies was not an issue. And as is the case with other third world nations, why would Petro Canada assume things are different in 2006.

With the Federal treasury in tow, Petro Canada went on a spirited acquisition trail. Foreign energy producers like Shell, Texaco, Chevron and BP soon learned that Canada was not hospitable towards foreign investment, and hence found little market value for their assets. Having adopted discriminatory tax policies that favored Petro Canada, foreign companies sold at distressed prices to Petro Canada. So when Petro Canada used these two methods to acquire assets, we see the attitudinal reason for their lack of patience with Canada Southern Petroleum and their Arctic assets. (Remember Petro Canada must be known an explorer.) Or as I have stated before, Petro Canada and its management are entitled to their entitlements.

Petro Canada in today's Calgary Herald indicates that it has not necessarily given up on Canada Southern Petroleum Ltd. (Recall its "Wednesday's corporate strategy" today). However as they are quoted as saying,

"It was toward the end of the process that Canada Southern came back to us with their estimate of value, which was significantly different than what our's is."

Kinda reflects an un-constructive point of view. You want to buy, the vendor does not want to sell. These "bargaining" positions that others may take towards Petro Canada's offer are not typical in the third world, and are particularly inconvenient for the management of Petro Canada. If you listen carefully you can just about hear the management of Petro Canada, "if you don't sell then we'll nationalize your interests". And "if we can't nationalize you, we'll impose discriminatory taxes on you to force you to sell at prices we deem reasonable".

Just as this Tiger (Petro Canada) can't change its stripes, either can it's management. The pen may be mightier then the sword, however, I would say the WebLog is mightier then the pen!

Technorati Tags: Adaptability, Bureaucracy, Energy, Exploration, Genesys, Petro-Canada

Petro Canada, the series.

Well the word is out that both Ken Lay and Jeffrey Skilling are now convicted felons. The attainment of this key event in my marketing plan has finally come true, and I can now commence phase II. I will proceed with the analysis regarding Petro Canada, and determine why it is they have not been charged, yet.

In today's coverage of the Enron story, the Calgary Herald wrote;

"Meanwhile, Canadian Experts said that had Lay and Skilling run their company in this country the two would likely still be "walking free"".

And I can assure you, if Petro Canada were operating in Texas, they too would have been in prison by now.

I have prepared a long list of stories that I will be writing in the next few weeks about Petro Canada. These stories will focus on a systemic inability to account for their actions. When confronted with the facts, the company has skirted the questioning adeptly through obtuse reporting and what is best described as a shell game. I will start tomorrow with a summary of the accusations that I have made in this blog to-date and continue on with my reasoning why Petro Canada should be made to account to their shareholders and several other interest groups.

It is my opinion that all firms in their right minds would have assessed the risks and opportunities of the criminal charges and legislative environment created in the U.S. since Lay and Skilling were first discovered. It is my opinion that Petro Canada did that assessment and determined that it would somehow not affect them. It is clear now that they have a made a critical error in judgment and will now need to account for the $1 billion + in stock options ($199 million of which is in the money) along with a series of actions that have permanently crippled the company. But when you are asked to manage the nationalized oil and gas assets the Canadian Federal Government confiscated from the international producers, a pervasive mindset of being entitled to your entitlements begins to penetrate the minds of management and as we shall see, certainly not a commercial mindset at that.

I can assure you this blog has caught the attention of the management of Petro Canada. With Google Analytics there is not much of who and what your readership is interested in, Petro Canada as a topic scores highly on this blog. With the stated strategy that I am employing in this conflict as "I have a right to be sued" I can guarantee my readership the next ten days or so will be very entertaining. The first thing that may stand out is that Petro Canada is / was substantially smaller then Enron. But the scope of the executive compensation and cover up at Petro Canada is not only larger in monetary terms but far more serious. After all they knew what Lay and Skilling were up to. How do they propose to explain that they were not aware?

Finally I will tie in the actions of Petro Canada's management in making sure their continued entitlement's to their entitlements were not challenged by the thesis of this blog. This thesis being that the Joint Operating Committee was the natural form of organizational structure of oil and gas firms. That the bureaucracies were redundant is a given that is tacitly understood by everyone, but to define the Joint Operating Committee as the key organizational focus required the software to be built before the changes would occur.

Petro Canada's exclusive and lucrative party was being threatened by this thinking. They realized if the software wasn't built, then the risk would be eliminated and through their selfish and un-constructive thinking, have taken these concepts to make their party continue on indefinitely.

As custodians of the investors resources Petro Canada will be held to this higher standard of expectation.

Technorati Tags: Accountability, Bureaucracy, Conflict, Energy, Exploration, Genesys, Intelectual-Property, Petro-Canada, Plurality, Thesis

Petro Canada, the definition of incompetence.

Wanting to remain fair and reasonable in my criticisms of our marketing target, Petro Canada. I want to provide an early response to some of the perceived unfairness that I may have leveled at the firm.

The nature of my criticism may appear to lead to circular thinking. This circular thinking can therefore lead to a variety of contradictions. But as in all philosophical endeavors, the ability to analyze these contradictions leads to a variety of issue resolutions and / or at least clarity. So here is a summary of my criticisms to date and how they may appear at first to be inconsistent. Only upon analysis to show that the "management" of Petro Canada have become self serving pigs at a trough.

# 1 Petro Canada can't make money in a high priced commodity market.

Although my analysis of the company has revealed that they really are losing money, they have not admited it in any of their financial disclosures or guidance. I have predicted the second quarter of 2006 will be the first quarter the company announces that its loosing money. If the management doesn't disclose the extent of their difficulties, they may be bunking with Enron's Jeff Skilling and Ken Lay much earlier then they realize. With these commodity prices, you would think that making money would be easy, but please recall that we are talking about Petro Canada.

The second aspect of not making money is generally a reflection of the management itself. If the management pay's too much to acquire its assets, losses due to the high cost of capital will eventually sink the company. Due to its history of nationalized assets and unilateral takeovers, this at first blush is not a criticism of Petro Canada's management, but we'll get back to this point.

# 2 Can't buy assets at market value.

Contrary to the previous note, the inability to negotiate or bargain with other groups is a skill and an art. For IBM to have acquired Price WaterhouseCoopers for $3 billion, after HP had a negotiated agreement to acquire PwC for $19 billion, shows much of what an effective management can do. Petro Canada can't negotiate a deal, so it takes it hostile. Motivated by the need to be perceived as an "active explorer" in the Arctic region, Petro Canada will do everything to secure those assets. The trouble of course is that they are unable to have them nationalized, or acquired for cheap prices as the strong arm of a third world country.

Just as I suspected, analysis of these points reveals a lot.

• The one uppermost point is that this management can't make money on confiscated assets!
• Petro Canada can't play nice with others. This bid for Canada Southern Petroleum Ltd. is for $113 million, or less then one half of one percent of Petro Canada's market cap. Talk about rearranging the deck chairs on the Titanic!
• Even in a high commodity market with little or no capital invested, Petro Canada can not earn an income?

All of those interested parties in seeing that this scar on the integrity of the Canadian government disappear, this pathetic example of a bureaucracy that is unaccountable, uncontrollable and unprofitable be dealt with in a timely manner. Please join me in this chorus and have the management removed, the assets returned to their rightful owners and start anew with this blog and software development.

The management however has courage. How else could you describe the obscene compensation noted below. How dare this management grant themselves the following options.
Total stock options granted 21,823, 535 as of March 31, 2006.

Average option price. $31.

Closing stock price. $51. (converted at $0.895 Canadian / US)

In the money value of stock options = 21,823,535 x (51 - 31) = $436,470,700.

Does anyone wonder why Petro Canada has resisted these software developments?

Technorati Tags: Accountability, Bureaucracy, Compensation, Conflict, Genesys, Leadership, Petro-Canada

The oil and gas reserves of Petro Canada

At least that is what the companies calls them. The theme of these Petro Canada posting is to highlight the broken nature of the bureaucracies accountability and transparency frameworks. To me the reserves calculations of this firm push Petro Canada's management above and beyond the Enron's and WorldComs in terms of brashness. These people have guts.

Petro Canada wants its shareholders to believe that $11.8 billion in oil and gas assets are fairly valued. That these reserves are sound and that no missallocations or miscalculations would have occurred. Traditionally the company would hire an engineering firm to critically review the reserves of the firm. These independent engineering firms are standard fare and represent an industry and profession with a long tradition. Find me a geologist who likes the reserves engineering report and I'll show you a scam. I am fairly certain that their are a number of very happy geologists in Petro Canada.

First of all Petro Canada opens themselves to these types of criticisms due to the fact that they prepare the reserve report themselves! This from the 2005 annual report.

"The Company's reserves data and reserves quantities are determined by Petro-Canada's staff of qualified reserves evaluators using corporate-wide policies, procedures and practices. The Company believes that these reserves policies, procedures and practices conform with the requirements in Canada, the U.S. SEC and the Association of Professional Engineers, Geologists and Geophysicists of Alberta's Standard of Practice for the Evaluation of Oil and Gas Reserves for Public Disclosure. Petro-Canada also employs independent third parties to evaluate, audit and/or review its reserves processes and estimates. In 2005, 30% of North American and 39% of International proved reserves were assessed by independent reserves evaluators. The independent reserves evaluators concluded that the Company's year-end reserves estimates were reasonable." p. 32

Well if you tell me so, it must be true. If the firm has had these reserves estimates done, why not spend the extra few hundred thousand dollars to have the whole company evaluated? And what exactly are these policies, procedures and practices. Let's check it out.

The top review, I would assume, would be the board of directors. People with the names at the top and the first out the door when the fan gets dirty. Apparently Petro Canada has a committee of Directors reviewing the reserve report. We should also note that these are the same directors that said "no" to the managements request for more stock options. None of these directors are either engineers or geologist's.

Now I have personally read many reserve reports and I can show you the ins and outs of the documents with the best. But I can not tell you weather the report is the greatest find in the history of time, or a pile of crap. I suggest that anyone without a science degree in the two disciplines is in the same boat.

To be on the safe side, Petro Canada has hired the firm of PriceWaterhouse Coopers as internal auditors to review the process of how the reserve calculations are done. Well now I feel better. The Accountants will have the boys straightened around. I am going to make a suggestion to the management. Take the money that you pay PriceWaterhouse Coopers for their review and give it to Sproule & Associates to do a proper reserves evaluation. There I saved the company a few hundred thousand dollars.

Progressive explorers such as Talisman Energy have over 80% of their reserves evaluated each year, and I would assume not the same 80%. I see no reason for Petro Canada to hold on to such a flimsy basis of reporting transparency and accountability, unless they have something to hide. And since I have predicted that the company will lose money in the second quarter of 2006. These loses should be the cornerstone of truth about the real value of those reserves.

Technorati Tags: Petro-Canada, Innovation, Reserves

To me Petro Canada is more disturbing then Enron.

There seems to be an attitude at Petro Canada that the company is involved in the oil and gas industry. If it is seen to be "active" for the sake of "activity", then the fleecing of the investors, based on the Enron model, can continue. Yesterday it was learned that the Board of Canada Southern Petroleum Ltd. rejected the Petro Canada offer, and in their response to the press, Petro Canada reflected that they thought the offer was fair and would not be amending it. Petro Canada is not attempting to be successful, its not attempting to be a failure, it is just involved in diversionary activities.

Lots of press that makes it "appear" that they are a progressive and prudent company. Recall that my prediction is that Petro Canada's second quarter will be an abysmal performance. How they report the validity of their "Panic" business model, and "hourly" strategy sessions will have a deep and compelling reflection of the firms character.

So in the activity column, Petro Canada is looking to augment their capability through the acquisition of some land in the Arctic. When the offer is rejected, they turtle and go home. The objective, to look as if they are an active explorer, being achieved in their minds, they can then turn to the stage producer to commence with the next show.

I found some pertinent analysis in Saturdays New York Times regarding the Enron trial. The quote was;

"The Enron case will forever stand as the ultimate reflection of an era of near madness in finance, a time in the late 1990's when self-certitude and spin became a substitute for financial analysis and coherent business models. Controls broke down and management deteriorated as arrogance overrode careful judgment, allowing senior executives to blithely push aside their critics."

Yesterday I promised my readers that I would summarize the Petro Canada story for them. In selecting the tag on this blog "Petro-Canada" will aggregate all my "Petro Canada" stories for the readers. This is why Chairman Christopher Cox's use of tags in the SEC's accountability framework is so powerful, its so damned simple.

It appears to me in the case of Petro Canada, they have added new elements to the Enron styled rule book, however, to me, this is only proof that history does repeat itself.

Technorati Tags: Accountability, Bureaucracy, Christopher-Cox, Compensation, Conflict, Energy, Genesys, Petro-Canada

The "anti"-Petro Canada.

I have been very quick to point out the failures of our favorite company, Petro Canada (PCZ on the NYSE). I can assure you that the fun will continue, and as I suspect, only get better. Today I want to contrast the failures of Petro Canada with what I think the large international producer should be doing. And here in Canada we have somewhat the prototypical explorationist, Talisman Energy Inc (TLM on the NYSE). So from now on, not only will we be highlighting the systemic failures of Petro Canada, but highlighting the success of Talisman.

Firstly, Petro Canada has failed again in developing its Terra Nova field. What was supposed to be a highlight of their international capabilities is turning out to be a financial and operational disaster. Even the provincial government is recalculating their budgets to accommodate the Petro Canada failures. This time there was a failure in their production platform that will cause their facility to be down for four months. There goes that revenue, up goes those costs, down go our profits. Oops I forgot they were losing money before these failures.

I have to ask of the Petro Canada management, all this for a billion dollars in stock options?

Enough about Petro Canada, for now. Talisman announced their quarterly results and I am pleased to announce that they have discovered another significant gas find in British Columbia, Canada. Talisman is headed by it's CEO, Dr. James Buckee, a geologist, and consider themselves explorers. It is on that basis that they were able to report that oil production was up 27% to 300,000 bbls / day and gas production was the same at 1.338 BCF / day. All in all, a stellar performance in comparison to Petro Canada's diminishing production profile.

Talisman is reporting that in addition to last years find of 55 mcf / day in the Monkman area, an additional 33 mcf / day in the same area went on production last month. Attributing an exploration mindset to the company is explicitly stated by the CEO.

Dr. Buckee also noted an interesting point that Dr. Giovanni Dosi states about innovation. (Click on the title of Dr Dosi's name for that blog entry.) I stated the following based on Dosi's research.

"as any industry continues in a high priced environment the technological changes that are brought about (from innovations discovered) provide "irreversible" advantages to the innovator "at any price level".

Dr. Buckee notes his target is to find gas that is economic around $5.50. By doing so he finds the discoveries from his target of $5.50 are usually profitable at around $2.50 - $3.00! This is exactly what Dosi suggests happens. That when innovations are developed by the innovative firm, it usually has the effect of being profitable throughout the pricing structure.

All in all an interesting day, and one day closer to the Petro Canada second quarter results. I wonder how many stock options it will take them to figure out this latest disaster, I sure hope the management takes it easy from now on.

[Talisman] [Petro-Canada] [Java]

Petro Canada piles it on, again.

A press release from our favorite company notes that they have increased their offer for Canada Southern Petroleum Ltd. from $11.00 to $13.00. Recall that Petro Canada was more or less disgusted with the Canada Southern Petroleum Ltd. expectations when they were negotiating with them, I wonder how the management feel now. This whole episode could probably have been avoided if the pig headed management of Petro Canada just sat down with Canada Southern Petroleum. This latest offer bumps the original offer of $113 million a whopping 73% to a total of $195 million.

I'm sorry to be the one that explains that this whole situation is taking on an enhanced perception of panic on Petro Canada's behalf. With only 55,000 shares tendered to their $11.00 offer the message to Petro Canada is more. Will Petro Canada figure that this is a game that they are not able to play and fold, or will they pull out the heavy artillery and acquire more bank debt to acquire this tiny little firm.

To the management of Petro Canada, give your head a shake, at least until it hurts. Your acting like you haven't got a clue about what your doing. The message that this transaction is sending the market is that management is running around in "fire fighting" mode. Stop it and let this bad piece of history die quietly. Now that is my advice and it hasn't actually cost you anything has it.

You have a quarterly report that will be out soon. This report is going to show how bad things really are within the company. Regroup for that public relations nightmare and forget about this Canada Southern Petroleum fiasco, your out of your league.

Start the PR machine to mitigate the effects of your loss of operational control of your flagship Terra Nova property. And the inevitable financial losses of the firm. Canada Southern Petroleum is too small to provide any cover from a PR perspective.

Technorati Tags: Incompetence, Petro-Canada, PR-Nightmare, Energy

Petro Canada announces new, software?

Just a couple of days ago I ran a series of how a firm like HSBC in 1982 set out to become one of the world's largest financial institutions on the basis of its Information Technology strategy. Here we have Petro Canada announcing that it has purchased a "new" software application. Next we'll see announcements when the company has turned on the lights. I mean, why are they announcing that they purchased a new software application?

Maybe there's something exciting like the HSBC findings. That Petro Canada will be providing the world with a bold new strategy! I some how doubt it. The company that sold them the software, Information Builders and their oil and gas software offering can be seen here. They like Petro Canada have a unique vision regarding entitlements that I find best reflected in IBI's statement;

"That's why industry leaders such as Gulf Canada Resources Limited, Northwest Natural Gas, and Westcoast Energy, Inc. have turned to Information Builders to deliver crucial business information to managers, employees, customers, and partners."

Now if I am not mistaken Gulf Canada Resources Ltd. being purchased by Conoco Phillips in 2001. Westcoast Energy being purchased by Duke around the same time. Here we have Petro Canada making a press statement about the purchase of a software application that is so well utilized in oil and gas, that the vendor company cannot even bother to update its customer list from five years ago?

The accountability charges that I have made here are beginning to stick in Petro Canada's back side. The management being as progressive as they are, by selecting and making the acquisition of new software are directly responding to the charges that I have made in this blog. Petro Canada's attitude that the selection of the alternative "Information Builders" accountability framework is the preferred model to what I and SEC Chairman Christopher Cox are talking about. It is also evidence that they understand my thesis that the software defines the organization. By selecting a second rate vendor that has no real offering and making hay about it in the press is the best this bunch of half wits can generate.

However, like so much of their past activity, the transaction only fuels the concern that they are lost and should be dealt with promptly by the Petro Canada shareholders. I will leave it to my readers to determine if the charges that I have made in this blog are valid.

Technorati Tags: Accountability, Christopher-Cox, Conflict, Genesys, HSBC, Petro-Canada, Technical Vision, Thesis

The Petro Canada definition of value and maturity.

Today's papers are full of the hostile bid that our favorite company, Petro Canada, is launching against oil and gas producer Canada Southern Petroleum Ltd. Paying $113 million for approximately 1,000 barrels of oil equivalent and 52 square miles in the Arctic may seem high, because it is. Asigning a value of $113 million per 1,000 bbls /day (raw land is always included in deals). Petro Canada wants to be known as an explorer, and that's all there is to it.

Or are these people even acting rationally? Petro Canada recently sold producing assets in Syria. These assets were deemed as "mature" by the company and therefore were no longer appealing to management. Is it therefore fair to assume that Petro Canada's "hostile" bid for Canada Southern is for immature assets? Lets do a comparison.

Syrian assets were sold for $676 million in late 2005 (including rights acquired in 2003). Syrian properties were producing 70,000 boe / day, or, approximately $10 million / 1,000 bbls per day. Petro Canada disposed of this for the following reason.

"The sale of the mature Syrian producing assets aligns with the Company's strategy to increase the proportion of long-life and operated assets in its portfolio."

So to use the vocabulary of Petro Canada the following values can be determined.

Arctic assets are "good" because they are strategic. (ie. long life and operated.) Syrian assets are "bad" because they are not strategic (ie. short life(?) and non-operated.)

Now I see the theme of this management. Again as with the Syrian sale, the Arctic assets seem to be done from the point of view of pure "panic."

I am going to make a clear recommendation that I hope the management of Petro Canada can understand. Revise your strategy to include the word "producing". You'll feel better for it.

[Petro-Canada] [Strategy] [Java]

Petro Canada's first quarter.

Our favorite company Petro Canada filed its first quarter report this week. Unfortunately no response was forthcoming from the company regarding my criticisms of 2005, so we'll just keep working on that. Since the company proceeded through the annual meeting and did not address these issues we have acquired some history, and they are now in a fixed position regarding their comments to shareholders.

The first quarter is not looking good to me. Petro Canada is now in what I would call a desperate situation, and I have to say that things are worse in 2006 then 2005, here are my concerns. I will elaborate on them further in other postings.

• Why were the Syrian properties sold.
  
• Syria earned $152 million profit and was sold for $645 million. Was this a fire sale?
• Allegedly the property was "mature"?
  
• Earnings from continuing operations were $54 million however,
  
• After deducting the downstream operations, Petro Canada lost $40 million.
  
• Maybe it was these assets that were "mature"?
  
• Without the cash from the Syrian property sale, Petro Canada would have only had $428 million in cash. Not the $1.073 billion as stated.
  
• I am also concerned why the firm has such large accounts receivable. $1.372 billion accounts receivable should recognize the additional $480 billion that was sold under its securitzation program. On that basis total accounts receivable would be $1.852 billion or 42% of the first quarters sales.
  
• If Petro Canada did not sell the Syrian property and securitize the Accounts receivables they would have had to restate cash to $(52) million as a shortfall.
  
• Was cash the reason the property was sold?
• The excessive compensation of the management continues in 2006, without missing a beat.
• General and administrative costs are up 22% year over year.
• $65 million in stock based compensation was recorded.
  
• Total options now issued = 21,823,525 shares at $49.18 U.S. = $1,073,281,451 U.S.
  
• $227 million in forward futures contracts recorded for the quarter. (I've listed the hedges here as I believe the only reason the hedging is done is for management appearances.)
  

The ability to raise additional cash has to come into question. The loss of Syrian assets will have a significant effect on 2nd quarter earnings and cash flow. The continuation of the excessive levels of compensation may become a glaring sore spot for the company. I do not know of a manner in which these management costs are justifiable, particularly based on this performance.

Recall that my purpose in providing this analysis is that the hierarchy, or in Petro Canada's case the management, has failed in the traditional form of organizational structure. Proof that the failures are occurring is evident to me based on this analysis. The criticism is directed at Petro Canada because they are by far the most representative of the concerns that I have for this industry.

Marketing Petro-Canada Java

Petro Canada Depreciation, Depletion and Amortization.

One area that I think Petro Canada has been pushing the profits up is in recognizing the cost of their production. The recording of Depletion, Depreciation and Amortization are as subjective as the reserve estimates they are based on. But Petro Canada has taken the science of recording depletion to a whole new level.

During the past 4 quarters Petro Canada has recorded $1,557 million in Depletion, Depreciation and Amortization. This represents approximately 9.5% of the fixed assets of the company being written down. However, 12% of the Oil and 13.75% of the Natural Gas was produced in 2005. If we assume they average at 12.5% then the company should have recorded $2,048 million in depletion! That's a whopping $491 million in overstated earnings and capitalization. There must be something more here that I am missing.

For the past twelve quarters the company records an estimate of around $300 million in Depletion, Depreciation and Amortization per quarter. Yet oddly enough during this time Petro Canada spent over $9.7 billion in Capital Expenditures. Their policies support my calculations, they use the more conservative method of successful efforts and record Depletion on the basis of unit of measure. Why has the depletion calculation not kept pace?

Now I know that Petro Canada is an integrated company with refinery and marketing operations. However, only $143 million in Depreciation was recorded for these items in 2005. What I think has happened is really simple. The clerk that records the Depletion decides to record the same amount for each quarter. Not thinking that the dynamics of the calculation require them to review the situation each quarter.

I think it is time for the company to adjust their financial statements for this clerical oversight. Record the difference of $491 million in depletion as a prior period adjustment, and recalculate the more accurate amount for the second quarter of 2006. Then I think the shareholders will have a fairer perception of the earnings capability of this management.

Technorati Tags: Genesys, Petro-Canada, Financial, Accounting

Why does Petro Canada get all the attention?

To prove that the blogosphere is more powerful then the bureaucracies. The ability for these bureaucracies to survive does not exist. In an environment where innovation, adaptability, speed and capability are required, who needs bureaucrats.

The need to prove that Petro Canada is run for the betterment of the managers "stock" options. Or as I like to refer to them as "entitlement" options. The management can not expect that anyone is going to overlook their use of the treasury for their own purposes. Do they not recall Enron or Worldcom?

Its not personal, but Petro Canada's staff took the time and effort to make sure that I understood that any of the efforts I made in developing this software would be minimal and unsuccessful. That my time in the oil and gas industry was over and that I should find work in other industries. So its just so much easier to pick my targets after this treatment at the hands of their so called "senior" management. Since they have had the luxury of using their power to make my life miserable, all is fair in love and war.

That these organizations as represented by Petro Canada have failed. In every metric of financial, production and particularly earnings, they will begin to show signs of being severely strained. I believe a company that was successful in the exploitation era, is an abject failure in the exploration era. They can not change their stripes.

These failures are beginning to be evident in some of the companies already. Failure is the most advanced in Petro Canada, and therefore picking targets is easiest when they pretend to continue on for the betterment of their shareholders.

Technorati Tags: Exploration, Genesys, Java, Petro-Canada

Petro Canada some clarifications.

[Petro Canada]

Seems I missed some important information regarding the numbers that comprise Petro Canada's reserves estimate and stock options. In the interest of fairness of my criticisms, here are the clarifications.

(1) Reserves

I mentioned here that Petro Canada did not have an independent review. Well they also don't have a committee at the Board of Directors level! This lonely task is left to the audit and risk committee to be rubber stamped by the vice president responsible for preparing the reserves numbers, the CEO and the Chairman. How come their is no signed statement of the directors involved in the Finance Audit and Risk Committee? Just as well none of them are engineers or earth scientists anyways.

"The Company's staff of qualified reserves evaluators performs internal evaluations on all of its oil and gas reserves on an annual basis using corporate-wide policies, procedures and practices. Independent qualified petroleum reservoir engineering consultants also conduct annual evaluations, technical audits and/or reviews of a significant portion of the Company's reserves and audit the Company's reserves policies, procedures and practices. In addition, the Company's contract internal auditors test the non-engineering management control processes used in establishing reserves. However, the estimation of reserves is an inherently complex process requiring significant judgment. Estimates of economically recoverable oil and gas reserves are based upon a number of variables and assumptions, such as geoscientific interpretation, economic conditions, commodity prices, operating and capital costs, and production forecasts, all of which may vary considerably from actual results."

My miss print is that I said no outside review of the reserves was done. This may have been incorrect as it sounds like a large portion of work has been done by "independent" reserves evaluators. If this information was available why didn't the company just publish those numbers?

Publish the "real" and "believable" numbers before the annual meeting, and prove that your reserve calculations are accurate by submitting the companies reserves data to Sproule associates or GLJ for their professional and independent review?

2 Management Stock Options.

I also note a large variance in the amount of value that I associated to the stock options granted to the management compared to the decidedly smaller number in the Calgary Herald article noted here. To help reconcile the 180,000 stock options exercised by Mr. Ron Brenneman CEO, as reported in the Herald and the $199 million in value assigned to the management as I stated here. The discrepancy is the Herald reported stock options exercised, and to prove my point about the $199 million please note.

18,361,617 cumulative stock options granted x $46.93 U.S. = $861,710,685.81 U.S.

Of that $861,710,685.81 in stock value confirms and verifies the $199 million that management holds is "in the money".

These clarifications should also serve notice to management of Petro Canada how really easy it is to restate the same facts by just stating the truth.

(1) Source is page 39 of the 2005 Petro Canada annual report.
(2) Derived from page 35 of the fourth quarter 2005 report. (Note 14 Stock Based Compensation)

Petro Canada's conflicting statements.

[Petro Canada] (Click on the title for a puff piece interview with Mr. Ron Brenneman, CEO)

In oil and gas the most innovative producers, on the basis of their capabilities in earth sciences and engineering, are rewarded with higher levels of production. This has been a fact in oil and gas since the days of the Rockerfellar's and exists today, but only with the junior oil and gas company.

What has failed to provide the market with the volumes of energy required is that some larger oil and gas producers have "survived" the past twenty years and grown to dominate the industry. These producers have found their success in a "banking mentality." A mentality that makes investments in oil and gas based on a reasonable or market competitive return. This mentality has gained a foothold in some companies, like Petro Canada.

In stable times this banking mentality can sustain itself. The smaller companies that are technically successful grow to be purchased by the larger firms, with the poorer performing properties being resold. When times change, such as today's high priced commodity market the banking mentality fails. The failure occurs as a result of the firm has lost the ability to function from a scientific and engineering point of view.

It is my opinion that this scientific failure has happened to Petro Canada. Reading the CEO's interview on the website referenced above, it is a clear reflection of his sense of urgency regarding oil and gas finding costs and capabilities. This piece of literature only mentions the words "oil" or "gas" in reference to the support of the Olympic program. Stating that finding costs are $94.50 would be inconsistent with "good news" and directly contradict the previous representation that the CEO's compensation was a reflection of his performance in moving the stock up.

Now that Petro Canada and others have no answer to the market demands for more energy. We hear that "we're not running out of energy" or "there is lots of oil left". I don't think that I am the only person that finds the ironic conflict that producers such as Petro Canada are stating to the marketplace.

Petro-Canada's reserve report.

Working for the past week on the licensing has made this blog / project / solution for innovative oil and gas producers real. I challenge the large oil and gas producers to get involved financially and be a part of defining and building this solution. Harvard University, McKinsey Consulting and Dr. Carlota Perez are only 3 instances of the same message and there will be more. If you want to continue to ostracize me then that is fine, but I would suggest you start picking on someone your own size. This community will be busy on productive things.

One of the areas that is a key attribute of oil and gas people is their ability to understand, find and develop reserves. Seeing the real scientists go about their jobs in oil and gas is absolutely fascinating. It is also a very difficult science. A science that is one of the most advanced thinking processes that I have ever been exposed to, and I would suggest the most advanced in a commercial setting.

I have to say at the start, I don't share Petro-Canada's optimistic point of view regarding its fourth quarter report and particularly their reassessment of their reserves. Specifically the statement "195% reserves replacement" concerns me. It appears to me that these numbers may not be as represented.

An upward revision of reserve estimates based on current market prices should be eliminated from the terms of the discussion about reserve increases. This seems almost unfair to represent these as additions as opposed to what they are, old reserves that became economic as a result of higher prices. They therefore are not additions are they.

The extension of your heavy oil reserves to 50 years is inconsistent with standard discounting practices. But then again, based on your report, your able to prepare your own reserve estimates. (See quotation below) How can you count reserves from something that may be producing in 50 years as an addition to your reserves? The present value of anything in 50 years is nothing, ridiculous. Your warning about forward looking statements takes on a greater meaning than I think your readers and investors accept.

My suggestion would be to possibly have noted that 26.4 / 155.3 = 16.99% of your production was replaced.

Looking critically at the $2.495 billion in upstream capital expenditures, one has to ask, with only 26.4 million barrels of additions, the value or faith that shareholders have placed on your firms capabilities is shocking. By my calculations that is a replacement cost of $94.50 per barrel. Why would you continue to sell oil at $60?

As the current custodian of your investors properties, I am writing to assert that the methods and means of management that are employed by your organization are self serving. By not pursuing alternate forms of organizational structure, you are indeed maintaining the long term security of your pension and salary. What do the investor get out of this? 2005 style of performance?

From the fourth quarter report;

"Petro-Canada's staff of qualified reserves evaluators generates the reserves estimates used by the Company. Our reserves staff and management are not considered independent of the Company for purposes of the Canadian provincial securities commissions. Petro-Canada has obtained an exemption from certain Canadian reserves disclosure requirements to permit it to make disclosure in accordance with Securities and Exchange Commission (SEC) standards in order to provide comparability with U.S. and other international issuers. Therefore, Petro-Canada's reserves data and other oil and gas formal disclosure is made in accordance with U.S. disclosure requirements and practices and may differ from Canadian domestic standards and practices. Where the term barrel of oil equivalent (boe) is used in this quarterly report it may be misleading, particularly if used in isolation. A boe conversion ratio of six Mcf: one bbl is based on an energequivalencecy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead."

"The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. The use of terms such as "probable," "possible," "recoverable," or "potential" reserves and resources in this quarterly report does not meet the guidelines of the SEC for inclusion in documents filed with the SEC."

As I said in the initial paragraph of this entry. This community is moving forward and want's to be all inclusive. We wish to have the large producers involved and playing nice with everyone, so, as I said, if you want to pick on this theory, Harvard, McKinsey and others are more your size. All in all subscribing to support of this community would certainly be a smarter place to put your investors cash.

Technorati Tags: Conflict, Dosi, Genesys, Petro-Canada

Petro Canada vs. Talisman and Devon.

I'll let readers determine if Petro Canada made a wise (attempted) purchase in Canada Southern Petroleum Ltd.

The May 13th Calgary Herald reported that Talisman and Devon Energy secured four of six parcels in a bid to secure rights in 1,300 square miles of the North West Territories.

Although the Talisman et al rights were for land, the $53.9 million is for work commitments. So to develop the land in the North West Territories, Talisman et al offer $53.9 million to develop 1,300 square miles. (an average cost of $41,461 per square mile.)

Recall the $113 million Petro Canada is offering to secure land in 52 square miles in the Arctic. The Arctic being somewhat North of the North West Territories. (an average cost of $2,173,076 per square mile.) I don't know, but base on these criteria it looks as though Talisman et al made the right decision here?

The key attribute of management is not to spend to much for an asset. Over time the value of the asset, and the future profitability of the company are directly related to these transactions. A good example is, a few years ago Ms. Carly Fiorina of Hewlett Packard offered $19 billion for PriceWaterhouse Coopers. For some reason the transaction didn't close and not even one year later IBM bought PriceWaterhouse Coopers for just $3 billion. A $16 billion difference.

Fortunately, Hewlett Packard dispatched Carly out of the CEO's office. Given an unlimited amount of money for asset acquisition, a fool, such as Carly or Petro Canada, will over pay for assets every time.

[Petro-Canada] [Talisman] [Devon]

Targeted marketing, with a new spin.

Petro-Canada is it! Congratulation's to all those that were not selected.

I won't get into the selection criteria here, however, I can assure you that Petro-Canada is as pleased as punch that they were selected. Of particular interest will be Mr. Ron Brennaman, President and CEO.

Petro Canada is the former political arm of the Canadian federal government and they have been awarded with "One of Canada's Most Respected Corporations" according to their website.

What do I want from Petro-Canada and Mr. Brenneman? I want the company to fund the first six months budget of our developments based on our proposed budget in the February Business Report of $184,000. All in all pretty simple.

Next up, I'll do some analysis of the financial statements and provide my review on this blog. Note, this analysis may not be as favourable as the management percieves their performance to have been, so stay tuned this could be interesting.

Technorati Tags: Conflict, Genesys, Petro-Canada

Idiots, a.k.a. Petro Canada shareholders.

What our favorite company is up to is a mystery even to themselves. As a shareholder I will be rabid when on July 27th this company issues its quarterly report. I thought that Petro Canada may surprise the market with an early release yesterday. An early release who's impact would be lessened by the lack of attention over the weekend. This is a particular vile and spineless tactic that only cowards would do. Maybe there is some hope for them yet?

On the topic of a July 27th release date. Does this late of date postpone the bad news to the absolute latest available date? After the full volume of the second quarter reports has died down, then we will hear the extent of the losses of Petro Canada.

When the noise of all the surprise announcements from all the other industries is in full song, Petro Canada will sneak a loosing quarterly under the door. This also on a day before the August long weekend. There is no hope what-so-ever for this firm.

technorati tags: Petro-Canada, Cowards, Genesys, Quarterly

Petro Canada's first quartile operations.

As I read the 2005 Petro Canada annual report I find that management holds itself to the rather high standard of "First Quartile Operations". It's good to see they strive to be amongst the best in the business.

But wait! What's this footnote?

"Reference to first quartile operations in this report do not refer to industry wide benchmarks or externally known measures. The company has a variety of internal metrics which define and track first quartile operational performance."

That's like having your kids grade themselves in school! Dad I got straight A's. Again.

Lets revisit some of the fine work that Petro Canada does do.

• Does not have their reserve estimates reviewed by independent engineers. This task is left to the vice president in charge of production, or whom ever has the highest number of stock options.
• Doesn't use outside metrics of performance evaluation.
• Uses hokey calculations such as "195% reserve replacement" to obfuscate the truth.
• Can't buy a small company because they won't give it away.
• Can't make money at $70 / bbl.
• Can't make money on confiscated assets. (Those that were nationalized and given to Petro Canada)
  
• Management have endowed themselves with over $350 million "in the money" stock options.

I have to ask what is this company worth? This is a festering sore on the Canadian oil and gas industry. It should be dealt with quickly.

Technorati Tags: Genesys, Petro-Canada, Bureaucracy