Showing posts with label Pig. Show all posts
Showing posts with label Pig. Show all posts

Saturday, April 24, 2010

Encana's Form of Corporate Socialism

This past week we saw a number of 2009 annual reports being published. The majority of them reflecting the difficulty in the oil and gas business during the "great recession". One particular company, Encana Corporation caught my attention. There are a family of 800 pound Gorilla's in their report, one issue stands above the rest, which ties into a paper that I recently read. The paper is written by Professor David Bardolet of Bocconi University, Professor Dan Lovallo of the University of Sydney, and Professor Richard Rummelt of UCLA. The paper is entitled "The Hand of Corporate Management in Capital Allocations: patterns of investment in multi- and single- business firms." This is another paper from the April 2010 edition of the Oxford Journal of Industrial and Corporate Change .

So why does Encana get singled out for this special treatment? Simply this issue needs to be addressed, and they did everything they could to avoid addressing it. Looking at the report their is no discussion of this issue in the message from the CEO. There is no discussion of the issue in the Management Discussion and Analysis. Only in the notes to the financial statements will the issue be brought up, and none of the press releases reflect the point.

The issue is that for U.S. Generally Accepted Accounting Principles (GAAP) their is a $14.6 billion write down of the assets. This creates a $5.5 billion loss for all of 2009. However, as a Canadian company they have the option to report under Canadian GAAP rules and these show a profit of $1.862 billion. Just a small variance. Those that understand accounting for oil and gas will appreciate the ceiling test under Full Cost accounting. Both countries apply the same general principles for the ceiling test, the U.S. system has fewer exceptions and that is the cause of the $14.6 billion difference. What the management don't seem to realize is they will need to be explaining this anomaly in their reporting until such time as the timing differences in the Canadian reporting system expire. That could be as little as one year, or as much as the natural life of the firm, who knows, apparently not the management.

Reviewing the other Canadian firms that may report similar differences in the timing of their ceiling test write downs. I found no other material anomalies between Canada and U.S. reporting. So why has Encana been affected so materially whereas their peers have no such effect? Is it because they are "un-conventional" gas producers? Is there something inherently different in that classification that would cause these write-downs? We'll never know. As the management, led by the CEO, have taken the opportunity to be completely silent as to the anomaly. Why not take this as a teaching moment to inform and educate your investors as to why their assets have been impaired? Management doesn't think that way. They prefer to cower in the corner hoping that no one notices.

Encana defines it's strategy as a "low cost, margin maximizing natural gas producer". Whatever that means. The point of this post, and the branding of Encana as a form of corporate socialism, is based on the one size fits all strategy of this large bureaucracy. I will assert that the write down of $14.6 billion of its assets is a major hit to the firm. One that places them in the position of having to seriously address their asset base. An asset base where  its natural gas production declined by 3%. If "non-conventional" gas is such a lucrative and valuable business model, why are the reserve valuations and production in such decline. From the paper.

One possibility is that our study of “averages” misses the blockbusters. That is, multi-business firms might subsidize CNU businesses because, once in a while, one of them really takes off. We cannot completely discount this possibility or measure precisely the extent of this phenomenon. However, our study of the dynamics of these segments in Section VI suggests that multi-business firms are really not that successful in finding and nurturing these blockbusters. p. 19
By using the Joint Operating Committee as the key organizational construct, strategy can be set at the asset level. If the "low cost, margin maximizing natural gas producer" strategy doesn't fit the asset, a more appropriate one can be set for that asset. This assumes that we build the Draft Specification for the innovative oil and gas producer. Enabling them to manage their assets in that fashion. The use of generic global strategies is what firms did in the twentieth century, not today.
Our results are roughly consistent with the account of “corporate socialism” developed in the corporate finance literature. Some of the work in this line (e.g. Wulf, 1999; Rajan et al., 2000; Scharfstein and Stein, 2000) stresses the agency conflict between division managers and corporate headquarters. Division managers are portrayed as rent-seeking agents that try to obtain additional compensation (in the form of extra capital allocations, among others) from corporate headquarters. They try to do so by overstating their divisions’ prospects or by engaging in direct lobbying. In turn, corporate headquarters might decide that avoiding this inefficiency in resource allocation is not worth the cost of increased monitoring or low morale and thus accede to their demands. In particular, Scharfstein and Stein (2000) make the point that managers from weaker divisions have a stronger incentive to engage in firm politics given that their demands for capital investment cannot be argued so effectively solely on the base of a prospect’s quality. Therefore, those managers end up receiving more investment capital than they should and that creates the comparative difference with their stand-alone peers in the same industry.

The corporate socialism argument rests on a complex set of relationships among various agents within the corporation. A simpler theory is offered by the literature on cognitive biases. In particular, the allocations observed in this study can be explained as a consequence of behaviors called “naive diversification” and “partition dependence”. Naive diversification (Benartzi and Thaler, 2001)—also known as the “1/n heuristic”—is the tendency for individuals to be biased toward even allocations. p. 19
Just to be clear the authors point out that this applies to oil and gas as much as it does any other business.
Partition dependence is a consequence of naive diversification when the decision-maker faces a particular partition of the set of choices. In the case of capital allocations, this partition of choices would be the organization of the business units within the company. p. 19
And here the authors make it abundantly clear how these decisions are made.
Naive diversification and partition dependence are well-observed phenomena in other fields of human decision-making. For example, Benartzi and Thaler (2001) found a similar effect in both laboratory and field data studies of investment in 401(k) plans. When asked to choose between investing in a stock or bond fund, many individuals choose to invest 50% in each. When asked to choose between two stock funds and a bond fund, many individuals choose to spread allocations equally among the three funds, which creates an aggregate investment that is more heavily weighted (2/3) to stocks. Bardolet et al. (2009) found strong naive diversification and partition dependence effects in managers facing hypothetical capital allocation tasks. The naive diversification account applied to internal capital markets would predict a tendency toward equal allocation among all the business units in a firm, thus underweighting factors that would demand more uneven allocations (such as growth rates, profitability, etc). The experimental character of Bardolet, Fox and Lovallo’s study shows that even in situations where social and political factors are not in play (i.e. a laboratory environment) those two biases are enough to cause a tendency toward even capital allocations among all business units, thus corporate socialism is a sufficient but not necessary explanation of inefficient allocations. pp. 19 - 20
What I am asserting is that the capital allocations at Encana fall within the corporate socialism phenomenon. This has led to bad capital allocation decisions being made across the organization. Either too much capital was used in the development of the reserves, or the capital spent did not develop enough reserves to support the costs. Now those chickens have come home to roost in that the capital costs are too high to support the reserves held, forcing the write down. Those familiar with the nuances of the Full Cost ceiling test will realize the material nature of Encana's problem.
Further research on the anomalies we have identified seems warranted. In particular, it seems worthwhile to try to identify the relative importance of incentives, inertia, and biases towards even allocations in driving this result. One step in this direction would be a study which included data on corporate incentive mechanisms and changes in administration. p. 20
If they wanted to study Encana, one should also study the cognitive bias towards promoting pretty young blonde's to executive vice-president positions. Our appeal should be based on these eight "Focused on" priorities and values of how better the oil and gas industry and its operations could be handled. They may not initially be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are. If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Monday, March 02, 2009

Berkshire Shareholder Letter

We've all heard of the "Oracle of Omaha" Warren Buffett and understand his perspective on business. Lately he has taken some solid hits to his reputation with the high profile and large investments he made in Citibank and General Electric. Both being questionable in terms of judgement.

Nonetheless he has the clarity of thinking that provides a solid grounding of where we are and what may be happening to us economically.
“The economy will be in shambles throughout 2009 -- and, for that matter, probably well beyond,” said Buffett. “Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so.”
The annual report of Berkshire Hathaway is available and down-loadable from here. The Wall Street Journal also has a review of the letter to shareholders here .

Is this recession really a depression? Have we seen a time when a recession has put so many homeowners underwater? Or watched the Japanese economies exports decline 45% year over year? A recession in which we have seen banks and auto manufacturers, media and almost every industry in such a decline that the poor performing companies are looking straight down the barrel of their demise?

Well actually yes we have. There have been many other periods of time in which the economy has been hit by a depression. The 1930's being the most recent. These are long wave economic theories that have been systemically analysed by Professor Carlota Perez. And I have applied them to the oil and gas industry in a variety of blog posts under the label Perez. The key takeaway from her theories is that there is economic stress, or shambles as Buffet calls it. This a necessary and productive time of renewal. The organizations that will come out of this decline will be more able to satisfy the needs of society and people. Something that the old economy styled companies where unable to do.

Professor Ludwig von Mises is famous for educating Professor Friedrich von Hayek in Economics. He also stated an important point pertaining to some of these long term economic cycles. And that is they are generally solutions to the problems of the day. Specifically he states that the "industrial revolution was the solution to the problem of mass hunger".
 
This puts in context the role of today's Information and Communication Technologies (IT). IT has for the past 40 years provided us with some of the solutions to the problems of the day. And we live in remarkable times as a result of these technologies. But there is so much more that is expected of them, and in many cases they have been systemically disappointing in terms of building specific value for organizations. With organizations unwilling to change or to adopt the new technologies to their fullest of potential, IT's impact has been limited. As a result we have barely experienced the value they could provide. I marvel at the stupidity of driving to the office in the morning. This activity consuming up to three hours of each individuals day, When in reality they were prepared and ready to work within 5 minutes of waking up.

We need these economic depressions to eliminate the weaker and less adaptive firms from the economy. In oil and gas I have written about the piggies and specifically about Canadian Natural Resources Ltd (CNRL). I have accused them of aggressively fudging their financial statements in the third quarter. They have lost Fidelity investments and this is the only news we have heard from them? They were to have their Horizon tar sands operational now, yet we only know that their is litigation with the contractor. With $26 billion in debt and greater then $3 billion working capital deficiency, these delays in reporting are evidence of the last moments of that organizations life. Say good bye to this pig.

The time in which people will be faced with the question "what do I do now" is answered with their involvement in this software development project. For a variety of reasons we need to begin the development of the People, Ideas & Objects software application. We have advanced as a society where the role of software in organizing is at a very high level. We have alternatives that make this choice very critical. We either build this software or regress to manual systems. A future that unfolds in a very bad way. We need to get moving with these developments, the time is brief, and we are not moving forward at this point in time. So please, join me here and lets build this software .

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Monday, February 09, 2009

Train wreck in progress.

Looking at Canadian Natural Resources Limited (CNRL ) from the perspective of Professor Nouriel Roubini

Keep alive zombie banks and zombie corporations with balance sheets and debts that haven't been restructured, as in Japan, and you end up in an L-shaped near-depression.
Canadian Natural Resources Ltd is one of our piggies and my personal favorite. They have done nothing to earn the abusive and hostile position they have taken in the industry. Being a bully helps to identify who your friends are, particularly during the downturns. My comments over the past few months are summarized in this list. 
Based on those three attributes alone, CNRL qualifies as a Zombie Corporation that Roubini defines. There are many other issues that I have commented on before and they can be read here. What I want to focus on today is CNRL's Fourth Quarter Financial Statements. Or actually the lack of them. They won't be publishing their financials until March 5, 2009! What is this? We've seen Devon Energy and Conoco Phillips report large write downs in their asset values. We've seen the reports of BP, ExxonMobil and Shell. So how come we have to wait so long for CNRL.  

I want to make it clear that the non-publication of completed financial statements is a fraudulent act. As an accountant it is well known that if your peers have issued their statements, everyone will have, more or less, completed theirs. Why has CNRL postponed the publication to March 5, 2009? There is no legitimate reason to not have issued them. The tried and true comment that the Auditors are not finished is no longer valid. Not many companies would be subject to any audit induced changes. More of an issue of pride then practice, Management can interpret and apply the regulations as well as any auditor. 

So why is this an issue. Many people within and outside of the firm know what the financials state. Many will be regulated to not indulge in any trading of the firms shares. Many won't, and that provides a distinct advantage over the other "uninformed" shareholders. This deferral of statutory reporting imputes impropriety, and a lack of fortitude by the management to face the music. I think this firm is on the verge of collapsing and does not want to let the information out. If, as I suspect, they can't make mid-month payroll, they will collapse without the need to publish those disgusting financials they tried to pass off in the prior quarter . As I noted here, those statements took on a spectacular and surreal tone. Making funny revenue adjustments is best left in the hands of the crooks, of which CNRL is obviously ready and willing to join. 

My advice is to dump this companies shares as there is significant downside for any existing shareholder. This will be the first firm in which the market for investors will be able to buy the actual oil and gas properties at auction. Purchasing these assets to start over again with the software and Community of Independent Service Providers discussed in this blog, and referred to as People, Ideas & Objects.

All this and no mention or news of CNRL's heavy oil "Horizon" fiasco. Rest assured the property is one of those that will make it into the history books as one of the greatest boondoggles of an incompetent management. But don't think they can be let off the hook, incompetence is a defense of the truly desperate. These actions will be tried in the U.S. and just like Conrad Black and many others, there will be perp walks and convictions.

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Wednesday, February 04, 2009

The executioner is primed.

This headline showed up in the Calgary Herald the toay. It's taken me the better part of a day to refocus;

Brewing shareholder revolt puts Petro-Canada in hot seat.
It's been quiet from the point of view of our Piggies. Although Petro Canada reported losses for the last quarter of 2008. I have been waiting for more information to come in before I post anything. But this news article trumps anything that I could have written.

It seems that I am not the only one that is holding their nose as a result of the smell around here. The shareholders are not pleased either. Listen to this little tidbit.
The integrated oil company’s poor performance has riled its shareholders, including the Ontario Teachers’ Pension Plan, which is said to be preparing a 13D regulatory filing with the U.S. Securities & Exchange Commission. That filing may signal a push for a change of control.
I think I'm going to put my pot on simmer and watch this one develop on its own. I also have a very interesting idea of what I think is happening at CNRL. Something seems to be developing there with the recent dumping of the firm by Fidelity, and now they are not going to report their quarters earnings until March 5, 2009? Conoco Phillips, ($68 billion market cap.) which I think is a bit bigger then CNRL ($18 billion market cap.), accountants have managed to get their financial's out over a week ago. Accountants at CNRL must need more sleep.

Something is seriously wrong at CNRL, and based on my November 10, 2008 suggesting the "questionable" nature of their third quarter report, I sense we're in for a surprise. I'll even give a little hint, it's on the Horizon, so stay tuned.

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Wednesday, January 07, 2009

Ouch, that hurts.

The Oil & Gas Journal is reporting the rating agency Moody's is downgrading the Exploration & Production sector to negative. Click on the title of this entry for the Oil & Gas Journal article.

LOS ANGELES, Jan. 6 -- Moody's Investors Service has changed its outlook of the independent exploration and production industry to negative, citing the "precipitous decline" in oil and natural gas prices to levels that are likely to result in abnormally low cash margins and fundamental credit deterioration.
I have been gleefully highlighting the difficulties that Canadian Natural Resources Ltd is having as a result of their over-reaching. This Moody's call is doubly difficult as CNRL will not only have their financial difficulties to deal with but the sector is being downgraded in terms of its attractiveness to investors.

The scope and speed of this downturn / meltdown / recession / depression is unprecedented. CNRL began thinking the air smelled pretty good around them and were invincible to the forces of the market. 

Instead of sticking to their knitting, these nit wits ramped up the debt in the mistaken belief they were the top dawgs in the oil and gas business. I'm smelling a lot of CNRL's blood in the water. The situation they have created for themselves is desperate and will require wholesale surgery. Asset sales are difficult but they will need to raise cash. Cash I'm sure their banks will have a claim to. This also assumes that they can close a sale. With most of the smart money on the sidelines, it's fair to assume this avenue will be closed as well. 

This leaves few options. Cutting capital costs can be done fairly quickly, (and has been done) but will that be enough. Layoff's of a significant amount of the staff will need to be made in order to maintain a base of operations and satisfy the bank covenants. Aw heck, why bother, throw it at the courts and let them figure it out. After all what's in it for management? Easy come, easy go right guys.

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Tuesday, January 06, 2009

CNRL loses its Fidelity

Canada's National Post (Click on the title of this entry for the article) has an article about Canadian Natural Resource Ltd (CNRL), our favorite piggy, has lost the interest of Fidelity Investments Maggelan stock fund. I can't imagine why. I mean is it the questionable accounting, the massive debt load, the massive working capital deficiency or just the probability that the Horizon heavy oil project will ever get started or the ability to ever make a profit from that white elephant? Maybe its just the steep declines in production? Probably the fact that the 44 individuals with Chief or President in their title, and lets not forget the three people who rank as Chairman, couldn't provide a reason for Fidelity to keep their shares. After all CNRL was not the only stock Fidelity were selling, they were also dumping a number of American banks.

Time continues to tick away from our four piggies. Just six months ago, the management of these companies were basking in elaborate retirement plans funded by their $3.3 billion "in the money" stock options. Well those options disappeared pretty quickly didn't they. Now the exits are experiencing a stampede of their five star investors. Hmm, lost the ability to issue bonds or increase debt, can't raise money from their investors, can't finish off the jobs they started. Failure is the only way to describe it. A failure that was precipitated by managements greed and pretense.

Asking these companies to adopt a more innovative footing seems too much to ask these days. After all they seem to be fighting for their very existence. The only thing that surprises me is that the smart money (Fidelity) actually made it out before the management defections.  

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Thursday, December 18, 2008

McKinsey IT Global Survey

McKinsey have published their third annual Information Technology Global Survey. This survey was taken during a time of economic stress, and as such, I feel it necessary to comment on the state of economic affairs as I see them. Yesterday we saw Federal Reserve Chairman Ben Bernanke essentially capitulate to the power of this economic decline. Moving the interest rates to 0% and stating he will do what he has to do to solve these problems, there is a tacit recognition of the scope of this depression.

I have been referring to this downturn as the mother of all depressions, and I think I would get a consensus on that. The only remedy to this is to eliminate the inefficiency within the economy. That means radical organizational changes supported by powerful new IT systems. As I state on occasions "SAP is the bureaucracy" and to change the organization requires first and foremost a change in the systems used by the firm. It is within this economic backdrop of this survey that I make these comments. The survey respondents are generally the ones that will be fairly quickly losing their jobs. Click on the title of this entry to view the survey results.

It may be considered optimal or ideal to have IT lead the organization in term of innovation and competitive advantage. A competitive advantage that would be attainable by a fundamentally different system like the Draft Specification of People, Ideas & Objects could provide.

CIOs and other senior executives agree that ideally these capabilities should, for example, promote innovation and better enable companies to seize new opportunities. Still, they continue to see a gulf between these aspirations and the value that IT currently delivers. p. 1
Existing demands of IT and performance requirements show that the pressure to just stay afloat becomes more difficult.
The global economic downturn complicates matters. Respondents cite continuing pressures to deliver on existing IT projects and services at a time when they expect spending to fall. So they are making trade-offs: reducing IT operating expenses so they can maintain high-priority new investments that support broader business goals, such as improved sales force or supply chain management. p. 1
I suspect these types of decisions are being made throughout the oil and gas firms highlighted in our piggy series. Failure, despite the belief that the government can save everyone, is not an option. It is what is needed for society to move forward.

I have to reiterate the value that McKinsey Consulting is providing here. They are consistently showing the right direction for firms to move too. For the past number of years (3 by my count) they have shown that they are concerned about the economic consequences and are actively moving their firm and clients to the new model they preach. This survey is no different. As I have said before, I have allocated a sizable budget for their consulting to this project when we begin. Precisely for comments such as this.
Unprepared for disruption

Nearly two-thirds of respondents say their organizations are at risk from information- and technology-based disruption. Ranking highest among disruptive forces are potential shifts in customer expectations for better products or differentiated services enabled by information- and technology-based capabilities. p. 2
To add insult to injury, it is the other C class executives that are looking at their own internal IT groups with what sounds like the greatest of disappointment.
IT’s value to the corporation

The survey found aspirations for IT are substantially unmet: respondents see a large gulf between their IT organization’s current priorities and what IT could contribute. p. 3
Makes me think that there may be a spot for People, Ideas & Objects yet! And McKinsey reflects a strong intent for businesses to improve in this area. However, based on my experience with the Canadian producers I have highlighted as the Piggies, they are only concerned with their retirement and ensure their activity level remains low enough not to strain themselves. The point that I am trying to make is that saying this is the "intent" may make it through their budget processes, but we know it is mostly, if not all, BS.
This year’s results show an area of notable improvement: the way IT strategy is developed. Fifty-nine percent say that their companies develop multi-year IT plans, up from the 52 percent response last year, and 56 percent say that their IT strategies include technology-driven business innovations, versus 42 percent last year. Still, two-thirds of executives say further improvements are possible by integrating business and IT strategy more closely. They favor a process where IT strategy and the “art of the possible” in technology influence the development of business strategy, closing the loop in strategy development (Exhibit 3). This joint development of strategy by business and IT would reduce risks of surprise disruptions and better involve IT in bolstering competitive advantage. p. 3
The remainder of the document discusses the budget allocations of these managers. This I perceive as an academic exercise since none of it will come about. The economy will be acting swiftly against those that are unable to bridge the gap from the old to the new. And the new begins here with People, Ideas & Objects and the Draft Specification. Please join me here.

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Wednesday, November 19, 2008

"Almost" two down and two to go.

Management of the Piggies, our nickname for Encana, Canadian Natural Resources, Nexen and Petro Canada have had a really bad quarter. Since July of 2008 when they had $3.3 billion of "in the money" stock options, they've lost a bit.

First it was their options which quickly evaporated when the market meltdown started its Tsunami like roar. Now it seems to have turned more personal. First was Charlie Fisher to announce he is leaving Nexen as its CEO. Now the focus seems to be on Petro Canada.

Our local paper The Calgary Herald is reporting that the "Fort Hills" heavy oil project operator, Petro Canada is now "deferring development". But that's not the key point of the article. (If you listen carefully you can hear the ghosts of Arthur Anderson's staff using their shredders.) It seems some people who own Petro Canada are not particularly happy with the management, stating:

Part of the stock's downdraft Monday was due to oil prices falling to their lowest levels since January 2007, but another reason offered for the absence of market support was a lack of confidence in the company's management. The most-often asked question among the investment community of late-- behind closed doors, of course --has been around when the company's chief executive, Ron Brenneman, might be stepping aside.
So lets mark this one as a "half way" through the door. Careful guys don't let the door hit you on the way out. Leaving us with only Encana and Canadian Natural Resources. What's that saying about the bigger they are the harder they something or other. Lets predict that CNRL is the next to loose the top echelon of the firm. Remember, they thought strength in numbers would provide good cover when things got hot. But with 45 different individuals with Chief or President in their titles, it just might be best to get a forklift.

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Monday, November 10, 2008

Canadian Natural Resources Questionable Financial Statements.

Here we go again, making representations that are not true. First of all CNRL's Third Quarter 2008 financial statements are designed to mislead so that reputable names like Forbes get the actual numbers wrong. This is intentional on the managements behalf and is a material issue in my opinion.

All one needs to do is look at page 17, 20, 21, 25, 40 of their financial statements and the "unaudited" revenues are qualified in the management discussion. Note (2) is appended to each instance of "Sales Price" and they have the following quote.

(2) Net of transportation and blending costs and excluding risk management activities.
So its, net of transportation and blending costs. And does not include risk management activities. Even written grammatically it leads the reader to confusion.

The problem comes down to the fact that the firm did not realize those sales prices. They hedged their production on a go forward basis. The real "market" prices for the commodities were what the firm sold them at, however they need to be discounted based on what the firm sold their production forward at.

This is how material of a misstatement this activity is.
    Reported Revenues = $4.583 billion.
    Risk(y) Management Activities = $1.715 billion (B as in billion)
    Real Revenues = $2.868 billion.

This is how the firm is able to report that earnings are $2.835 billion, and cash flow is $1.677 billion. Which doesn't make any sense does it. Particularly when the Changes in cash for the three months is a drain of $8 million. (M as in million).

On page 52, under Risk management, they come clean with the goods with the following comment.
The resulting fair value estimates may not necessarily be indicative of the amounts that could be realized or settled in a current market transaction and these differences may be material.
Why would a firm do these types of things. I think it is reflected in their third quarter announcement that they are reducing some of their capital expenditures. They stated that as a result of royalty changes in Alberta they were dropping their expenditures by 46%. This only shows that they have no money. Everything is being diverted to make sure that Horizon gets started. Well I predicted that Horizon start up was not going to happen in my post of August 25, 2008. And the prompting of my prediction was that the firm was $26 billion in debt with a $3.2 billion working capital deficiency and the...
Specifically I think that financial capital is in a state of seizure that is unlike anything we may have seen in the past. The impact of this credit crisis will be limited to those institutions that are involved in granting financial capital and those that need it. If you need financial capital don't bother knocking on the door, you won't know what the response will be.
That's correct the looming credit crisis did come, and I have to say that I underestimated it's size by a substantial margin. On page 59 I also find this tidbit interesting.
(2) Net expenditures for the Horizon Project also include capitalized interest and stock-based compensation.
Reflecting that the management have been reading some people's blogs! (Hi there.) And to be honest, making it to the top of the Piggies list in July 2008 must have been embarrassing. So why would they not hide these costs in their capital expenditures? I never would have thought that capitalized stock based compensation was legitimate!

On page 39 one could also discover that there are some legal troubles brewing with the contractors at the Horizon project.
The Company is defendant and plaintiff in a number of legal actions that arise in the normal course of business. In addition, the Company is subject to certain contractor construction claims related to the Horizon Project. The Company believes that any liabilities that might arise pertaining to any such matters would not have a material effect on its consolidated financial position.
I'll bet not, big project, big contracts, big contractors, nah that won't be material at all. Let me go out on a limb here and say that I think the project is in the middle of the process of being forced to close by the firms inability to pay the contractor.

I say we bring on Phase II of the market meltdown and clean these guys out, (oops these guys are already out of the money in their stock options), sorry folks I didn't mean to rub salt in those gaping wounds. Lets instead say, take them out of business. Take them out of their misery and let them get honest jobs. A sort of management rehabilitation exercise. I would suggest that it's 11:59 for this firm. And as a result most, if not all of management should will take the Charley Fisher (Former CEO of Nexen, another Piggie) route to redemption and quit.

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Thursday, October 23, 2008

Carl Icahn 's United Shareholders.

I have argued here that the management in oil and gas has failed in their duties. (Running an ongoing series that I have termed the piggies.) Irrespective of the fact that management's grab bag of cash has dwindled to nothing, they have betrayed the shareholders of the companies that employ them. These people have damaged much of our lives, and we will pay dearly for their greed and myopic focus on themselves.

But we are not alone. While we are legitimately concerned about what the oil and gas industry will be able to do in the future, the extent of the damages to the capability of the industry is unknown. We are also seeing a similar wholesale management failure throughout the developed world. Currently the banking and financial communities, whose antics have been despicable, are the ones that have started us down this road of forced renewal. I am so pleased to see that people like Carl Icahn , an activist shareholder with a long history. Has established a "United Shareholders" organization to begin dealing with this systemic virus of managements lack of accountability. Icahn could be the spark plug that is needed to address this issue. (Click on the title of this entry to be taken to his blog.)

Management's use of regulations like Sarbane's Oxeley have been used to entrench their activities. In my opinion the regular frameworks adopting compliance and governance are required but are not the solution, nor are they the tools or organizational bodies that need to be employed. I see this as a civil framework that the shareholders can implement themselves. This also implies the separation of management and ownership will narrow decisively. And for oil and gas I have suggested that it is the shareholders or their representatives that are the people that participate at the Joint Operating Committee level in the People, Ideas & Objects application. 

Many of the excellent comments of Carl Icahn 's recent blog post include these points that in retrospect, are almost laughable that they were ever deemed acceptable behavior. Talking about the U.S. $700 billion bailout of the banks.

One reason that Paulson may have gotten the banks to agree to the restrictions is that they do very little to actually restrict compensation. It only covers the CEO, the CFO and the next three most highly compensated executive officers. This means that other highly paid executives aren't covered, such as Joseph Cassano, the head of AIG’s Financial Products unit who made $280 million in the last eight years writing credit default swaps that caused AIG's collapse, according to Congressional testimony this month.
This next quotation shows the possibility of a broad base of support for Ichan's initiative.
In my view, it was the boards of directors at institutions like Citigroup, Morgan Stanley and Merrill Lynch, Lehman Brothers, Bear Stearns, AIG and others that failed to stop management from pursuing risky strategies that crippled their firms. In his latest book "Where Have All the Leaders Gone?," retired auto executive Lee Iacocca writes, "Am I the only guy in this country who’s fed up with what’s happening? Where the hell is our outrage? We should be screaming bloody murder!"
and
"Name me an industry leader who is thinking creatively about how we can restore our competitive edge in manufacturing," wrote Iacocca, adding, "The most famous business leaders are not the innovators but the guys in handcuffs." I’m not saying I totally agree with Iacocca, because we do have some great business leaders in this country. But there is definitely too little shareholder outrage over self-serving executives who get massive paychecks for deeply flawed performances.
Sarbanes-Oxley was aimed at making corporate board oversight stronger in the wake of the collapse of Enron, WorldCom and others. But when we see the kind of debacles that occurred over the last year, obviously that legislation is only part of the solution. What we need is millions of shareholders to rise up and demand more accountability on the parts of boards and managements of the companies they hold.
Subscribing to Ichan's blog can be done here, and if your a resident of the U.S. please sign up for his United Shareholders of America campaign. And lets start dealing with this problem from a constructive point of view. Join me here.

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Friday, October 17, 2008

British PM Gordon Brown, gets it.

I have a quote from our local paper, The Calgary Herald, regarding British Prime Minister Gordon Brown's call on world leaders to create a new financial architecture to replace the Bretton Woods system.

Sometimes it does take a crisis for people to agree that what is obvious and should have been done years ago can no longer be postponed, Brown said in a speech at the London offices of Thomson Reuters.
and
"I'm slightly less terrified today than I was on Friday," said Princeton University economist Paul Krugman, named as the winner of the Nobel prize in economics on Monday. "We're going to have a recession and perhaps a prolonged one but perhaps not a collapse."
What governments, in this current economic meltdown, seem unable to say is no to any request for funds. If they had learned to say "no" many years ago to the guy with no income no job or assets (ninja) who wanted a mortgage, then we wouldn't be in this state.

I first raised the issue of a credit crisis in a blog entry entitled Beyond the Red Horizon. In the entry I suggested that CNRL would have difficulty in getting their heavy oil production on line due to the looming credit crisis and severe credit levels that the company holds. Particularly the $3.2 Billion working capital deficiency. (What were they thinking?) The companies shares are down $41.76 since I wrote those comments. Trading at $40.47, a mere shadow of its former self. I think they should get prepared for the real hair cut that will soon affect the company. (Yes, even though we have lost $30 trillion globally.)

This firms management have placed the company in a situation where they have absolutely no options. They will soon be unable to meet payroll, unable to pay their field service providers and many other normal business operations that are now beyond the scope of the companies capabilities. No matter how you add it up, the situation is unworkable. Yet Murray Edwards, one of the many Vice Chairman of the firm, says absolutely nothing in this recent interview with Forbes. He has a responsibility to his shareholders to be a little clearer on this topic, don't you think? These kind of comments only let the credit crisis monsters get an eye on where to go next. If you have shares in CNRL get out before they are run into the ground. And thank Murray Edwards on your way out.

The preliminaries in the fowl winds of this credit crisis are now over. The bullets have all been fired and now the serious business of this meltdown will begin. I would expect the rolling and violent stock markets will continue with a strong downward trend. What will now begin to happen is the currencies and value of the countries will face the same types of horrendous devaluation forces. (Bankrupt countries like Iceland.) I don't like discussing these issues, it is however somewhat comforting to be knowing what will happen next, and I hope to be providing some forewarning.

In all of this calamity it is important to note that opportunities are opening up to everyone. This is a brand new clean slate with the wealthy people like Murray Edwards unable to save their money from destruction, and no time or energy to pursue these new opportunities. Get in and earn yourself a healthy position in some kind of assets that will eventually be sold or auctioned. We are going to need to re-build the industry brick by brick and stick by stick. Just as Gordon Brown stated, "Sometimes it does take a crisis for people to agree that
what is obvious and should have been done years ago can no longer be
postponed."

Join me here in building this software to manage the oil and gas industry. We have limited choices, use manual systems, give SAP another try, or build this software and re-build the industry for those that are prepared to take these opportunities.

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Monday, October 13, 2008

Easy Come, Easy Go.

Or is it.


I documented the $3.3 billion in stock options for the four little piggies, (Encana, CNRL, Nexen and Petro-Canada.) in a posting dated July 16, 2008. As of Friday's October 10, 2008 closing prices the value of those options now total $57.2 million. (Values based on 2007 weighted average options and prices.) The problem is that the investors in these companies have experienced a far more substantial haircut in their share holdings. (Piggies are down 53.4% to 65.5%).

From my point of view these alleged management types are better understanding the market and the scope of their greed. This provides justice to those who were so slovenly in the past. I wonder what Monday's trading will have in store for these wonder pigs. Recall they were in the forefront of rewarding and congratulating themselves for the higher stock valuations from commodity price increases. Therefore we should ensure that they are also compensated for the damage to these companies from the decline in commodity prices. These pigs brought that upon themselves, and in the future these management should understand that you reap what you sow.

But wait, not only are they incompetent, they have also lost their motivation. I wonder if they'll quit before anyone has the chance to be fire them? I've always believed a firm that loses greater then 53.4% of their market value is considered a non entity. That large of a loss in a firm is a reflection of the future of the firms opportunities. All the Kings Horses and All the Kings Men. (Ricky Gervais provides some insight and comedic relief.) 

The investor class is now forced to act in recovering their assets and value. Kick these bastards to the curb and lets start building the oil and gas industry for the 21st century. As I said these managements are now unqualified, unmotivated and unproven to hold the offices they occupy. They have damaged the firms to the point where they will be walking corpses for the next several decades, and that is being optimistic. Fire the bunch, you certainly can't trust them. I don't trust them, as any group of companies that would attempt to steal ones Intellectual Property, as these firms attempted to take the idea of using the Joint Operating Committee, are crooks.

Pig courtesy of http://designedtoat.com/pig.htm

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Monday, October 06, 2008

That's going to hurt.

What a difference a day makes. This credit crunch is now in its last moments before total seizure. I hate to be the one to be the bearer of bad news, so I won't. This crisis is the biggest opportunity that mankind has ever faced. We are now moving at lightening speed from the total collapse of the old economy that we depend upon. To be replaced by the hugely productive economy based on Information & Communication Technologies.

What we are facing in the oil and gas industry is that all of our assumptions about the future are being turned up-side down. Companies such as Canadian Natural Resources Ltd will cease to exist in as little one year. The gas production and prices, and the oil production and prices as reflected in these articles are collapsing, on a temporary basis, slaughtering firms like CNRL's revenues. On the costs side, the ability to do anything operational in the short term will be impossible due to the lack of cash to pay people. These companies, like CNRL who have a Working Capital Deficiency of $3.2 billion, are toast. And if investors followed my advise they would have sold out of their positions and waited for the fire sale of oil and gas assets to start in earnest very soon.

The bureaucracy is dead, long live the producer.

That is if they had the systems necessary to organize themselves. And that is where "Innovation in Oil and Gas" comes into play. We need to rebuild the industry based on the Joint Operating Committee (JOC) and the Draft Specification. To do nothing on this front will reduce us to barbarians fighting over the littlest things. Without the systems to support organizations, people and society we will regress to barbarianism. I thought this was a good news entry? Well it is and I just want to reiterate an important point of what our actions need to be. Here is President George W. Bush's comments after singing the bail out on Friday.

In October 4, 2008 Sunday Herald the following comments were made. They resonate with essentially the same things that I am saying here about what will happen to the banking system in Europe. There article too is a positive one when you see their point of view.

While it is unlikely that we are going to see a return of the era of the Captain Mainwaring-style bank manager, the culture of spivvery, and high-pressure sales that has permeated most British banks will also certainly become a thing of the past.

In its place we are going to see a banking system that looks much more like the "utility" model which Britain had in the 1950s and 1960s. It will be a low-risk banking system, and one where the profits are going to be much lower than they were in the 1990s and the noughties. Credit rating agency Standard & Poor's says that "the survivors are going to be those banks that have learned and applied the lessons to live with new realities, not those which hanker for a past that no longer exists".

Financial regulation is also going to be tightened up, as banks cannot be granted a liberal safety net by the taxpayer and expect to go back to the loosely regulated free-for-all that existed before. Ian Blackford, former managing director of Deutsche Bank and head of its Dutch equity business says: "Our political leaders now have a responsibility to put in place regulation that prevents this crisis ever happening again.

"There needs to be a far-reaching debate on how regulation should work and at what level. These are global problems and they require global solutions. Capital, after all, is mobile."

At a dinner in Edinburgh last Thursday Michael Howard, the former leader of the Conservative Party said that Britain needs to return bank supervision to the Bank of England, where it was housed prior to 1997.

In the long term, these sorts of changes are going to be hugely beneficial to both business and society. It will mean that rather than the abuse of customer relationships that has destroyed most people's trust in their banks, the banks will once again recognise that their main role is to serve their customers rather than to enrich themselves and their shareholders.

One London commuter said: "Outside the City bubble, many people are shocked to find that bankers, once serious folk you'd doff your cap to for a loan, are in fact bonus-fuelled casino operators. What a mess."
The writing is on the wall. We have work to do and that is to define the Preliminary Specification. As mentioned we are looking for 100 people to help identify this system. It is derivative of the Draft Specification and I have established reasonable deadlines for this work to be completed. Please understand as well that I will only be able, at best, to have 1 out of every 20 people who reply, through this process, to sign on. Nonetheless there will be significant opportunities for everyone as soon as the Preliminary Specification is completed. Please be patient. Help me raise the needed revenues for this project, and join me here.

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Tuesday, August 26, 2008

Encana, the software company.

Word on the street is Encana has a large 200+ person software development project being sourced from the local market. Seems they want to be able to consolidate the financials of Oil-Co and Gas-Co, the two companies being created by splitting up the firm. Therefore they need to hire these people to make sure all their systems are speaking the right language and they can sing from the same song sheet.

Why would an oil and gas company hire from the market the individuals that are needed to build a small application. That's right a small application. This thinking goes back to the troglodyte age when oil and gas firms did everything for themselves. Now there are far more cost effective ways of doing things, but obviously Encana has size and scale on their side. Soon they will be manufacturing their own drill bits, they're invincible.

Just so happens that the Draft Specification includes the ability to conduct all those consolidations that Encana needs. That's right, using the SEC's just announced IDEA platform as one of the cornerstone applications of the Compliance & Governance module. This allows investors to have unlimited access and control to a standard tag library where they can query and develop any type of scenario on any number of companies. The combinations and permutations are unlimited.

So by the time the powers that be at Encana have blown 100% of the costs of developing their software, no one else in the industry will have access to it. Brilliant. Incur 100% of the costs because it is your core competency; and make sure it doesn't play well with others, even though the SEC standard is applicable to all companies. Encana must know something about the software business that I don't.

Here's an idea, I'd be willing to take a similar amount of money from Encana, and deliver a complete systems based on the Draft Specification. Now that's a modern value proposition that adds real value to an oil and gas producer.

It's comments like these that get me into trouble you see. I should learn to keep my mouth shut so that the IT Manager that christened this project doesn't get offended. And, by keeping quiet I would also make sure that IBM, CGI, EDS and the other TLA's (Three Letter Acronyms) don't get questioned on their business ethics by selling something to someone who should know they don't need it.

I wish to appeal to those that have an interest in making this software development project real. If you know of a producing company, or an oil and gas investor that is interested in sponsoring this project, please email the URL of the web log to them and join me here.

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Monday, August 25, 2008

Beyond the red Horizon.

Like CNRL's Mission Statement says, lets have some "fun". First off, with 3 Chairman and 40 vice-presidents is it any wonder they have such high stock option compensation costs? Think of it, that's 430 fingers (including thumbs) that can be pointed at the responsible culprit. Doesn't even include the C class executives.

As we look out just beyond the Horizon, (Horizon being CNRL's heavy oil project) I think we see some critical issues being presented to CNRL's politburo. Critical issues that may have escaped the central planners and I don't want to get into a finger pointing exercise as to whose fault it will be. The number one issue that I think this management is soon to face is the credit crisis that is brewing in Europe and the U.S.

Specifically I think that financial capital is in a state of seizure that is unlike anything we may have seen in the past. The impact of this credit crisis will be limited to those institutions that are involved in granting financial capital and those that need it. If you need financial capital don't bother knocking on the door, you won't know what the response will be.

CNRL is in the unfortunate position of needing a lot of capital. How this company thought they could reach this far beyond the horizon is a surprise to me. With $26 billion of debt on the books, a whopping $3 billion working capital deficiency, they head into the final stages of funding their largest project of all time. Not only is the capital necessary to finish off the project, the cost overruns of an additional $1 billion were recently announced with more schedule slip; and that doesn't include any of the operating costs necessary for start up. Yikes.

I think the analogy to the housing market in the states may be appropriate. Instead, we see an unused and unneeded heavy oil plant sitting idle. The only activity you'll see is the local welders taking back their unpaid work. The one thing we do know for sure is the bigger they are the harder they fall.

Lets assume for a moment that I'm wrong. And the project does start up as planned. Where are you going to put another 100,000 boe / day of production? Tanks? No pipelines currently exist to take the product out of the province. No refiners are able to take on more heavy oil production. This of course assumes they can find and finance the condensate volumes necessary to dilute the production.

This nightmare scenario assumes that the management has all the other aspects of the operation under tight control. Recall the losses that were incurred in the second quarter of this year from stock option compensation and hedging losses. CNRL reported a $350 million loss in the second quarter of 2008. But lets be serious, this high cost heavy oil production project will start with profits and cash gushing out of the ground just like Jed Clampett from the Beverly Hillbillies experienced.

I know if I worked at CNRL, I'd cash my options and start that retirement. When management are gaming the stock price with tours to Warren Buffet and Bill Gates, and lets not forget Paris or Britney. Goosing the price of the stock doesn't have the desired long term effect when Buffet can't follow the script. Jumping ship makes the most sense. Particularly when it becomes obvious the other 45 management types are out of good ideas.

I wish to appeal to those that have an interest in making this software development project real. If you know of a producing company, or an oil and gas investor that is interested in sponsoring this project, please email the URL of the web log to them and join me here.


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Wednesday, August 20, 2008

Paris Hilton on Tuesday, and Britney on Wednesday...

We see the spectacular increase in the four little pigs stock as a result of the plant tour of Warren Buffet and Bill Gates. Such is the focus of this management that they know they can boost their stock price by inviting celebrities for plant tours.

I would suggest that Paris and Britney ask the four little piggies how it is they qualify for $3.3 billion in stock option compensation.

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Sunday, August 10, 2008

News Alert: Pigs can fly.

I have now, for all intents and purposes, completed the series of reviewing the four little piggies. What have we learned. I think the senior bureaucracies of the oil and gas industry have proven they are relic's of a time that has past. The points that I take from their earnings related comments are all slanted toward the positives in the oil and gas business. Positives that they have no direct effect over. At the same time they attempt to hide the difficulties that are a direct result of their greed and incompetence.

Lastly I suggest that they are unable to understand the nature of their business due to the speed and velocity of markets, and the archaic use of Information & Communications Technologies. Systems and procedures that were developed for businesses that existed in the 1980's and maybe the early 1990's. Items such as;

  • Highlighting their revenue growth and operating profits.

This point I find particularly galling. The revenue's are up due to the prices. Production is actually down year over year in most instances.

  • Noting the costs associated with hedging is unrealized.

And therefore not relevant to the earnings potential of the firm. These hedging losses to me reflect that the management are unaware of which business they operate in.

  • Noting the costs associated with stock options are also unrealized in reporting cash flow numbers.

Highlighting cash flow numbers vs. net profit numbers has the ability to confuse the press and create a distraction to their "actual" performance. What the management seem unaware of is at some point those checks for hedging and stock based compensation will be written and will affect future cash flows. I suggest the time these cash flows are impacted will be well after the current crops retirements. Leaving the industry in complete shambles.

My ability to contrast the existing management failures with the vision and research conducted in this project provides the justification for proceeding with this software development project. As we move into discovering the sources of revenue that will fund this development in the long term, it should be clear that I have not received any support from the existing management. They are not interested in providing an alternative method of organization that would compete with their current methods. Methods that have been very lucrative for a management that does nothing positive.

Clearly the attention of the world is now focused on China. These Olympic Games promise to show the world how China has grown in their standard of living, and how it competes with us for energy. How the current crop of management was unable to see this trend is due to them being blinded by their stock options. There is nothing better then competition to bring out the best in human kind. Particularly, competition in methods of organizing an oil and gas firm. Therefore I will resume writing once the games have closed and we re-focus on these problems together.

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Thursday, August 07, 2008

This little piggie built a house of straw.

Canadian Natural Resources Ltd (CNQ) have finally announced their earnings, or should I say losses. These were originally schedule for Monday this week, and for some reason they moved them to today. Hmm.

From a management point of view this company performed exceptionally. For just the second quarter of 2008 they recorded an additional $459 million in stock based compensation. We should all toast CNRL for their audacity and guts in providing these quarterly reports.

From a company point of view there is a lot to be concerned about. Not only is the management out to lunch with respect to lining their pockets. They insist on proving to the world that they have no idea what business they are in. The hedging got a little hairy, and as such they had to record a $2.369 billion charge for "risk management activities". I think they should call it "activities of a risky management".

Over the last 12 months the firm has realized a decline in production of 41,024 barrels of oil equivalent. Oddly enough I don't think this was the reason that management awarded themselves.

This company has stepped on the proverbial land mine and are about to be slaughtered like a pig. In this day and age with the credit crunch beginning to affect the general economy. This management took it upon themselves to bury themselves with debt. Just like a pig in a mud pit. I would say this firm is on red alert to try and save itself from the receivers.

How in the world could a firm run themselves into a negative working capital position of $3.1280 billion. Simply by going into a lot of debt. $26.260 billion total debt is enough to collapse the firm just from the juggling necessary to keep that much revolving.

The over reaching and bad management have come to the point where serious action should be taken. The stocks activities this past week will certainly have the Securities and Exchange Commission sending over some Wells Notices. So I'll leave it to SEC Chairman Christopher Cox, no relation, to do the heavy lifting on this one.

Oh and by the way the firm only lost $347 million for the second quarter of 2008. So the shareholders will have to be happy with that. After all what can they do about it? If you know of an investor or employee of CNRL give them a kindly email of this blog post so that they can donate to this worthy cause, and join me here.

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Thursday, July 17, 2008

NOC's Don't Explore.

First of all, a quick comment, price volatility is not a welcome trend. The price of oil in the world is moving up and down in a rather violent manner the last few weeks. This is a precursor to some major upswing in the price, so hang on this might get really rough.

I find it amusing that the companies are not even listed in the call to action by the former Secretaries of Defense, State, Commerce and Energy. The companies have cruised to the point where even the politicians are not expecting anything from them!

Back to the key topic of this post. One of the key complaints of the oil and gas companies is that they are being kicked out of the countries that manage their energy assets through "National Oil Companies" (NOC's). Countries such as Saudi Arabia and Venezuela. To expect an exploration mindset from either Saudi Arabia or Venezuela is wrong headed. They're only interested in the efficient and effective management of their countries energy resources. Because of this the oil and gas companies should not have any competition from NOC's. (Wasn't that in the movie "Apocaplypse Now" "NOC's don't explore"). Sitting in the corner and crying is not a proper posture for these oil and gas companies. Or do pigs squeal in the corner.

If as I had suggested in my review of the book "Profit from the Peak", these companies don't know how to explore, can't explore and are not able to organize themselves to explore. I say sure they have exploration departments; but the people there are only picking up their companies leadership position in having their retirement homes bathrooms wallpapered with stock certificates. If they are doing nothing but squealing and lining their pockets why don't we send them to the slaughter house?

Is an exploration mindset necessary? Would it provide the discovery of new oil and gas fields? You be the Judge. In Calgary, Duvernay was purchased this week by Shell for $5.9 billion. Never heard of Duvernay Oil Corp? I can assure you not many have. They started in 2001 from nothing and this is their story:

Duvernay Oil Corp. is an aggressive Alberta based oil and gas company with an aggressive activity plan for future growth. The company is engaged in exploration and development of natural gas and crude oil emphasis on the deeper, western portion of the western Canadian sedimentary basin in Alberta and Northeastern British Columbia.
Reading their annual report for 2007 will reflect that exploration is their core focus. If you download the report, look at the awesome pictures on page 2. Aggressive innovation is Duvernay's middle name. And the map on page 13. That little map contains the work of probably a few genius level geologists life-time of work.

Therefore a start-up focused on Alberta and BC can earn $1 billion per year? That's what exploration is about. I'm tired of the noise and smell of the oil and gas companies that I have highlighted as pigs. Lets get rid of them. Join me here.

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Wednesday, July 16, 2008

And this little piggy...

Up next in the shocking level of stock option compensation, is Nexen. Their 2007 based compensation was $175 million "in the money" and $465 million "in the money" stock options issued and outstanding. For a total "in the money" compensation of $640 million. The total of the four oil and gas companies is now $3.36 billion. You tell me if you think its excessive.


Company Stock-OptionsMarket Cap
Canadian Natural Resources$1.53 billion$50.6 billion
Petro-Canada$492 million$24.5 billion
Encana$698.2 million$62.8 billion
Nexen$640.0 million$19.3 billion
Total Producers$3.36 billion$157.2 billion
Apple$873 million$151.9 billion

I have stated here that these companies had the opportunity to address these problems almost five years ago. What has happened since then is an inability of these firms to make their targets in terms of production volumes. This has occurred on an almost systemic basis with each company reporting that there are material cost overruns and scheduling problems. More or less these companies can't keep up to the demand for energy. Can't keep up because they are too bureaucratic.

But there's more. Over the course of time we have seen the problem escalate in the world. That wasn't of any concern of these companies. Indeed we have seen the slackening of their pace and a deadening of their sense of urgency. Confident in their abilities to control their environment from any serious criticism of their performance. They became bold in their actions and believed they were entitled to these stock options. Stock options that became valuable from increases in earnings from higher prices. High prices that masked the declines in reserves and production. After all it was working. They are now that much closer to their retirement, a retirement that will be far more comfortable. This was their special reward for gracing the oil and gas industry with their presence. Don't do anything and be richly rewarded.

The consequence of their greed is reflected in this article from ASPO USA:

The CIA reports that there are 266 “nations, dependent areas, and other entities” on the world today. During the last few weeks at least 90 of these are reported to be having continuing serious or very serious energy shortages. The number of countries with energy problems may be much higher as the CIA also reports that 94 of the world’s nations are islands many of which are so small they are rarely heard from but are almost certain to be suffering from $140 oil.
When I proposed this idea in September 2003 and subsequently published the research results in May 2004. These two dates were not the only times I marketed to these companies. I have contacted those within the industry, and particularly the four pigs I've already mentioned, (Petro Canada, Encana, Canadian Natural Resources, and Nexen) on an annual and semi-annual basis. The last time being December 11, 2007. I always received the same response of "not at this time". Well of course not, they hadn't retired, and who wants to work hard?

Well the time has now past by any reasonable measure. And the management have proven that they are not capable of acting in any constructive way, other then for themselves. Therefore I appeal to the investor class to take action and fund these software developments. Create the necessary alternative organization for you, the investors, to able to manage your assets.

Do we have to wait until their are riots in Europe, Canada and the U.S. before someone dispatches these people to the pig sty? Is $4 gas enough? I don't think so, we have a lot of pain heading our way due to these selfish people. What more do we need to realize that the same old muddling along just isn't going to work. Join me here.

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