June Business Report

Marketing

Petro Canada continues to provide ample material for analysis and comment, and we are anxiously awaiting the companies second quarter results. The results of this marketing are beginning to provide the exposure that we seek, particularly locally.

In the Technorati service we are still jumping around a fair amount, however this last month we have seen our ranking down to the low 500,000's. Not bad for a six month blog, and considering the total number of ranked blogs has jumped to almost 42 million.

Content

We set out to see what kind of pace we can attain in terms of the frequency of blog postings. With the stated May objective of writing one article per day, I am now putting this in place for the long term. The discipline to write one story per day is a rather torrid pace for one individual. But it has an indirect effect of increasing and focusing the quality and value of the entire process. Therefore I want to try and establish a new guideline for July, that being of 8 posts per week, and, one per day as new minimums in posting.

My Favorite entries.
My favorite entries for the past month are:

• The completion of the summary series on partnership accounting.
• The completion of the summary of Genesys' technical vision.
• The ongoing series on Petro Canada
• Is the joint operating committee revolutionary

Technical Architecture

No changes to the overall technical architecture were made in June 2006. GlassFish continues to soar in terms of its acceptance and value to the community. Discussion with BEA Systems were brief and uneventful. The cut off point between GlassFish and a business oriented functionality is unanswered at this point. The more I research this area, and the more we define the unique areas of using the joint operating committee, the more I believe that we may be best off developing these ourselves.

Budget

Revenue to the end of June: $0.00

July 1, 2006 budget items. (All costs are in U.S. dollars and include the 33% premium for the development copyright fee.)

1. Project management and development = $300,000
2. Sun Grid The first thing we need is a home for the code. The grid provides everything we need in this instance, and the Grid that I selected was Sun's. At $1 per processor hour, a very affordable way to secure the resources we need. I think that our first years requirements would be amply satisfied with 10,000 hours of processing for the remainder of 2006 calendar year. Total requirement = $13,300
3. Ingres Open Source database and part time DBA, Total requirements = $57,000, Collabnet, I would like to have a generous budget for this critical tool. Provides the code management, community process, project and issue management. Budget includes tools, appropriate setup and consulting services. Total requirements = $34,000
4. General and Administrative, first 6 months of operation Total requirements = $60,000
5. Membership in W3C Total requirements = $9,000
6. Total Capital and Operating budget, 2006... $484,000

Notes

• Sponsors, producers, and user contributions and donations are accepted.
• Please recall that this community is and will be supported by the producers. Based on an annual $ assessment per barrel of oil. For 2006 the assessment was fixed at $1 per boe per day per year.
• A company such as Encana in Canada would therefore be expected to support the community to the tune of $700,000 for the 2006 calendar year.
• These Monthly Business Report budgets are being proposed on a pay as you go basis for 2006 to support the community and ensure the community develops in the manner that is expected.
• Your donations are greatly appreciated, no donations mean no development work is being done.

Technorati Tags: Business-Report, Genesys

Petro Canada

Petro Canada has revised it's offer for Canada Southern Petroleum Ltd. to $165 million from $113 million. Does this mean that they are overpaying for this asset? Recall what they said about Canada Southern Petroleum's expectation of value, that it was too high.

Petro Canada's increased offer of 146% may be the result of the humiliation in knowing that their previous offer received only 61,587 tendered shares. Thankfully they did not call themselves explorers in the press release.

Technorati Tags: Genesys, Petro-Canada

Ray Lane in BusinessWeek

Ray Lane is a partner at Kleiner, Perkins, Caufield & Byers and a former president of Oracle Corporation. He knows what he is talking about. The title of this entry will take you to a Business Week article that documents many important points. Two of these points I want to discuss in this entry.

"The traditional method of selling big corporate software applications as multi million-dollar packages that take years to implement is broken."

"The 70% of startups out there that are trying to do what the big companies do, only better, faster and cheaper - it's a fools errand. The customers would like to buy that from a large company, so their going to lose out." Ray Lane

Surprisingly, perhaps, I think he is right on both counts. The large multi year, multi million dollar packages are the dinosaurs of the software world. Even Petro Canada tried to implement SAP and after $14 million gave up. Its a fallacy that went too far in retrofitting the company to the software.

On the second point of Ray Lane's, stating that the startups will fail, is something that I struggled with at the beginning of this process and something that I think I can also prove is not valid in the oil and gas sector. The two points that I would assert in my defense is that I am the copyright owner of the methods and processes discussed in this blog, and in my thesis. I published my thesis in May 2004. I have tangible evidence that the state of the art thinking was not as advanced as what I proposed in September 2003, and earned in the publication of the Plurality document.

Back in 2003 I concluded that the software vendors could consume themselves competing with new offerings and no one would have been able to secure a competitive hold in the market. The only manner in which to establish a competitive offering, I felt, was to own the intellectual property as the key competitive advantage. The copyright, and other forms of intellectual property were the only sources of value in this new age is the conclusion I came too in 2003, and I believe is the case fundamentally today.

Secondly, if anyone thinks that a large vendor is going to be able to write the code for the Partnership Accounting module that I have spoken about here (to aggregate the stories just click on the Partnership Accounting tag). I think they would be mistaken in their expectations. This needs a clean slate approach and the heavy involvement of the potential and future users.

So on that basis I would agree and disagree with Mr. Lane. Intellectual property is the only method of securing any kind or competitive advantage in this new day and age. Those that attempt to build systems without their differentiation being codified and protected are in my opinion wasting their time. What is required to compete with this software is some fundamentally different basis of organizational structure for the software to define and support.

On an unrelated note, Rod Boothby has an excellent summary of the CTC in Boston with a number of quality links to other blogs of importance and significance.

Technorati Tags: Genesys, Partnership-Accounting, Innovation, Enterprise-2.0

Petro Canada's accountability framework.

As was intimated in the top ten excuse list, the accountability of Petro Canada is broken. The self - serving management are only interested in what they can get away with and boosting the value of their options. The problem now becomes how do you deal with it? The problem as I see it is there has been a clear separation between operational decision making, which is done by the joint operating committee, and the accountability framework that is the bureaucracies only claim to justify their existence.

The accountability framework consists of reporting to the SEC, Tax, government and other accounting related areas. It is the sole domain of the bureaucracy. Where the hierarchy seeks and defines itself and the needs of the bureaucracy.

When I say that it is in conflict with the operational decision making framework of the joint operating committee, I mean the following. With respect to an oil and gas property, the methods and decision making processes are defined and codified in the operating agreements. (and at larger facilities the Construction, Ownership and Operatorship agreements.) If you want to participate, then you will incur the % allocation of any costs of that decision. If you don't want to participate, then the agreement deals with participants that elect not to participate by incurring penalties should they subsequently decide to return.

Further down the line the definition of who has voting control and what threshold of concurrence must be achieved to implement the decisions are contained in the standard operating procedures. If a joint operating committee is the benefactor of a significant find then the associated costs of gathering systems, batteries and gas plants may automatically fall within the decision making formula's. These agreements may also define a large area of land to be part of an "Area of Mutual Interest" and govern all the partners dealings on those lands that may be purchased by any party to the agreement.

My question here today is how is it that a CFO, and lets take the Petro Canada example, Mr. Harry Roberts of Petro Canada, can stand in front of Wall Street and say he will be raising the production profile of the firm by 10% in the next fiscal quarter. Based on the plans that are set in place by the joint operating committees, of which he is a member of, he can say it, however, the influence that he has in making these decisions is more or less, zero. He like any of his counterparts is literally speaking through his hat.

And as for the remainder of the management team, how can they assert that their management skills are attributable for the results that are being reported and budgeted. They have no influence! If they did not have an interest at the committee level, would the production have ceased? I think not. The sole domain of the management team are to report the results to the various regulatory and government bodies that they are required by law to report to. That's it. When it comes to oil and gas, they could be manufacturing widgets for all they know, and can influence.

In reality these organizational constructs are conflicted and obstruct the natural form of oil and gas, the joint operating committee. If SEC Chairman Christopher Cox can implement the regulatory framework of the SEC within XML tags, what will the bureaucracy then do. With the SEC's XML tags and tags that are developed through this software venture. The decisions of the joint operating committee will govern the various regulatory compliance frameworks and the reporting would fall out of the process naturally. So why have I such a difficult time in gaining concurrence? The hierarchy controls the budget for administrative operations, and therefore a sale to SAP occurs.

Now it has been pointed out to me many times that the reason that firms go to SAP for their systems is due to the "integrity" the application has with the investment community. And I agree that the investment community's perception is real. However, I would argue that just as the tax tail should not wag the dog, the compliance tail should not dictate the organizational construct. You do not need a bureaucracy to run a company in this day and age.

Technorati Tags: Petro-Canada, Innovation, Accountability

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

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

Petro Canada, the garage sale continues?

I suspect a garage sale attitude may be on management's mind. Reviewing the 2005 Annual Report and first quarter of 2006, Petro Canada appears to me to have more then just an earnings problem, but also a severe cash problem. If they are selling an asset it would be for the cash and to boost the second quarters earnings.

The seriousness of the situation leads me to think that last years sale of Syria may have been "forced" to earn enough cash and earnings to continue the pretence. Selling the Syrian property would have otherwise never happened. Think of Skilling and Lay selling to make the profits as opposed to shuffling.

So lets keep our eyes and ears open for any large property sales out by our favorite company.

I can't seem to find any reason why the company is hemorrhaging so much cash. In the last 4 reported quarters they have increased their debt by $2,091 million. Most of this coming from long term debt to finance capital expenditures. Additional sources of cash have been through the discounting of accounts receivables, to the tune of $480 million.

Hold it, I think I might see where some of the money is going. There's a normal course issuer bid. In the last 4 quarters Petro Canada management have spent over $1 billion in share buy backs. Now to be fair I don't like share buy backs, particularly when the company has to go into debt to do them. It's dumb, very dumb. Instead of buy backs, companies should think special dividends if you have the money.

Technorati Tags: Genesys, Petro-Canada, Financial's

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

Top 10 management excuses from Petro Canada.

Since I have predicted that the second quarter of 2006 will not be a very good quarter. I thought I'd come up with some excuses for the management of Petro Canada to use for their poor performance.

• Number 10, My Porsche was delivered this past quarter.
• Number 9, It really is just about us.
• Number 8, Production was down, it's the oil business.
• Number 7, You won't believe the costs to do business these days.
• Number 6, Just be thankful oil isn't trading at $18.
• Number 5, Precisely, what do you expect?
• Number 4, Selling Syria may have been a mistake, the clerk responsible has been fired.
• Number 3, Employee costs were so high!
• Number 2, We were trying very hard to buy Canada Southern Petroleum so we could become an explorer.
• and the Number 1 reason we lost money this quarter,
  
• We got ours, too bad about yours.

Technorati Tags: Accountability, Bureaucracy, Leadership, Petro-Canada

A bad attitude towards locals.

Reading yesterday's Calgary Herald I see a trend that continues to shape the oil and gas industry in Canada, in a negative way. I mentioned in an earlier post the response I received regarding the research that was the basis of this blog's copyright. How I was promptly shown the street, informed that the industry only conducted research with large firms like Cambridge Energy Research Associates (CERA) and that CERA was ultimately hired to conduct the research based on my intellectual property. Thankfully I was able to publish the results of my research before Cambridge, and as a result, earned the full rights to the copyright and associated intellectual property.

Is it a lack of confidence or disbelief in our own capabilities that causes an industry to look outside for its own research and decision making. What I found disturbing is that it is not just the industry but also the Alberta Government. They hired a Texas based firm to review the prospects of building a super refinery in the province for around $10 billion. The results of the Texas based consulting firm was that Alberta did not have the capability to undertake such a task.

I find this rather insulting. That we have the industry "leadership" deferring to our competitors to determine the activities in this province is bad enough. To have the Alberta Government doing the same is regrettable. So forget about courage and leadership, just defer the decision to those that may have vested interests in building their own super refineries, and have them make the decision for you. At least you will have covered you ass.

This is the reason that this project is now a global operation. Little if anything can be expected from these "local business leaders". Which makes this whole situation kind of ironic, instead of working in developing things together, lets just defer to strangers why we shouldn't do anything.

Technorati Tags: Genesys, Petro-Canada, Innovation, Energy

Oh how the mighty have fallen.

Petro Canada that is. Seems they have attracted some other bidders in their hostile offer for Canada Southern Petroleum Ltd. Greg Noval of Canadian Superior Energy is making a competing bid and it will be interesting to see if Petro Canada has the gumption to make a revised offer.

Recall that this process was so that Petro Canada was able to call themselves an explorer, however, I am afraid they may soon be better known for the company they keep.

Technorati Tags: Genesys, Petro-Canada, Innovation, Energy

I found this quote on Good Morning Silicon Valley.

It speaks to the one identifiable risk I think exists in blogging.

"The problem I am concerned with here is not the Wikipedia in itself. It's been criticized quite a lot, especially in the last year, but the Wikipedia is just one experiment that still has room to change and grow. ... No, the problem is in the way the Wikipedia has come to be regarded and used; how it's been elevated to such importance so quickly. And that is part of the larger pattern of the appeal of a new online collectivism that is nothing less than a resurgence of the idea that the collective is all-wise, that it is desirable to have influence concentrated in a bottleneck that can channel the collective with the most verity and force. This is different from representative democracy, or meritocracy. This idea has had dreadful consequences when thrust upon us from the extreme Right or the extreme Left in various historical periods. The fact that it's now being re-introduced today by prominent technologists and futurists, people who in many cases I know and like, doesn't make it any less dangerous."

-- Jaron Lanier sees hazards in the hive mind

I have felt that in the collaborative environment the drive for consensus can overcome all obstacles, even the truth. And although I am guilty of applying this in my criticisms of Petro Canada I am basing my attacks on the theories of Dr. Thomas C. Schelling's works and most specifically "The Strategy of Conflict" for which he received the Nobel Prize for in 2005.

I can assure you as the copyright owner I am aware of the danger that the Mr. Lanier speaks of. I can also ensure those involved in these developments that I will exorcise this from of discipline in this blog and software development project if the problem should develop.

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

Partnership Accounting Part V, production volumes.

Up to now we have discussed many aspects of the unique Partnership Accounting requirements of using the joint operating committee as the central organizational focus. The nature of the oil and gas business is unique in many ways and this Partnership Accounting discussion captures many of the issues that an oil and gas system needs to address.

• Daily and monthly volumes defining a period of time.
• Spec vs raw, products and by-products.
• Processing and gathering fees based on (non) ownership.
• Imperial vs. metric reporting standards.
• Nominations, comingling of gas.
• Working interest owners earning different production values.

I suggest that adding these requirements to an already elaborate Production Accounting algorithm is going to be a challenge for the entire information technology world. However, it is also something that can be done. The only impediment is money.

Some history of how the industry has developed, and the influence that these historic attributes play. Once an agreement has been in place by the partners, a general framework of understanding how the operation is then established. These frameworks are legal agreements that are explicitly supported by the norms and culture of the oil and gas industry, both locally and internationally. These organizations in Canada include the Canadian Association of Petroleum Landman (CAPL) and the Petroleum Accountants Society (PAS).

Once these agreements and frameworks are in place, this is the precise point in time that real life conspires to make things complicated. These frameworks have also placed a number of processes in the hands of the companies to deal with these real life anomalies. Mail ballots, Construction, Ownership and Operation (CO&O) agreements define in detail what exactly the operation is. Company A will use Company B's gathering facilities for $4.50 / 103M3 etc. Sales agreements are defined between each individual producer with nominations being a process of balancing the sales and production processes. These also create unique accounting requirement for the property in the long run.

The influence of management here is significant. Each company has differing strategies for the area and each are attempting to optimize their assets. In other words differing perspectives of the same data and information. The compromise and details of each partner in each issue creates the unique accounting requirements for each partner for each asset. This system is being built to accommodate these needs. What is unfortunate is that this is the point that SAP, our competitor, wants the producer to get closer to the customer! I have worked in oil and gas for almost 30 years and I am still unable to find a "customer" as SAP defines here, and after many search parties have been lost, I am giving up in the search for an oil and gas customer.

By way of an example, I as an operator in a major area have the desire to expand the throughput of my gas plant. By drilling in other regions and zones, gathering of additional gas that may now be commercial. The land is held by another firm that has no facilities around the area and are beginning the process of searching for partners. A few years later our new partnership has made a significant gas find. The production is a rich gas stream that also happens to be sour. One company has an invested infrastructure to deal with their production, the other partner has only his production. These two firms will realize substantially different metrics regarding their investments in these properties. The partnership accounting for the joint operating committee has to consider these issues and attributes in a never ending evolution of the accounting requirements. Can you say Java?

What this Genesys system will do is provide the richest environments for managing these issues. In discussions regarding the Accountability Framework with SEC Chairman Christopher Cox it is noted that he is using XML to create a metadata standard for managing the accountability of companies reporting for SEC regulations. In essence using the power of the computers today to enforce compliance as opposed to the human influenced methods today. Genesys is developing the W3C standard for oil and gas reporting. As our budget includes $9,000 for membership in W3C for this purpose, then nothing will happen in this area until these funds are secured.

If the facility needs to account for the literal chemical composition of its aggregate production, almost impossible in a large facility, then that could happen. Or alternatively the legal framework could override the requirements of the actual production, very common in large facilities and less so in small ones. Most likely, the joint operating committee (JOC) will need to select a hybrid solution from the Genesys system in order to deal with the unique strategies and production requirements of each producer represented at the JOC.

Another certainty in this is the dying hierarchies are more then satisfied with their SAP software. SAP explicitly supports and recognizes the management, therefore becoming the ultimate software tools for bureaucrats and self serving pigs, like Petro Canada.

Technorati Tags: Accountability, Christopher-Cox, Genesys, Java, Partnership-Accounting, Petro-Canada, SAP, Technical Vision

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

May Business Report

Marketing
What a difference a month makes. Our marketing program has moved into its second phase with the recent convictions of Skilling and Lay. Petro Canada continues to provide ample material for analysis and comment, and we are anxiously awaiting the companies second quarter results. The results of this marketing are beginning to provide the exposure that we seek, particularly locally.

Through Google analytics we are able to find out many things about our audience and have begun to understand what information and commentary they are seeking. I am intoxicated by the numbers of visitors. Blogging is truly an impressive development.

I have started to use the Technorati service to help evaluate this blog's performance. We are still jumping around a fair amount, however this last month we have seen our ranking jump from the low 900,000's to the low 700,000's. Not bad for a six month blog, and considering the total number of ranked blogs has jumped to almost 42 million.

I have in mind the idea of setting up an occasional "guest" blogger that could participate on occasion. The problem is that the tone of the marketing campaign causes the volunteers to cringe a bit. Seeing how the industry has treated me and the need to go to such extents is generally understood and agreed too, they don't want to volunteer their head to the chopping blog.

Content
We set out to see what kind of pace we can attain in terms of the frequency of blog postings. With the stated May objective of writing one article per day, I am now putting this in place for the long term. The discipline to write one story per day is a rather torrid pace for one individual. But it has an indirect effect of increasing and focusing the quality and value of the entire process. Therefore I want to try and establish a new guideline for June, that being of 8 posts per week, and, one per day as new minimums in posting.

My Favorite entries.
Im adding a new component to the month business report. My favorite entries for the past month. I have to say a few jump out at me as being critical in the development of this solution. They are:

• SEC Chariman Christopher Cox's use of XML tags to administer the future accountability framework of regulated markets.
• The numerous volume of Calls to action being heard around the world.
• Adoption of environmental concerns and solutions as a key component of this blogs writings. That the software defines the organization. That we are designing the software now to increase the innovative performance of the oil and gas industry, and, improve the atmosphere.
• Layering of the military command and control structure.

Technical Architecture
No changes to the overall technical architecture were made in May 2006. GlassFish continues to soar in terms of its acceptance and value to the community. As the first Java Enterprise 5.0 server it has access to a broad market, but the response to GlassFish seems to be so much more then that. Sun has begun the process it seems of reuniting the Java community after many years of competing servers such as WebSphere and Bea's offering.

I remain fairly firm in my use of AJAX. I think this technology needs to mature and move away from the JavaScript underpinnings. I would prefer to see a JCP authorized dynamic language (Groovy) fill the role that JavaScript does in AJAX. Since Genesys' focus is on the server side, with associated applications providing the user facing geographical components, AJAX style language hybrids may be able to fill a need in the future.

I started using ecto as my blogging tool. Scary powerful stuff. Once you get used to it, it can reduce your time requirements substantially. I would also like to find a tool that can evaluate my writing and make recommendations on its readability performance. If anyone knows of a good tool like that I'd be pleased to know.

Budget

• Revenue to the end of April: $0.00

June 1, 2006 budget items. (All costs are in U.S. dollars and include the 33% premium for the development copyright fee.)

1. . Project management and development = $300,000
2. Sun Grid The first thing we need is a home for the code. The grid provides everything we need in this instance, and the Grid that I selected was Sun's. At $1 per processor hour, a very affordable way to secure the resources we need. I think that our first years requirements would be amply satisfied with 10,000 hours of processing for the remainder of 2006 calendar year. Total requirement = $13,300
3. Ingres Open Source database and part time DBA, Total requirements = $57,000, Collabnet, I would like to have a generous budget for this critical tool. Provides the code management, community process, project and issue management. Budget includes tools, appropriate setup and consulting services. Total requirements = $34,000
4. General and Administrative, first 6 months of operation Total requirements = $60,000
5. Membership in W3C Total requirements = $9,000
6. Total Capital and Operating budget, 2006... $484,000

Notes:

• Sponsors, producers, and user contributions and donations are accepted.
• Please recall that this community is and will be supported by the producers. Based on an annual $ assessment per barrel of oil. For 2006 the assessment was fixed at $1 per boe per day per year.
• A company such as Encana in Canada would therefore be expected to support the community to the tune of $700,000 for the 2006 calendar year.
• These Monthly Business Report budgets are being proposed on a pay as you go basis for 2006 to support the community and ensure the community develops in the manner that is expected.
• Your donations are greatly appreciated, no donations mean no development work is being done.

Technorati Tags: Business-Report, Call-to-action, Christopher-Cox, Environment, Genesys, Glass-Fish, Java, Marketing, Military Command, Petro-Canada, tagname

"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

When were Petro Canada's options granted?

A story in today's Wall Street Journal asks if there is any correlation between the time that stock options are granted and their pricing. Steve Stecklow asks of Dr. Erik Lie (pronounced Lee) in "Options Study Becomes Required Reading"

"it's uncanny how good these executives must be at predicting what will happen with future stock prices"

After considering the situation, and writing his doctoral thesis, Dr. Lie raised a very interesting point regarding the use of stock options. He asked if the companies that were under his study to provide the dates of the stock option grants.

"Dr. Lie says he tried to contact a few companies to ask about the dates they granted options but he couldn't get past their secretaries, and gave up. His paper concludes, "Although I show aggregate evidence that retroactive timing occurs, it is difficult, if not impossible, to prove that such timing takes place in individual cases".

Now I think that Dr. Lie has valuable theories here. So in the interest of science and better accountability we should help Dr. Lie in his quest. Does Petro Canada back date stock option grants? Lets have a call in and determine if we can find out. Petro Canada's phone number is 403-296-7691 and ask for Gordon Ritchie, Senior Director, Investors relations.

Please report any findings to this blog through the comments field of this entry.

Technorati Tags: Accountability, Bureaucracy, Conflict, Genesys, Petro-Canada, Thesis

Petro Canada news management.

I am sorry to report that Petro Canada have pulled their press release about the acquisition of Business Inteligence Software. Fortunately the press release can still be sourced through Google Finance.

Technorati Tags: Bureaucracy, Genesys, Petro-Canada

Competition vs. coopetition.

A very good friend noted the nature of the oil and gas business is not one for the sharing of intelectual property. Competition is the predominate culture of the industry. When anyone talks about culture and change we know that in any organization the two traditionally have not mixed. How cultural change occurs is usually by extreme forces that compel the culture to be dealt with. So how are these ideas of Brown and Hagels "Creation Net" able to function in the competitive culture of the oil and gas industry. Please don't hesitate to comment. This issue needs a vigourous debate to get to the ultimate solution. Here are a few thoughts of mine.

Here in Calgary we are on a two week supply of concrete. Monstrous trucks used to mine coal and heavy oil are having difficulty in sourcing the volume of rubber necessary to meet their tire wear demands. Caterpillar is selling most of its production into Asia which is creating shortages of adequate industrial equipment. And please don't even ask for a Waukesha Engine. This is not an environment that competition can prosper in. Just as President Ronald Reagan revolutionized economics with policies that define and support what globalization is, new economic forces are beginning to grow and redefine the supply / demand trajectories. These new economic forces, in my opinion, are not linear, but logarithmic and possibly even exponential to yesterday's performance.

Company's that want to participate in this new economic reality have to address their sphere of influence and increase their capacity through the "Creation Nets" that Hagel and Brown define. Their three key components for effective creation nets were defined as;

Uncertain demand for goods and services.
When your customers are down the block, servicing their demands was relatively easy. Today your customers are global and their demands unknown and unpredictable. Your ability to secure methods to control production, demand management and inventories are tools that are unable to deal with the real issues in this very near future.

A need for the participation of many different specialists if creation and innovation are to occur.
Expanding your sphere of influence to include groups that would have previously been considered your competition provides two benefits.

• Increase the volume and quality of brains towards the problems at hand, facilitating and spreading innovation.
• Allocate the finite resources to optimize the most efficient production on a global basis.

Rapidly changing performance requirements in the marketplace.
As I suspect, starting with the second quarter of 2006 Petro Canada's financial performance will shock everyone. How could a firm in this energy environment do the things that they have done, to have caused so much destruction? The evaluation criteria for success and failure will need to be redefined. That Petro Canada and Enron have both reported "earnings" has nothing to do with reality, or the future.

Conclusion:
If we don't align ourselves to solve these problems and address these cultural issues, then we are destined to suffer unnecessarily. The hierarchy and bureaucracy are in complete control. They are the most self serving and destructive forces in this new business environment. They exist to serve the powerful few and must be stopped.

In my plurality thesis I have defined that the software is either a constraint or facilitator to organizational performance. The culture of the oil and gas industry is derived from the joint operating committee. Its key value creators, the engineers and earth scientists are born of a sharing and collaborative academic culture. I don't want to change the culture of the industry, I want to realign it to where it belongs.

However, after a century of big business models. Models that enabled substantial organizational performance, those models have failed. Its now time to say goodbye to the bureaucratic culture and re-align the oil and gas industry to its more natural cultural influences of the joint operating committee and scientific roots. To meet the customers energy needs for the long term requires we build the software to support these "Creation Nets".

Unfortunately the financial resources necessary to build these applications are firmly held in the tight fist of the bureaucracy, so lets start cooperating.

Technorati Tags: Adaptability, Bureaucracy, Creation-Nets, Genesys, Hagel-Brown, Intelectual-Property, Petro-Canada, Plurality, Thesis

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