March Business Report

[business report]

Marketing
As reported last month, March was our first month of actively marketing the Genesys project. A target selection process was undertaken, with specific marketing deliverables and objectives being defined. We selected our target, Petro Canada, and began the slow process of revealing that bureaucracies capabilities. With three months of budgeted time remaining we should be able to complete our overall marketing objectives.

For the month of April specific tasks will include participation at Petro Canada's Annual General Meeting on the 25th. This will be one of the many highlights for the month of April. Other activities will be reported on as they occur and within the specific months business report.

Technical Architecture
I am extremely pleased to report that Genesys was accepted as a project in the incubator of java.net. This accelerates our developments by allowing us to join the community and access the resources of the Collabnet software and the large population of independent Java developers.

Licensing has also been finalized for the development of the code. Using the Sun Community Source License as the base, we have published the Genesys Community Source License and created a business model that will motivate the community of developers to join. I believe these were significant developments in the project. Recruiting of specific developers will begin when the funds have been secured.

There has been an increase in the amount of donations being sought. First we are half way through the first six months of 2006, and even though we have not been able to secure any funding, we are ahead of schedule. Secondly we have increased the budget to accommodate the securing of the code development as a paid project. The business model proposed sees the payment of the code by Genesys from the individual developers whom are contracted to write the technology. This will ensure that their are no residual intellectual property issues.

• Revenue to the end of March: $0.00
  

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

• 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
• Ingres Open Source database and part time DBA, Total requirements = $57,500.
• Collabnet. I would like to have a generous budget for this critical tool. Provides the code management, community process, project management and issue management. Budget includes tools, appropriate setup and consulting services. Total requirements = $34,500
• General and Administrative, first 6 months of operation Total requirements = $69,000
• Membership in W3C Total requirements = $9,500
• Project management and development = $300,000
  
• Total Capital and Operating budget, 2006... $484,000
  

Notes:

• Sponsors, producers, and user contributions 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 means minimal work is being done.

Dr. Thomas C. Schelling

Professor Schelling won the Nobel Prize in 2005 for his cumulative work in game theory. Generally credited with the strategy of Mutually Assured Destruction, or MAD, used during the cold war. The title of this blog entry will provide you with a summary of his works.

I am always of the opinion that rules apply in war fare, his work's go a long way to defining these concepts. One particular point that Schelling notes is that you have the right to be sued. Considering this, provides a lot of leeway in ones strategy.

Ms. Peggy Noonan of the Wall Street Journal.

Following up on the fine words of John F. Kennedy, Ms Peggy Noonan, Contributing Editor of the Wall Street Journal writes a fine article that strikes at the heart of the times that we now live in. That one has the courage to undertake their responsibilities is lost in the day to day of modern society. Ms. Noonan is writing about an opportunity she had recently to attend a meeting of the men who had recieved the United States Medal of Honor.

I quote from her article.

"I met Nick Oresko. Nick is in his 80s, small, 5-foot-5 or so. Soft white hair, pale-pink skin, thick torso, walks with a cane. Just a nice old guy you'd pass on the street or in the airport without really seeing him. Around his neck was a sky-blue ribbon, and hanging from that ribbon the medal. He let me turn it over. It had his name, his rank, and then "1/23/45. Near Tettington, Germany."

Tettington, Germany. The Battle of the Bulge.

When I got home I looked up his citation on my beloved Internet, where you can Google heroism. U.S. Army Master Sgt. Nicholas Oresko of Company C, 302nd Infantry, 94th Infantry Division was a platoon leader in an attack against strong enemy positions:

Deadly automatic fire from the flanks pinned down his unit. Realizing that a machinegun in a nearby bunker must be eliminated, he swiftly worked ahead alone, braving bullets which struck about him, until close enough to throw a grenade into the German position. He rushed the bunker and, with pointblank rifle fire, killed all the hostile occupants who survived the grenade blast. Another machinegun opened up on him, knocking him down and seriously wounding him in the hip. Refusing to withdraw from the battle, he placed himself at the head of his platoon to continue the assault. As withering machinegun and rifle fire swept the area, he struck out alone in advance of his men to a second bunker. With a grenade, he crippled the dug-in machinegun defending this position and then wiped out the troops manning it with his rifle, completing his second self-imposed, 1-man attack. Although weak from loss of blood, he refused to be evacuated until assured the mission was successfully accomplished. Through quick thinking, indomitable courage, and unswerving devotion to the attack in the face of bitter resistance and while wounded, M /Sgt. Oresko killed 12 Germans, prevented a delay in the assault, and made it possible for Company C to obtain its objective with minimum casualties.

Nick Oresko lives in Tenafly, N.J. If courage were a bright light, Tenafly would glow.

I met Pat Brady of Sumner, Wash., an Army helicopter medevac pilot in Vietnam who'd repeatedly risked his life to save men he'd never met. And Sammy Davis, a big bluff blond from Flat Rock, Ill., on whom the writer Winston Groom based the Vietnam experiences of a character named Forrest Gump. Sgt. Davis saved men like Forrest, but he also took out a bunch of bad guys. And yes, he was wounded in the same way as Forrest. That scene in the movie where Lyndon Johnson puts the medal around Tom Hanks's neck: that's from the film of LBJ putting the medal on Sammy's neck, only they superimposed Mr. Hanks.

I talked to James Livingston of Mount Pleasant, S.C., a Marine, a warrior in Vietnam who led in battle in spite of bad wounds and worse odds. I told him I was wondering about something. Most of us try to be brave each day in whatever circumstances, which means most of us show ourselves our courage with time. What is it like, I asked, to find out when you're a young man, and in a way that's irrefutable, that you are brave? What does it do to your life when no one, including you, will ever question whether you have guts?

He shook his head. The medal didn't prove courage, he said. "It's not bravery, it's taking responsibility." Each of the recipients, he said, had taken responsibility for the men and the moment at a tense and demanding time. They'd cared for others. They took care of their men."

Words to live by...

A man does what he must - in spite of personal consequences, in spite of obstacles and dangers and pressures - and that is the basis of all human morality.

John F. Kennedy

Petro Canada some clarifications.

[Petro Canada]

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

(1) Reserves

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

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

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

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

2 Management Stock Options.

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

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

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

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

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

Petro Canada's conflicting statements.

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

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

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

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

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

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

Petro Canada believes

[Petro Canada]

Annual report season, timing is just right. Petro Canada believes and that in a nutshell, according to the annual report, is its strategy.

Start off reading this annual report with a strong pot of coffee. Your going to need it.

The first item that comes across as a major misrepresentation to the shareholders is on page 7. The diagram "Upstream Production Forecast" shows that the "Range of Potential Outcomes" may provide no production increases to 2008, yet the text states that production will increase in the range of "8 to 11% average annual growth rate." The other graph on page 7 "Proved and Probable Reserves" is representing that acquisitions are responsible for the "195%" alleged increase in "P2" reserves.

But wait, there's clarification of what this means.

"The reserves replacement ratio is calculated by dividing the year-over-year net change in reserves, before deducting production, by the annual production over the same time period. The reserves replacement ratio is a general indicator of the Company's reserves growth. It is only one of a number of metrics which can be used to analyze a company's upstream business."

It's good we received that piece of data. What it says is that for every barrel of oil produced, 1.95 barrels were "replaced". I think we'll all have to take the word of the company on that one since there is no independent review of the reserves. I wonder why its the only metric of "a number of metrics" provided?

The annual report is also heavy in terms of identifying the associated risks of being in business. Two things that strike me as odd is the hostile environment that Petro Canada operates in comparison to its competitors. Second that it will not be the fault of the company if anything bad happens.

So much effort that is associated with identifying risks, a little more substance on the strategy, objectivity, reserves calculations and financial performance outside of the commodity price increases would probably work to mitigate much of the criticism.

No news like good news, especially for Ron Brenneman

A well researched and appropriate article of news in Saturday's Calgary Herald. The article discusses the total compensation of the CEO's of the major oil and gas firms in Calgary. Questioning the CEO's compensation, and asking if these payments were appropriate? The compensation was measured against their stock price increases and was questioning the validity of their claim for better stock performance.

Asserting that stock price increases are attributable to their performance is of course a sham, I can unfortunately recall during 1986 when the oil prices collapsed. A time when the poor performance of firms was blamed on the 1,000's of people that were laid off. Times certainly have changed.

Of particular note is Petro Canada, our favorite topic here of late. Mr. Ron Brenneman CEO scored the highest monetary compensation and the lowest stock performance. I would think that the reporters at the Herald would be very interested in some of the analysis that I have written about here, lets find out if they are...

Update on Maven POM

I have heard from Milos, and he has stated that his obligations require him to pass on the opportunity we wrote about here. I sincerely thank Milos and the Maven developers for the excellent work being done with Maven.

I am therefore opening the development and maintenance of the Maven POM for anyone who is able to help out. Just email me.

Google Finance

Google now does finance. If you missed the announcement click on this entries title. The information provided is much better then the competitors. You can see photos of the principles, stock charts, performance measures and research reports.

For some unknown reason PCZ (Petro Canada) doesn't post executive compensation! I wonder why that is.