Message-ID: <5231600.1075857532699.JavaMail.evans@thyme> Date: Mon, 2 Oct 2000 06:32:00 -0700 (PDT) From: jeffrey.shankman@enron.com To: jennifer.burns@enron.com Subject: how to go forward in the oil markets Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Jeffrey A Shankman X-To: Jennifer Burns X-cc: X-bcc: X-Folder: \Jeffrey_Shankman_Jun2001\Notes Folders\Discussion threads X-Origin: Shankman-J X-FileName: jshankm.nsf print ---------------------- Forwarded by Jeffrey A Shankman/HOU/ECT on 10/02/2000 01:33 PM --------------------------- Chris Mahoney 09/29/2000 02:16 AM To: Mike McConnell/HOU/ECT@ECT, Jeffrey A Shankman/HOU/ECT@ECT, John L Nowlan/HOU/ECT@ECT, Greg Whalley/HOU/ECT@ECT cc: Subject: how to go forward in the oil markets CUSTOMER BUSINESS - EOL Jeff - I think your ideas of adding marketing and research analysis to the group are good starting points. I don't feel this will increase revenues for us in 2001 as our efforts here are only to win volume from others in a thin volume environment. Eventually the captured deal flow should help the group trade from a better knowledge base but for the next year it will require a significant recruitment and training effort. Both the recruitment and the teaching process are ones that we need to focus on. Please let me know what you have in mind on the recruitment side and I would like to highlight that I feel there are very few people to teach the analysts and associates. I plan on spending an increasing amount of my time working with the younger team that I'm assembling in London. By end October, the London office will have 5 managers, 4 associates and 1 analyst in our group. This is a real shift from the approach of the past where the focus was on recruiting directors. Given our previous track record on recruiting from the outside (about 33% success in terms of performing well and acclimating to enron) I think this is the right approach but we must realise this is a slower process when we look to revenue growth and one that will also require us to shift more focus toward teaching. My plan is to put much of the associate resources toward EOL marketing initially and see what talents they have for being marketing and analysis. The one analyst joining the group is coming over one of the consulting companies in London and I'm putting him in charge of drawing up a list of potential customers in every European country. Please let me know if you have any plans of bringing somebody in to organise globally the marketing business. Can't help but feel that we are very marginal in the electronic trading of oil and could lose all of our business in the near future. Having seen the ICE demo I would prefer that system of ours because of volume. This is a complaint that I have heard from many traders regarding the use of our system. The challenge is how can we put up more volumes, more markets, and tighter 2 ways to convince more people to trade with us and not get run over. What do we know about the ESPEED system and what they are going to have. I saw a Reuters story saying they were launching Oct 2nd with Koch, Dynergy, Entergy, Willams, and a few others. Are we thinking about trying to join up oil markets with either of these two sites and what are the plans if we do begin some of the small customer basis we do have? This is area that we giving a great deal of effort and attention to but what are our plans if we fail to be the largest in this platform. I don't feel that in the oil business we will be successful unless we can be the most preferred site because most companies will not have two websites up on the computers. We are having a difficult time getting anybody but the most aggressive trading companies to look at our numbers so it seems difficult to believe the industry will look at two different e-trading sites. BUILDING THE PHYSICAL TRADING BUSINESS This has always received luke-warm interest from Enron. I believe that the inefficiency within the oil markets is not great enough to try and profit on that alone. So when we talk about going big that really means getting involved in some kind of steel and trying to dominate certain aspects of the physical business. Tankage and shipping are the easiest and quickest ways for us to increase the business we are already doing in these areas with the shortest financial commitment. Mike and Jeff you should be aware though that the corporate commitment to be in the oil business has previously been poor. We can candycoat this subject but it is very clear that most of our competitors are more aggressive on the credit and performance risk in emerging markets. We have a credit department that have done a poor job, if any at all, in getting out there visiting with the national oil companies that we have to be able to participate with (petrobras, pertamina, petrolimex, sinochem, sinopec, egpc, nnpc) if we have any real plans of significantly expanding our physical volumes. We are also the worst company in the oil business in putting out a contract that shows we have a commitment to perform. Our contracts are also drafted with many escape clauses that will be rejected by many end-users who will insist on a greater performance guarantee. As we discussed briefly in Singapore, I think there are several airlines that we could target in the U.S. for physical supply. I will tell you now that legal would not accept the consequential damages that the airlines have in their tenders. Previously, I have not gone after this business because I didn't believe we would have the political clout or sponsorship from those in your position to take legal on in such matters. Please consider this (I will fax you a tender offer from Japan Airlines) and lets discuss if we are ready to accept that if we fail we are willing to accept that it could cost us several million dollars. That kind of loss I have never experienced and seen it happen on very few occasions but it is something that we have to accept if we want to go after the airline business. I will let you know more my thoughts about how we go should try to go forward....this message was more to highlight how I'm trying to advance the group along and what are the challanges we face at the moment. Lastly, on that theme we are trying to work with IT over here to develop some systems that will make us better suited to do customer business. At the moment everybody is working off of individual excell spreadsheets and we are trying to get toward a server based system and options system that would be available to everybody and designed by IT people instead of traders. I will let you know if we need any help from you on this as intially we do seem to be getting stonewalled by the London IT department.