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Enron Mail |
Mark and Greg, =20
FYI, below is an update from John Nowlan on Q3 issues surrounding the crude= and products P&L. I thought you would find this informative as to what is= going on. Mike 3rd Quarter update Recent steps taken to manage crude and products As you are aware the big changes this year have come from breaking the vari= ous businesses into their respective area and giving the lead to managing t= he business to a specific individual e.g. J. Goughary - Gasoline, C. Mahone= y - Distillates, N. Clarke - Resid, S. Bland - Petchems, B. White and D. Sc= hroeder - Crude. This was done to give more business focus and ensure as w= e build the mid marketing and origination groups we have the right trading = structure. As for origination and mid marketing we have been very successf= ul building out the USA org and now will be looking to add some talent in E= urope. Origination likewise we have been successful in the crude and produ= cts area with Randy's team. On the petchem side, I have been interviewing = extensively over the past week and hope to have one very strong addition fo= r Doug, Tim O'Neal, and two very highly rated associates coming from EBS. A= s for the trading itself, I imposed trading limits on all traders 3 weeks a= go and, as will be addressed next, we are not losing much if any money on o= ur daily trading rather the losses are coming from primarily one huge struc= tured position. Lastly, we have been quite aggressive in divesting of any = individuals, which were not helping us to achieve the goals, which we have = set forth. Bill Briggs, Phil Clifford and Andrea Hauser will all be leavin= g the group. 3rd Quarter loss explanation Losses to date: $40.23 million $30.79 is in the ERAC book (i.e. Don's big P+ and Nymex swap position) ?=09$23.34 is due to Vega, Theta and Gammas Vega: $4.30 Theta: $16.72 Gamma: $2.30 ?=09$5.2 due to curve shift $5.2 million in distillates ?=09$1.3 million we discovered in a mis -marked curve when Bill Briggs was = terminated. ?=09$5.52 million is curve shift (inventories we are holding globally in a = falling market) P+ issues and management Two key problems: 1.=09Correlation marked on the Cal 02 is still too low, we need to raise th= is correlation. 2.=09Nymex option position, which was put in the book to hedge the P+ posit= ion, is too large and mis -marked, i.e. the market is 3.20 and we are marke= d at 2.85. Solutions and steps forward: We have $15 million to correct some of this problem and that was getting do= ne late last week. Don has been talking to Koch and BP in restructuring th= e P+ book and moving a portion of the CAL 01 and early 02 position out as f= ar as 03 so we have smaller, more manageable positions. Ideally over the n= ext week we hope to get the book to a position where the theta bleed goes f= rom $270k/day down to around $100k/day. This is worth $5.1 million a month= to us. Lastly, once we get through the next few months a significant piec= e of our exposure rolls off. In summary, the "day trading" the group has done has been steady in a very = choppy market; it is the ERAC structure, which is tainting us. It would be= useful to you if Rob, Don and I got together with you to go over all the s= pecifics some time this week, as it is difficult to handle by Email. John Nowlan
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