Enron Corp.’s collapse created a tidal wave, stormy enough to cause a “sea change” in the industry, an energy consulting firm asserts in a new report. With the changes come the “traumatic” phases: first is shock, disbelief and denial, and the distancing by other companies. Soon after, the “wave of senior management head-rolling begins.” Then there is chaos — and that’s where the industry is now.

As the study by independent energy consultant Skipping Stone Inc. explains, phase two “ushers in the brutal reality of market devaluation,” creating a reflex reaction resulting in “business massacres.” Typically, these first phases occur within six to nine months of a sea change event. “Energy is proving no exception.” The most critical stage, chaos, is the period that will determine which “battle survivors will go on to be victors.”

In the first of a coming three-part monthly series titled “Energy: Charting a Forward Course,” Skipping Stone performed an autopsy of what happened, and explains what will be required to move battered energy companies forward. CEO Peter Weigand, as well as principals Greg Lander and Curt Baker, analyzed the past nine months, which began with what Enron’s “storm” created and how the industry must redefine itself to survive.

Weigand said the “new basics” will be a “R-A-C-E” to the future: reporting, assets, control and expansion. With more in depth reporting of earnings, a refocus on core assets, CEOs required to sign off on financial reports and the bargains available from cash-distressed companies, he said, “the investment community clearly appears hungry for someone to step up and articulate a compelling business case” using the “race” basics.

“It’s simple really,” said Lander. “One company started it all. By constructing financial schemes…Enron set the performance bar for the rest of the industry — very high.” Companies that were “staid, solid and profitable were taken to task by ill-informed analysts prodding them to follow…Enron.”

Noting that many “solid, reputable firms took steps to look like Enron,” Lander said it was “fortunate” that most never implemented all of the strategies and processes Enron used. “Those companies are still fundamentally sound, have productive assets and are critical to the functioning of the economy.” He believes that the “collective punishment-based-on-proximity of the innocent will subside,” and those that execute well and embrace the basics will return.

Lander said that to alter the culture, companies need to follow a three-step process: alter the way it is measured by Wall Street; alter the strategic and market-execution focus of energy sector firms; and alter the cultures and reward systems within energy sector firms. Borrowing from a well-copied Clinton Administration slogan, Lander suggested two signs for energy companies. The one above the front door should read, “It’s about the assets, stupid,” and another on the elevator should read, “innovate, maximize and generate operating revenue from our assets — stupid.”

According to Baker, “energy is out of profitability; out of investor confidence…out of favor,” and he said “it will remain there until it can shed its current reputation of being fast and loose with other people’s money. The industry must return to its roots and demonstrate that its operations are based on prudent, disciplined, business practices.”

The market as well as the credit ratings agencies, said Baker, want energy companies to offer steady performance. “The trick now is to stop the bleeding and weather the disclosures that will continue to come like a steady drumbeat,” said Baker.

To read more of the report, visit the web site at www.skippingstone.com, or call (877) 200-5229.

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