THE PORTABLE COMPUTER AND NEGOTIATIONS Stephen C. Sanders President Kinetics Energy Company 1121 Maricopa Suite 260 F Ojai, CA 93023 Phone 805-646-7194 INTRODUCTION The Hewlett-Packard (HP) 110 portable computer helped save as well as generate over one million dollars through business negotiations in two years. As a negotiating tool, the portable computer can benefit you. THE HP 110 PORTABLE OFFICE The HP 110 laptop computer weighs 10 pounds and runs on rechargeable batteries for about 16 hours. The 272 kilobytes (K) random access memory (RAM) is large enough to run fairly complex programs and can be used for information storage. Over 100 typewritten pages can be stored in RAM after the machine is turned off. The read only memory (ROM), contains word processing, spreadsheet (Lotus 1-2-3), and telecommunications programs. There is no need for a disk drive unless you want to run other programs or store additional information. A built-in modem allows for communication with other computers. A battery operated printer and disk drive are also available.. The complete system is truly portable and can be used almost anywhere. It is now possible to carry large amounts of information and processing capabilities in one small package. WHY A PORTABLE COMPUTER IN NEGOTIATIONS? Webster's dictionary defines the word negotiate as "to confer with another so as to arrive at the settlement of some matter". Analysis and communication of information are key factors in any negotiation. After purchasing the HP 110 in July, 1984, I wondered how this portable computer could help in business negotiations. Our company actively negotiated several million dollars worth of oil investments yearly. What Ilearned was that the HP 110 computer, disk drive, and printer can help the negotiator manage information by: o Storing raw data - facts and figures. o Analyzing and organizing information - Lotus 1-2-3 and other programs. o Presenting information - screen or printed o Sending or gathering new data - modem The HP 110 solves the historic problem of always needing more information during negotiatons. Let's take a look at various negotiation situations. CONTRACT NEGOTIATIONS Since 1974, I've been involved in two areas of the oil and gas business: 1) purchasing oil and gas reserves and, 2) drilling for oil and gas. A large portion of that time has been spent in out of town contract negotiations with: o Sellers o Partners o Investors o Lenders o Consultants Typically, negotiations start with a standard printed contract to which additions and deletions are made. When both parties are satisfied with the final wording, the document is retyped and signed. This process usually requires several meetings. A portable computer with printer is more efficient because the original contract can be easily changed with the word processor. When a final agreement is reached, the contract is printed and ready for signatures. The following advantages have been noticed: o Less legal time associated with contract negotiations resulting in lower legal expenses. o Faster contract negotiations resulting in reduced personel and travel costs. o Fewer negotiation failures due to lack of flexibility. o Higher percentage of contracts successfully negotiated and signed. In the following case histories, one program that used known as "Exflo" was developed by the writer. This economic analysis program was specifically developed for use during out of town negotiations. Case History 1: During an out of town meeting with partners in Utah, terms of a proposed investment were being negotiated. A final agreement needed to be reached the following day. Various economic scenarios were analyzed using Lotus 1-2-3, resulting in terms agreeable to all parties. The HP 110 and printer were used to make and print these changes to the original proposal. The next day this negotiated agreement was signed which ultimately resulted in the successful closing of a one million dollar private placement offering. GOING THROUGH THE NUMBERS Like most investments, economical petroleum ventures are not on the market long. Quick and accurate analysis is a critical first negotiating step. Do you want to pursue this investment further or not? Until the introduction of portable computers like the HP 110, detailed economic analysis of petroleum investments were run in the home office. Sometimes a prospect was sold before economic evaluation was completed. With the HP 110 and spreadsheet programs like Lotus 1-2-3, economic analysis can actually be done in the seller's office. A recommendation on whether to pursue an investment further can usually be made before leaving the seller's office. This technique of economic evaluation has the following advantages: o Improved communications between buyer, seller, partners, and investors. o Surfacing of key economic questions that need to be answered before negotiations can proceed. o Quicker review of each potential investment. o Fewer meetings between involved parties concerning economic questions. o Faster and better informed decision making resulting in fewer lost investment opportunities. o Consistency of evaluation. The following two case histories illustrate how the HP 110 was used to help answer key economic questions during the early phases of negotiation. Case History 2: During an out of town meeting with investors in an oil drilling project, one member wanted to know the economic impact of a change in oil prices from current market to several hypothetical levels. Rather than breaking off discussions until the answer was in hand, the entire economics were re-run in the conference room using the HP 110. The results were printed out on the portable printer and distributed to the group 10 minutes later. Consequently, momentum and group dynamics were maintained resulting in a proposed plan of purchase for this ten million dollar acquisition. Since the meeting was not postponed another meeting was not needed, saving a least one day's travel time and cost for the 5 member group (about $5000). Case History 3: In another setting, the portable was used to show that an investment shouldn't be made. When our group was in a Midland, Texas conference room, it had to make a final decision to commit to or drop a $500,000 drilling program. Upon arriving at the seller's office, the we determined that the seller had presumed higher oil prices and lower reserves than calculated by our group. The portable computer was used to recalculate the seller's final geologic and engineering data. These calculations showed a big discrepancy: The original economics showed a 3.5:1 return on investment, compared to the new calculations of a 2.5:1 return. For this reason the group invested in an alternate program with higher reward potential. GROUP AGREEMENT Usually a number of people are involved in the negotiation of large oil and gas transactions. Before a final agreement can be reached, a consensus of opinion is needed. Typical of the groups involved are: o Legal o Investment o Technical o Financial The built-in modem allows rapid transmittal of information gathered on a particular investment while still away from the office. This becomes more important on extended business trips. Each group can start analysis of the information immediately, instead of waiting for your return to the office. STYLES OF NEGOTIATION AND THE PORTABLE COMPUTER Negotiating styles are as varied as the topic, the people and the companies involved. During negotiations an agenda is usually followed which can be stored in the portable computer and referred to later. Notes, changes and comments may be added at any time. The operating noise of the HP 110 is quiet when compared to other portable computers. Since programs can be loaded from ROM and information stored in RAM, noise from a disk drive can be eliminated. Also,the keyboard is almost silent. The inaudibility of this computer is important when the negotiating group is listening or concentrating. As negotiations progress, certain stalling tactics are sometimes encountered to gain an advantage and must be dealt with as they occur. An extra nights stay or even a return trip to the office might be necessary before negotiations continue. This can be very expensive for the out of town negotiator. One type of stall is created by a question that can't be answered without additional information or analysis. "What if" questions are frequently raised. An example is: "What if the price of oil in your economics is changed? How does this effect the bottom line?" The HP 110 and Lotus 1-2-3 can answer this question within a few minutes. Another tactic usually starts with the presentation of a computer printout showing a bottom-line number. Each assumption in the analysis is briefly discussed. The seller then wants an immediate decision. The HP 110 can be used to help check each assumption and then calculate a new set of economics. These can then be printed on the portable printer and compared to the seller's economics. Key differences are presented and discussed, thus avoiding a dicision made upon the seller's economics. WHO ARE YOU? If you are associated with a well-known company, your credentials are established by them. Otherwise, you need to prove your credibility, a critical factor in any negotiation. The portable computer helps give people an idea of your ability and knowledge For example: most programs and contracts I use are petroleum related and follow industry standards. This information determines my business and how I conduct it. The same is true for other businesses that use computers to store information. Your credentials are easier to substantiate with the HP 110 CONCLUSIONS The HP 110, portable printer, and disk drive saves time and money during negotiations. Pertinent information can be stored and easily accessed as needed. Using the portable computer for contracts and bottom-line negotiations have been especially useful. Historically, advantage has gone to the party hosting the negotiations. The host can easily access his office information. Since the portable computer allows you to take your "office" to the out of town negotiating table, the host no longer has the "home turf advantage". Once you have used this portable office in your business transactions, you will realize the tremendous benefits of such a setup. ___________________________________________________________ Special thanks to Dr. Charles Adelseck and Dr. Charles Halunen with OPEC, USA for their technical advice. Gerald Dominick was responsible for helping in the overall writing style of the final paper. ___________________________________________________________ Background of Author: Mr. Sanders is a Certified Petroleum Geologist having 12 years experience in the Petroleum Industry. He has held technical and management positions with both major and independent oil companies. He is currently President of Kinetics Energy Company and partner of OPEC, USA. ____________________________________________________________ References: LeBlond, G.T., and F.C. Douglas, 1983, Using 1-2-3: Que Corporation, Indianapolis, Ind., p. 1-408. Sanders, S., 1986, The Petroleum Geologist, Economics, and the Portable Computer, Geobyte, Tulsa, Okla. p. 22-25. __________, 1986, Oilmrk.wks: CompuServe Lotus 1-2-3 Data Library, Industry Specific, Columbus, Ohio. __________, 1986, Usoil.wks: CompuServe Lotus 1-2-3 Data Library, Industry Specific, Columbus, Ohio. Schware, R., 1984, 1-2-3 Managerial Worksheets: Dilithium Press, Beaverton, Ore., Ore. p.1-3 and 15-19.