Our third white paper of 2025 is now published—this also our second white paper this year focused on our user community. Today’s paper is titled:
I’m pleased to confirm that our February 10, 2025, paper—
will be published on schedule.
I can also announce a fourth deliverable for 2025, slated for release on March 17, 2025, under the current working title:
And as promised, two white papers are being released from People, Ideas & Objects. Building off of the "animal spirits" being released in the North American marketplace. These papers address how the material and consequential issues that have manifested in oil & gas are dealt with through the reconstruction of the oil & gas industry under new leadership. The titles of these papers are.
And
These papers can be accessed here and here. Get yours before they're all gone.
People, Ideas & Objects is pleased to announce that we will publish our third research paper on Monday, February 10, 2025. This paper represents the third deliverable from our recently established research capability. As a reminder, Intellectual Property, our user community, and research comprise the three distinct competitive advantages we pursue at People, Ideas & Objects.
Currently, a significant portion of our effort is devoted to research in preparation for the development of Phase I of the Preliminary Specification. Similar to one of the papers scheduled for release on January 20, 2025, this third paper will focus on our user community. The previously mentioned January 20 paper addressing our user community is titled:
This publication delves into many details of the Preliminary Specification development, as well as the structure of our user community. It covers the individual phases of development and, most importantly, the compensation framework for our user community throughout the development process.
On January 20, 2025, we are releasing two papers. Both are relevant to everyone, but one targets our user community specifically, while the other is directed toward engineers and geologists. Together, they address the four critical elements needed to provide dynamic, innovative, accountable, and profitable oil and gas operations.
Our February 10, 2025 paper is entitled:
At People, Ideas & Objects, we view our user community as the source of our solution’s quality. By making our user community a competitive advantage and our primary focus, we ensure the delivery of a high-quality ERP solution for the oil and gas industry. Over the next 25 years, the consequences of implementing a robust and well-designed ERP environment will be critical to the industry’s success. Starting with a thoughtful organizational design ensures that its benefits reach all corners of the sector. Approaching this task haphazardly would only jeopardize the outcome.
Periods of significant economic change—like the one we are entering—are exceedingly rare. We are transitioning into new economic models that promise exponentially greater performance trajectories, far beyond the scope of technology or bioengineering. This transformation will permeate every aspect of the economy, and its impact will be felt most intensely in North America.
Many believe that Artificial Intelligence represents the future of our economy, driving growth through its capacity to leverage intellectual efforts. While People, Ideas & Objects acknowledges that there may be some truth in this, we also recognize the daunting competitive challenge posed by oil and gas. Each barrel of oil equivalent delivers between 10,000 and 25,000 man-hours of mechanical leverage—an extraordinary value proposition that consumers rely on every day. Far from fading into the background, oil and gas still holds its greatest opportunities ahead.
People, Ideas & Objects has scheduled Monday, January 20, 2025, for the publication of two of our papers. Originally conceived as a single document, we have separated them to provide clarity for two distinct audiences. We have titled these papers as follows:
and
These two papers comprehensively address the full spectrum of exploration, production, administrative, and accounting needs for oil and gas producers. They provide insights into how individuals within the industry can actively participate in the surge of entrepreneurial spirit invigorating the United States following the inauguration of President Trump. There is no reason for the oil and gas sector to remain in the hands of those who have contributed to its decline. On the contrary, North America needs dynamic, innovative, accountable, and profitable oil and gas producers to step forward, take the lead from existing officers and directors, and actively fuel this entrepreneurial resurgence with reliable, secure, affordable, and independent energy.
Profitability is not achieved simply because a CEO declares that everyone needs to be profitable from now on. The same holds true for innovation and dynamism. There are fundamental differences between organizations that can generate profitability and those that cannot. Transforming a persistent failed culture cannot be accomplished from within that culture; a new culture must be defined and built from the ground up, brick by brick and stick by stick.
The purpose of these two papers is to initiate action across the industry toward building the culture envisioned in the Preliminary Specification. People, Ideas & Objects aims to empower leadership from the engineering and geological disciplines to drive the industry forward and participate in this new economy.
Media outlets requesting embargoed copies for Thursday, January 16, 2025, can submit their email addresses here.
I wanted to take a moment to break the silence on our blog and share an update on our ongoing work, which feels like we're writing an ever growing number of research papers. I anticipate being able to release our first paper in early January. Keeping up with the Trump-induced surge in animal spirits—is going to be quite challenging.
In the meantime, I'd like to offer my thoughts on the current state of political progress in oil & gas during the Trump transition.
I believe there is more behind the policy of "drill baby drill" than President Trump may realize. He needs to ask how oil & gas drilling and expanded deliverability will develop under his administration. Will the industry be able to rally and return to abundant deliverability with this change in leadership? I find this doubtful. I have often stated that the Biden administration's obstructions have had little effect on the industry's performance, other than providing officers and directors with a convenient scapegoat over the past four years. "Muddling through" and doing nothing have been the producers' hallmark, and that has and will continue.
President Trump benefited from the surge in shale production during his first term, and we can agree that governments perform best when they step aside. Blaming the government disrespects the industry's pioneers who overcame impossible odds, dedicating their efforts to build what was once a robust oil & gas sector before these excuse-makers took over.
Today, I believe the president is being misled, perhaps naively, by those advising him on the industry's current state. The core issue is profits. Investors signaled this starting in 2015, but officers and directors of producer firms have chosen to ignore them. One of the most vocal in resisting investor demands was Harold Hamm of Continental Resources, who proudly claimed for many years before 2015 that he doesn't pay dividends. Finding investor demands too burdensome, Mr. Hamm took Continental private in the fourth quarter of 2022. With a personal wealth of $18.6 billion, this was an option for him. It is reported that Harold Hamm is President Trump's most influential oil & gas representative and that he recommended Chris Wright of Liberty Energy for Energy Secretary in the Trump Cabinet.
People, Ideas & Objects believe that past leadership holds responsibility for the industry's current predicament. They have betrayed every interest connected to the oil & gas sector, affecting everyone down to local businesses in rural areas where producers operate. Confidence in profitability will not return until it is permanently restored within producer businesses. Many stakeholders are unwilling to reinvest in what was previously destroyed by producers' indifferent approach to costs and the downstream implications of their actions in the broader oil & gas economy. Rigs dismantled for scrap metal and equipment sold to other industries were observed by producers' officers and directors without concern. These are the consequences, as illustrated by Liberty Energy's 9/30/2024 quarterly report, which purchased Schlumberger's fracing division in 2020. Note that Chris Wright, at the time of this writing, was nominated for Energy Secretary in President Trump's cabinet.
Focused investments have allowed us to develop new markets and lead technology innovation and operational efficiency in the industry. Over the past year, Liberty entered partnerships to develop the new gas-rich Beetaloo Basin in Australia. We have taken a significant step forward with the arrival of a Liberty fleet in country,” continued Mr. Wright. “During the third quarter, the Liberty Advanced Equipment Technologies (LAET) manufacturing and assembly division delivered its first digiPrime pumps. Additionally, Liberty Power Innovations’ (LPI) expanded operations in the DJ Basin are off to a strong start, helping bring our frac fleet CNG fueling services to critical mass.” p. 1
And
Today, the rising demand for power in commercial and industrial applications offers compelling opportunities for LPI. We are excited to leverage the expertise that we have built constructing and managing power plants for frac fleets to additional opportunities both inside and outside the oilfield. p.1
Outlook
Frac markets are navigating the slowing of E&P operators' 2024 development programs in response to the strong first half 2024 efficiency gains from factors including consolidation, longer laterals, and concentration in high-graded acreage. Elevated uncertainty in energy markets has further left operators reluctant to accelerate completions activity in advance of the new year. We now expect a low double-digit percentage reduction in Q4 activity, a bit more than the typical Q4 softening. Completions activity likely increases in early 2025 to support flattish E&P oil & gas production targets. Since late 2023, U.S. crude oil production has been relatively flat and would likely decline if current completions activity levels persist.
Expressions of faith, trust, and confidence that producers have matters under control have all but vanished. Liberty Energy is seeking future fracing business opportunities outside North America and looking to apply their power systems expertise to industries beyond oil & gas. They state there is little doubt that production volumes will decline. People, Ideas & Objects assert this is the case as there is no money. Due to decades of mismanagement and leadership failures in the boardrooms of oil & gas producers they don’t earn profitability, have no support for their capital structures and destroyed the field service providers comprehensively. Again, this is from Liberty Energy's quarterly report. While I have no doubt that Mr. Wright will be able to provide the appropriate perspective to President Trump; it appears that oil & gas officers and directors have learned little since their investors began sending clear messages.
Few outside the boardrooms of oil & gas producers trust the statements made by their officers and directors. Most damaging is they have lost credibility in the eyes of their investors. For nearly a decade, these leaders have declined to act on the significant messages sent by investors. Despite possessing the authority, responsibility, and resources to address industry challenges, they have often attributed issues to external factors or made various excuses such as "praying for a cold winter," "market rebalancing," or asserting that "profits don't matter; it's cash flow." As oil prices declined from $100 to $35, they publicly claimed profitability at ever-lower price points—$70, $60, $50, then $40—through creative accounting practices. Other justifications included declarations of innovation, blaming the service industry as "greedy and lazy," professing newfound commitments to production discipline, and fluctuating stances on shale and clean energy.
These are just a few of the excuses offered over the years, consistently deflecting responsibility. The events of 2023 demonstrated that the core issue is one of leadership, not just profitability. Until there is a change in leadership among officers and directors, meaningful progress in the North American oil & gas industry is unlikely, regardless of who is blamed.
In 2023, People, Ideas & Objects published findings on the consequences of producers' actions in managing shale gas in the 21st century. The decline in traditional heating value pricing from 6:1 to as low as 50:1 to oil in early 2024 highlighted a lax approach to business, resulting in a loss of $4.1 trillion in revenues from shale gas in North America this century. This issue was exacerbated by the failure to capitalize on the development of the LNG marketplace, with producers selling gas domestically at an average of $3.22 since LNG exports began in 2015, while others purchased, liquefied, and exported it realizing prices as high as $50.00.
Officers and directors did nothing until we raised this point. They then began contracting to do so as quickly as they could to rectify their mistake. Unfortunately, they’re too late and were forced to sign agreements with LNG facilities that have not been approved by the regulators and in some instances not even approved by the LNG facility owners to build. Precipitating President Biden to shut down the approval of any more LNG facilities during his administration. So yes the Biden administration has been the roadblock to progress in North American oil & gas, not sheer incompetence by those who have the authority, responsibility and resources to act to avoid basic business mistakes.
Initiating meaningful activity in the industry is difficult while current officers and directors remain in place. Lacking any imagination, vision, understanding or concern they'll "muddle through" for another decade or two. President Trump has a good pick in Mr. Chris Wright as he has experienced the consequences of the producer's incompetence first hand. However, Mr. Hamm doesn’t think investors are worthy of any say in the industry and he is of like mind with his cohorts. They blamed President Biden for shutting them down in their attempt to correct their failures on LNG contracting. The issue here is they didn’t understand free-on-board. Blaming external factors may continue unless there is a fundamental shift in oil & gas industry leadership.
Since 2015, little has been done to mitigate ongoing issues affecting the broader North American oil & gas economy. Changes in government policy alone are unlikely to alter perceptions of how the industry has been managed. Without significant organizational changes and a commitment to addressing these challenges, progress may remain elusive. They have not renounced their prior methods and continue to belittle People, Ideas & Objects for having a plan on how to generate “real” profitability. They have no organizational approach to deal with these issues and wish only to lay the blame on the next convenient, viable scapegoat. Don’t fall for it, President Trump.
At People, Ideas & Objects, we are advocating for a new organizational approach in the oil & gas industry, one that leverages the dynamic, innovative, accountable and profitable nature of markets. Unlike the corporate hierarchies that have dominated the past century, markets have historically been the foundation of economic systems. The alternative solution currently being explored—consolidation or centralization by existing producers—seems to be falling short of expectations. This approach runs counter to the broader trend of disintermediation and decentralization driven by the Internet. We believe the choice is clear, which is why we designed the Preliminary Specification as a market-oriented, industry-wide oil & gas ERP application.
The Preliminary Specification includes three distinct markets: the Petroleum Lease, Financial, and Resource Marketplace modules. Each of these modules is designed to replicate and interface with the physical markets that currently exist, supporting the transactions and collaborative decision-making necessary for producers to leverage their unique competitive advantages—whether in land & asset bases, or earth science & engineering capabilities.
We’ve emphasized the superior quality of accounting information that People, Ideas & Objects’ Preliminary Specification will provide to producer firms, which stands in stark contrast to the opaque, disorganized, and often unused accounting systems in place today. If the current state of the industry—marked by its destruction—isn’t enough to illustrate the problem, one has to wonder why so many officers and directors still believe they are running prosperous businesses. Engineers and geologists bypass traditional accounting data, relying instead on reserve reports, which are not accurate, historical or factual.
To illustrate the critical importance of accurate accounting, consider this excerpt from David Serna of the Founders podcast, discussing a historical figure who revolutionized his industry through rigorous accounting practices:
It was a lump business. And until stock was taken and the books balanced at the end of the year, the manufacturers were in total ignorance of results. I heard of men who thought their business at the end of the year would show a loss and had found a profit and vice versa. I felt as if we were moles burring in the dark.
And to me, this was intolerable. I insisted upon such a system of weighing and accounting being introduced throughout our works as would enable us to know what our costs was for each process. And especially what each man who was working for them was doing, who saved material, who wasted it and who produced the best results. And he says he ran into human nature.
Every single manager in the mills was against his new system. And he said it took years before he was able to actually install an accurate system. But this was the end result. Eventually we began to know not only what every department was doing, but what each one of the many men working at the furnaces were doing and thus to compare one with another.
One of the chief sources of success in manufacturing is the introduction and strict maintenance of a perfect system of accounting. That's a main theme. How many times did you repeat this in the books before? So that responsibility for money and materials can be brought home to every man.
Investing in technology yields significant advantages, compounding savings and enhancing competitiveness, which can determine profitability.
Organizations often overlook the importance of precise accounting, leading to undiscovered waste and inefficiencies. Embracing modern technology, such as advanced furnaces, can substantially reduce waste and protect profit margins, even when initial investments are met with skepticism.
The Scottish-born American industrialist and philanthropist Andrew Carnegie was the leader of the American steel industry from 1873 to 1901. He donated large sums of his fortune to educational, cultural, and scientific institutions.
Born: November 25, 1835
Dunfermline, Scotland
Died: August 11, 1919
Lenox, Massachusetts
The Founders Podcast book being reviewed was Andrew Carnegie, Autobiography.
People, Ideas & Objects believe the reliance on markets will be fundamental for the producers ability to prosper. However it will not occur within the domain of the existing producer organization and their inappropriate accounting. If Andrew Carnegie was able to acquire this quality of accounting information from the computers that I can only imagine were available in the 1870s. Then why do we accept today's nonsense? The question to ask the producer officers and directors is “how do you get to Carnegie Hall?”
Relying on markets, supported by accurate accounting, is crucial for producers to thrive. However, this transformation will not occur within the current producer organizations and their outdated accounting systems. The complexities and speed of the oil & gas industry today demand a fundamentally different approach. Presently, many producers are uncertain whether shale is a viable investment or should be abandoned, whether clean energy represents their future, or if consolidation will succeed as a business meme. The past three years alone have made it abundantly clear that many in the industry remain "in total ignorance of the results."
Markets, coupled with appropriate accounting, are just the beginning of the solution to navigating the increasingly complex landscape of the oil & gas industry.
The pursuit of clean energy by oil & gas industry officers and directors may be considered one of the most significant leadership failures in recent history. By shifting focus to renewable energy sources like wind and solar, these leaders inadvertently signaled to the service industry—traditionally the primary source of innovation—that they were no longer a priority. This message also extended to the engineers and geologists who had been steadfastly enduring the industry’s boom and bust cycles. For many, this shift was the final straw, leading them to conclude that their skills and interests might be better applied in other industries. They likely recognized that producers were either being misled or were heading for disaster, as has occurred so many times in the past.
Now, with consolidation becoming the favored strategy, a similar disillusionment is taking hold. Consolidation often results in producers reducing the number of service industry participants they work with. The surviving company typically retains relationships with their suppliers, while the acquired company ceases to engage with its previous partners. This has led to a wave of bankruptcies among smaller service firms, as they lose significant portions of their customer base. What these trends suggest is that consolidation follows clean energy in the dictionary. And we can therefore conclude that officers and directors have a long way to go before their business education is complete.
The Preliminary Specification is built on two foundational principles: establishing producer firms on a profitable and innovative footing. While there are many priorities we address, instilling these two principles go a long way toward transforming the industry. A key innovation process included in the Preliminary Specification involves a strategic approach to managing unprofitable production.
When unprofitable production is removed from the market by shutting it in, the firm's profitability increases, and a host of other significant benefits follow. One major advantage is that the property in question becomes the focus of the Joint Operating Committees innovative thinking to determine how best to return the property to profitable production. This can be achieved through various methods, and the Research & Capabilities and Knowledge & Learning modules within the Preliminary Specification offer valuable tools for conducting these types of operations.
This process of restoring unprofitable production to profitability is of immense value to the producer and should be a central focus for the firm. It addresses the company's most pressing challenges and offers significant opportunities for value generation. However, as Andrew Carnegie once noted, selling such ideas to those with vested interests can be a difficult task. Yet, this is precisely the kind of innovative approach that the Preliminary Specification advocates.
The Preliminary Specification is undeniably a dynamic solution, one that fundamentally reshapes the oil & gas industry. I've long asserted that it will change everything, and it undoubtedly will. The initial effects will likely be disruptive—marked by dislocation, disorientation, and, in a word, chaos. However, amidst this upheaval, there is a clear vision that can help guide the industry back to a place of stability and purpose. The real question is whether this transformation will come about through deliberate action or be thrust upon us by further failures.
Through our series reviewing producer financial statements, we have meticulously documented the financial devastation within the industry. It's intriguing to note that many of the foundational principles we laid out in our Preliminary Research Report in May 2004 and the Preliminary Specification in August 2012 were initially dismissed. When we published our projections of trillions of dollars in potential value, industry leaders laughed. Yet here we are in 2024, and those predictions have materialized, quantifiable in numerous ways. What remains incalculable, however, is the human cost—lost careers and opportunities that a viable, profitable, and prosperous industry should have provided throughout this century and will desperately need in the future. Despite this, those responsible continue to act as if they understand what they are doing, with the current push for consolidation leading us toward yet another disaster.
What frustrates me most is the clear value that the Preliminary Specification offers the industry—value that remains ignored. In decades of advocating for these solutions, I have been vilified, ostracized, and rendered persona non-grata within the oil & gas sector. I have sustained this pursuit entirely on my own resources, never receiving a single cent from any oil & gas producer. Meanwhile, as I predicted more than a decade ago, trillions of dollars in oil & gas revenues and value have been lost, and the capabilities of the service industry have degraded and continue to diminish. Entrepreneurs, organizations, investors, and leaders within the service industry are disheartened, unmotivated, and have lost all trust, goodwill, and faith that producers will act beyond their officers' and directors' narrow self-interests.
The service industry clearly understands that the lack of producer profitability is the root cause of the extreme boom-and-bust cycles. They also recognize that producers seem unconcerned with addressing this issue. After 33 years of commitment from People, Ideas & Objects, with no progress in getting producer officers and directors to take action, it is evident that the real dreamers are those in producers leadership positions. Initiative is dead—they’ve killed it. No one is willing to lift a finger to help them anymore, as there is no point in trying when producers themselves refuse to work towards improving their profitability.
The actions of oil & gas officers and directors have led to the industry's downfall. Lacking the necessary business acumen and refusing to accept input or solutions, they have failed to understand the broader role and responsibility they hold in ensuring the industry's health and prosperity. Instead, they have focused on self-interest, leading to a collapse that has left the industry in a state incapable of meeting its financial or operational needs. Meanwhile, they have misled politicians into believing that oil & gas resources will be readily available for political leverage, an assumption that is dangerously misguided. I wouldn’t want to be the one who made those promises.
I understand that these accusations may not sit well with those I’ve criticized. They may dismiss them as mere opinions. But ask them this: What tangible value has been generated from the development of the vast shale resources? Who has truly benefited, been rewarded, or prospered, and where does that value stand today? If they point to oil & gas reserves as the answer, then ask them how they plan to access those reserves and produce them profitably. If they claim it has always been profitable, you’ll have your answer.
On the other hand, consider the tangible and intangible value that People, Ideas & Objects have built into the Preliminary Specification. Notably, our key organizational construct is the Joint Operating Committee. What additional intangible value might be realized from aligning the legal, financial, operational decision making, cultural, communication, strategic, and innovation frameworks of the Joint Operating Committee with the compliance and governance frameworks of the corporation? The potential value is enormous.
In today’s advanced societies, organizations are defined, supported, and often constrained by software. To effect change, the software itself must first be changed. People, Ideas & Objects offer the most profitable means of oil & gas operations, everywhere and always. It's no longer sufficient to simply own an oil & gas asset; one must also have access to the software that makes the oil & gas asset profitable.
The name "People, Ideas & Objects" is inspired by Professor Paul M. Romer's 1990 paper, "Endogenous Technical Change." This paper highlights the value generation that occurs through the sharing of non-rival costs, leveraging specialization and the division of labor. In a 2000 article in Reason, Professor Romer emphasized that growth would center around People, Ideas, and Things. As object-based developers, we adapted this concept, changing "Things" to "Objects" in our name. A prime example of applying non-rival costs is in cloud computing, where instead of investing massive capital into building and maintaining operational infrastructure, organizations can access what they need at a variable cost.
Cloud computing is enabling the expansion of software infrastructure, allowing for the development of applications that would have been unthinkable by other means—such as Artificial Intelligence (AI). The sharing of non-rival costs will be crucial in the coming decade, laying the foundation for transformative changes across the economy and creating untold value and performance improvements. It was for these insights that Professor Romer was awarded the Nobel Prize in Economics in 2018.
At People, Ideas & Objects, we recognize that the business model we propose in the Preliminary Specification shares similarities with those of AI providers like Grok and ChatGPT. Cloud computing makes applications like AI possible. Without it, the scope and scale of what is now available for as little as $15 per month would have been inconceivable. The infrastructure, including the development of specialized hardware like NVIDIA's AI chipsets, would not have progressed as it did. The billions of dollars required to create and operate AI models would have been beyond the reach of any single company and might have been delayed for another quarter-century. Yet, today, this technology is accessible to everyone for a minimal cost.
Traditionally, ERP systems have been designed as individual organizational solutions. However, People, Ideas & Objects have envisioned and applied ERP as an industry-wide solution to address the numerous challenges and opportunities within the oil & gas sector. Organizations are increasingly constrained by the law of diminishing returns due to the growing technical demands of specialization, which require finer divisions of labor. This creates a paradox: the low volume of work within a single organization doesn't justify such specialization, especially in the expanding fields of earth and engineering sciences. Each producer trying to cover all these areas pushes them beyond commercial viability. By approaching these issues from an industry-wide perspective, new opportunities for specialization and the division of labor are unlocked.
People, Ideas & Objects have specifically addressed these challenges, including those faced by startups and small oil & gas operations. We’ve tackled the difficult question of how to implement the most technically advanced ERP system, Oracle Cloud Infrastructure (OCI) of which the Preliminary Specification is based, within these organizations without bankrupting them or overwhelming them with unnecessary technical burdens. Our solution includes features like the Work Order, which introduces a second revenue stream for all producers. Our user communities service providers offer services that handle accounting and administrative functions for the entire industry, charging each Joint Operating Committee only for the management of individual processes when the property is produced profitably.
This approach ensures that startups and small producers have the administrative and accounting capabilities to meet the demands of their partners in the Joint Operating Committee, enabling them to participate as equally capable partners in any oil & gas operations. They can meet the regulatory requirements of capital markets and comply with the standardized and objective methods developed in the Preliminary Specification, all while maintaining a commercial approach to oil & gas operations—unlike what is commonly experienced today. This revitalizes the innovative foundation of the industry.
We have applied Professor Romer’s theories throughout the oil & gas industry, prioritizing their impact on producer profitability. Our user community and service providers will offer objective, standardized accounting and administration through our Cloud Administration & Accounting for Oil & Gas software and service offerings. These services will be delivered at a fraction of the cost that producers currently incur, while providing information of vastly superior quality. This eliminates the need for each producer to build redundant internal capacities and capabilities for administrative and accounting infrastructure, thereby reducing costs and expanding producers' ability to meet regulatory and technical demands.
Each producer operates under similar needs, focusing on the Joint Operating Committee—the key organizational structure of a dynamic, innovative, accountable, and profitable oil & gas producer. A single, industry-wide, objective, and standardized facility, accessible through Cloud Administration & Accounting for Oil & Gas, is the only effective approach to addressing the industry's challenges and opportunities.
Our Preliminary Specification, finalized in August 2012, was ahead of its time in its scope and scale to develop an industry-wide ERP solution. However, the landscape has changed. Just as it is now unreasonable for any producer to develop a Large Language Model (LLM) independently, the scope and scale of an oil & gas ERP solution exceeds the capabilities and budgets of individual producers. A shared industry-wide approach is the only viable solution.
The costs incurred by People, Ideas & Objects would otherwise need to be replicated by every producer, differing only in scale, not scope. With the current shortage of earth science and engineering resources, aggravated by low university intake and high retirement rates among experienced professionals, the industry faces potential capacity shortages. People, Ideas & Objects address this by eliminating the traditional operator designation and introduce our concept of pooling, where working interest owners specialize in individual earth science and engineering capabilities and contribute them to the Joint Operating Committee. This approach enhances the technical resources of the Joint Operating Committees through markets of specialized providers, as exemplified by our Work Order feature.
In each of these categories, officers and directors are grappling with uncontrollable cost increases and major unresolved issues, such as the future demand for critical resources. Profitability is just the beginning of their challenges.
Specialization and the division of labor have been the driving forces behind all value creation since 1776. Adam Smith's Wealth of Nations demonstrated this concept through his study of a pin factory, which he reorganized and mechanized based on these principles. The result was a staggering 240-fold increase in productivity. At People, Ideas & Objects, we believe that we are at a pivotal moment where intellectual leverage can be maximized through software automation, enhanced specialization, and the division of labor—further amplified by the application of non-rival costs.
Specialization and the division of labor are significantly advanced by Professor Paul Romer’s theories on "Endogenous Technical Change" or non-rival costs. Adam Smith noted that the standard of living improved dramatically when the price of pins dropped due to the distribution of manufacturing costs across a larger production volume. Similarly, we believe that the service provider organizations within our user community will see substantial reductions in the costs of administering and accounting for oil & gas producers. These costs will be even lower when shared across the industry, as opposed to each producer building redundant capabilities within their own organizations—and missing out on the benefits that are otherwise unattainable.
However, in today’s advanced society, the law of diminishing returns from specialization and the division of labor has begun to take effect. Producers are reaching the limit of what can be achieved through further specialization. While additional division of labor holds potential value, the throughput required to benefit from this specialization is often insufficient within individual organizations.
Our user community's service provider organizations bring not only cost efficiency but also qualitative advantages in the form of data and information. By capturing data at the most granular level and employing advanced, shared, or non-rival automation in processing, we deliver the detail and granularity necessary to support performance-related decision-making. In a world where it takes ten ideas to earn what one idea once did—and soon, it may take ten times that—producers face being overwhelmed by decisions and ideas if they lack reliable data, information, automation, and organization. Without these qualitative aspects, which are directly tied to specialization and the division of labor, decision-making could grind to a halt—or perhaps, it already has.
Within the Preliminary Specification, we have developed two key accounting modules: Partnership Accounting and Accounting Voucher. A significant component of these modules is what we’ve termed the Material Balance Report. Building upon the traditional purpose of a Material Balance Report, our design elevates it to an unprecedented level, covering the entire North American production profile and ensuring the physical control of oil & gas products up to the point of sale. This is undoubtedly an ambitious undertaking, but it is entirely achievable. Attempting such a task as an individual producer would be futile—costly, with minimal benefits. However, developing the Material Balance Report within the Preliminary Specification, utilizing non-rival or shared cost structures and hyperspecialization, creates immense value and opportunities for the entire industry.
Our approach to volumetric balancing, as proposed, will ensure that volumes are accurately balanced across product chemistry, the Joint Operating Committee, facilities, regions, and even the continent. This ensures that production and sales volumes and their allocations are consistent with physical realities or, where applicable, agreed allocations as per Construction Ownership and Operator agreements. This gives producers confidence in the accuracy of their production and revenue figures.
Once volumetric balancing is achieved, it sets the stage for automating production, accounting, and administrative processes across the industry. From field data capture via Internet of Things (IoT) satellite systems of wellhead production, plant, and gathering system data, all the way through to marketing contracts, LNG shipments, and deliveries to distributors, all this data can be balanced on a monthly basis. From there, derivative reports—from nominations to financial statements—can be fully automated from data that holds unimpeachable integrity.
While the one time, shared software development costs for such a system are undeniably high, the value it brings daily to the industry is immense. The current processes, which are heavily data-driven, consume vast amounts of time and energy—largely because the level of software engineering needed to achieve this was not feasible before the maturation of today's information technologies. Additionally, the configuration of service providers to manage individual processes on behalf of the entire oil & gas industry, coupled with the urgent need to rebuild the industry from the damage caused by producer officers and directors, underscores the necessity of this project.
Though the concept is straightforward, the execution will be intricate, requiring extensive research and meticulous development. However, by sharing the development costs across the production profiles of North American producers, the expense for each producer would be minimal on a shared basis. The resulting benefits would include significantly lower administrative costs and access to the highest quality information available in the industry.
People, Ideas & Objects presents a solid value proposition, estimated to be between $25.7 trillion and $45.7 trillion over the next 25 years. This has been validated through the work we did in late 2023 to detail the revenue losses on natural gas incurred this century. The validation of this proposition comes from the deterioration of natural gas pricing structures over the years, which shifted from a heating value equivalent of 6:1 to as low as 50:1 by early 2024. These revenue losses, amounting to $4.1 trillion for the period from 2000 to 2023, have been portrayed by officers and directors as opportunity costs—a perspective we disagree with. The decline in natural gas prices stems from chronic and systemic overproduction. The Preliminary Specification we provide offers an ERP solution tailored for oil & gas producers to rehabilitate oil & natural gas markets. It’s clear that “muddling through” while oil & gas prices have deteriorated by over 800% in just two decades is simply unacceptable.
Our value proposition enhances overall oil & natural gas profitability through the implementation of the Preliminary Specification’s decentralized production model, projected to yield an additional $5.7 trillion over the next 25 years. The documented losses in natural gas reinforce the accuracy of our estimates concerning the impact of chronic overproduction. While we have quantified these natural gas losses based on observable price declines, objectively quantifying the revenue losses in oil has proven more challenging. Nevertheless, we believe our estimates are consistent with the historical trends observed over the past 23 years.
Our argument that oil & gas represent a primary industry seems to be overlooked by many officers and directors. However, we assert that much of the lost value also represents critical financial resources for the broader oil & gas economy. These losses affect not only producer profitability but also the essential resources needed by the service industry, including capital and operations for drilling and fracing fleets, and compensation to royalty holders for product title acquisition. The overall liquidity, functionality, prosperity, and profitability of the industry are at stake.
The responsibility to ensure the service industry remains vibrant and capable lies as much with producer officers and directors as it does with their own firms. The service industry is an extension of their firms, structured through markets to address the diversity of geographical regions and geological concerns. Without the market-driven solutions provided by the service industry, producer field costs would be exponentially higher, and the capacities and capabilities of the entire industry would face severe constraints. Rendering it far less productive.
The remaining $20 to $40 trillion of the quantifiable portion of our value proposition is derived from the innovative methods that People, Ideas & Objects employ to account for capital. These capital costs are essential for producers to build and sustain the oil & gas infrastructure and production across North America over the next 25 years. Our estimates are grounded in independently discussed capital expenditure projections within the market. Our value proposition hinges on the difference between the accounting method we advocate in the Preliminary Specification and the traditional practices that have dominated the industry for decades.
Currently, officers and directors operate under the belief that their role is to "build balance sheets" and "put cash in the ground." This approach involves capitalizing the majority of the producer's costs and depleting these over the life of the reserves, resulting in balance sheets that are excessively inflated and always inflating. When capital assets are overreported, it leads to the equal and inverse overreporting of profitability, which in turn attracts excessive investor interest for investment in the industry. This influx of investment contributes to further overproduction in oil & gas, leading to significant and ongoing price discounts, and occasionally, drastic price collapses—hallmarks of a market governed by the principles of price makers.
Their method is based on the flawed assumption that investors will cover capital costs, while consumers will bear operating expenses. However, since 2015, the withdrawal of investor capital has highlighted the industry's unsustainable reliance on external funding, revealing that genuine profitability is lacking. Despite our discussion and the evident issues, no significant changes have been made by officers and directors since 2015, leaving the industry in a state of peril.
In contrast, People, Ideas & Objects advocate for recognizing all capital within the first 30 months of a property's development—a method particularly relevant in the shale era, characterized by high costs, steep decline curves, and significant capital costs of rework. By recognizing capital costs over a shorter period, producers can pass these capital costs on to consumers, which is a reasonable expectation for a capital-intensive industry. Our value proposition aims to ensure that prior capital investments are returned to producers in the form of cash, enabling them to reinvest in further capital expenditures, pay dividends, and service debt. This approach eliminates the need for stock issuance or bank loans, except for substantial transactions. The continuous and iterative return of capital would provide producers with the financial resources needed to manage their operations effectively.
These attributes are the hallmark of a profitable firm. If producers seek more capital, they have the ability to generate it themselves by achieving genuine profitability. Despite my ongoing efforts over the years, producers have consistently refused to acknowledge that accounting plays a critical role in their performance. They often rely on the belief that only geologists or engineers can determine the profitability of a basin, as evidenced by statements like "shale will never be commercial" in 2021. This narrow perspective overlooks the complexities of business operations, focusing solely on the technical aspects while undervaluing the broader influence of accounting and business, which are often relegated to the simple task of paying the bills in producer firms.
When producers capitalize the majority of their costs, they include substantial portions of their overhead as capital. This practice results in the cash used for these monthly overhead expenses to not be replenished within the current period. Instead, the invested cash remains on the balance sheet for decades in some cases, forcing producers to seek new sources of cash each month to cover their recurring overheads. Essentially, producers fail to maintain what is commonly referred to in business as a "cash float." Over the course of a year, working capital is drained through capital expenditures and associated overhead costs. Since 2015, when investors ceased providing further capital support, the working capital within the industry has reached critically low levels. In response, officers and directors have resorted to extreme measures to sustain their capital expenditures, including delaying payments to the service industry for 18 months or more. This approach severely undermined the financial stability of the service industry, leading to a significant downturn, exacerbated by the subsequent COVID-19 lockdowns and then reduced activity levels among producers.
Producers must recognize that they operate within a primary industry, and their working capital should be viewed as a reflection of the financial health of the broader oil & gas economy. When producers mismanage their cash flow, they not only worsen economic downturns but also find themselves ill-prepared to take advantage of upturns or maximize opportunities. This situation arises because no one in the industry has sufficient cash to conduct the necessary level of business. The reliance on investors to meet the industry's cash needs is a phenomenon that can be attributed to oil & gas officers and directors who lack a fundamental understanding of business. The working capital of producers should be regarded as akin to the Federal Reserve’s role in keeping the industry operational—similar to the importance of maintaining the right amount of oil in an engine’s crankcase. The balance between too much or too little working capital is crucial.
Producers serve as the Federal Reserve for the oil & gas economy. The correlation between the decline in active rigs, as shown by IEA data, and the exit of capital demonstrates that a healthy industry requires a greater volume of working capital within producer firms, which in turn supports the broader oil & gas economy.
Producers are currently unable to recover the majority of their costs in this capital-intensive primary industry. I have been discussing this issue for over a decade, yet nothing has been done to change the methods that exacerbate the problem. The lack of necessary cash within the system causes unnecessary stress throughout the broader oil & gas economy. Some argue that we should return to the gold standard to stabilize the value of the dollar, which is an impossibility. The dollar serves as a medium of exchange, not a store of value. Limiting the amount of money in the system constrains the volume of transactions that can occur. When cash is scarce, its value increases due to excess demand, but the economy suffers because fewer transactions can be undertaken. This scenario is akin to a vehicle with no fuel in the tank or oil in the crankcase, rendering it inoperable despite being mechanically sound.
By recognizing capital costs on an accelerated basis through the Preliminary Specification, producers and the industry as a whole can rehabilitate their working capital and cash flow issues. Officers and directors often believe that SEC requirements for full-cost accounting compel them to report the largest possible balance sheet, using the ceiling test as a target rather than the outer limit it is intended to be. In contrast, People, Ideas & Objects advocate that the most profitable producers would aim to reduce their property, plant, and equipment account balances to zero, reflecting that they have been profitable enough to retire all their incurred capital investments. Profitability, not cash flow, is the appropriate measure.
Controlling costs is a crucial endeavor for any organization, and it should be a top priority, especially since low-cost organizations tend to be more resilient. But what are the highest costs that oil & gas producers have been grappling with for decades? One of the most significant issues is the impact of unprofitable properties, which dilute the earnings of profitable ones. Producing reserves at a loss, particularly when prices are low or even negative, can be devastating to the prospects of financial recovery. For instance, if the cost of producing gas is $9 but it sells for only $3, the resulting $6 loss would require six profitable volumes sold at $10 just to break even. Such losses are highly destructive to earnings and diminish the reserve value of the producer—yet this reality seems to be beyond the comprehension of many current officers and directors.
Focusing on profitability is what truly generates value. When unprofitable production is shut in, it’s removed from the market, which increases overall revenues. By eliminating the dilution of profits from losing properties, the firm can report its highest possible profitability, no matter what its production profile may be. Unprofitable properties should be moved to the firm's inventory of innovation, where they can be returned to profitable production as soon as possible. This can be achieved through cost reduction, increasing reserves, boosting production throughput, or applying other innovative strategies. The goal is to use the firm's earth science and engineering capabilities to generate incremental profitability in the most innovative ways possible, finding the marginal price when only profitable production is maintained.
What many producer officers and directors fail to grasp is that these actions build incremental value. It’s true that no additional petroleum reserves may have been discovered or developed, but they’ve proven that reserves are essentially worthless if they can’t be produced profitably. This has been the case for decades, as the industry continues to consume cash in the process of production.
Alternatively, what would the present value of profitable shale reserves be? It’s here that we can find the limit of producers' business thinking. They believe that “building balance sheets” to a size that replicates the value of the reserves is the objective, for some reason. We discussed property, plant and equipment and the most profitable producers would have the lowest values recorded in that account. However, the reserves present value would soar based on the marginal price being realized and assessed against far greater volumes of the reassessed commercial reserves volume. Having “real” profitable operations however are not to be accepted. Recall the mid 1980s natural gas prices adjusted for inflation would today be about $10.00, not $2.14. Recall too that the mid 1980s was a time of 100% conventional production.
Alternatively, consider the present value of real or genuine profitable shale reserves. This is where the limitations of producers' business thinking become apparent. Many believe that the objective is to "build balance sheets" that mirror the value of the reserves, but this approach is misguided. We’ve already discussed that the most profitable producers would have the lowest values recorded in their property, plant, and equipment accounts. However, if they focus on achieving a marginal price that maximizes profitability, the present value of their reserves would soar, driven by far higher prices and greater volumes of commercial reserves. Returning the investors focus back on to reserves valuations. Yet, the concept of maintaining "real" profitable operations is rejected.
To put this into perspective, natural gas prices in the mid-1980s, when adjusted for inflation, would be around $10 today—compared to the current market price of $2.14. Shale has introduced new cost structures in the oil & gas industry; it has brought in initial or flush production volumes that have overwhelmed the natural gas price structure, driving it down from its heating value equivalent of 6:1 to as low as 50:1. This shift has had a devastating impact on the entire oil & gas economy. Devastating every source of value in every corner of the greater oil & gas economy.
Today, we are examining the oil & gas industry through an economic lens, considering the future opportunities and challenges we touched upon in our recent discussion of the broader economy. This analysis is crucial as it highlights the industry's current mindset and the potential pathways forward.
Oil & gas producers often find themselves blamed for inflation, a perception fueled by government narratives that point to rising energy prices as the culprit. However, as Milton Friedman aptly put it, "inflation is everywhere and always a monetary phenomenon." The reality is that government spending is the primary driver of the current inflationary environment, not oil & gas price increases. Unfortunately, this misconception persists unchallenged because producers have largely remained silent, failing to defend their industry against such accusations. This lack of advocacy extends beyond inflation; it encompasses environmental and regulatory issues where producers have opted for a strategy of silence rather than engagement.
Consumers benefit immensely from oil & gas, which offers one of the greatest value propositions in any market. A single barrel of oil equivalent provides between 10,000 to 25,000 man-hours of mechanical energy at a cost of just $0.003 to $0.0075 per man-hour. The efficiency and value derived from this energy source are unparalleled, yet the industry has failed to communicate this effectively to the public. Even if oil & gas prices were to double, it is unlikely that this would trigger inflation or a recession. On the contrary, ceasing the use of fossil fuels would severely cripple economic output, as energy is the backbone of our civilization.
It is astonishing that oil & gas producers continue to see themselves as price takers, adhering to outdated notions that ignore the reality of market dynamics. In truth, they are price makers, and the industry should be governed by market signals that determine the profitability of production. If a product is not profitable to produce, it should not be produced. This simple principle, followed by most other industries, has been largely ignored in oil & gas, leading to chronic overproduction and the resultant price collapses.
Producers have instead relied on complex and often absurd methods to predict future prices. Using technologies like Artificial Intelligence to analyze floating oil tank roofs from satellite images to determine global oil inventories. These efforts are misguided, focusing on predicting market behavior rather than responding to actual market signals. This approach has led to disastrous outcomes, such as the negative $37 oil prices witnessed in April 2020. Despite these failures, the industry has not learned its lesson, continuing to operate in ways that defy basic economic logic.
The industry's reluctance to embrace market-based solutions has had severe consequences. The April 2020 incident, where oil prices plunged to negative $37, was not an isolated event but a symptom of a broader issue—chronic overproduction driven by unprofitable production practices. This approach is unsustainable and has caused significant damage to the industry and its stakeholders.
The solution lies in leveraging the power of the Internet and modern software to create a more efficient, decentralized operational environment. The hierarchical structures that once defined corporate organizations are no longer necessary. Instead, software can facilitate more dynamic, market-driven operations that respond to real-time data and market conditions.
The future of the oil & gas industry, like that of the broader economy, will be shaped by those who can innovate, lead, and generate profits. The current leadership has demonstrated a profound inability to adapt to changing market conditions, clinging to outdated practices and failing to address the fundamental issues facing the industry. The result has been a series of failures, most notably in the development of shale, which should have been a transformative success but instead has been a financial disaster.
The path forward for the industry must be guided by profitability and innovation. The era of relying on investor capital to sustain operations is over. Instead, the industry must focus on generating real, sustainable profits that can fuel growth and pay dividends to investors. This will require a complete overhaul of current practices and the adoption of new technologies and methodologies that prioritize efficiency and profitability.
The recent comments from Shell’s CEO, Wael Sawan, underscore the failure of the current leadership in the oil & gas industry. Sawan’s acknowledgment that liquefied natural gas (LNG) is "the only credible solution that gives you both energy security and decarbonizes the energy system" highlights the shortsightedness of previous decisions to pivot away from shale towards clean energy. This shift was driven not by market realities but by a failure to understand and capitalize on the true value of shale.
Sawan plans to grow Shell’s LNG volumes by up to 30% this decade, either through acquisitions such as the recent purchase of Pavilion Energy, or getting its hands on third-party volumes. The company recently invested in ADNOC’s Ruwais LNG project in Abu Dhabi.
Now, the industry is scrambling to invest in LNG facilities, a strategy that continues the pattern of overbuilding and misallocation of resources. This approach is emblematic of a leadership that has consistently failed to grasp the fundamentals of the oil & gas business, focusing on building balance sheets rather than creating value.
The cycle of failure in the oil & gas industry is clear, and it is driven by a culture that has persisted for decades. The only way to break this cycle is through a fundamental change in leadership and strategy. New leaders must emerge who understand the importance of profitability, innovation, and market-based solutions. People, Ideas & Objects Preliminary Specification offers a roadmap for this transformation, providing the tools and frameworks needed to build a dynamic, innovative, accountable and profitable industry.
The choice before us is stark: continue down the path of failure with the current leadership or embrace the opportunity to build a new, more prosperous future for the oil & gas industry. The time for change is now, and the direction we choose will determine the industry's fate for decades to come.
