OPEC estimates of Capital Requirement’s

 A revised estimate of capital expenditures necessary to meet global oil & gas demand for the next 25 years has been debated recently. 

The world needs $18.2 trillion ($14.9 allocated to upstream) in new oil and gas investments in the period until 2050 in order to secure a sufficient supply. This is what OPEC warned in the 2025 edition of its World Oil Outlook. Yet the International Energy Agency continues to believe oil demand growth is going to peak before 2030, suggesting there is no such need for investments. Are both talking up their respective book?

In this instance I’ll be taking the optimistic OPEC forecast for demand and base this discussion on that assumption. They also projecting demand to increase in that period of time to:

According to OPEC, global oil demand will reach 123 million barrels daily in 2050. That would be up from a projected 105 million barrels daily this year, per OPEC, or 104.4 million barrels daily per the International Energy Agency. p. 61

One of the reasons for going with the optimistic demand projections is. Energy is the source of economic growth and the means in which we gain our standard of living. The most powerful economy will always be the largest consumer of energy in all its forms. With hundreds of millions more Chinese joining the middle class, this ensures 123 million barrels of oil / day is the better estimate of the two. 

In absolute terms, the global economy is expected to more than double in size, increasing from $171 trillion in 2024 to $358 trillion in 2050 (in 2021 PPP). p. 35

Efficient use of energy will be the means in which most of the incremental economic growth is achieved. This efficiency will need to contrast the decline curve that is ever present in the industry. A decline curve that becomes material in its consequences over the course of 25 years. And a steep decline curve North American producers have subjected North Americans to. Leaving one with the feeling the numbers accuracy at this point may be relatively close. 

To reliably supply markets, against the backdrop of rising demand, as well as to offset natural decline in mature fields, global cumulative investments of $18.2 trillion are required over the 2025–2050 period (all in US$2025). 

The bulk of the required investment, $14.9 trillion, or $574 billion per annum (p.a.) on average, is for the upstream sector. The downstream and midstream sectors require another $2 trillion and $1.3 trillion, respectively. The challenge of meeting these investment requirements is huge, and any shortfall in meeting these needs risks market stability and energy security. p. 161

It appears in the following graph North America is approximately 40% of the total capital expenditures. Making it necessary for producers to raise $6.3 trillion of those funds. And there are other considerations here. Over the course of the next 25 years is a projection of what’s required in an ideal situation. Producers are not making money and are in jeopardy of diminished deliverability due to shale’s dependence coming into play. The service industry's role in meeting the market demand here is nowhere close to meeting expectations. They too have lost all faith, trust and belief in the producer officers and directors.

This reality presents a critical two-fold question, beginning with the state of the service industry. How much additional capital is needed to rehabilitate it? During the COVID-19 pandemic, investors in drilling and service equipment watched as operators cut their assets into scrap metal simply to pay the bills. Producers compounded the damage by extending payment terms to 18 months, leading to a catastrophic loss of capacity. In essence, the producers broke the service industry. They showed no respect for their partners' efforts then and continue to operate with the same mindset today.

Consequently, the prevailing attitude in the service sector is: "They broke it, they can fix it." The sentiment is that producers must have more "skin in the game" before they will show any respect. This leads to our first question: What is the amount of incremental capital needed to rebuild the oil and gas service industry? And if the producers won't provide it, then who will?

The second part of the question is even more challenging: Where does this money come from? It is reasonable to frame this future rebuilding cost as an unrecognized and long-overdue debt that producers owe the service sector. This liability must be added to the significant losses producers are expected to incur in the coming years. Yet, they have no money, and no one is willing to invest in or lend to them. They have consistently failed to generate profit and have ignored their investors' demands for financial discipline for over a decade. It is difficult to decide which is worse: that your investors walked out on you, or that you did nothing about it for ten years.

While it is true that only People, Ideas & Objects have been consistently offering a solution throughout this period, the fundamental issue remains. The source for the trillions of dollars needed appears to be mythical and magical.

In other words, there is a financial hole in this industry as wide and as deep as one can imagine. It can only be filled with money, none of which will be productive in the sense that an investor in either oil and gas or the service industry would be entitled to earn a return. Who, then, will pay the freight on filling this hole, and what is its true size?

Consider that since 2007, the North American natural gas sector has lost $4.6 trillion in potential revenue. The officers and directors of producer firms allowed natural gas prices to collapse from their traditional 6:1 heating-value equivalency with oil to ratios as low as 50:1 in 2024. On what planet is such value destruction acceptable? Is this staggering loss part of the financial hole we just discussed, or is it merely the icing on the cake? I believe it is the icing, the ice cream, and the cake itself.

Given this context, perhaps we should double OPEC's capital requirement estimate for North American oil and gas. To meet the challenges of the next 25 years, it is more likely that $12.6 trillion will be needed, not $6.3 trillion. Someone should ask the industry's officers and directors what they think the number should be. And as a follow-up, ask them precisely where they plan to get that money. After ignoring everyone's advice for the better part of a decade, it is only fair to assume they must have a brilliant plan in place.

Podcast # 13, Our Preliminary Specification Executive Summary

 Another podcast to summarize and inform. Still a few bugs to work out but nothing major standing in our way. 

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Number 13

Our Index of Podcasts 

Blinded by Science: The Business Cost of Oil & Gas Orthodoxy

McKinsey & Company’s recent article, “Shale’s Bold New Era: What it Means and How to Succeed,” marks a return to their traditional playbook—analyzing companies, profitability, and industry fundamentals. Their foray back into oil and gas business analysis, stepping away for a moment from climate, clean energy, and DEI discourses, is a notable shift, but their grasp appears unsteady. While McKinsey may find its footing again over time, this piece doesn’t demonstrate the acuity or originality the sector needs. At People, Ideas & Objects, we’ve never wavered in our commitment to profitability and its systemic absence in oil and gas, nor lost focus on the solutions required to restore it.

What emerges from McKinsey’s approach, however, isn’t a rigorous business critique—it’s the perspective of oil and gas engineers and geologists, who serve as the industry’s key decision-makers. Their worldview, dominated by technical and scientific priorities, discounts—or outright dismisses—the business disciplines of accounting, administration, and organizational design as secondary, even parasitic. In their minds, only technical expertise creates value, and the industry has been steered by their pursuit of technical (rather than commercial) objectives for decades.

This mindset has endowed the industry with a strange duality: a mystical faith in science as the ultimate value-driver, paired with a stubborn detachment from business realities. The sector functions less as a business than as a perpetual science fair, ever seeking the next technological breakthrough, even as commercial sustainability and profitability deteriorate. For decades, “advancing the science” has resulted in shrinking resources and missed opportunities—especially as actual profits have dried up, and the industry’s ability to conduct meaningful experimentation has dwindled. The notion that science alone will deliver returns has left the entire sector diminished and ill-equipped for today’s competitive landscape.

McKinsey’s article unintentionally captures this internal culture of exclusion and defensiveness. Their language is revealing: “there will be no silver bullet for organizational redesign in the new era,” and success will come only to operators “who understand the value centers of their portfolio and build organizations to deliver efficiency at scale.” These value centers, they say, range from field development to commercial operations, each requiring specific capabilities—a vision that, ironically, ignores how effective software, disintermediation, and modern business models are reshaping industries everywhere else.

In adopting this scientific worldview, McKinsey aligns itself with those inside the sector who are hostile to change—especially anything challenging the traditional roles and hierarchies. Disintermediation and new models based on efficiency and accountability don’t fit their script. A prime example: the mishandling of LNG contracts, where most export deals were set at domestic Henry Hub prices ($2.50), while buyers resold the gas at up to $50 in foreign markets. This colossal misstep, worth hundreds of billions, exposes the absence of business acumen at the executive level, yet the response is to seek greater “control over market paths” and blame midstream operators—whose role is merely to deliver product, not negotiate prices. Decades of unexplored value (with LNG contracts lasting years into the future) cannot be blamed on midstream; the problem traces directly to strategic failures at the top.

The real cost? Roughly $4.7 trillion in lost natural gas revenues in North America from 2009 to 2024, the result of a leadership class determined to treat business disciplines as expendable and accounting as irrelevant. Budgets for administration and effective ERP systems could have sustained investment, innovation, and dividends—yet starved, these “non-technical” functions were regarded as unnecessary. Reserve reports—rather than real-time business data—became the governing metric.

In truth, sustaining the business would have preserved value and prevented the collapse of natural gas pricing ratios from a 6:1 to 50:1 oil-gas equivalence. On a true comparative basis, North American gas volumes should have generated nearly $6.9 trillion leaving $2.3 trillion of actual natural gas revenues realized. Which is proof in a way that all the value is generated by engineers and geologists. 

People, Ideas & Objects exist to correct these structural failures—to place business, not just science, at the heart of the industry’s value creation. Until that happens, these businesses losses, not opportunity cost—in profit, innovation, and long-term sustainability—will remain staggering.

Partnership Accounting, Podcast # 12

Our Partnership Accounting module is an essential complement to the Accounting Voucher module, specifically addressing the complexities introduced when People, Ideas & Objects uses the Joint Operating Committee as the key organizational construct. Nothing in the producer firm is unchanged when we make this change.

I’m finding these podcasts valuable for the initial introduction to our content. Opening a window as to what, how and why the Preliminary Specification is different. And a comprehensive summary for those who already have a good grasp of our product. 

I’ve once again included the url for the Accounting Voucher module and Podcast Index. 

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Partnership Accounting 

Accounting Voucher

Podcast Index

Podcast # 11, Value Proposition

 

I’m quite enjoying these podcasts we’re producing these days. They will become a regular feature of the content that we produce. They seem to capture many of the subtleties that may be hidden in plain sight to most readers. Having them confirmed at least is worthwhile. Today’s topic is our value proposition which is well covered here. There are still some minor details that need to be figured out how to correct, and this episode introduces what I would consider is an AI hallucination. One of the presenters stating they remember when something occurred back in the late 1970s. 

With each post now I’ll be posting the podcast and an index of the podcasts to date for users to access. 

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Index. 

Podcast # 10 - Rebuilding Oil & Gas White Paper

Summer is in full swing, and People, Ideas & Objects are thrilled with the enthusiastic response to our podcast series, which introduces the Preliminary Specification and its underlying concepts. We’ll be pausing regular blog posts in July and August to focus on releasing white papers.

Over the next three weeks, we’re launching more podcasts, each highlighting one of the six white papers People, Ideas & Objects published in 2025. The first podcast, covering our April 7, 2025 paper, “Oil & Gas Arbitrage: The Market Finds Away” explores how investors can drive transformative change using the Preliminary Specification and participate effectively in rebuilding the industry. 

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Professor Paul Romer’s Theories, Podcast # 9

One of People, Ideas & Objects seven Organizational Constructs is the implementation of Professor Paul Romer’s theories captured in his 1990 paper “Endogenous Technical Change.” A principle we’ve adopted throughout the North American oil & gas industry and producer population. Where, for example, we share the cost of our Cloud Administration & Accounting for Oil & Gas software and services as opposed to each producer building the infrastructure individually within their company. 

It’s not just administration and accounting that’s covered by these principles. Operations, geological and engineering also have benefits from Romer’s thinking in the Preliminary Specification. 

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Connecting the Dots

Two crucial points, highlighted in separate papers this year, have gained significant traction and warrant explicit connection in light of recent major investments aimed at rebuilding the oil and gas industry. The Carlyle Group's $2 billion investment in Diversified Energy's non-operated properties, following Citadel's $1 billion earlier this year, signals a pivotal moment and underscores the importance of the following actions.

• First, investors who are non-operator members of Joint Operating Committees are encouraged to propose the implementation of the Preliminary Specification to their working interest partners. The value of these properties for all owners, including Carlyle and Citadel, will be substantially increased with the system fully operational across all partnership assets. Should this proposal be considered, People, Ideas & Objects is prepared to manage the subsequent marketing with discretion and confidentiality, pending receipt of the necessary contact information.

• Furthermore, our January 20, 2025 paper, titled “Reconstructing Oil & Gas: Enabling Engineers and Geologists to be This Century’s Pioneers and Lead the Industry’s Future," presents a vital challenge to the industry's technical professionals. For the sector to fully capitalize on the economic opportunities that lie ahead, it is essential that engineers and geologists actively engage and participate as producer firms, leading the charge in innovation and growth.

Investors 

The current climate in the oil and gas industry presents an unprecedented investment opportunity. A combination of factors has created a market of highly motivated sellers and affordably priced assets. Producers are motivated to divest properties for several reasons: the immediate need for cash after a prolonged period of scientifically-driven rather than financially-focused operations, the desire to mitigate personal liability risks associated with past fiduciary duties by distributing proceeds as dividends, and a clean break for new investors who wish to avoid entanglement with the previous leadership.

Simultaneously, new investors, such as hedge funds, are attracted to the sector's potential for significant returns. However, their continued participation is contingent on two key factors that have historically been absent in the oil and gas industry: profit reliability and liquidity. These investors are not fundamentally committed to the industry itself, but to the financial gains it can produce. Therefore, the ability to easily enter and exit positions is a critical requirement.

To attract this new wave of capital, emerging producer firms must design their business models to directly address these needs. We propose the consideration of innovative financial structures, such as creating asset-backed securities or securitizing working interests in properties. Furthermore, technologies like blockchain could be leveraged to enhance transparency and facilitate liquidity. Incorporating these elements is essential for new producers to succeed in this evolving landscape.

Engineers and Geologists: Seize the Opportunity to Lead

With renewed, multi-billion dollar investments from entities like Citadel and The Carlyle Group, the oil and gas industry is at a pivotal turning point. This new capital is not backing the old guard; it is seeking dynamic, innovative, accountable and profitable new leaders. This is a direct call to the engineers and geologists who possess the essential talent to develop, exploit, and manage these properties.

Investors like Citadel and Carlyle are focused on financial strategy, not day-to-day operations. Their participation in Joint Operating Committees is a temporary measure to secure assets at advantageous prices. They are looking for entrepreneurial leadership to step up and drive the future. They require new producer firms built on reserves preservation, performance, and profitability—firms that can provide a return on investment and potentially offer liquidity through mechanisms like securitization.

To facilitate this, People, Ideas & Objects is developing the Preliminary Specification, an ERP system designed to handle the accounting and administrative needs of an oil & gas producer firm. This tool will enable new companies to build on a foundation of transparency and efficiency.

The capital has already been committed. Now, the talent must rise to the occasion. The industry needs new producer firms, led by technical experts, to form immediately and build value for themselves and these new investors. If the entrepreneurial dynamic does not emerge to meet this opportunity, this wave of investment will recede. The mandate is clear: create agile, profitable business models and lead the industry forward. Let's not disappoint the investors again.

In Conclusion 

New producers in today's oil and gas industry face a critical choice. They can spend valuable time and resources slowly building investor confidence by demonstrating a newfound commitment to profit and accountability. Alternatively, they can immediately establish that credibility by adopting the "Preliminary Specification" and the inherent business models developed by People, Ideas & Objects, thereby signalling their commitment from day one.

People, Ideas & Objects has established itself as the authority on the profit-focused principles the industry must now embrace. We provide the standard, objective, and factual financial information that was sorely lacking when investors exited in 2015. The legacy of that era still burdens every new venture, and overcoming it is paramount.

While the current arbitrage strategy employed by investors provides a temporary window of opportunity, it will not last forever. This strategy gives the industry a few precious years to rebuild and establish profitable operations as a universal standard. The ultimate goal for any producer is independence, which can only be achieved through the sustainable funding generated by consistent profitability.

The road to becoming competitive in the broader capital markets is long. The industry as it stands is ill-equipped for that journey. The opportunity to change this dynamic is now, but the challenge is immense. For those ready to build on a new foundation, this is the best of times.

Professor Giovanni Dosi Theories, Podcast, # 8

 Just as Tuesdays podcast covered Professor Langlois’ theories and our application of those to oil and gas. Today is Professor Giovanni Dosi’s ideas under the microscope. And if I hadn’t mentioned it before this AI tool is good at compiling vast quantities of information and making it easy to digest. 189 documents produced 141 blog posts and summarized in the Preliminary Specification on our wiki. 

Professor Dosi has specialized in innovation and the foundational document we used to prepare a large percentage of our features of the Preliminary Specification was “Sources, Procedures and Microeconomic Effects of Innovation.”

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Professor Richard N. Langlois Theories, Podcast # 7.

 The value of this podcast is quite satisfactory. I don’t believe there are any errors in the content and the work the AI completed is directly in line with what I’m thinking when discussing the Preliminary Specification. This podcast is the compilation of the 221 text files I created to publish the 195 blog posts on our blog and wiki of Professor Richard N. Langlois’ work. 

In a 20 minute summary they’ve captured the substance of his research and our application of that to oil & gas. 

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