Thursday, December 01, 2016

Best Business Opportunity, Ever, Part XXXIX

We have an Opec agreement, for now, that is for the next six months. We’ll see if it lasts that long and if it has any effect on the global oversupply and overproduction of oil. Opec have agreed to “targeted” production cuts of 1.2 million boe / day and expect to see 600,000 boe / day in cuts to come from non-Opec producers. Six month agreements, after seven months of negotiating are one thing, implementation is another. Nonetheless, from the producers point of view this is a resounding win. They feel they’ve been fighting Opec for the past two years and have succeeded in surviving and asserting that they’ll not take the price maker role in the oil markets. What I do know now is that there will be no dealing with them whatsoever. Not that they were listening anyways. For the producers winning at all costs was the game plan and that has certainly been the case.

Producers will feel vindicated and have established themselves as the force to be reckoned with in the oil markets. That is until the next payroll is due. The reality on the ground may be that this is a hollow victory. What I saw in the third quarter financial statements would be nothing to be proud of. Will Opec agreements change the investors and bankers opinion on the viability of an oil and gas producer? The cash that is needed to keep the operation going is not being generated and these organizations have internal problems that have not been addressed or recognized for decades. Movement of the oil producers, and particularly the shale producers stock prices was dramatic yesterday. Reflecting that the business is more about the stock price as opposed to the underlying performance of the firm.

The issues of oversupply and overproduction are just symptoms of the larger cultural issues that are systemic throughout North America. Premised on the SEC’s determination that reserves are the value of an oil and gas producer and financial performance is irrelevant. You can’t run an industry for very long on that basis, and oil and gas has been operated on that for over forty years. The value that has been destroyed has been epic, and this has to be addressed before anything positive will be coming out of this industry. Producers stock prices aside.

The prolific nature of shale is already being promised to fill the volumes that Opec is “targeting.” Restoring the imbalance in the marketplace. And this will continue for the history of the industry until there is no oil or gas left. It’s a science experiment, not a business. There is no discipline, and no basis of business understanding supporting any discipline in terms of what produces and what’s shut-in. Commodities markets are not mythic creatures that exist on their own. They send information in the form of price. If your profitable at the prices offered, you produce.

Does anyone question that Opec did everything that could be done? What will it take to try again when the six months are up? Oil prices were up almost 10% as a result of the agreement. I have always asserted that Opec, in this drawn out agreement process, were trying to show North American producers that oil was subject to price maker characteristics. If I was right, then I would expect to have this agreement fall apart in the next 10 days. Then we will see the price fall 10% or more. These price changes show that the removal of marginal production from the marketplace would be the appropriate thing to do. It doesn’t make a lot of sense for Opec, the lowest cost producer, to be taking production off the market. Does it. Particularly when North American producers are all recording epic levels of losses. This issue isn’t over.

To me a decision needs to be made. Whether we travel along to hear that jarring gong or not is a pretty risky proposition. But that is certainly where we’re headed. The adults in the room need to stand up and take control of the situation. That would be my recommendation. I’m taking some time off. Screaming at the wall these past few months has become deafening. I also need some time to think about the next phase of what and where we’re going as an industry. Therefore we’ll see you back here on January 23, 2017. Have a happy holidays and if you need to contact me I’ll be around.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Wednesday, November 30, 2016

Best Business Opportunity, Ever, Part XXXVIII

The cost and competitive structures of the existing oil and gas producers have been destroyed through the process of ignoring the industries issues. Muddling along has eroded the value in the industry and the individual producers are carrying legacies of past spending and unprofitable operations with them. From a cash position they’re unable to generate any value that would be considered a normal environment. If any value is produced from operations it will be consumed in servicing the debts and satisfying the legions of shareholders that participated in the annual ritual of issuing more stock. This being the kind of place that future investors willingly leap into in order for their money to be voluntarily incinerated. These organizational tragedies will limp along selling assets, in a market filled with producers who are operating in likewise fashion, where the buyer of the property can pick and choose like at no other time in the industries history.

Leveraging a business is the appropriate manner in which to manage any enterprise. It provides the means in which to increase the return to the shareholders. However, in oil and gas leverage on the assets that represent the past spending orgies are not appropriate. The assets on the balance sheet have ballooned to unreasonable levels due to the SEC’s accounting methodologies. What may be an appropriate percentage of debt to take on in a business would be excessive levels of debt in an oil and gas producer due to the assets representing every cost being capitalized. Capital and operating costs in the field, overhead and interest costs leave very few costs left to pass through to the income statement. Reflecting high balances of assets and high profits. Yet never any cash. That always had to be provided from the investors each and every year.

This has gone on for four decades and many in the industry don’t understand why or how it’s wrong. They were brought into the industry on this basis and know nothing else. It’s just the way the business was run. Since President Elect Donald Trump was elected it is clear that people have stopped sitting on their hands in the United States and are looking to do some business. The fear of being penalized for existing under the Obama administration is about to stop. As a result market rates of interest are beginning to move substantially, anticipating the demand for capital in a growing economy. This is very good news except for those that may have been excessively leveraged due to bad accounting policies, and are suffering in a low commodity price environment. We have a high probability of normalized interest rates within one year.

Even if Opec will, or has, put together an agreement, these higher interest rates will cause the oil and gas producers difficulties to linger. They are in no position whatsoever to be taking on an increase in a major cost such as interest rates. I recall in the last downturn the oil and gas producers created large volumes of unsubordinated debt. That being the amount of interest that wasn’t able to be paid and as such the debtor turned the outstanding interest itself into a another debt obligation. Expect to see the term unsubordinated debt start to creep into the vocabulary of the oil and gas producer in 2017.

All of these costs, the capital costs that were incurred in the past. The debts that are still outstanding on those assets. The volumes of shareholders that an existing oil and gas producer has are impediments, legacy constraints to the current operations and their growth prospects. Producers will at best be frozen in time as a result of the manner in which the industry has been managed for the past four decades, the muddle along strategy and these cost structures. You can’t fool all of the people all of the time. And the oil and gas producers have been able to fool a lot of people for a long time. However, the investors and bankers are wise to the game and can read the outcome of the financial statements these producers are putting out. I still think there’ll be hell to pay when these producers continue to say they’re profitable at $45 but produce financial statements that show greater than $15 billion in losses. Is this a scam or are you really that lost?

A clean slate approach to the industry is the only solution. That is the startup organization. Buying properties off of the existing producers will be the way in which they are able to grow quickly and profitably. Buying at rock bottom prices due to the volume of properties on the marketplace and the desperate situation of the vendor. Keeping their debt and shareholders within reason, they will use profits to fuel the business. Providing the means to drive forward with the most profitable means of oil and gas operations and a healthy industry. Society will be relying on the startup oil and gas organizations to remediate the assets and turn the industry into the profitable industry it should be. It will be obvious during this time that not much will be done in terms of field operations to bring on new supply. But then the overproduction is the issue. Once the transfer of the assets from the old to the new is complete, then drilling can resume.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

Tuesday, November 29, 2016

Best Business Opportunity, Ever, Part XXXVII

There comes a point in this disaster when things do change. We’ve talked about this on several occasions before, but not in the context of being the best business opportunity, ever. Creative destruction accurately reflects the opportunities that occur during an industry's destruction. But what is the point in time which causes people to make the changes in their own lives and their own situations. It was best put across by Sir Winston Churchill in the house of commons at the outbreak of World War II.
When the situation was manageable, it was neglected, and now that it is thoroughly out of hand, we apply too late the remedies which then might have effected a cure. There is nothing new in the story. It is as old as the Sibylline books. It falls into that long dismal catalogue of the fruitlessness of experience and the confirmed unteachability of mankind. Want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusion of counsel until the emergency comes, until self-preservation strikes its jarring gong -- these are the features which constitute the endless repetition of history. 
This is what we’ve referred to as the “jarring gong” on this website a number of times before. There comes a point where action overtakes inaction. I think we’re very close to this point in time. For ten years Winston Churchill was ostracized for his thoughts and views on Hitler. He tried to warn everyone about the dangers of what he thought might happen as far back as the early 1930’s. While no one listened to him, there was a strong movement within Britain to form an Anglo - German alliance with Hitler. Not until after Hitler invaded Poland, and was at France’s door step, did people realize the dangers that Churchill had been warning about. It was at that time that the British house of commons appointed Churchill to be the Prime Minister and deal with the issues he had warned everyone about.

Certainly I don’t equate anything that we are doing here with the work of Churchill. The forces of creative destruction have been realized in many forms in many industries. It is the one constant that refreshes the western based economies and keeps them competitive in the long run. Action taken too soon, that is before people can see the destruction that is occurring will not be successful in the implementation of the solution. People have to go to the limit in order to be convinced. And once convinced there is no turning back. The need to make the change, and then for the changes to be successfully implemented, make instituting the changes not an option.

What People, Ideas & Objects have done is to prepare the solution that will resolve the issues that has led to this destruction of the oil and gas industry. By taking the time to prepare we have been able to eliminate the long and difficult process of determining what and how the next “creative” aspects of creative destruction would look like. These are usually done at minimal cost but take an enormous amount of time. Oil and gas doesn’t have the ten years that is needed to figure out its next steps. It needs a solution now. And the Preliminary Specification, which underwent ten years of research is ready to be built at this time. It provides the vision in which the industry can be rebuilt and function to provide for the issues and opportunities of today and for the foreseeable future. I am pleased at this point that I have the opportunity to make this offering to the industry. It was hard work and it looks at this time to have a high probability of being of great value across the industry.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

Monday, November 28, 2016

Best Business Opportunity, Ever, Part XXXVI

It’s Monday, I forgot if we’ll get good news or bad news coming out of Opec today, never can remember. With last week's commentary regarding Opec’s decision. The commentary coming from industry unlike that of People, Ideas & Objects, did not look to the downside of a negative announcement. It was all focused on the upswing in drilling activity and production increases that shale producers will be able to provide. Even if Opec does agree to a production cut, this doesn’t resolve the overproduction and oversupply issue. Producers are not financially healthy and will still attempt to deal with their issues by overproducing. Their only source of cash. Creating today’s situation once again down the road.

Also why is there no attempt at a resolution outside of Opec actions anyway? For four months we’ve sat and watched Opec put a deal / no deal together with nothing being done here! Whether or not the Opec’s deal goes through, is the status quo acceptable? We can’t leave the industry in the hands of these bureaucrats. Why aren’t they planning and dealing with the issues at hand? All that we’ve heard are assumptions that shale producers will pick up any production cuts that Opec makes. Rig counts have increased each week since August. And, unfortunately there have been discussion regarding the opportunity of attaining energy independence. Producers don’t have the financial resources or capabilities to achieve energy independence. They don’t understand the term profits and there is not enough investors in the world to continue on even with their current operations.

Waiting for these irrelevant Opec events is not how you manage an enterprise. Active management has to overtake the “muddle along” strategy in order to deal with shale, as a minimum. Last time we waited this long for Opec to make an agreement, when they finally did make the decision, and it was a negative decision, producers suggested Opec doesn’t mean anything anyway. Attempting to redirect the conversation to other topics that would distract people away from the producers mismanagement. Last time this redirection involved production declines due to events such as the Alberta fire in Fort McMurray, Nigeria conflicts etc. as the reason that prices would soar. What will be the diversionary topic this time?

When no agreement is put in place, prices will drop and the producers will be left in desperate condition. Those in control will have nothing in place to remediate the situation and I think that those in authority will just walk away. The current cash crisis is critical. Payrolls will be missed and the people will be without their paychecks. With no one in authority showing up for work, who will they turn too? What is left in these producer firms to hold on to. Production is consuming cash. Their financial performance is reflecting losses. No investors, and certainly no bankers will touch them. Who is going to stand up and sacrifice more money, time and energy to make this industry function. Those people whose paychecks are bouncing?

“Brace for impact.” This will get ugly. After four decades of deceptive accounting these producers were hollowed out carcasses, and I’m talking about during the boom times of a few years ago. Then they discovered shale and the commodity prices dropped too low to even report profits on the basis of “full cost” or “successful efforts.” Now they’ve cleared out all of the value through successive, massive and tragic losses through 2015 and 2016. Scaring the daylights out of the investors and bankers. Yet still sit on massive piles of “assets” on the balance sheet, or what we at People, Ideas & Objects call unrecognized costs and future losses. Producers can’t generate any cash, can’t stop producing for the shear fact that the losses would grow exponentially. Soon those “assets” will be moved to the income statement and will continue to reflect the industry is a lost cause financially. Showing investors and bankers that the competitive and cost structures of the industry are so fundamentally destroyed that there is nothing that anyone can do.

No one want’s to think about such dire consequences. Certainly no one wants to live through anything so difficult, although times are certainly bad today. That doesn’t provide the justification for producers to ignore the problems and hide under the desk. However, in this cheery scenario we see the fact that the startup producers can come in and poach these assets from these producers, remediate them into real profitable operations. Use the Preliminary Specification and gain the trillions of dollars that our value proposition provides. And then earn the trillions of dollars in additional value that would be available by achieving energy independence. This is creative destruction at its most violent, rapid and opportunistic.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Friday, November 25, 2016

Third Friday Off

No posting today.

Thursday, November 24, 2016

American Thanksgiving

No posting today.

Wednesday, November 23, 2016

Best Business Opportunity, Ever, Part XXXV

We’ve been identifying many of the deficiencies in which the oil and gas industry has been operating. I want to shift gears here for a minute and discuss what kind of environment the Preliminary Specification will create when it comes to developing a new property. How would a producer approach the development of a property when only profitable production is produced. They certainly wouldn’t want to deploy their capital to areas where they wouldn’t be profitable and as a result the property needs to be shut-in. Therefore new disciplines and policies have to be adopted in order for the capital to be deployed efficiently and effectively.

Spendaholics is the term that I’ve used to describe what the oil and gas producers are. There are practical reasons for spending money, while on the job site it’s better to spend the money as opposed to incur the time. Time is the ultimate cost. However, overall the producers are rabid spenders that have traditionally loaded the firm with investor capital and fired it out the backdoor within the year. Rinse and repeat. Over the past four decades producers have devolved into this being their one and only function. With the overall objective of increasing the company's production profile. As limited as this sounds you can fit any and all producers into this tiny category of what producers do.

In a world where shale exists this business model is destined for the scrap heap, as we see the performance of the producers today. We can assume once the Preliminary Specifications price maker strategy is in place that oil and gas prices will be much higher. They will be high enough to cover the real costs of capital, operations and overhead of the industry. And of course a profit for those that take the risks today. The commodity prices will be more stable as the industry's costs are somewhat fixed, however, escalating due to the effort per barrel of oil equivalent always increasing. We can also assume that the highest cost production will be offline or shut-in. This will preclude the oil sands plants due to their long investment horizons and operational inflexibility. The higher cost production and the lower yield fields will be the properties that are subject to being shut-in as they will be the ones that struggle to earn a profit. Older properties that have retired their capital will probably produce consistently. The demand from the marketplace to replace the natural decline of the known reserves will still be with us.

This is now a different game in a different ball park that we’re playing. Access to capital to burn like a drunken sailor is no longer the key competitive advantage of the producer. Innovation in the earth science and engineering capabilities of the producer, the land and asset base, and now the strategic and tactical business capabilities will be the competitive advantages of the dynamic, innovative, accountable and profitable oil and gas producer.

How do you manage a business and an industry with this dynamic? I don’t know, other than intelligently. You’ll need to be precise in your actions. Expectations of profitability will be the new standard. Just because People, Ideas & Objects price maker strategy provides you with the most profitable means of oil and gas operations. Does not ensure corporate profits. Those will still need to be earned. It’s a brand new world.

The environment in which oil and gas producers will be competing will also be fundamentally changed. There are trillions of dollars on offer to the oil and gas producers that are established today. These trillions are available to those that can prosper in the above environment and build value for their shareholders. First by acquiring the producing infrastructure from the comatose industry of today. Rehabilitating those assets into profitable properties. Secondly by using the Preliminary Specification they will be able to source our $25.7 to $45.7 trillion value proposition that is part of our offering. And then finally, they can expand their throughput to achieve energy independence in North America with all the value that has to offer. Making for a dynamic business that will be prosperous for those that can deal in this environment. These next 25 years will be the most exciting and dramatic in the oil and gas industry. Starting a firm to participate is by far, the best business opportunity ever.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Tuesday, November 22, 2016

Best Business Opportunity, Ever, Part XXXIV

Generally when a supplier comes to you and offers to cut their costs, I don’t know, I would take the deal. It just seems the right thing to do. To follow up on a post from March 23, 2016 in which I detailed the Quebec and Ontario natural gas marketplace was being looked at by the Marcellus shale producers. Looked at as a ripe candidate for their gas. Apparently since that time Transcanada Pipelines (TCPL) went to the natural gas producers in Western Canada, who are currently servicing Ontario and Quebec, with an offer to reduce their tariff on shipping their gas there. Helping these natural gas producers to put their pricing back in competition with what the Marcellus producers are able to offer Ontario and Quebec.

I may not have shown the due respect to the producers of the oil and gas industry here on this blog. They have certainly made my life entertaining as a result of my offering People, Ideas & Objects Preliminary Specification to the industry. It is also difficult to sit here and not be critical of the destruction that is so extensive and will be so long lasting. Particularly when we have a solution in hand that addresses the issues that are affecting the industry today. That these solutions are not taken up by the industry is purely due to the fact that we disintermediate the people who are causing the destruction in industry today. However, the decision was made by these Western Canadian producers to decline TCPL’s offer. Now the way I see it, the Marcellus gas is highly competitive. It is abundant and has a very short distance to travel to Quebec and Ontario. Western Canadian gas has fueled Ontario and Quebec since the beginning of time. This over a vast distance provided by “Transcanada’s” Pipeline. We understand that the Western Canadian producers are between a rock and a hard place. Their choice is to give up on the Quebec and Ontario market or permanently recognize the differential (of about $0.50) in continuing to supply the Ontario and Quebec market.

Giving up on the market is typical of those that I’ve been critical of. They said they want a better offer. Ok, TCPL will get back to you in about a decade, how’s that. To oil and gas producers all business is the same. You're in business, you have to compete. They don’t understand that there are different classes of businesses that exist in the world. Some that have different rules and regulations. Different methods of existence. Such as TCPL for example, they are involved in a class of businesses known as “utilities.” Maybe you’ve heard of them before. Utilities don’t compete. They operate on the basis of cost plus. The cost of the shutdown of the Transcanada Pipeline, if shipments for some unknown reason should ever stop. Will just be shifted to some other part of their business so that the costs can be recovered there. Maybe the old Nova system.

Western Canadian producers may feel that they showed the world they’re tough businessmen. They only showed that they’re fools and don’t understand the business that they’re in. The Marcellus producers can walk into Ontario and Quebec with little fuss now. In fact, for no apparent reason, current month NYMEX:NG jumped over 5% the following day and all of the futures contracts echoed that sentiment. I guess that was a vote of confidence from the Ontario and Quebec consumers. Or maybe the Western Canadian production going offline. As we noted the other day, there is an attitude of entitlement in the oil and gas producers here in Calgary. Maybe the farmers and ranchers will pay for the TCPL tariffs to Ontario and Quebec.

Contrary to most of the posts in this Best Ever series this isn’t all good news for the startup oil and gas producer. It’s good news that you too will find these same people operating the industry today. Which is good. You always appreciate your competition doing stupid things. However, if you were basing your startup on Western Canadian gas, you may want to rethink your location and strategy. The good news is that as a startup you're still nimble and agile.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Monday, November 21, 2016

Best Business Opportunity, Ever, Part XXXIII

As I write this it is unknown what the outcome of the Opec meetings will be. The push to have the deal in place by the deadline of November 30, 2016 started last week. It seems everyone in oil and gas are convinced the deal is imminent and it will be sunshine and rainbows once again. We’ve come a long way since the oil price declined. The industries destruction as I’ve described it here has taken on its own momentum and will fuel the necessary creative destruction. I have also suggested that Opec was never attempting to put any production limits in place. Their new strategy is to provide a stable supply to their customers. Talk of limiting production, I believe, is to allow the North American producers to understand that moving barrels of oil on and off the market have a dramatic effect on the price. That the commodities behave with the characteristics of price makers. Something these producers refuse to believe and, as we’ve stated, don’t have the moral or ethical means in which to do so.

It is therefore a given in my mind that Opec won’t come up with an agreement on November 30, 2016. Taking this off of the table will have a devastating effect on the price of oil and will do two things. It will kill the hope that is building in North America for a return to normalcy in oil and gas. And it will be the trigger that investors and bankers use to liquidate their investments in the industry. If the only thing that producers have is hope that Opec will do something, then there are better places to put one's investments. As it stands today, producers can’t pay their electrical bills or their freehold royalties. Now is not the time that Opec is going to let them off the hook. All of the discussions coming out of Opec have been about how earnest they’ve been in working to make the deal. If they announce that there is no deal, then the world will know that they gave it their best shot and that it will be years before another attempt at another deal will be possible. Therefore it will be time for the investors to clean house at the North American oil and gas producers. What else could these investors be waiting for?

Natural gas future prices top out at $3.32 in January 2018. I would say that market is optimistic about the natural gas business. We need to understand that shale has changed the business from scarcity to abundance. It also changes the cost profile of the production. Multilateral fracing and horizontal drilling are very expensive. None of the shale producers are making any money at the current prices. Oil or gas. None of the producers are making any money based on their third quarter financial statements and that is the same situation for at least the past two years. The cash crisis in the industry is epic. Producers are stuck in a downward spiral of destruction. They have to produce everything, to pay the bills, to produce the oil and gas etc. If they stop producing anything their costs will soar and they’ll be out of business in a week.

Opec can certainly read the third quarter financial statements as well as anyone. And they’ve certainly lost money in the past years too. But if they put a deal in place and the price responds these shale producers have already committed to increasing their production substantially. The rig count is up for the last 15 weeks. The North American producer is down but not out. If they let up the pressure now the resurgent North American producer will be back and as much of a problem to oil prices as they were at the beginning of this process. Until the threat of a resurgent oil and gas overproduction and oversupply is ceased, Opec will not take their foot off the throat of the North American producer.

The best way that I know that the North American producer could convince Opec that it had seen the light and would implement a method of production allocation to deal with the overproduction and oversupply. Would be to fund People, Ideas & Objects Preliminary Specifications budget. That way Opec would see a solution to the overproduction and oversupply in the long term and the commitment of the producers to its resolution. Otherwise it's the trash heap of history for these North American producers and the best business opportunity, ever, for the startup oil and gas producers.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Friday, November 18, 2016

Best Business Opportunity, Ever, Part XXXII

That this destruction of the industry is acceptable, or is part of a normal process, is the standard of thinking in the industry. We see nothing in the way of steps to remediate the issues other than blaming the situation on the Saudi’s. Action by the producers has never been part of the “muddle along” strategy that has been the status quo of the industry for these past decades. Accepting that the industry will be generating losses, based on a contrived, faulty accounting, is just part of the game. I have pointed out in this series of posts that the situation has gone beyond what the producers have within their control to manage. The momentum of the destruction is against their efforts and the forces of creative destruction are in play. Creating the best time ever to begin a new oil and gas producer.

This muddle along strategy brings along with it other attributes that show a dark side to the human psyche. There is an attitude that the oil and gas producer is the one that is building the value in the business and everyone else, the people who work in the business, the service industry and others are leeches. This became evident when oil and gas prices were their highest and producers were calling out service industry representatives as lazy and greedy. Reflecting, in my opinion, a type of entitlement that the oil and gas producers were able to preach to their lesser classes.

This attitude took a decidedly dark turn here in Calgary over the past week. The cash situation in the producers has become quite difficult and many producers are going out of business. Even Canadian Natural Resources were mentioned in the article as part of this trend. The situation is that freehold royalties were not being paid by the producers. And now apparently electricity to the well sites are not being paid in some instances. Therefore the electricity provider is turning to the rancher / farmer to have the oil and gas producers electrical bills paid. Who would have thought things could get so difficult?

So here we have a lawyer by the name of Keith Wilson impart the despicable opinion of what the rest of the province should do in light of the difficulties in oil and gas. Quotation is from the cbc.ca

Lawyer Keith Wilson said that he also has represented clients who have had liens filed against their land for unpaid work done by oil company contractors.
"There's a need to rethink the system," said Wilson. "It wasn't designed for what's happening now [with the economic downturn]. And as it becomes more endemic, it underscores how Albertans have expected this one sector of our society to bear all these risks and hassles."

Here’s my argument for Mr. Wilson to consider. Oil and gas is a primary industry. It collects the revenues that are earned by the sale of oil and gas. Inherent in the sale of oil and gas are the efforts of the service industry and the people who work within the oil and gas industry. They are not leeches. They assist in the development of that revenue. It is a responsibility of the oil and gas producer to manage their business appropriately. Something that I’ve been arguing for the past number of decades that they haven’t been doing.

In addition, Mr. Wilson may want to take into consideration the involvement of the rancher and farmer. In Canada they have no choice but to let the oil and gas company operate on their land. They give up use of that land while the oil and gas companies are operating there. They should receive compensation for that. But for you to suggest that these farmers and ranchers undertake to pay the oil and gas companies electrical bills because of the greatness of the oil and gas industry is a bit of a stretch. Apparently it's the Saudi’s, the ranchers and the farmers that are the issues to the oil and gas producers.

Within the Preliminary Specification there is a heightened role of the societal responsibilities that the oil and gas producers and industry needs to take. Just because they are the ones that collect 100% of the proceeds of the oil and gas revenues doesn’t mean that they can demean the rest of the people who are involved in the process of earning that money. Greater understanding of this principle is an inherent part of the Preliminary Specification. One that looks to achieve what is in the best interests of providing society with abundant affordable energy and how that is efficiently and effectively done. Establishing a new startup oil and gas producer on this basis will set in place the kind of environment that will help to rebuild the industry that the existing producers and Mr. Wilson seem hell bent on destroying.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Thursday, November 17, 2016

Best Business Opportunity, Ever, Part XXXI

Producers would have us believe that the state of affairs in the industry today is the preferable situation over the methodology in the Preliminary Specification. Their destruction of the industry is the more ethical and moral choice. They will never involve themselves, in essence, in limiting their output to influence pricing. An argument directed at People, Ideas & Objects Preliminary Specifications price maker strategy. I agree that the effect of the price maker strategy is designed to find the marginal cost in the commodity marketplace. I would argue however, that the purpose in implementing the price maker strategy is to ensure that all oil and gas production is profitable. Profit is the old time religion that producers never understood and have ignored for these past decades. I suggest that producers have a serious look at their situation and determine if it isn't that they’re upholding a moral and ethical code that is inconsistent with good business practices in the western world.

Shale is the variable that needs to be considered for the future. The important number to remember is that the U.S. holds all of 17% of global shale based formations. Everyone today it seems is walking around with 5 - 6 tcf of natural gas in their pocket. Trying to get that gas to market as quickly as possible. The situation in oil is a few years behind the developments in natural gas but maybe we’ll see similar developments there. What is there in this moral and ethical world of the existing oil and gas producer that enables them to produce this oil and gas? There are no restraints. Its beg, borrow or steal to get the reserves into production so that the producer can realize the revenues. Anything for that cash. This is the fact of life in the business today. The industry is now based on abundance and not on scarcity. In this race to put all of the oil and natural gas reserves onto the market as quickly as possible the destruction of the industry is a given. And that is what and where we are today.

Welcome to the moral and ethical world of the North American producer. It’s just too bad if you happened to choose geology or engineering for a career. Or decided to work for an oil and gas producer or service industry provider. Your sacrifice and suffering in order that the producers meet their moral obligations and ethical standards are what you signed up for, live with it. They won't control themselves and impose any production discipline as it’s inconsistent with their ethics. Misguided as they may be. Well it doesn’t have to be like that. Producers need to think about the business that they’re in. The way they are operating it, they are certain to erode the infrastructure even further. It's time to consider the facts.

Overproduction and oversupply are now a constant in the marketplace given the characteristics of shale reservoirs. Production allocation across the industry is necessary to ensure that the markets are not overwhelmed by the overproduction and oversupply. If production allocation were implemented it would qualify oil and gas as a business. People, Ideas & Objects Preliminary Specification price maker strategy operates on the basis of two simple principles. If the property shows that it is profitable, based on an actual detailed accounting, than the property produces. If it is not profitable then it is shut-in. Contrary to today’s morally and ethically superior oil and gas producers determination that this is collusion, it is not. Individual decisions, based on accounting facts, at the property level are not collusion. Its business. What business produces everything that loses money, other than oil and gas that is.

With today's administration the industry will be destroyed but these people can at least say they were moral and ethical in their own minds. Others will say they were misguided. Which opens the best business opportunity, ever for the startup oil and gas producer. You can assure your shareholders and bankers that nothing will be produced that isn’t profitable. That you are focused on providing them with the most profitable means of oil and gas operations. And do that with strong business practices and higher morals and ethics. Higher because you won’t be deliberately causing so much misery.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Wednesday, November 16, 2016

Best Business Opportunity, Ever, Part XXX

We saw last week the news that all producers should’ve anticipated for the past decade. Higher interest rates are around the corner. Maybe not high interest rates but certainly moderate interest rates, or a return to normalcy will be probable under a Trump administration. In times such as what we are experiencing in the oil and gas industry, higher interest rates on the level of indebtedness of the producers will be the last thing that is needed.

The counterbalance to the bloated balance sheets is of course either debt or equity. In most cases the balance between debt and equity is within the region of what could be considered a well leveraged operation. The issue is that the amount of the assets are bloated due to the accounting policies of the SEC. By recording everything and anything as an asset on the balance sheet. And by limiting the amount of those capital assets recorded on the balance sheet to the known reserves of the producer times the current commodity prices. You have established the upper limit of what the assets could be recorded at as the total future revenues of the firm. Therefore the balance of the debts of the firm would also have the upper limit of approximately half of the total future revenues of the producer. An impossible number, particularly for an industry that doesn't have that old time religion of profits.

Even in a “reasonably” indebted producer these would be excess levels of debt due to the fact that the assets are so bloated out of proportion. In the third quarter of 2016 there were significant interest costs being incurred by many of the producers. The amounts of interest paid may have been distorted as a result of the high rates that were incurred during the junk bond boom of a few years ago. Nonetheless, I think with the scenario that we have put forward here, it is reasonable to assume that the oil and gas industry is heavily indebted due to the outsized bloated balance sheets. As producers continue down the road of continued losses. The amounts of these losses eliminate the equity in the company. Turning the leverage that they may have been able to enjoy during the good times, against them and pulling them into a debt spiral.

Organizational survival would assume that the producer could find debt or equity available in the market. Producers found these facilities were closed in the early part of 2016. I believe they will need to deal with the industry's issues before they’re able to source any more funds. What this debt spiral will involve is the further reduction in their asset balances and the erosion of their equity position. Leaving them with far fewer assets and all of them secured by debtor's.

Which leaves a heavily indebted producer subject to the increases in market rates of interest. Producers can’t afford to see these costs become more material to their operations. But that is what is going to happen. They have left the overproduction and oversupply issues to “market rebalancing,” which we now see as a completely ineffective tool. And frittered away the time that they should have been working on those problems. Now these issues remain with no resolution and the destruction of the industry well underway with the next big issue, interest rates, staring straight at them.

As I’ve suggested before, all of this assumes that the current administration in oil and gas cared about the situation. That is cared about it outside of the effect that it had on their own personal situation. After twelve years of trying to convince producers of these issues and the resolution of it, the Preliminary Specification, they’ve laughed at it and refused to consider it. A time when it was able to save the shareholders, service industry and the people who work within the industry. On several occasions during this time they’ve attempted to take our underlying Intellectual Property for themselves. Thinking that they could just take it, fail an attempt at it and prove that it couldn’t work. Each time I was successful in stopping them. What will their next step be? Or will it just be a continuation of that blank stare.

The fact of the matter is the foundation for the demise of the industry is well in place and in play. No value had been generated for decades, then value had been eroded in an unchecked manner, now the wholesale destruction of the industry is well on the way and the time provided to fix it passed long ago. This is creative destruction and the best time in the history of mankind, literally, to start an oil and gas producer to replace these destroyed organizations.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Tuesday, November 15, 2016

Best Business Opportunity, Ever, Part XXIX

I have argued that the accounting magic of the SEC has made the oil and gas industry appear profitable for the past four decades in which these policies have been in place. A time when bloated balance sheets were the only game in town. Whereas, these costs should have been moved to the income statement in a much more timely manner in order to better represent the actual costs being incurred in the producer firm. This would have created losses and reflected a lack of cash generating capabilities in the industry. Instead annual share issuances made up for the deficiencies in the producer's cash balances. Suggesting that these investors had in essence been subsidizing the consumers of the commodities.

Eventually, as can be easily predicted, this game with the accounting came back to bite the producers. You can only grow your balance sheets to such a size where the depletion of those assets becomes material to your income. On an industry wide basis we hit that point, then we discovered the means to produce shale. Some may feel now with the significant write downs that this accounting situation has passed and is behind us. Nothing could be further from the truth. The end of the beginning may have started, but we have a long distance yet to travel down this road.

In many cases, even with the large writedowns of assets over the past two years, the producers are still sitting with large asset balances. Although I suggested the other day that these balances represent the amount that the investors have subsidized the consumers in their consumption of energy. Which is the best way to look at it. It also represents the amounts of the future losses that the producer will be incurring. Or to put it another way, the industry will be in a state of consistent financial losses due to finally recognizing the capital costs they incurred in the past, in a capital intensive business. As an investor where do I sign up?

Many people will say these are not real losses that affect the cash situation of the producer. And I understand that argument. It is the same argument that has been used now for decades. The fact of the matter is the cash in the industry today is critically tight due to the bankers and investors seeing that the industry as a lost cause. Unable to generate a profit. If it continues to report that it’s unprofitable, will that change the bankers and investors mindset? I feel this strikes the point of why the industry has never achieved the religion of profitability. As long as there was cash no one cared what was happening to the business. Now that the business is caput, there are no earnings and no cash, with no foreseeable future of either turning around. Accounting is about reporting the performance of the management of the producer. For four decades the producers in the industry chose to defer accounting for their capital costs of a capital intensive industry. Now the importance of the role of accounting in oil and gas may be learned.

The past forty years was a heck of a good party though wasn’t it. From a physical point of view the production and infrastructure of the North American industry is impressive. However, functionally, literally and financially it is worthless because it depends on hundreds of billions of dollars per year in investment to operate. And that will continue for the foreseeable future. The next 25 years could be the most interesting and dynamic time in the industry. Do you see a way through that period with the assets and organizations that are in place? The culture of the industry is contrary to commercial, productive interests. Where will the money come from to fuel this future of the existing oil and gas industry.

As a startup oil and gas producer the opportunity to purchase this production and infrastructure of the North American industry is about to be put on sale. At firesale prices. Just last week Conoco put $8 billion of properties on the market. Expect to see much more of this happening in the very near term. Rehabilitating these assets as a startup producer. To make them always profitable is the first order of business for the startup. They can do this by implementing the Preliminary Specification. Which will ensure that they obtain that old time religion of profitability. Secondly they can organize themselves to approach the opportunity of expanding their deliverability to achieve profitable energy independence in North America. A worthwhile and attainable goal.

Remediating what exists in the industry and in the hands of the producers today, particularly after the battle that I have had in selling them the Preliminary Specification, isn’t possible. They didn’t think the issue was material to their operations. They were more concerned with the impact the Preliminary Specification had to their job security and did not want to work that hard. Building the Preliminary Specification will be difficult and it will eliminate the redundant elements from the existing industry. That is my assessment of the past twelve years that I’ve tried to solve this problem. But then I’m biased.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Monday, November 14, 2016

Best Business Opportunity, Ever, Part XXVIII

One of the surprises of the third quarter was not only the loss of value of the producers but the cash situation they’re dealing with. In some cases a few fortunate producers were able to raise some substantial amounts of funds from either equity or debt issues. In those cases the cash was incinerated by the time it hit the bank account. The rest of the producers were struggling with no working capital whatsoever. The statement of changes showing in some cases that capital expenditures were slashed in order to deal with the lack of cash or working capital. Yet all that we heard through the third quarter was that producers were profitable at the prices that the commodity markets were providing. Seems that there is a difference in how profits are calculated to issue a press release and to prepare financial statements.

If a producer is struggling as mightily as these producers were to manage the few quarters they found in the couch. Why would they state that they were profitable? It’s my understanding that profitable operations would generate cash. It is this cash crisis that will cause the focus of the producers to begin to pay attention to the issues that they have chosen, so far, to ignore. The crisis in the oil and gas industry. I’m sure every investor and banker have the producers lined up ten deep in their waiting room, with some of them pitching tents. Making life for an investor or banker that much easier. When there is this much demand for your money, then there’s a problem. Those fortunate few producers that were able to raise some cash in the third quarter sold their souls in order to get the money. So we know that the bottom feeders have had their fill now too. That leaves the couch cushions.

Oil and gas production consumes cash. That is what unprofitable operations and this cash crisis means. To continue operations requires cash. In today’s environment the producer has no choice but to produce. If they stop producing the cash consumption increases. Under the Preliminary Specification this doesn’t occur. If the property is unprofitable, shutting it in does not create a cash drain. It creates a null operation due to the fact that we have reorganized the producer and industry to enable the null operation to occur. With the abundance and prolific nature of shale, overproduction will always overwhelm the commodity markets. Therefore the producers are going to have to allocate production on some basis. People, Ideas & Objects Preliminary Specification have chosen the fairest and most equitable basis of production allocation. That being on the basis of profits. If the property is profitable at the current price it produces. If not, it’s shut-in.

What do you do now? When you never had that old time religion of profitable operations. When no one, and I mean no one, will invest in you. Your company consumes cash at a voracious rate and you have nothing in the kitty. Well we’re about to find out. What I suggest is you start an oil and gas producer. Never has there been a better time than now to start an oil and gas producer. We have detailed what the upside consists of. The next 25 years will be, by far, the most prosperous time ever for those that are positioned to capture the value that is available. The approach that the startup pursues is going to have to be different than what has been done in the industry before. We’ll need to be smarter about what it is that we’re doing and more strategic and tactical in the business approach. Mindlessly drilling wells until your out of business is the old way of participating in the oil and gas business.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Friday, November 11, 2016

Thursday, November 10, 2016

Best Business Opportunity, Ever, Part XXVII

Rarely does an industry, and most particularly the oil and gas industry, find common cause with the U.S. administration. That is the position that we find ourselves in this morning with the resounding election of President elect Donald J. Trump. He has made it a foundation of his policy platform to have the U.S. achieve energy independence. Not just a worthwhile goal, but one that is possible and probable with the discovery of the means to produce shale reservoirs. Other energy policies look to the removal of regulations and opening of federal lands. There is work that needs to be done before we can approach the objective of energy independence. Building the Preliminary Specification, making the industry profitable, expanding the throughput capabilities of the industry and then expanding its output so that North America is energy independent and profitable. That is the plan we are taking here at People, Ideas & Objects. No other plan exists. Any other plan is going to have to address the state of affairs in the industry today. The systemic overproduction leading to the losses and our current cash crisis.

We will also be moving forward with the objective of building value in the economy. These past eight years have had the current administration focused on any and all objectives other than building value. Is it a wonder that the economy is not moving forward? The Keystone Pipeline should be reviewed once again on its commercial basis. The point being that we will now be focusing on the real objectives and opportunities of building value, jobs and the economy for the betterment of society. It's in the best interest of the oil and gas industry to ensure that these developments are done in environmental ways. Climate science will fade from people’s memory now that the National Science Foundation is no longer directed by a president that funds any and all proposals that provide support for the effect of climate change. Maybe, President Trump will fund only proposals that support that climate science was always a myth. That is how science is subject to the political influence of those in power and has been so severely distorted.

Whether it’s four years or eight years that President Trump is in power I don’t think it matters to us. What we need is this alignment of the political and business interests and objectives over the next decades. That is what has been provided as a result of his election and what we are working towards. For me that was the loud clap of the starter’s pistol on Tuesday night. The startup producers will have the flexibility and speed in which to maximize this opportunity throughout their lifetime. The existing producers will at best be retiring debt through the sale of properties. Creative destruction on steroids is now happening in the oil and gas industry and everyone who is willing to participate in this new frontier is able to do so. If you don’t have the screaming desire to get out there, then there’s nothing that I can do for you.

Those that can structure an oil and gas producer to optimize this opportunity may not be large in number. There are however opportunities to invest in these startup producers. There are opportunities for those in the administrative and accounting disciplines to participate in the development of the Preliminary Specification as members of our user community and establish their own service provider. These are substantial business opportunities.

We’ve got a lot of work to do. These opportunities are on top of providing society with abundant, affordable energy. A responsibility that I feel the current producers have put in jeopardy and we’ll have to safeguard. These next 25 years are going to be challenging and exciting like none other. What are you going to be doing?

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

Wednesday, November 09, 2016

Best Business Opportunity, Ever, Part XXVI

The future of the oil and gas industry had been left in the hands of the producers and those in power decided to use it for their own personal benefit. This has opened what we consider to be the best business opportunity ever, for the startup oil and gas producer in North America. The epic destruction of the industry is occurring at a pace that has never been seen before. Not one producer is immune to the effects of this downturn. The analogy of producers as swimmers, with the stronger ones being taken down by the weaker ones is apt. Everyone in the industry today will eventually fail. This is creative destructions finest hour. For many years the destruction was hidden by the accounting magic that the SEC dictates the industry use. For decades the accounting showed profits when in reality the industry wasn’t sustaining itself. Over time the industry began to lose value, but the accounting still showed profitability. This began the slow erosion of value from the industry. Value that would have otherwise sustained an industry during a recession. And now during these commodity price declines we find that the cupboards are bare and the industry is a hollowed out carcass on life support.

The producers are still carrying vast sums of asset balances. Chevron has almost one quarter trillion dollars of them! Why! These are the costs of exploration and production and should have flowed to the income statement long ago. All they do now is represent the amount that the investment community has subsidized the consumers of energy. By not recognizing these costs, the consumers never had to pay for them. The investors did. What kind of industry accounts for their costs on the basis of the customer never paying the costs?

The secondary result of never recognizing the costs of exploration and production are that the industry looks good to the investors. The producers become spendaholics which makes their assets grow, and should they happen to find any oil or gas, it will be profitable because there are no costs recognized against those revenues. Making for the investment boom that we have seen these past few decades. Which in reality was based on some accounting magic, not on the basis of building any value. If we look out the window now, is there any value in the oil and gas industry? This decades long investment boom led to overinvestment which has led to overproduction which has led to collapsed commodity prices. Who would have thought?

It truly is the Saudi’s fault however. The question now is what do we do. There is no value left in the industry. What people thought the asset balances on producer financial statements represented, the value of the organization, are really only past costs that have not been recognized by the prior production. Which gives you a sense of the scope and scale of the destruction. I don’t see much purpose in trying to remediate this. It’s also not my decision. I can point out that the best way to look at the oil and gas industry is as a sunk cost and we begin the process of rebuilding it for the future. A future that holds the promise of building significant value. A future that doesn’t assume the accounting deception that has become the culture of the industry today. One that looks to real profits and the generation of value as the guiding principles and strategies. Not just to muddle along.

I expect to see the existing producers begin the wholesale, firesale, dumping of their properties over the next decade. The need for cash will be critical until the organization is terminated. Startups can purchase these assets and rehabilitate them and the value that they should have held today. This value would be in the trillions of dollars. These trillions won’t be sitting on the balance sheets, it will be reflected in the market value of the startup producers. Accounting is about performance, it should never attempt to reflect the market value of oil and gas properties. Secondly the startup will realize the value proposition of People, Ideas & Objects which is estimated between $25.7 and $45.7 trillion. These will be reported on the financial statements as revenues. Then finally they can move the industries production profile forward to achieve North American energy independence, which will also show up as incremental revenues on the financial statements. People, ideas & Objects are focused on providing the most profitable means of oil and gas operations. Building value for the industry. That is how I propose we deal with this situation.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Tuesday, November 08, 2016

Best Business Opportunity, Ever, Part XXV

Changing the dynamic of the industry to focus on profits, as opposed to cash flow. is one of the key differentiators of People, Ideas & Objects Preliminary Specification. Why is this change necessary, and is a focus on profits the appropriate position for the industry to be based upon?

I read something from a blog called “Master Resource, A Free Market Energy Blog” regarding the thinking of energy supply and pricing. Reflecting what the thinking was of the oil and gas producer in North America. It was written by Richard Sigman. “Cutting production ultimately decreases your own market share and subsidizes your competitor.” Which is what passes for logic in the industry today. Therefore keep producing, despite the implications of shale, the collapse of commodity prices and the destruction to the financial and capital structure of the industry.

There never seems to be any consideration for the losses that are incurred by the producers. Losses are just unfortunate events, that once they’re incurred, evaporate and have no further implications anywhere in the producer's life. Nothing could be further from the truth. The capital structure of the North American industry has been eroded away by these producers losses and is in rapid deterioration. This has implications to the cost structures of each producer. The cumulative losses are represented in higher capital costs, those being the inclusion of the losses themselves, that need to be recovered from future revenues. That is to say that if a property had a reserve life index of ten years and $1 million unrecovered capital cost. If losses of an additional $1 million were incurred the reserves would need to earn the $2 million in order to be deemed profitable. You can’t say that a $1 million property that loses $1 million is profitable after the recovery of $1 million. Higher costs are also represented in higher distributions to the additional shareholders or issuance of debt that the producer has had to carry to offset the effect of the losses in the organization. Losses are not free, and just because the SEC dictates an accounting methodology that is difficult to incur losses under, doesn’t mean the producer hasn’t been incurring losses for many more years than 2015 and 2016. Losses destroy value.

If all you did was lose money as a producer there would be consequences. And the costs would be that you would lose control to the debtors or shareholders as your cost structures became uncompetitive. Acceptance of losses is acceptance of loss of control of the organization and eventual loss of the competitiveness of the producer and ultimately the industry. This is where the industry stands today. At the very end of this road. It may not seem that way, I have consistently asserted that there has been an accounting anomaly that has hidden the losses and these effects for the past four decades.

When I first suggested that we provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. People laughed at us and said that the industry doesn’t operate on profits, just cash flow. I understood that then, and I think everyone understands that now. Profits are what make the world go round. With a profitable oil and gas industry producers pay royalties and taxes, hire people to do the work that is needed, establish appropriate sized service industries to support the producers and enable them to look forward to resolving the issues and opportunities that they face. Issues such as the difficulties in securing long term supplies of engineers and geologists and to approach the opportunity of energy independence in North America. If anyone thinks that the current producers can approach either of those two objectives in the condition that it’s in today, I think you’d be mistaken. A profitable industry is the only way that we can approach the challenges that we face in the next quarter century. Continuing to rely on the abuse of the investment community, which has failed, will lead to disappointment and dependence on others for our energy.

I’m surprised by the fact that we’re not hearing anything regarding the “market rebalancing” during this quarter. I don’t think I can point to a specific talking point that has come out of my review of the third quarter reports. Producers have run out of excuses it would seem. All of this may seem dire in its outlook. However the contrast to this dark message is that it paints an opportunity for the start up oil and gas producer that is the best business opportunity, ever.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Monday, November 07, 2016

Best Business Opportunity, Ever, Part XXIV

From my corner of the Internet I hear the echo of this blog pretty clearly. What is surprising to me is that outside of this little corner, there doesn’t seem to be too much concern for what’s going on. Reading the quarterlies, as far as the producer is concerned, is left to those two or three people who actually read them. Otherwise it’s on with show. This is very disconcerting and alarming. Producers are not generating enough cash in order to qualify as viable businesses. In the past they had hedges. Those dropped off in early 2016 and now the producers are fully exposed to the commodity price collapse. In some cases 2016 revenues are barely half of 2015’s. Producers are not covering the cash costs of their operations. Clouded by refinancings the drainage of value from the industry is epic. And it's at a pace that won’t take long before the doors start closing. Of course this is based on the fairy tale accounting of the SEC which puts a gloss on everything as it is anyway. These firms continue to sit on outsized asset balances which make the situation look better than it is.

I heard the other day an economist state that the commodity price declines are over. And that the industry could now begin the rebuilding process. Sorry, which industry? Which leads me to believe that economists are always optimistic, and generally wrong. Which begs the question why are we still listening to these people. When did they earn the credibility that they lost during the financial crisis. Only one economist, Nouriel Roubini, warned about the financial disaster that was about to occur in 2008. The rest were laughing at him. Anyone looking out the window could generally see that Noriel was right. It’ll be a long time before I start listening to economists again. Especially when the financial condition of the industry is this bleak.

What is needed is some adult supervision. Some industry leader needs to stand up and say that this situation is untenable and begin the process of righting this ship. Or we will all be going down with it very soon. The operating base of the industry. The core of what provides value in the industry has been eroded to the point where it is not safe for anyone. The healthy producers, those that can swim, are being drawn under water by those that are desperate for cash. Producing anything and everything despite the consequences. Selling anything and everything, irrespective of the price or costs they paid. Making the value of everything for everyone worth less. As more healthy swimmers are pulled underwater they are forced to hang on to other healthy swimmers and soon everyone drowns.

In all cases the value of the producer has been substantially eroded in the third quarter of 2016. No one is able to deal with this situation on their own anymore. Everyone, the startups, intermediates and the integrateds are all being affected severally and comprehensively from this collective drainage of value. Any remedial efforts on an individual producer level are moot. It's a collective issue that is industry wide. The decline in commodity prices was the beginning. The accounting masking the losses for so long. Now the losses being fully realized only show that the momentum is against the industry.

If we don’t stop this it will get the better of us. Looking the other way, which is what the producers are doing, is not the answer. The business is deteriorating. The deterioration is accelerating at a remarkable pace. I may be biased but the only way to turn this around is to have the Preliminary Specification in place. And that won’t be a timely solution. But if the industry doesn’t hear that “jarring gong,” then it won’t be too long from now.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Friday, November 04, 2016

Best Business Opportunity, Ever, Part XXIII

What the existing producers refuse to accept is that the oil and gas commodities are “price makers.” In economics there are price makers and price takers. One characteristic of price maker is that small changes in supply / demand have a significant impact on price. Price takers, bottled water for example, are not affected by increases in supply / demand. There could be five new bottled water providers in the market tomorrow, the price for a bottle of water would be the same. These are established economic principles that are in effect in economies everywhere. Oil and gas does not compete with any other form of energy. They are monopolistic in their use. This also supports their classification as price maker. You can’t lubricate your engine with nuclear power, carry electricity in a bucket or establish a chemical plant near a hydro dam.

The Preliminary Specification makes the assumption that oil and gas are price makers and have adopted that as the strategy for the dynamic, innovative, accountable and profitable oil and gas producers. Using our decentralized production model which is designed to allocate production across the industry based on profitability. If the property is profitable, based on a consideration of all of the costs, then the property produces. These decisions will be evaluated independently by the members of the Joint Operating Committee based on the detailed, actual accounting of the property. When the existing producers see our price maker strategy, they state that its collusion and walk away. The line being sold to the investors by the existing producers hasn’t been questioned, yet. Some day someone will look up from these financial statements and suggest that enough is enough. Today, for now, it's impossible to challenge the conventional wisdom.

What need is there for the industry to consider the decentralized production model and our price maker strategy? Crisis, what crisis? Certainly it's bad for the investors, the service industry and the people that work in the industry. Have we seen any action in the C suite? Husky had their CEO retire but that may just be in the normal course of business. There’s no crisis when it comes to the people who are making the decisions in these producer firms. They’re fine thank you. Why would they want to expend the effort and disrupt their lives in order to make changes that wouldn’t have them sticking around for very long?

And so it is the industry gets drawn down into a bigger pit than the previous quarter. The hope that things will turn around ever present and endlessly promoted. The damage being done day by day is tragic and irreversible. Commodity prices will not turn around until such time as the North American producers institute some method of production allocation. In natural gas we’ve seen for six years this overproduction and it doesn’t stop. In oil it's the same thing over almost a three year period. Everyone has cut their capital budgets but that only cuts the marginal activities and in turn focuses the producer on sharpening their pencils. It's the same story each quarter, only the losses are getting larger. The cash being generated is smaller and the difficulties more substantial. They won’t stop wasting away, they just don’t care.

Which leaves us with the evidence that the startup producer needs. They won’t be challenged at any point by the existing producers, who won’t be in business for long either. The kind of damage being done to the established producer today is permanent. Therefore by using our price maker strategy, the startup oil and gas producer will be able to ensure their investors that they’ll be able to provide them with the most profitable means of oil and gas operations at all times. Something that should’ve always been the case in an industry where the commodities hold characteristics of “price makers.” Oil and gas is just not currently managed as a business, more of a personal petty cash for those fortunate few.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here

Thursday, November 03, 2016

Best Business Opportunity, Ever, Part XXII

Review of producers third quarter reports is very disheartening. As I suspected nothing has changed in the steep and downward decline of the industry. What’s the plan to deal with the way the industry is losing money? What’s the plan to reclaim the money that has been lost in the past number of years? Nothing, not a word. Just “muddle through” as before, as it will be in the future. How have these losses and overall destruction become the accepted norm in the industry? What are the origins of this attitude and why is it happening? Difficult questions, to which all that I get in response are blinking and stares back from those that I ask. The optimization of quarterly performance over the past decades have eroded not only the business, but also the capabilities of the producers.

Natural gas prices declined 15% last week. The biggest decline ever. Seems that storage is almost full and the winter isn’t going to be that cold after all. Oil is well below $46. Seems none of the Opec producers were that serious about the agreement that was prematurely announced. This is what passes for planning in the industry. Hoping that commodity prices will rise. That someone else will do something to make things better. Nonetheless, the implied commentary during the second quarter was that the third quarter would bring the turnaround of the industry. 2015 was the worst year ever. 2016 is looking even worse. Being asked to be patient is one thing, but when no actions are being taken, there is being fed a line.

There are trillions of dollars at stake. Don’t believe me, run the numbers for yourself. Determine what prices it would take for the industry to be profitable. Deduct the current prices and apply that across the production profile of North America. Then determine what it would be for the next 25 years. Add in the amount of capital expenditures that have been incurred but never accounted for. Add the future capital expenditures that will be accounted for under the Preliminary Specification, as we will be returning those dollars back to the investors too. My numbers are well known and I’m certain that your’s will be much higher.

We have clearly defined that the startup oil and gas producer has a prosperous future for the rest of this century and most particularly the next 25 years. They have the opportunity to purchase the current producing infrastructure from the existing producers as they wither away to oblivion. Selling assets to meet the cash shortfall is the future of those without any plans or ability to deal with the issues and opportunities in the business. The startups will acquire these assets and rehabilitate them into profitable operations by using the Preliminary Specification. Building significant value for themselves. Then, they will be able to access the value proposition of People, Ideas & Objects that we have determined to be in the range of $25.7 to $45.7 trillion for North America. Lastly the startups will be able to generate even more opportunity and value by way of ensuring that North America achieves energy independence.

Setting out with a startup today would be a worthwhile journey for these next 25 years. What is the long term future of these existing producers. What are they planning on doing? Will the investment community continue to sacrifice themselves for these producers? Complaining about Opec’s overproduction of natural gas in North America, or other such nonsense. And it will be to muddle along. So which side of the fence are you on. Which side of the fence is the producer that you work for on. Is a change necessary? I can understand that a 25 year horizon is too far for some people to contemplate. They may want to retire in 5 years or so. Which is fine, they should stay with their existing producer and ride that train to the end of the line. It’s just important to choose.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here