Culture Trumps Strategy

We will never attain energy independence until all production is profitable. Profits must drive the investment that brings about the increase in the continents deliverability. Investors and bankers don’t have enough cash to achieve that goal of energy independence with today's producers. They have run out of money and patience and are on the sidelines. They see the culture of the industry has been to use other people’s money to subsidize the consumers of oil and gas and they are tired of being the other people. A healthy industry, generating real profits will provide a good return for its investors. It will enable the industry to pay back its bankers. And it will generate the funds necessary to expand the industry based on the opportunities that are put before it. That is how healthy industries operate. The way that the oil and gas industry has been managed for these past four decades has not been healthy. It has been unable to do any of these things. And now finds itself with a culture of managing the business with no respect for the business elements.

Put that down as another bold statement stated here for the first time. Add it to my long list of such statements. The war between accountants and engineers has been a classic battle raging on in oil and gas for these past four decades. Engineers, and to a lesser extent geologists, run the show. Those that are good at what they do rise to the top as they should. The business of the oil and gas business is an applied science and there can only be a scientist running the show. I’ve been in the business for 39 years and I can guarantee you that I would run an oil and gas producer into the ground in very short order. I don’t understand engineering. I’d like to understand engineering. It’s a discipline like no other, you either understand it or you don’t.

Which makes the engineer omnipotent in oil and gas. When an accountant raises a point about the inappropriate methods of capitalization policies in the industry. And the engineer knows that the SEC dictates the use of the ones the accountant is criticizing, the accountant only loses more credibility in the eyes of the engineer. Over four decades accountants have lost a lot of credibility in the eyes of the engineers in oil and gas. Mark this up as another disaster brought to us by the inappropriate policies of the SEC.

Profitability can only be achieved when the costs of production are recognized in a timely and appropriate manner. By deferring the costs of capital to the balance sheet for the life of the firm, which is what the SEC model does, you never recognize the real cost of production. Therefore your profits are overstated. In a capital intensive industry they are severely overstated. Making things in the industry appear much healthier than they are. The proof that this was happening was the evidence that the industry never generated any cash. The only cash that the industry ever had was the new money that came in from the investors and the bankers. The culture was that you would always have another share issuance each and every year. You had to in order to keep the doors open. Now the money doesn’t come in and the game is exposed for what it is and the credibility of the industry is shot.

The only way that I can see us moving forward is to adopt the plan that is inherent in the Preliminary Specification. Turn the industry into a profit generator. Real profits, not the funny accounting profits of the SEC. Fix the long term supply issues of the resource base of geologists and engineers and then use that enhanced capability to approach energy independence. In that way we can get out of this situation quickly and effectively. Move to a new basis of operation in the industry. And build for tomorrow.

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. 

Timing

We have been discussing the situation in the oil and gas industry and how the Preliminary Specification is able to assist producers at this time. Giving producers the opportunity to address the issues of over production and poor performance. Action by producers to deal with these difficulties may provide the opportunity for the producer to participate once again in the investment and banking communities. Having a plan such as what the Preliminary Specification enables, may provide a foundation for the future in which the investment community can build upon.

It is at this point that People, Ideas & Objects can commence developments of the Preliminary Specification effective September 1, 2016. This will focus on the completion of the development of our user community. Producers who subscribe to these developments by paying their subscription fees before then will be able to state that they are part of this plan to move the industry towards the objective of continental energy independence. The first phase of this plan being the reorganization of the industry towards profitability. By paying 10% of the People, Ideas & Objects subscription fee producers would be able to state they are part of this plan for their third quarter reports. Providing their investors and bankers with the assurance that things are being done to correct the issues in the industry. And potentially opening the market for new investments and loans.

This strategy is being discussed with CEO’s and CFO’s at this time. Cold calling is highly ineffective and producers that find this strategy appealing should call me directly. Time is of the essence and we have much to do. A unique characteristic of the Preliminary Specification is that in order to gain many of the key value attributes is that your working interest partners will need to be on the system as well.

I’m sure we’ll run into everybody's favourite tool in the technical industry, that being the Service Level Agreement. It is important at this point to reiterate that People, Ideas & Objects and our user community do not use Service Level Agreements. Producers who have specific needs in terms of what they want and need in the applications that we are providing them will need to work directly with our user community. People, Ideas & Objects are deaf, dumb and blind to everyone and everything other than our user community. We only build the applications that are as a result of their efforts. Talking to us, or raising your concerns through a Service Level Agreement will not be the method for dealing with your needs. With that in mind it will be my privilege to invoice those producers who do subscribe to our development and participate with our user community.

There is substantial interest in our user community. Those people who are interested are encouraged to complete their applications in a timely fashion. Time is of the essence here as well. In terms of our ability to deliver our systems to our subscribing producers, the user communities development is the impediment in terms of the time that we deliver our product. This is why we have been working for the past two and one half years on the user communities development. It is our priority and the key to the quality of our systems. We are user focused software developments and we are never going to compromise on this priority.

We're here now. Here being the end of the beginning of People, Ideas & Objects. I'm pleased to have been able to bring this opportunity to the industry, the user community, our service providers and anyone else. We can make a big difference in the quality of life of everyone in Canada and the U.S. for many years to come. Energy is critical to our standard of living. And I don't think there’s any more important place to be.

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. 

OMG!!!

As they say in texts. My use of the term is in reference to what I'm seeing in these second quarter reports. I thought they would be bad, as I suggested last Friday. However, I think I’m shocked at how bad the situation is. Even well managed companies are being put in jeopardy as a result of this crisis. My analysis of the situation is as follows. And although I could be accused of selling my book, I have been arguing these points for years and the issues are specifically addressed in the Preliminary Specification. This argument has gone on too long and the situation has gone too far.

The source of the issue is the results of inappropriate accounting dictated by the SEC for the past four decades. Specifically Full Cost and Successful Efforts. This accounting has created the appearance of a profitable, well capitalized industry when in reality it never was. This accounting fuelled over investment that has lead to the overproduction that we now have. The industry operated on other people's money and was never sustainable on its own. After four decades it is culturally ingrained within the industry, and these issues were therefore unseen by most. Now that the investors and bankers have ceased their investment activities, and due to the inevitable poor performance, this crisis is now clearly evident.

Cash is truly king. General field operations, in all instances that I saw, consumed cash. In some cases producers relied heavily on the service industry to fund this cash shortfall. Negative working capital has always been the status quo in oil and gas. It therefore wasn't long for it to degrade to disaster proportions when the regular capital injections ended. Another contributing factor to this problem was the diminished role that hedging played in helping the producer through these times. Those hedges at handsome prices have all but expired and now producers are fully exposed to the commodity price declines. In many of the company's, revenues can only be described as evaporating. Losing up to 50% from the first quarter of 2016!

The market for acquisitions and divestitures was very quiet through the quarter. With the lack of cash and available investment that might be understood. It could also be a pricing issue with a purchaser unwilling to pay high prices for an asset that subsequently consumes cash.

Generally field operations were cash neutral at best across the industry. When everything was considered, reported losses were in excess of those reported for the same period in 2015. Which was unquestionably the worst year ever in the industry. Layoff notices, which started with Conoco, may hit fever pitch once there are enough announcements that a producer can hide their announcement in a crowd of layoff notices.

There has been a lot of discussion regarding “protecting” or “strengthening” the balance sheet. These discussions are disingenuous and push the envelope of what is acceptable. My argument, as I stated above, is that accounting for capital assets has caused this problem. Capitalizing every penny you spend and keeping it on the balance sheet for decades is only permitted by the SEC in oil and gas. In other industries the inverse situation, of the firm rarely being able to capitalize any of its costs, is the SEC’s prescribed methodology.

I therefore look at the producer from the point of view that the assets have been bloated over time and are stratospherically overstated. I would also argue that with none of the field operations generating any cash, with all of the producers losing money and with no plans to deal with the situation. We should correct for these by writing off the remaining net balance of property, plant and equipment. Doing so puts the producer in the right context to the situation that the industry is in. This is an accurate reflection of the difficulties that we are faced with, and is acceptable in my opinion. The entire North American continents asset base appears to be unsustainable. Therefore what value other than $0.00 can you assign to it.

“Market rebalancing” has failed as the commodity prices begin to fade from systemic overproduction once again. If producers don't address these issues immediately they will seriously damage their organization. Acting as if all is well is putting lipstick on a pig. Investors and bankers can see what's going on and would be unwilling to front any money to a delusional industry with no plan to solve its real problems. People, Ideas & Objects our user community and the service providers have a plan that deals with these difficulties. Producers need to call me in order that they can subscribe.

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. 

What If?

Our “plans” first step toward energy independence on the continent is to turn the current deliverability of oil and gas profitable. That involves producers subscribing to the Preliminary Specification, our user community and the service providers. A somewhat difficult task in that it involves separating people from their money. Money that is in tight supply in the industry. I wonder however, if the industry had “a plan” on how to deal with the industry's difficulties, would that shake the investors and bankers cash free? Would they then begin to invest in the producers seeing that there was some upside possibilities in terms of profitability and increased throughput? People, Ideas & Objects, our user community and service providers “plan” poses an interesting dilemma to the dynamic, innovative, accountable and profitable oil and gas producer.

The status quo isn’t working and it hasn’t displayed any hints that it will begin to work, ever. Recent drawdowns in the oil inventories in the United States appear to be more related to the high driving demand and increased gasoline inventories. Global overproduction appears to be continuing as tankers in Europe are continuing to be filled for temporary storage. Iran’s ability to increase their throughput has been somewhat impressive and they claim to be able to increase their productivity much further. It could be years before the end of the oil price difficulties clear based on the willful destruction of our deliverability. Or as they say in the industry, “market rebalancing.” On the natural gas side, the storage facilities continue to fill and are sitting at record levels. It’s summer so the injections are not that high but they continue to increase by at least 5 bcf per day. Expect to see the storage capacity breached in late September.

Our “plan” provides for the changes that are needed in the industry. Granted I have been particularly abusive to the bureaucrats. That didn’t seem to motivate them to remove me from their blacklist. A list I was put on in August of 2003 when I published the Preliminary Research report identifying the Joint Operating Committee as the key organizational construct of the producer. I admit I have put a few noses out of joint, however the time to work together to fix this situation is upon us. It is this dynamic “relationship” that I would point to and would ask the readers of this blog for some help. If you feel comfortable doing so, please call me and we can work together to have your firm included in the group of producers that are working on the Preliminary Specification.

I would assert that the industry needs People, Ideas & Objects et al in order to move forward. Having a plan is the necessary ingredient to putting some credibility back into the industry in terms of ensuring that the shareholders and debtors will be well taken care of. As it stands I don’t see them changing their minds and coming back into the industry in adequate volumes to make any difference to the current situation. That current situation being the massive drainage of cash that is systemic and unrelenting. Publication of the producers financial statements each quarter will continue to push the investors away if they don’t see any plan to deal with this situation. They won’t volunteer to put any additional money down this sinkhole. And as we have indicated here before the banks have changed the methodology on how they grant loans to oil and gas producers based on the revised guidelines that were issued by the U.S. Fed. They don’t recognize reserves anymore, they only evaluate the ability to pay the loan back. Which means most bankers will never look at an oil and gas producer again.

Time is of the essence. Producers do not have that much cash to continue with operations without having to seriously slash and burn to survive. I think a lifeline will be granted if the industry can show they have “a plan” to become energy independent on the continent. By first becoming profitable, dealing with the resource constraints in the industry and then expanding that deliverability that shale reserves enable. That is how we get out of this. Call me.

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. 

What Does Energy Independence Involve

We now have a plan on how to deal with the industry's difficulties. Return the industry to profitability based on the Preliminary Specifications price maker strategy. Deal with the resource constraints of the earth sciences and engineering’s supply in the mid to long run. And then expand the throughput of the industry to achieve the objective of energy independence in both oil and gas in Canada and the U.S. This would involve increasing the oil output of these countries by about 5 million barrels of oil per day. Not an incidental opportunity from the point of view of the dynamic, innovative, accountable and profitable oil and gas producer. The fact that this increased throughput would also need to be profitable makes this a substantial business opportunity for the producer. All of this is achievable through the adoption of the Preliminary Specification by the industry.

The achievement of energy independence on the continent would be an interesting dynamic in terms of the pricing of oil. With our price maker strategy, all of the output of natural gas and oil would be profitable. However, to increase the world supply by 5 million barrels would have an impact, and how that would fit in the marketplace is undetermined, and I think undeterminable at this point in time. The point of achieving energy independence should be to ensure that each and every barrel of oil equivalent is profitable. If a property is not profitable then it should be shut-in and those reserves held for a time when they can be produced profitably. That producer would therefore increase their overall profitability by not diluting their earnings from losses on unprofitable properties. And imports would be used to fulfill the demand as required.

This will be the focus of People, Ideas & Objects, our user community and the service providers. Shale makes this reasonable, attainable and the responsible thing to do. There is however no way we will get to that objective on the basis of how we are operating the industry today. The financial infrastructure has been destroyed and both the investors and bankers are concerned about the health and viability of the industry. And rightly so. There is little to any concern about the situation being discussed in the industry about any solutions to the current dilemma. People within the industry think that it is beyond the scope of the bank's capabilities to begin the management of the industry. The banks will therefore leave it as is.

Is this the acceptable posture of the oil and gas industry. Is it that we are unfocused and unaware of where it is that we are headed? Are we lacking the leadership that is necessary to show us the way? Or is it as I have stated here on many occasions that the bureaucrats don’t care. I’ve been quite harsh on the industries bureaucrats. The things that I have had to do in order to get to this point in time with the Preliminary Specification was very difficult and costly for me. Unnecessarily so. My travels were made as miserable as they could have possibly been, or even than you could imagine, as a result of their actions. But that is in the past and we have an opportunity here and now to move to the higher performance that is necessary in order to achieve the long term objective of energy independence. To do that we need to adopt the Preliminary Specification and I’m not going to let my bitterness stand in the way anymore. My war with the bureaucrats ends here at this point. I really am a nice person. Trust me.

So that is the situation at People, Ideas & Objects. It's a new day with a different outlook. We still provide oil and gas producers with the most profitable means of oil and gas operations. But we also have the plan on how to deal with the industry’s difficulties and provide a comprehensive vision leading to energy independence.

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. 

Credibility For Sale

Oil and gas producers will be publishing their second quarter reports. These reports, as we noted earlier, are not going to reflect healthy operations. Cash has been hemorrhaging from the industry at a remarkable rate. Producers will need to prove to the investment community and their bankers that they have bought into the old time religion of profitable operations. How can they do that? By subscribing to this software development initiative. That way they can prove they are turning their organization around and making it the most profitable means of oil and gas operations. That they are doing so with the overall objective of moving the North American industry forward with energy independence as a viable and attainable goal within the mid-term. This credibility is provided to the dynamic, innovative, accountable and profitable oil and gas producer by subscribing through our Revenue Model. Nothing in the world could be more simple than writing that check.

By writing that check the producer gets a plan on how they reorganize to obtain those features within their organization. They will state that they are part of the larger initiative of making sure that the objective of energy independence has them pulling their weight. That their investors and bankers are contributing to that cause and can join them in a fashion that will be profitable for them. That this is the future of the dynamic, innovative, accountable and profitable oil and gas industry and that as a subscribing producer to People, Ideas & Objects, our user community and service providers, they are a key part of that.

I think we have found our purpose in life. I think we have found our voice. This is what we should be doing and I’m glad that this work has been done so that the producers can gain the credibility they need, immediately, and we can all begin the difficult work of fulfilling the objective of energy independence. The Preliminary Specification is configured with these capabilities in mind. First the industry is established on a profitable footing. Then the engineering and geological resource constraints are dealt with so that we can expand the throughput of the industry. And then we expand that throughput to the level that is energy independence.

I feel like I’ve passed through a wormhole into some other galaxy. I’ve come out into a different world and a different time. I can champion the cause of energy independence. And if no one has noticed yet, I have not mentioned “bureaucrat” once. I could even make peace with them. My purpose is not to fight them anymore, and I’ll get over that, eventually. We have a job to do and there is no time like the present to start that right here and right 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. 

"We're On a Mission From God," Jake Blues

I have to say that this project has come together for me personally in the past couple of weeks. Maybe the past month. Why have we been having so much difficulty proceeding with funding? What are we doing? These were some of the questions that were bothering me and causing me concern. It was the recent realization that the Preliminary Specification provides the groundwork necessary for the Canadian and U.S. energy independence that it all came into focus. That’s what we are doing at People, Ideas & Objects with the Preliminary Specification, the user community and our service providers. Of course! It seems so simple. I could have stated that our purpose in life was not to fight the bureaucracy, but just for fun I think I’ll keep that conflict brewing. They’re redundant. Here we are with the plan of how the continent will become energy independent.

God works in mysterious ways. I think he should've just stated that he wanted a plan on how the continent could become energy independent. That would have been so much easier for me. Nonetheless here we are. As more politicians and business people sign on to this objective. And there seems to be some real momentum building in that regard. The realization that the bureaucrats don’t have the means in which to achieve energy independence becomes more obvious. It will also become more obvious that we (People, Ideas & Objects, the user community and service providers) do have a solution that is ready to roll.

In the late 1980’s I started calling myself a professional griper when people asked me what I did for a living. Usually when I get a thorn in my side about something I will gripe about it until it's resolved. This blog and our wiki is the manifestation of my professional gripping about all thing oil and gas. Welcome to my world by the way. I know the value of my gripping and its outcomes. You can make a lot of money if you listen. Besides, now I do it in a manner that is as much entertainment as it is informative. Bureaucrats don’t agree, but who cares.

This revelation changes the context of the work that we are doing. Everyone could eventually have got behind the demise of the bureaucracy. Though that may have taken more time than we have available. But everyone can get behind the development of the industry's profitability, the expansion of the resource base of engineers and geologists throughput, and then ultimately energy independence. That is the type of positive message that appeals to everyone and an objective that would do so much for our society. Shale has been a phenomenal endowment. And the bureaucrats are destroying the value of that by producing it unprofitably. We have the largest oil and gas reserves in the world and the industry in North America can’t generate $0.02 in free cash flow. Despicable.

Should we give the old boys one more chance? Will they figure it out before the shale reserves run out? I don’t think so. We are better off making this transition to the Preliminary Specification for them and getting the job that we have to do, done. They’ve proven that they can’t, won’t and will not ever change. I’ve been writing here since late 2005 and all this gripping hasn’t inspired them yet. We can’t wait until they’ll do the right thing and retire themselves from the scene. Their too vested in the demise of the industry.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. 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. 

My Reality Distortion Field

In comparison to the user community I think my job will be fairly easy. As the CEO of People, Ideas & Objects I only have to concern myself with the software. Ensure that we’re developing exactly what the user community wants and needs, and collect the money from the producers. I have other roles such as within the user community, but for the purpose of this post I won’t go into those. The user community member can’t limit themselves to just the development of the software. They need to think of the task ahead of them in terms of integration and implementation of the software that they design and build, deliver it to the producer, load their data and ensure that they are operational, and then support them with the service provider organizations that they will need to build to deliver the software and services to the producers. They will also iterate on the software’s design and provide leadership to the industry through the changes they make to the software and services they provide to their client producers.

And they will do this in the highly competitive sub-industry of service providers that they work with to deliver their services in. The basis of competition between the service providers is on specialization and the division of labor. As they explore these tools to more effectively deliver their services to the producers the knowledge and understanding of “what” and “how” they do what they do will change significantly. It will be in this way that the oil and gas industry, from the base of the price maker strategy, will be able to leverage further gains in terms of profitability and value generation. All economic growth is a result of specialization and the division of labor.

In turn it will be this way that we are able to expand the deliverability of the Canadian and U.S. oil and gas industry to address the objective of being energy independent on the North American continent. First the industry must become profitable. Then it must deal with the limited resource base of engineers and geologists. Also deal with the expanding demand of engineering and geology required in each barrel of oil. Then it can expand the throughput of the industry to achieve the objective of energy independence, profitably. We now have the reserves in both the oil and gas domains. Enough to keep us going for the rest of the century.

So yes, I look at my job as being relatively easy and doable. The user community demands for leadership within the industry can be captured in these three prior paragraphs. Just deliver that to society and your done.

Many feel I harp too much about the bureaucrats. Does anyone see these needs coming about from this bunch? Setting in stark contrast the failure that is the current oil and gas industry is my responsibility to show the inability of this vehicle to get us to our destination. We need to stop fooling ourselves that we are ok when we are the furthest thing from it. The only thing you can say that is positive about the oil and gas industry is that the bureaucrats are comfortable. Everything else is a failure.

It will therefore depend on the people within the industry who set out to prepare their application to the People, Ideas & Objects user community. And begin that simple task that I described above.

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. 

A Transition, Not a Switch

As we begin the process of changing the oil and gas industry to be dynamic, innovative, accountable and profitable. We need to think of this change in terms of a transition from this bureaucratic, low performing dead weight. It won’t be a switch that suddenly is hit and the Preliminary Specification, our user community and service providers are operational. This transition will come about by way of the new leadership of the oil and gas industry. That leadership coming from the user community.

As much as I like to state that software defines and supports the organization. In order to make any changes to an organization, first you have to design those changes within the software and then implement them into the organization. We also have the inverse situation here at People, Ideas & Objects. We could build the perfect software that meets the needs of the issues of the oil and gas producers, service industry and producers. Without our user community determining what that software is, developing the service provider organizations to deliver the People, Ideas & Objects software and services to the producers. Then nothing will happen. Our software would be unable to be used without these new organizations being built to support it.

Yesterday I put out some broad outlines of the road ahead for the user community. How we will organize first and foremost. That we will remain unconstrained by the physical world and move quickly through the issues and opportunities that we find and resolve. Designing the systems that will build the value for the industry. We also defined how the user community would have access to the cloud computing infrastructure of Oracle Fusion Applications to give them an understanding of that one constraint that they do have. As we enter the period of development, we will also have that cloud computing system include the Preliminary Specifications incremental developments running in that environment. Available for the user community to have access too and verify its accuracy.

While the user community is in the process of developing the Detailed Specification this will not be a closed shop. Only user community members will have read/write access to the information contained within the repository. All of this information will also be published on the Internet with the express intent that anyone from within the oil and gas industry can contact the individual user community member who is responsible for that area of interest. That way we expose the ideas of the user community to the greater oil and gas community and then have that communities ideas funneled back into the user community for them to determine how and when they should be used. This will continue for the remainder of time. The development of these systems will never stop. They will continue for as long as there are oil and gas reserves, and ideas.

What we have is the user community acting in the best interests of the oil and gas industry. As we state in the Preliminary Specification we are not, nor can we be, blind sleepwalking agents of whoever feeds us. The direction and appropriate position of the industry in terms of needs and wants, from whatever point of view, will be anticipated in advance by the user community, designed and developed within the software, and deployed to the service providers who support the oil and gas producers. Almost by unconscious thought. It will be in that way that the producers are always secure in the knowledge that they will have achieved the most profitable means of oil and gas operations.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. 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. 

A New Direction

With all that is happening in the oil and gas industry. With the Preliminary Specification providing the solution to what ails the industry. With the development of the user community in its third year and growing. We are well positioned to provide this solution in a timely manner. The Preliminary Specification details “what” the software will do and “how” it will do it. Granted I am only setting out a vision of how the industry will operate when we adopt the Joint Operating Committee as the key organizational construct. What we need to do now is to make the shift in our focus to the “what” and “how” we are going to proceed with from this point. Therefore we are going to see a not so subtle shift in the message that this blog delivers. We will be talking more prospectively about the future of the project itself. How we will make this change take place.

The first thing I want to do is to reiterate our focus on the continued development of our user community. Nothing is going to happen until this community is fully developed and ready to begin the further development of the Preliminary Specification into the Detailed Specification. The user community members will be the people that put the details of what they need the system to do in order for them to do their jobs within the service provider organizations that they will eventually develop. It is these service providers that will be taking over from the current oil and gas bureaucrats and providing their services to the industry.

Virtualization is the key to our speed, agility and to our quality. The key to the success of our initiative is our user community. The need therefore is to have each member of the user community fully apprised to the details of the Preliminary Specification in its entirety. Once the Preliminary Specification is in the heads of all of the members of the user community, then there will be a base understanding of where everyone is at. Then the ability to communicate and perceive the different points of view of the many user community members will determine the appropriate directions and solutions. The outcome of this process will be the documentation that will be used by the software developers to develop the Detailed Specification and it will cover the needs of the industry, the service industry, the service providers and the dynamic, innovative, accountable and profitable oil and gas producer.

While that is going on we will be setting up the development environment necessary for the development of the software. The work will involve the establishment of a physical presence in both Houston, with a much smaller location in Calgary to deal with the Canadian aspects of the system. Then the hiring and procurement of the necessary resources to begin building the software. We will also be working with Oracle as they are fully one third of our budgeted costs. Aligning our organization to the Oracle suite of products that we will be using, and initializing those products in a run-time environment.

Once the user community is finished with writing the Detailed Specification their job will have only begun. They will then be sitting down face to face with our developers and ensuring that the full understanding of what they want and need is communicated to the developers and Oracle. No one is going to build the system for the user community like the user community can build it. Therefore this will be the critical hands on crafting of the solution. Where the rubber hits the road as they say. This will also be a time, and to some extent during the development of the Detailed Specification, where the user community will have full access to the Oracle run-time environment that we are establishing. This will consist of the Oracle 12c database, Java, Oracle Fusion Middleware and Oracle Fusion Applications environment that are the base of the People, Ideas & Objects software system. This will be accessed through Oracle’s cloud offering and will be available anywhere and at anytime. We will also be generating oil and gas related data for the users to understand the Oracle solutions. Enabling the user community to understand how the base of our system operates and what they will be building upon.

We have an exciting adventure ahead of us. As the old oil and gas industry crashes and burns the demand for our work to be completed will be strong. What we need to do is to get our heads into the Preliminary Specification and fully understand the vision of how the industry and producer needs to operate in the future. Then you must work to complete your application to join the user community and commence this process. As I indicated yesterday, things will be happening very fast in the oil and gas industry now. I think things will be happening even faster in People, Ideas & Objects.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. 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. 

Third Friday Off

No Posting Today

Lowest Level of Performance Attainable

What we see in the commodity prices is the rush of the producers to generate the money they need to pay the bills and the bank. We’re as little as two weeks away from the beginning of the second quarter reports which will show us some interesting trends in the industry. I have asserted here that bureaucrats have annually taken money from shareholders and banks to fuel the business. They then never accounted for those capital and overhead costs because they sit on the balance sheet for ever it would seem. This all under the prescribed method of the SEC. However, due to poor performance we have recently seen the banks and investors cut the bureaucrats off from their sources of cash. This has eliminated these normal operating funds from the industry. The industry was never profitable these past four decades because it never recognized all of its costs. The only cash flow it had was from the banks and investors.

The 2015 fiscal year was a wholesale disaster. Many companies were forced to write their capital assets down which caused them to incur substantial losses. $18 billion here, $23 billion there, the losses were earth shattering. Many experienced losses that were larger than the amount of money that they had raised during the lifetime of the company. Now the second quarter reports will reflect their status and financial condition within the industry. I didn’t see any financings of any material volume or amount. There were a number of property sales that may have enabled some of the producers to raise some cash. But other than that we are going to see an industry, that is reputed to be profitable at $50, not generate any cash and indeed not report any profits. This quarter will show what the industry is capable of doing on a stand alone basis. In an atmosphere where prices were “robust and improving” the bureaucrats should be hustling these reports out the door as quick as they can to prove to the world that they are everything that they say they are.

I don’t think so. What we will see is that these claims of being profitable at $48 are false. Those are the costs of royalties and operations. The cost of capital and overhead also need to be included in those calculations. In addition, the consistent decades long refusal to do an appropriate accounting of the costs by stating that the capital and overhead costs are “sunk costs.” Has left a legacy of bank and bond debt and shareholders that were used to fund those capital and overhead “sunk costs” which needs to be repaid. These legacy costs on top of the actual costs of production reach almost $200 / barrel in terms of the costs and cash commitments that these bureaucrats need in order to keep the lights on and say they are profitable.

Since the late 1970’s I’ve been in the industry and at no time during this time was there ever a focus on profits. It's always been on cash flow. Included in those cash flow numbers are the investments being made by the shareholders, annually, and the debt that the company is incurring. The engineers and geologists think this is the point. They are fooled by the SEC’s ridiculous accounting methodologies that have been in place since the late 1970’s that capitalize everything that is ever spent in an oil and gas company. As a result the geologists and engineers are reporting “profits” under this scenario despite what they did, how they performed or what they spent. You can not discern the success of a producer firm based on the financial statements that it produces. Performance has never been the essential ingredient of the oil and gas producer. The phenomenal oil and gas people are indistinguishable from the idiots.

You can run an industry on this basis for apparently 35 years and things will then begin to fall apart. At least that is how long these forces have taken to cause the destruction of the oil and gas industry. We saw a trend in the late 1980’s and 1990’s where producers just continued their uncontrolled pursuit of more production in the never ending decline of oil prices. This took almost two decades to clear. Now with shale we have a permanent oversupply scenario as a result of the prolific nature of these reservoirs. In both oil and gas. The only thing that stops the bureaucrats from bringing all of that oil and all of that gas on to the marketplace at once is the limited size of the investors pocketbook. There is no production discipline. There wasn’t any discipline in the 1980’s and 1990’s and there certainly isn’t any now.

What we will see in these second quarter reports is the extent of the cash crisis. Some producers will have disposed of assets to pay the bills and keep the lights on. The extent of the cash crisis will be ferocious. There is a large intermediate that completed a $1.3 billion stock offering at the beginning of the year. And sold some properties for a good price to build their cash balances in the first quarter. I was surprised to read that they were in the market again selling some of their Canadian midstream assets. This demand for cash was always fueled by the banks and investors in the past.

The performance level in the industry is at the lowest attainable point on an industrial scale. We are talking daycare level of capabilities, not even kindergarten level. Expecting profitable operations to suddenly come from these bureaucrats is the foolish expectation that I would laugh at today. The lie that their profitable at $48 or whatever is going to be exposed as well. What I’m afraid of is that these next three to four weeks may be the most difficult for the innocent victims of the bureaucrats incompetence, the people. Payroll is due, that might be the first indication that things are not right. I’m going to call this next month oil and gas armageddon.

 The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. 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. 

A Few Steps Closer

On June 29, 2016 Oracle Corporation announced that their Sparc S7 chip will be provided as part of their cloud computing offerings. This was on my wish list of things we would need from a technical point of view. Now we have that and it will be able to provide us with significant scope and scale that will make People, Ideas & Objects Preliminary Specification capable of achieving the success that we need it to be in the marketplace. This press release from Oracle will provide you with some of the details. The points regarding security would be what I would highlight. What I would also point out is that this would default us to the Solaris operating system, the Z file system and on chip database ROM. The kind of performance that we will need when we have an industry to concern ourselves with.

What is everyone waiting for? Bureaucrats have everything under control, prices are rising and the industry will be on its feet in a few short quarters. There seems to be some doubt about that. People don’t think that “things” are back to normal. No one is dancing in the streets here in Calgary, like they normally do during Stampede. It’s more of a brace yourself for impact kind of feeling. It’s not that I lust for the bad times but these make for positive news here at People, Ideas & Objects, our user community and service providers. The only way to undertake the wholesale changes that we are doing within the Preliminary Specification is on the basis of the absolute failure of the bureaucracy. They have permanently damaged the competitive structure of the industry. The producer organizations can not generate any surplus cash. If they do generate any cash they have bank, bond and shareholders obligations that were incurred over the past two decades. There is absolutely no upside for a new investor. I honestly couldn’t be happier that this project is one step closer as a result of the bureaucrats incompetence.

Never before in People, Ideas & Objects have we been this close to writing code. I can taste it. The investors in oil and gas have decided that they won’t be doing business with the current producers. Their cost structures are uncompetitive. The banks have also been advised by the Fed in the form of new guidelines on how to issue loans to oil and gas producers. The Fed was concerned with the rising level of oil & gas defaults and stated that banks need to change their methods of granting loans to now consider the ability of the producer to pay. It’s not too long that an industry can survive without the support of the investment and banking communities. The need for cash in the oil and gas industry is epic. We will see how desperate it is in the second quarter reports that will be published here in the next six weeks. There is a reason new wells are being drilled. It's a source of new cash and the drilling company doesn’t get paid for 60 - 90 days, if their really lucky.

And when it comes to providing these investors and bankers with a new industry opportunity. People, Ideas & Objects, our user community and service providers reset the competitive structure of the industry. Enabling them to invest today in the industry without the dilution from an existing producers bank and bond debt or shareholder structure. Allowing them to hold 100% of their new oil and gas properties investment title. Investors and bankers can both participate in purchasing properties and field activities. Have the current producers operate these properties for them in the short term, while we develop our system, the user community and service providers that will manage the property for them in the long term.

We are on the cusp of becoming “real.” I don’t know what will push us over but we’ll get there and soon. I would encourage you to continue to work on your user community application. It is a substantial business opportunity in this new sub-industry that we’re creating between the oil & gas and the Information Technology industries. This past year we have seen many significant developments that were necessary for People, Ideas & Objects our Preliminary Specification, the user community and service providers to come into being. Things happened quickly last year. I think that the speed at which we will be able to move from this point forward will surprise everyone. That is why it is important to get working on your application. We are in the right place at the right time. Things will be happening quickly now and promises to be an adventure for those that participate.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. 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. 

It's Not Collusion

I occasionally run into people who have some understanding of the Preliminary Specification and have determined that the price maker strategy amounts to collusion. I don’t know what the impetus for their thinking is but I find this frustrating. There is ten years of research in the Preliminary Specification. It took me over a year to write, and these people can come up with the conclusion that its collusion after reading the Preamble. Nonetheless the issue of whether the price maker strategy involves collusion or not can be addressed by clearly detailing why it's not. That is the purpose of this post.

The first thing we need to realize is that the oil and gas commodities exhibit characteristics that make them “price makers.” The industry operated by the bureaucrats assumes that these commodities are “price takers.” The differences are defined in the economic literature as follows.

Price maker

A price maker is a monopoly or a firm within monopolistic competition that has the power to influence the price it charges as the good it produces does not have perfect substitutes. A price maker that is a firm within monopolistic competition produces goods that are differentiated in some way from its competitors' products. This kind of price maker is also a profit-maximizer as it will increase output only as long as its marginal revenue is greater than its marginal cost, so in other words, as long as it's producing a profit.

Price taker

A price-taker is an individual or company that must accept prevailing prices in a market, lacking the market share to influence market price on its own. All economic participants are considered to be price-takers in a market of perfect competition, or one in which all companies sell an identical product, there are no barriers to entry or exit, every company has a relatively small market share, and all buyers have full information of the market. This holds true for producers and consumers of goods and services and for buyers and sellers in debt and equity markets.

Please note that marginal cost as defined by People, Ideas & Objects is taken over the long term. This perspective is consistent with the definition on Wikipedia and elsewhere that “In practice, this analysis is segregated into short and long-run cases, so that, over the longest run, all costs become marginal.” The issue that People, Ideas & Objects has with the bureaucracy is they preclude the cost of capital and overhead in all of their calculations over all perspectives. Leaving the investors to subsidize the consumers of their energy costs. Please review our Preamble for further clarification.

People, Ideas & Objects sees the oil and gas commodities as price makers in the following manner. You can’t put a petrochemical plant next to a hydro dam. You can’t lubricate your engine with electricity. You can’t carry nuclear power in a bucket or fuel your car with coal. Oil and gas have monopolistic competition in that it does not have substitutes. Water is a price taker.

In terms of price maker and the method that our decentralized production model works is that only oil and gas production that is profitable is produced. Those properties that are unable to produce profitably at the current commodity prices are shut-in until the commodity prices rise, or innovations increase the reserves, lower the costs or increase production. The important point that has to be made. And the point the people that I mentioned at the beginning of this post don’t seem to understand. Is People, Ideas & Objects price maker strategy is based on the individual decisions of each of the producers, based on an actual, factual accounting of the properties profitability. If that is collusion than the entire capitalist system is.

The definition of collusion is provided by Wikipedia. “In the study of economics and market competition, collusion takes place within an industry when rival companies cooperate for their mutual benefit. Collusion most often takes place within the market structure of oligopoly, where the decision of a few firms to collude can significantly impact the market as a whole. Cartels are a special case of explicit collusion. Collusion which is overt, on the other hand, is known as tacit collusion, and is legal.” All firms will be making the decisions of whether or not to produce at each and every property that they own. Those decisions will be made on the factual, actual accounting that provides the information for that decision. The decision is to make a profit, or if the property is shut-in to incur a null operation. The decision to avoid a loss of financial resources as a result of producing the property at a price that does not cover the marginal costs, in the long term perspective of marginal costs, is a rational business decision, not collusion.

To avoid collusion bureaucrats would have us believe that they are operating the industry within the law today. Losses of catastrophic proportions displacing the financial resources of each and every producer over the long term is normal business for the bureaucrat. To establish their cost structures and legacy commitments of shareholder distributions, bank and bond debt payments that push them outside of any viable future oil and gas price scenario is considered reasonable for the oil and gas bureaucrat, as long as they don’t collude.

What people need to do is to begin reading and thinking about what it is the oil and gas producers are doing. We see the prices starting to motivate some producers to move back into the field for more drilling. We will most certainly test the lows in both of the commodities in a very short period of time. Shale is the issue. The reserves are prolific and the deliverability will overwhelm the market if there is no production discipline within the industry. The only way that production discipline is going to come about is through the adoption of the Preliminary Specification our decentralized production model, based on the price maker strategy.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. 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. 

Recipe for Disaster

While I was away I noted that the news was interesting from a number of different points of view. First the U.S. now has the largest proven oil reserves in the world. Shale is prolific in terms of its deliverability and the reserves that are held. This is significant news that should put the idea of energy independence in the minds of the energy producers and politicians. Natural gas reserves have been as substantial for many years due to the initial focus on natural gas in the shale areas. There is only one way in which the industry will enable the North American continent to be energy independent. That is if it's profitable and it is efficient. The continent produces all of its own gas, the need to substantially increase our oil production will not occur from the current base of the industry's structure. The only way in which the industry will attain full energy independence is to adopt the Preliminary Specification with its decentralized production model and price maker strategy.

The second interesting piece of news is that with the moderate increase in oil prices over the past six months. Shale drillers are back drilling again. It’s what they do. They can’t, won’t and will not ever change. The need for cash when the investors and banks have cut you off is at a critical stage. And the only source of cash for the bureaucrats is production. That we have detailed that producers costs and commitments total over $200 / barrel is not the issue. Once again those are “sunk costs.” What we will see as a result of the recent increases in both oil and natural gas prices is a rush of new production that will cause prices to fall back to their lows.

The market psychology will not be favourable for the bureaucrats when that happens. They have little credibility now and if they destroy the prices again then they will have provided the ammunition for their removal from the scene. Those that can, will be looking for alternatives to remove the bureaucracy and find something that’ll work. Something like People, Ideas & Objects Preliminary Specification, our user community and service providers. Did anyone else note that the Saudi’s were keen to note that they were no longer employing their “strategy” that had the effect of “depressing prices.” I think they said that because they don’t like being accused of being the ones responsible for low oil prices. The Saudi’s have now removed themselves from the marketplace as a variable that might lead to lower prices. And that if lower prices were to occur in the future, then the only culprit would be the North American shale based producers.

Natural gas prices have also increased to almost $3.00 on the basis of higher electricity demand. It is believed that current record storage volumes will be mitigated as soon as the winter season, leaving natural gas prices to resume somewhat normal pricing dynamics. This is what passes for rational thinking in the bureaucrats minds. It’s hot outside, demand must be high, all our problems are solved. The issue of overproduction has not been addressed. A method of production discipline has not been instituted in the industry, shale deliverability and reserves continue to grow substantially, nor have any of the investors or bankers demand for cash been addressed. But yes it certainly is hot.

These new U.S. oil reserves, in combination with the natural gas reserves, will never be produced profitably in the hands of these bureaucrats. They don’t care! They are entitled and will continue to operate the industry as they see fit. No one is going to remove them from the scene. Certainly no bank is going to be able to take over the administration of an oil and gas firm because of a loans poor performance. And certainly no bank is going to be able to handle the entire industries administration on that basis. The investors may be gone but the proceeds from the sale of oil and gas will still meet payroll and really what more is there to concern one’s self with?

When we look at what society needs in terms of its energy for the next 25 years we know we will not be able to count on these people for what is required. We should best begin now to learn how to allocate and apportion the diminishing production to the various countries that it’s needed and then send out the ration coupons for the people to use. It all could’ve been so much different. Remember how when the former Soviet Union collapsed. People were all lined up at the bakery waiting for bread. No one was working because they were all hungry. It’s this kind of dismal future that always ends up at the end of an entitled bureaucracy.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. 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. 

U.S. Independence Day

No posting today.

Please note I am taking the rest of this week off for a working vacation. Will resume posting on July 11, 2016.

Canada Day

No posting today.