The Walking Dead

There is a tradition or culture within oil and gas to treat ERP systems as necessary but costly. Therefore, the thinking goes, they need to be minimized in terms of their implementation within the producer firm. The money that is saved can then be used to drill a number of new wells and contribute to the bottom line of the business. And we see how that strategy is currently playing out within the industry. You reap what you sow and all the big ERP players moved out many decades ago. Writing off the oil and gas ERP marketplace as a dead zone. I have asserted that the current overproduction and oversupply can be attributed to a modern day ERP software bug. That is, the industries ERP system offerings are unchanging and unchangeable, essentially unable to accommodate the industry issues. At the same time the wells that were drilled, instead of being employed to eliminate the software bug, are losing money at record pace.

Until we stop dealing with the industry as just an engineering exercise and begin to start managing it as a profitable business we will continue with the status quo destruction. The number to remember is 17% of the shale based reservoirs are located in the United States. This can begin when the industry adopts the Preliminary Specification and as a result has the production discipline that is needed to correct the overproduction and oversupply. There will then be two types of producers in the industry. Both of which will be using the Preliminary Specification. The first group of producers will be the new startups that we will begin to see more of. And the second set will be the existing producers which we can now affectionately call the walking dead.

People, Ideas & Objects recommend that all future oil and gas development be done through startups. The strategic competitive advantages are phenomenal in comparison to the walking dead. Any investments into these startups provides 100% pure equity or debt exposure for the new investors. Whereas the investors face long lines of debtors and other equity interests in the walking dead that dilute their investment to negligible, if any, value. The other aspect is the cash commitments to these debt and equity holders in the walking dead will leave little or nothing left for any new investor. At best, any new investors cash will be used to pay down old debt of the walking dead producers. The walking dead’s competitive cost and payment structures are permanently uncompetitive.

Recently Blackstone announced the formation of two new startups in the industry, (here and here) using this startup strategy to their advantage and investing $1.5 billion. It's not that Blackstone are necessarily listening to People, Ideas & Objects it's just good business sense to do adopt this startup strategy. It is however true too that we have been in discussions with Blackstone since November 2015. This strategy also enables the startups to participate in the fire sale oil and gas property marketplace. Recall Chesapeake’s recent disposition of its Barnett shale assets for no cash consideration other than the opportunity to get out of their monthly cash drain.

This industry configuration provides the startups with the opportunity to leverage the existing operatorship capabilities of the walking dead. All at the minimum costs of the overhead allowances being charged. Giving the startups the time to build their own capabilities in the long run. The problem with this strategy is that People, Ideas & Objects assessment of our Revenue Model is based on the production profile of the producer. Meaning our revenue will need to come from the walking dead. Maybe I should find a better name for this class of producer and be more diplomatic. Never.

The walking dead have an obligation to their shareholders and to their debt holders. They have an obligation to their staff and the people that they conduct commercial operations with. I think their classification here is appropriate and they need to begin to operate their enterprise as a profitable business and not just an engineering exercise. The time for niceties passed a long time ago and it's time we all started to move forward. It would also be my opinion that those who would find this post offending wouldn't see the phenomenal business opportunity being spelled out here. So yes I do see the walking dead being the primary source of our revenues. It’s the only way they’re going to achieve profitable operations.

If industry was disappointed with my tone then maybe there is another way in which to deal with it. I have worked on the research, development and business regarding the Preliminary Specification since 1991. I have funded these developments myself personally since 2003 and have received nothing but a sound thrashing from industry since August 2003 when I developed the use of the Joint Operating Committee as the key organizational construct. I have been forced to make it a full time endeavor since that time as I am not welcome, or persona non grata in the industry. I believe I have built significant value for the industry and the industry is in the condition that it’s in due to the reasons that I have identified and solved in the Preliminary Specification. The person responsible for solving what can arguably be the most significant issue in oil and gas, ever, is persona non grata! I can be as harmonious as the next guy. I just want to build the software and solve this problem. Throw a little cash this way, producers have nothing to lose.

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. 

Willful Destruction

I have repeatedly claimed that “market rebalancing” is the willful destruction of value in the industry. What industry would go about deliberately destroying the productive deliverability and capabilities of its industry as a strategy and “benefit?” The passivity of the current administration is beyond belief. They settle nothing and justify anything. Looking at the situation in natural gas it has been six years where production has been unable to generate any profits. Producers need to account for these losses that were reported in 2015 and are continuing in 2016. These losses increase the costs of their current production by adding the amount of the losses to the reserves costs. These costs are represented by the debt and equity that was issued to incur the development of those assets. And must now account for these historical investments and losses made by the producer by way of loan, bond and dividend payments. Putting the current producers cost and payment structures outside of any reasonable interpretation of a competitive cost structure.

The point in market rebalancing is to reduce the supply in the long term to better match demand. And based on the EIA’s recent Natural Gas Weekly Update we see that the shale gas volumes are behaving in the “desired” manner. In early 2016 shale gas formations peaked at approximately 44 bcf / day and have declined to the current 41 bcf / day. Conventional gas volumes and Canadian imports seem to have made up the difference. Total supply is 79.9 bcf / day which is consistent with last years. The graph below shows the decline clearly. What can also be seen is that the declines appear to be mostly from the Marcellus, Haynesville, Eagle Ford and Barnett shale formations.

If I were a producer I would not be jumping up and down at this time. This does not deal with the issues that the industry must address in any sense of the matter. The first issue is the existing producers uncompetitive cost structures. Prices could skyrocket and they will not defer the losses and cash costs that have been incurred in the past. You carry your legacy with you. At some point you will need to address the past. Producers cost structures and cash demands will force the producers to demand much higher commodity prices in order to be profitable. Or even to be cash flow positive, which is the terminology they use in the industry. You have debts and equity positions that need to be addressed. Those will demand cash to be distributed from an ever smaller pool of “rebalanced” market production. Investors are aware of who they line up behind. If they see a long line of debtors and other investors feeding at the trough, what’s in it for them if they dump their money in?

The second issue of course is that 17% of shale formations exist in the United States. Those 17% have created the global collapse of both the oil and gas prices over the past decade. What happens when the countries that have the other 83% of the shale formations begin to use their resources. Already the LNG market prices are in line with North American natural gas prices. A big change from when everyone began developing the multi-billion dollar LNG facilities to access those export markets. Another look at that graph and we can see that in as little as six years, from 2010 to 2016, production of natural gas from shale increased from approximately 10 bcf / day to 44 bcf / day. A period of time when the natural gas business was on its knees. If prices do come back, how long will this natural gas production decline curve go on? Will it be measured in years or minutes?

It is the same situation for oil. Producers need to think of 17%, and only 17%. The way in which they operated their firms in the past won’t work anymore, your losses are telling you that. We have shifted from a world of scarcity to one of abundance. Without production discipline being exercised at each and every producer the industry will continue to be a no man zone. Production discipline based on profitability is the only reasonable, fair, equitable and manageable way in which it can be implemented. Alternatively you could have the government come in and tell you which areas produce and which areas won’t. How would that fit? The Preliminary Specification enables the industry to implement production discipline based on profitability. It is the only way forward in the industry, everything else is a an exercise in further destruction and delusion.

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. 

Ready To Go

There is always an easy reason why the Preliminary Specification can’t succeed. Whether that reason is collusion, or some other simple excuse that fits today’s headlines. The question needs to change to ask “what if the producers can’t survive.” Leadership and action are needed to be taken in the industry. Time has been taken to explore the remedies inherent in the current organizational structures. “Market rebalancing,” hoping and waiting have not achieved anything other than the complete atrophy of all financial value from the industry, and its destruction. The issue we need to address is that the United States holds 17% of all the probable shale reservoirs. We live in an era of energy abundance. To achieve the change we desire we need to change the direction that we take in the industry. That direction is the Preliminary Specification.

Producers don’t believe the Preliminary Specification scope and scale can be approached as it is currently configured. Yet it is that same scope they attempt to undertake within their own operations. The difference is that People, Ideas & Objects will have the resources from our budget to deal with both the scope and the scale of our application. And is it reasonable that producers solve the scope and scale within each producer firm independently and repeatedly? The current producers don’t have the resources to deal with either the scope or scale appropriately which has led to what I have termed a modern day software bug. That being the inability of the oil and gas producers to deal with the issues of the industry due to the fact that their ERP software is unchanging and unchangeable.

It doesn’t take much effort to see the devastation that has occurred in the industry. In the cities where oil and gas operate there are severe economic hardships being realized due to the difficulties in oil and gas. The amount of revenue that has been irretrievably lost over the past number of years due to the decline in oil and natural gas prices has been substantial. These losses have been an element of our value proposition for the producer to consider in terms of dealing with the costs of implementing the Preliminary Specification. Oil and gas price increases would be realized on a go forward basis once the Preliminary Specifications price maker strategy was implemented across the industry. Enabling the commodities to seek their marginal costs and provide the industry with profitable operations on a consistent basis. Leaving these extensive periods of economic malaise behind as just really bad memories, permanently.

After all the efforts of everyone in the industry we find that it is more than just an engineering exercise, it's a business. It needs to be run as a business and those business ideas need to become the way in which the industry is managed. “Price maker” is not collusion, as I repeat once again. It is an economic principle to define the characteristics of certain products such as oil and gas commodities. If we adopted strategies that were consistent with the characteristics of the commodities then we would leave these miserable times behind. There are trillions of dollars that are being lost due to the current inactions of the producers. All as a result of the superficial analysis that the Preliminary Specification is collusion, or I said something that upset someone at sometime, that this is that or that is this. This industry is a disaster and we need to fix it. Producers have run out the clock and exhausted their resources in terms of time and money. There are no ERP system alternatives for which the producers can have the research completed within the next decade. The Preliminary Specification is available to be developed today.

We enter a window of time in early September where people’s attention can be focused on the development of the Preliminary Specification. If we had the financial resources to do so. This is the most natural time to begin a project such as this, and the most effective in terms of delivering our software to the producers in a timely manner. We have been focused on developing our user community for more than two and one half years. This has been our priority and will continue to be once we’ve secured our budget. We will only deliver a quality product. Which demands that these be user community based software developments. We are waiting on industry and are otherwise ready to go.

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. 

Taking a Weeks Vacation

No posting this week. 

Well That Was Unexpected

Some interesting thinking is being done over at Vox.EU.org for once. Not that they don’t always do good work. It’s just rare to find any thinking in oil and gas that doesn’t just parrot the “market rebalancing” theme. They state that “A very incomplete global mapping suggests a US shale oil share of no more than 17% of a huge geological wealth.” And that “The advancements in horizontal drilling and fracking can also be applied to conventional oil extraction.” Kind of puts the argument about “market rebalancing” into perspective doesn’t it? It also makes the entire discussion of current inventories of oil and gas on hand in the U.S., those numbers that are eagerly awaited each Wednesday and Thursday moot. If the world has these types of resources on hand I can state unequivocally the oil and gas industry will never be profitable. The cash drainage will continue unabated for the remainder of the century.

We are on a dead end street travelling at 300 mph with no brakes and the brick wall is well within sight. Does anyone have a different scenario that they can paint? Is there something behind the vision of “market rebalancing” that is not permeating my thick skull? What’s the plan? How do people participate in the oil and gas industry without having to destroy their life savings, their careers and everything else. Is there a pool of unintelligent investor's that is as deep and as wide as the Pacific and the Atlantic oceans that I am not aware of? Just exactly, in light of these facts that the world now has horizontal drilling and fracking, will the industry proceed?

Muddle along! Nothing to see here. That’ll be the response to these facts that speak to the futility of proceeding without the Preliminary Specification in place. Creative destruction is the only answer to how the industry is rebuilt, brick by brick and stick by stick. What exists today is too vested in the status quo and is unable to deal with the situation on the ground. They started losing money six years ago when the natural gas prices were affected by shale. Their losses began to significantly increase when oil too was affected by the abundance of oil from shale formations. These losses demanded cash to continue which caused the investors and bankers to pause. We are now in a phase where the market value of oil and gas properties are being diminished by the sheer volume of properties being made available for sale. Chesapeake dumping their prized Barnett shale assets for nothing. Just to get away from the cash drain. But let’s be honest, next week's inventories may be down from their record volumes.

Our plan enables the industry to refocus on energy independence on the North American continent. Something everyone, even investors and bankers, can dedicate themselves too. In an era where the resources are as abundant as they are, this sounds contrary to the reality that has been painted here. Natural gas is a continental price. And the volume of oil produced by the U.S. is material to the world demand and supply. We do control our own destiny in the oil and gas industry. This however, is only the case if the industry is profitable. And real profits, not those SEC induced accounting profits of the past four decades. What the industry needs to do is to adopt the production discipline that only profitable production is produced. Which is attainable through the Preliminary Specifications decentralized production model. Then and only then will the markets response attain its marginal prices. Until then we have these facts and these outcomes.

There is one material change as a result of the information from Vox.EU.org. And that is the market for People, Ideas & Objects Preliminary Specification is global and not just North America. We however are not contemplating that at this time. The issue in North America is the one we are focused on and are capable of dealing with. Maybe we will be able to deal with the others in the future. I am not going to do anything about that now, we have a job to do, let's get it done.

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. 

It's a Software Bug

I remember in the late 1990’s fibre optic cable was being laid everywhere by companies you never heard of and haven’t seen since. This was part of the .com boom and everyone and every company had to be on the Internet. For the past decade, the iPhone will soon be ten years old, it’s been phones and Apps. These devices have occupied more time than can be calculated. But you can see the boom that was brought about by this trend in Information Technology is waning too. So what’s next? Clearly, in my opinion, its ERP systems. Businesses have avoided the thought of doing another ERP integration, at least in oil and gas, for more than a decade. The word on the street is that ERP is the area that will build significant, quantum levels of value for a business by defining and supporting new business models. ERP systems are digitally disrupting businesses and are the next big trend in Information Technology. Everyone is getting into the game, even Google apparently.

People, Ideas & Objects value proposition certainly qualifies in terms of delivering quantum levels of value to the industry. We are still able to claim that we provide at least $25.7 to $45.7 trillion in incremental value over the next 25 years. A time when the industry will undertake the objective of energy independence on the continent based on the profitability of the producers and the service industry providers. We do this by implementing the ERP system that we call the Preliminary Specification. An eleven module oil and gas system design specifically for the issues that exist today, and the frameworks that form the industry. Enabling the Preliminary Specification to also provide the industry with the ability to deal with the issues and opportunities that we will face in these next 25 years.

These are not your grandfather's ERP systems. My two concerns right now are how do we get the user community to think. And once they begin to think, how do we get them to think faster. The speed of the industry's evolution and capabilities in terms of its throughput and innovativeness will be dependent on the quality of the organizations that makeup the industry. It’s not so much the case at the moment, but it will be in the very near future. The capabilities and throughput of the producer organizations will be dependent on the quality of the ERP software that these organization use. Today’s oil and gas ERP systems are the beginning of this trend. They are wholly incapable of dealing, or providing any solution to the issues and opportunities that the producer and industry are facing. They have locked, frozen and cemented the organization into an unchanging and unchangeable structure that has fundamentally failed their producer organizations. This is the new definition of a software bug.

One thing about Information Technology trends is that everyone wants to be part of one when the time comes. It’s early still, but we are looking for the leadership component that will be necessary to drive the changes needed in the oil and gas and service industries. Our user community participants are the only ones who can change the software. People, Ideas & Objects software developers are deaf, dumb and blind to all others. We only listen to our user community. It is the user community member who will form the service provider organizations that provide the process management to the industry when our software is operational. This is a significant business opportunity for the user community participant. These people will have the constant stream of part time revenues that they will earn as a result of their work in the user community. And they will also earn their business income from the service provider that they own and operate. This is the new ERP Information Technology trend and the digital disruption of oil and gas.

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. 

Production Discipline

If the market for oil and gas properties has collapsed, which is inevitable, then the last source of cash to the producer has been withdrawn. The next step will be that we need to begin the difficult process of rebuilding the industry stick by stick, and brick by brick. Muddling through, hoping and waiting for the market to rebalance have destroyed everything. There is nothing of value left in which the industry can use to buy time and continue to do nothing. The need for action to remedy the oversupply and overproduction is the only concern that can be on the minds of anyone in the industry. The continued, sustained focus on rebuilding the industry over the short, mid and long term is the only thing that is going to get us through these next few years.

Back in the 1980’s and 1990’s we saw the producers continue with poor financial performance as a result of low oil prices. Gripping constantly about how bad the times were and the effect it had on their financial performance. It’s the only thing you heard. Quarter after quarter, year after year. Nothing was done, ever, to mitigate the overproduction issue then, and nothing has been done so far today. The one big difference between then and now is that it was only oil that suffered from oversupply and overproduction. Natural gas you could live off of. Today natural gas has been depressed for six years with no sign of any break in the difficulties. And oil is moving to its third year of overproduction with only gripping coming out of the producers.

This “muddling through” strategy as it is known in the industry is a strategy of leaving things alone to work themselves out. And we see its not working. As I stated yesterday it only provides value 25% of the time in the industry, the rest of the time it’s devastating to those who chose to participate in any form. I think we need a new approach. One that assumes that the energy that we produce in the 21st century, and the value that oil and gas provide the energy consumer. With its irreplaceability, and the fact that it can not be substituted for anything else. Should we therefore not ensure that we at least produce it profitably? And profitably from the point of view of considering all the costs. Not just the cash costs it takes to produce. The industry has been such a financial disaster for so long that it is managed on the basis of its cash costs. The actual, full costs are never considered because it’s in a state of crisis at all times.

Shale introduces the dichotomy that will permanently keep the industry on its knees. Producers will always pursue the greatest prize that they can. Shale delivers the reserves that make any producer want to earn that untapped fortune that lies in wait. Shale is very expensive which demands production. Shale production is prolific, like the reserves. Without production discipline across the industry, based on profitability, there will be no profitability for anyone. The only means to obtain production discipline is through adoption of People, Ideas & Objects Preliminary Specifications price maker strategy.

Along with our user community and the service providers we have a plan to deal with the oversupply and overproduction issues and begin the steps toward energy independence on the North American continent. Producers need to participate in that plan in order to survive. I am known for my bold statements. Participation in our plan, it is believed, would enable investors to see that the plan in place provides for the long term profitability of the producer and future expanded deliverability. Something that they are more than interested in participating in.

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. 

Take It, It's Free

People should hurry! Chesapeake is giving away their crown jewels! Their Barnett Shale assets were offloaded just to relieve them of the costs of carrying them. I think we will begin to see more of this type of activity as we proceed down this rabbit hole. If it takes cash to produce, and the financial losses are as significant as they are today. Then the value of the assets are really nothing. Those who cherish their bloated balance sheets may be surprised by the fact that the market values their properties at much different valuations than what they’ve recorded them at. Markets and accounting are two different worlds. You need deep reservoirs of cash, strong investors and willing bankers to be in the oil and gas business. That way you can destroy all of them by producing the product.

World Oil reports that private banking is adopting our recommended strategy for their reentry into the oil and gas industry. And no, it's not that I think they’re listening. Purchasing properties on the marketplace at fire sale prices is the preferable strategy as it avoids the accumulated debt and previous equity issues of existing producers. Private equity can then own 100% of the property that they’ve purchased. They will however also have 100% of the cash drainage and losses. They therefore need to acquire the appropriate mechanism to manage those assets and that is the Preliminary Specifications decentralized production model with its price maker strategy.

This may be the beginning of the creative destruction that is needed to fix the oversupply and overproduction issues in the industry. Wipe out the old, non-functioning organizations and put in the new dynamic, innovative, accountable and profitable oil and gas producer. Enabling them to operate with the Preliminary Specification, our user community and the service providers. That way there would never be these periods of destruction that are so common in oil and gas. When did it become acceptable that this level of destruction could occur? This would never be accepted in any other industry. Money is destroyed, people’s careers are destroyed and that is just accepted as part of the normal course of business. That attitude should never exist.

We saw a big bump in the price of oil last week as the Saudi’s made rumblings about a meeting, and as I heard it on Bloomberg, “issued a very official looking press release.” That a meeting will take place in September regarding the price of oil and a possible production freeze. Immediately, like the bright shiny object that it is, it drew everyone in the industry's attention away from the problems. The key point that I think the Saudi’s want the North American producer to learn from these episodes. Which seem to occur with a regularity that I find comical. Is that oil prices do respond to the belief that there will be a change in the market supply of oil. North American producers all sit up at attention when the Saudi’s make some noise about production cuts, why don’t the North American producers learn that if they cut production too, prices would likewise respond.

I have been looking for a signalling event that reflects the time in which the industry entered the point of no return. The time when the industry began its transformation to the new dynamic, innovative, accountable and profitable industry. I think Chesapeake dumping their Barnett Shale assets for nothing is that signalling event. That is the point that will stand out in people’s minds that things began to change. Just as Chesapeake was such a critical part of the development of shale.

People, Ideas & Objects have a plan on how to deal with the oversupply and overproduction issues in oil and gas. It is the Preliminary Specification. Our price maker strategy ensures that any production from the continent will be profitable production. Eliminating these destructive periods that seem to occupy 75% of the time in the industry. I’ve been in the industry for 39 years and it's been “good times” for maybe a decade in total. Scattered about during that time for a year or two here and there. I’ve yet to see a producer firm succeed outside of the integrated producers over the long term. A producer has a shelf life of ten to fifteen years and then it's done. It shouldn’t be this way, it doesn’t have to be this way, if I have my way it won’t be this way.

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 Detailed Plan

Instead of letting my frustration get the better part of me. Today I’m going to detail People, Ideas & Objects plan and how it is the dynamic, innovative, accountable and profitable oil and gas producer will be able to benefit by subscribing to it in this the third quarter of 2016. My frustration comes about from wanting to solve the problem in the industry today. It is what I’ve been working on for a long time and I think that most people can understand that now is the time that it’s necessary. Forgive me for being human. We are very close to the beginning of the developments of this dynamic change in the industry. My impatience is getting the better of me.

I am of the opinion that producers are in need of some action to deal with the current industry wide situation. That this is a dire crisis that threatens the industry in ways we don’t understand or appreciate at this time. Capital is being withheld from the industry by the investors and bankers as a result of this crisis. In order to secure any capital in the short term, I believe that producers need a plan that deals with this crisis and sets the industry on the road to profitable energy independence on the North American continent. This requires a cultural shift in many of the ways the industry conducts its business. These changes are detailed below. If producers did subscribe to People, Ideas & Objects Preliminary Specification in the third quarter of 2016, by paying 10% of the subscription fee, then they would be able to state that they are part of an industry based plan in their third quarter report. Would this subscription then see investors and bankers return to those subscribing producers on the basis of their willingness to participate in achieving profitable energy independence? I know that doing nothing won’t bring them back.

How we provide the dynamic, innovative, accountable and profitable producer with this is through our price maker strategy which involves the decentralized production model of the Preliminary Specification. What we do first of all is reorganize the producer firm and the industry overall. The producer becomes a stripped down version of its current configuration. Where the C class executives, earth science and engineering resources, land and legal, and some support staff make up the configuration of the producer. This enables them to focus on their competitive advantages of their earth science and engineering capabilities, and land and asset base. The administrative and accounting resources are reallocated to service providers who focus on one process and have the entire industry as their client base for that process. This enables them to focus on their key competitive advantages of specialization, division of labor, automation, innovation and quality.

The Preliminary Specification uses the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. It is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework throughout the industry. The Preliminary Specification moves the compliance and governance frameworks of the hierarchy into alignment with the seven frameworks of the Joint Operating Committee to provide the speed, innovativeness, accountability and profitability that we desire in our organizations.

The service provider will process the work that they do on behalf of the Joint Operating Committee, not the operator. Billing the specific property represented in that Joint Operating Committee. Therefore when the Production or Revenue accountant bills for their services they charge the specific property. The key here is that we have shifted the fixed administrative and accounting costs of each producer to the variable administrative and accounting costs of the industry. Therefore if the property was shut-in due to it being unprofitable. There would be no revenues, royalties, operating costs, or administrative costs. A “null” operation would occur. No profit, but also no loss. Increasing the producers overall profitability by not diluting it with unprofitable properties. Saving the reserves of the unprofitable properties for a time when they can be produced profitably. And removing the unprofitable production from the commodity markets enabling them to seek their overall marginal cost.

What the Preliminary Specification does is move the cost control of the administrative and accounting costs from the producers to the service providers. It is there that at any time they may see a drop of 10 - 15% of their revenues as a result of the industries shut-in inventory of properties. Something that they can budget for on an annual basis.

In a world with high cost and prolific shale. Oil and gas commodities markets will always be overwhelmed as a result of the lack of production discipline in the manner in which the industry is currently operated. People, Ideas & Objects method brings about a solution to the oversupply and overproduction that are plaguing the oil and gas commodity prices today. By simply removing the unprofitable production from the marketplace. A reasonable approach to business. It is however, not collusion as the decisions to shut-in a well is based on the actual, factual accounting of the properties profitability. It is what’s in the producer's best interest to maximize their profitability.

The Preliminary Specification also provides a solution to the resource constraints of the engineers and geologists in the mid to long term. It is a solution that is timely for today’s concerns and is ready for the producers to subscribe to its development. Enabling them to refocus on the task of profitable 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. 

Third Friday Off

No posting today.

A Frustrated Diatribe

All the latent value that had been built up in the oil and gas industry over the past decades has now been thrown at the oversupply and overproduction issues. “Hope” appears to be the current solution to the issues throughout the industry. This is also the situation we find ourselves in as People, Ideas & Objects Preliminary Specification is considered to be collusion in the marketplace. And to avoid any appearance of collusion the producers will ensure that they run the industry into the ground. It speaks poorly of the producers that they haven’t the business understanding to see their way through our price maker strategy. Price maker is a technical term in economics. It refers to the characteristics of certain products price behavior in the marketplace. Oil and gas commodities are price makers. Therefore having a strategy that uses that knowledge would be valid for an oil and gas producer. That is what the Preliminary Specification does. It enables the producer to make their own individual, independent decisions at each property based on an actual, detailed accounting of the properties profitability. If it is profitable it produces. If it isn’t, the property is shut-in. In a world where shale exists that is the only way in which we’re going to get out of this difficulty. In order to implement this solution requires the Preliminary Specification.

If we are to believe that anything is going to get us out of this mess. That solution is going to have to be a fully researched and a solid, thought out framework. The business model of the Preliminary Specification achieves that. It is the result of ten years of research based on using the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. It is ready to go and ready to solve the issues of the day. To come up with an alternative that resolves the issues in today’s marketplace would take at least as long and the producers do not have that time. If it is, as I suspect, that the rumors and opinions of those in the industry that the Preliminary Specification is collusion. This conclusion is based on a lack of knowledge. Producers don’t have the time or the means to be delayed in the pursuit of their financial health. False conclusions only delay the adoption of the only solution that is available to the producers. And it doesn’t involve collusion.

The amount of value that is being destroyed on a daily basis makes this catastrophe the most serious issue the oil and gas industry has ever faced. There is no residual value left in the North American producers at this time. It has been consumed by the inane accounting methodology of the SEC that creates this situation. Shale exacerbates the issue into an unresolvable one that can’t be “muddled through.” To assume the Preliminary Specification is collusion, which can only be done through rumor and innuendo, is to short circuit the only solution to the greatest issue the industry has ever faced. People need to wake up and at least read the Preamble.

Shale will always overwhelm the marketplace until the producers obtain production discipline through the use of the price maker strategy of the Preliminary Specification. It is as simple as that. Proof of that is the six years the natural gas marketplace has been depressed by shale gas volumes. It is these shale gas volumes that have also had an impact on the global price of natural gas. Until oil and gas producers move away from the high throughput production model that seeks full production to cover the high cost overhead of their operation. And move to the decentralized production model of the Preliminary Specification where costs more accurately match revenues. Then the industry will remain in the state that it’s in.

My frustration level is through the roof on this. This conclusion that we are colluding means more delays in terms of our project moving forward and the industry can’t afford that time delay. All because someone said something or other about collusion. Where are the rational cool thinkers in the industry who have the decision making power to proceed? Are there any, and if so, what are they doing? It’s time to act, it should be a foregone conclusion that at some point in the near future industry must move towards the Preliminary Specification. What is the alternative?

My reading of the financial statements for the second quarter is that there is a dire situation in the industry. One that if it is unaddressed in the current quarter, significant destruction of the industries capabilities and our capacities will occur in the immediate short term. I believe that the only way in which we can avoid this further destruction is for the industry to receive the capital that is necessary to proceed in its normal course. To do that requires that industry has a plan. A plan to adopt energy independence on the continent. To do so would require the current production base to become profitable and then secondly address the resource constraints in the mid to long term supply of engineers and geologists. Then by having those two elements in place the industry could increase its throughput and move on to profitable energy independence. Seeing this plan the investors and bankers would support the industry and enable it to achieve its goals. That plan is the Preliminary Specification. Otherwise, I think we face a dark future.

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. 

Making Oil and Gas Business Decisions

Being on the wrong side of a cash draining organization, I know a few things about them. I guess the one thing that most people understand is the characteristic that momentum seems to build against you and the pit only gets deeper. The cash drain in oil and gas is epic at this time. All of the value that had been built up over the past few decades has been thrown at the problem in order to try to rectify it. Nothing worked. Now the cash drain has nothing left to consume, we have hit the proverbial brick wall in oil and gas. This will get interesting.

But it doesn’t have to. There is a plan that the industry can undertake to pursue profitable energy independence on the continent. All they have to do is subscribe to the Preliminary Specification and we’re on that path. Investors and bankers might want to be involved in that restructuring of the industry and help those producers in achieving their goals. After all that is their role in life. Sitting as the industry is now with the belief that all is well is not fooling anyone with more than a few dollars in life savings. It is clear in reading the second quarter reports that any money provided to these producer organizations will be incinerated in these black holes. It truly is devastating to read them.

I stopped cold calling CEO’s and CFO’s last week as no one was returning my calls. Not that I expected them to but I had to do something. Other than through this blog and our wiki, our message is not being distributed to those decision makers, as far as I know. I “believe” and I “feel” like something is going on. Something that is completely unknown to me. Maybe it's just the belief that these organizations do not have any viable plan to exist much longer. I think that It might also be the rumour that the Preliminary Specification involves collusion has caused this pause in interest.

The road to bankruptcy is not going to provide any producer with any value. In bankruptcy the producers will not be any better off. The judge may approve loans to the producer on favourable terms which is what they do. However, that is when the individual bankruptee needs to be rehabilitated as a result of poor performance through the poor actions of the people involved. As we noted the other day, this is an industry wide problem where the collective effects of other producers impact the bankrupt producer. Loaning more money to an individual bankrupt producer doesn’t mitigate the issues. Banks see that, and their staying away now, just because a judge has granted favourable terms doesn’t mean anything to the banker.

Therefore the unsolvable problem will continue for as long as the producers insist on not accepting the Preliminary Specification as the solution. Persistence is a beneficial characteristic in business. And these producers may be insisting that the Preliminary Specifications price maker strategy is collusion. As I indicate in the Preamble, it’s not collusion. When independent, individual decisions are made to produce or shut-in an individual property. And those decisions are based on a detailed, actual accounting of the property. That is what is called a “business decision.” Something that the producers are missing out on in the industry today. Collusion is when people work within markets themselves to affect prices. The fact that many in the industry think our price maker strategy is collusion shows you the level of discussion of business in the industry today and why we are in the state that we are in.

Continuing on to the third quarter without addressing this financial catastrophe. With natural gas storage potentially being filled just as they were reporting their third quarter results. With oil prices well below what is necessary to cover the cash costs to produce, that scenario is not an option. This would not be the responsible choice for managements to make. That is my opinion. And it can be taken with everyone else’s opinion these days. It seems everyone has an opinion on everything today. The fact is the Preliminary Specification is derived from ten years of research, not opinions. To glance over it on the basis of someone’s rumoured opinion that it is collusion is what passes for comprehensive debate in oil and gas. Instead of facing the music in the third quarter, those that should know should pass on the rumours and cheap opinions and instead read the results of the research. That’s how business decisions can be made.

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.

Right Solution, Right Time, Right Size

There are only a few producers left to publish their second quarter reports. It’s fair to generalize at this time and to state that this is a disaster, no question about it. Reading some of the text of these reports you would think that all is well and it’s business as usual. However, I read in their financial statements that they don’t reflect a viable going concern. Something desperately needs to be done in order to recapitalize and rehabilitate these firms. No one is going to do that without having some understanding of what changes are going to be made to ensure that “this” doesn’t continue. Saying all is well when the industry is in this condition only scares people even more. If you truly don’t see the depth of the difficulties that we are in then we will have more than just the oil and gas industry spiral downwards.

World Oil reports that the debt of the majors has doubled since late 2014. They report that it is at $138 billion, up from $13 billion in 2008 when oil prices were $150. Proof that the energy consumer is being subsidized by investors and bankers. When you’ve been reporting profits from 2008 to 2016 why would your debt balloon ten fold? The simple answer is the accounting that the SEC dictates for oil and gas is inappropriate and it leads to these kinds of distortions. First, this accounting makes it appear that everyone and anyone is profitable. Leading to an overinvestment in the industry. Overinvestment leads to overproduction. This overproduction has collapsed the prices of the commodities. And it was the investors and bankers who until recently supported the producers cash demands, in effect subsidizing the consumers for their energy consumption. The ten fold increase in the Majors debt over the past 8 years is proof of this. They should have received additional revenues of over $138 billion during that time to offset the cash shortfall that they did realize from the low commodity prices. Thier accounting only reflects this after the fact, across the industry in the form of low cash balances in the juniors and intermediates, and high debt levels in the Majors, after investors and bankers refuse any further involvement.

“That giant sucking sound” to quote H. Ross Perot is the investor's cash being vacuumed by this crappy accounting methodology. What we are finally seeing after decades of this is that no one was really earning any money. After all that time we finally have exhausted all of the value that was built up in the industry. And now it stands with nothing. No cash. No working capital. No line of credit. No credit facilities. No willing investors. No profitable operations. No operations that don’t require cash. The entire infrastructure of the North American oil and gas industry is worth $0.02 because it will only drag anyone down with it. And some producers say its sunshine and rainbows? A critical review of the situation is what is needed and urgently.

Many of the producers that I saw were the walking dead. Many. Operations are consuming cash in almost every instance. How is it that producers are claiming they are profitable at $48 or at anything? Only Shell and Exxon reported profits and other than the majors no producer was generating cash from operations. Does anyone see how difficult a situation this is? You have no cash. And producing consumes cash. But if you stop producing the cash consumption will rise significantly leading to a worse situation. So you produce more, leading to further commodity price declines. Many producers had run out of cash and were using the service industry to fund them through accounts payable. Others too were using their working interest partners share to fund them.

Here’s the plan. For the third quarter reports the producers say they have a plan to deal with the situation. The plan is the Preliminary Specification which deals specifically with these problems that are plaguing the producers today. It's not only the right solution at the right time, it is the appropriately sized solution for the scope of the problem. When I published the budget two and half years ago I took a lot of flack for such a “ridiculously high priced software development.” Odd but it seems to be the right sized solution to the problem at hand doesn’t it. By having this plan in hand the producers are able to state that they are a viable going concern, with a real profitable future. One which sees the North American continent become profitably energy independent. Something that investors can get behind and help to build. All the produces have to do is to subscribe to the Preliminary Specification and just send cash.

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. 

Leaders Wanted

We begin another week with anticipation that “something” regarding the commencement of our development may be happening in the industry. That producers “may” be doing something about the issues that plague them. Whether there is or not is completely unknown to us at this time. However, this initiative is best served by moving forward as if there was. Our plan involves producers moving towards the objective of profitable energy independence on the continent through development of the Preliminary Specification. We need to move this industry onto a stronger financial footing where it can be the dynamic, innovative, accountable and profitable industry it needs to be for a prosperous society. We have a natural opening, in terms of time, to begin developments in September. I hope that it’s 2016.

In anticipation of that I am reiterating that we are currently looking for a CFO for People, Ideas & Objects. I’m not going to define the job in this post as most of those that would be interested can determine what the job would entail. The budgeted costs are significant for a startup and we need to start from scratch. That tells you what you need to know. If you’re interested in this position please call me or email at the information below. We will also be looking for our COO who will be heading up the software development of the Preliminary Specification. As with the CFO I’m not going to go into details and you should contact me if you have an interest. Both of these positions will be located in Houston.

We have a long list of positions that we need to fill in the user community organization. From the board of directors, the C suite and our product owners, we are looking for almost 30 people to head up that organization. The product owners are unique in the development of our software. There will be one product owner each for approximately 20 different elements of the software. One for each of the modules of the Preliminary Specification, the user interface, data etc. The product owners are responsible for their product and represent the users to the People, Ideas & Objects developers. Our users will certainly be interacting with our developers, what the product owners will be doing is prioritizing and focusing the developers on the appropriate areas of concern. Ensuring that the overall product is complete and correct. They are leading the users in terms of the development of their area.

These positions make up the leadership team for the development of this software. We are looking to fill all of them as soon as possible. These positions are open to those that have an interest in the development that we are doing and are appropriately qualified. Development of the user community is ongoing and we are looking to secure the numbers that we want to ensure that the applications that we deliver have the product quality that are necessary. This user community has been determined to be 3,000 part time user community participants representing all of the different elements of the oil and gas, and service industries. Once we have these numbers organized we will then be able to commence the software developments of the Preliminary Specification.

In the meantime, anticipating that we are moving forward, we will introduce ourselves to Oracle. Making them aware of the issues and opportunities in the oil and gas industry. Oracle makes up one third of the costs of our budget and we expect that, based on the design of the Preliminary Specification, using their technologies will provide us with a unique competitive advantage, quality in our product offering, mitigate the technical risks associated with the industry's movement to this initiative and overall success. I’m sure they’ll be happy to see us.

I do want to restate something that is in the back of my mind. I hope that people are reading and understanding the entire Preliminary Specification. Understanding your domain is important. It’s familiar and I can understand why someone would focus on that. However an oil and gas producer is an integrated organization with many different parts. Each having a dynamic effect on all the others. Particularly when we use the Joint Operating Committee which is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. Knowing only one part of the whole may lead to problems and impact the quality of our product offering if we don’t understand the reasons that others may want or need to have something done differently than what we expect. Understanding others perspective can be helpful, and this can be mitigated by the users ensuring they have a substantially rounded and comprehensive understanding of the Preliminary Specification.

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 Motivates You?

September would be a good time to start development of some software don’t you think? I certainly do. It would provide us with a point in time where everyone’s focus is on getting back to work and getting things done. Summer’s over, the kids are in school and it's a good time to take on those big projects. We certainly qualify there. People, Ideas & Objects are ready to go. That is to say we’ve been ready for a while. Just need the commitment of industry and their cash and we’re off. Implementing our plans for the development of our software will be done as quickly as we can harness the minds of our user community. We’ve been at this user community development for two and half years now and have achieved significant progress based on the facts that we are user community based software development and the structure of our user community.

I’ve been cold calling the CFO’s and CEO’s of the producers to let them know about our plan for profitable energy independence. The lines seem to be dead. I have also reached out to my press contacts and the Internet must be down as well. I’ve never experienced a shutout such as this. Nothing. Zip. I would usually consider, based on these cold calls, that nothing would be done in the month of September. However, my feeling is that something is going on. Producers can’t continue on in the manner that they have. Both commodity markets are destroyed. The capital markets are destroyed. They can’t raise any substantial amount of money to operate their firms. And their firms are hemorrhaging cash at record speed. Time is of the essence. They have no choice, in my opinion, then to act.

The status quo is no longer a viable option. To come up with an idea on how to solve this problem at this time is impossible. Trust me on that, it doesn’t take a lot of money, but it takes a lot of time. Decades. Therefore some new idea is not an option. And the alternative that I’m offering is that the industry could be developing software based on the Preliminary Specification next month. All they need to do is to commit to us and send cash.

Doing so would open a world of opportunities for the producers. Investors and bankers, seeing a viable going concern in the long run, with a plan for significant upside in terms of profitable energy independence on the continent. Would be interested in a profitable producer that’s in that situation. All the producer would have to do would be to commit to us and send cash. Of course they know that we would keep them from sliding back from their commitments and regressing to their old ways. We need them as much as they need us. That probably goes without saying, but I said it anyways.

I’ve been at this for a long time. The number of people that have read the Preliminary Specification are unknown to me at this time. I’m assuming some people must have dozed off along the way. Most people focus on the module that they’re most acquainted with. I think you need to read the entire Preliminary Specification. The number of people who have read this blog over the past ten years, with its monomaniacal discussion of the development of ERP systems for oil and gas producers based on the Joint Operating Committee, is significant. It’s not that I’m invisible. I know the effects of my efforts in terms of promotion in the pre-Internet days when I worked with Oracle and Price Waterhouse. Pushing paper out is wholly inefficient when you compare it to the power of the internet to spread your ideas.

I think potential user community participants should be spit polishing their applications for submission to People, Ideas & Objects. Now you can probably imagine the number of people who said I was crazy over these past few decades. So you need to judge for yourself in terms of our projects viability. But without people telling you you’re crazy, what motivation is there?

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. 

This is About Leadership

Winston Churchill once said that you can always count on the Americans to do the right thing. After they’ve tried everything else.

There doesn’t seem to be much discussion coming from the producers regarding plans for the future. It is more of the same with some details of how the producer will survive the next few years. Selling properties seems to be the chosen method of raising cash. It may be the only way to raise any cash in this environment. With most of the proceeds dedicated to paying off the debt that will be coming due in the short term. A reasonable plan until one asks where the money for these asset purchases are going to come from? The old economic principle of supply and demand may create some disparity between prices of the buyer and the seller. This being what is classically called a buyer's market.

The other day I asked why is selling People, Ideas & Objects Preliminary Specification so difficult. After years of hearing about “market rebalancing” you would have thought resolution of the issue would have been achieved by now. How many trillions of dollars have been wasted by hoping that it’ll work soon. The capital structure of the industry is now destroyed in addition to both commodity markets. Investors and bankers looking at the industry are never going to invest in this place the way it is today. The people who work in oil and gas and the service industry, and those that have been forced out, are questioning their choice of industry to work for. If the industry thought it had resource constraints before, the future looks dismal. Is muddling through really the best way to run the operation?

What we will learn in this next quarter is the myth that is the “strong” and “protected” balance sheets. The ones that were so prized and cherished are really useless and redundant. What good were they then, and what good are they now? Bloated balance sheets are great when you want to take on loads of money from investors and bankers. That would be their primary purpose. The problem with them today is that they account for the legacy costs of spending that occurred over the past decades and now represent the people who want to see something for the money they put into the firm. How does that relate to “strong” and “protectable.”

This isn’t a crisis this is wholesale destruction of the business and the industry. Hoping for change is what politicians sell. Plans are what businesses need to deal with the issues of the day and provide guidance for the future. What is the plan of the producers and the industry today? I don’t see anything because there is nothing. I have the plan that is needed for the industry in the Preliminary Specification. It deals specifically with the overproduction and oversupply issues, and resource constraints in the earth science and engineering disciplines. Setting out the objective of energy independence on the continent. Producers who subscribe to our software development by paying 10% of their subscription fees by August 31, 2016 can state that they have a plan, the Preliminary Specification, to deal with these industry wide problems in their third quarter reports. I’m sure investors and bankers can get behind that.

I started these software developments in 1991. It was different back then, very different. I started in 1992 with a comprehensive joint development agreement with Oracle Corporation. We were to bring a solution to the market that addressed the needs of the oil and gas producers. For a variety of reasons that did not happen. We shifted our developments to Price Waterhouse's PW/SQL product offering in June of 1997. And in October of 1997 we were the odd man out in the Price Waterhouse, Coopers and Lybrand merger. Nonetheless I began these developments early this century and published the proposal for the Preliminary Research Report in August 2003. In May 2004 the Preliminary Research Report, with the conclusion that the Joint Operating Committee was the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer was published. I then undertook ten years of research to determine what the producer and industry would need to operate when using the Joint Operating Committee as the key organizational construct. There is a significant amount of history in my attempts to bring this solution to this market. At no time have I ever received any support from industry.

If you think as a producer that the Preliminary Specification isn’t for you then fine. Start with your own idea and plan and we’ll see you in 25 years. The reality is that you can execute within your organization at 100% and still fail due to the collective actions of other producers. This failed business model of muddling along has to be trashed before the industry is trashed.

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. 

"This" Will Never End

A short history lesson will have us recall oil prices hitting $26 and the producers banking on “market rebalancing” to clear the situation. Their claim was that the cause of low commodity prices was self correcting and these low prices would quickly lead to higher prices. Then the surge in oil pricing allowed producers to claim that they were profitable at even $30 oil, but when it hit $52, there was no talking to them, all was well. People, Ideas & Objects suggested otherwise and stated that the prices would resume their downward trend in a short period of time. That no producer was profitable at $48. That the cash situation in the industry, with very low and sometimes negative gross margins on production, and the past debt and equity commitments totalling over $200 / barrel. The producers were in a state of denial to state that they were profitable and were in fact in a very desperate cash situation. Now with the second quarter reports we find that the cash situation in the industry is even worse than I thought it would be. Profitability doesn’t exist anywhere except in Exxon and Shell. And there isn’t a hint that “market rebalancing” will take effect soon as oil prices spiral down to $39.

What we have is a business model that is used in the industry that is flawed and broken. Just as in the late 1980’s and 1990’s production by the producers will continue no matter what the situation happens to be. This overproduction and oversupply, as a result of this broken business model, will never end. That was proven in the 1980’s and 1990’s with the depth and length of that downswing in oil prices. Commonly known as the muddling along strategy this business model is the standard operating procedure for all producers. When we add the age of abundance in terms of oil and gas from the shale reservoirs. We have the total destruction of the industry. This issue is resolved in the Preliminary Specification and is available to the industry.

Why do I have such difficulty making the sale with respect to this software development project? It just boggles my mind that I have such heated conversations about such obtuse things. I am not the one that caused this situation. I am the one with the solution, and we have a value proposition in the trillions of dollars. If we continue on in the fashion that we are at this time the investors and bankers will never come back and the industry will fall backwards in terms of its capabilities for decades. We are very close to this happening now. It won’t take too much more destruction to start harming the capabilities that we have come to rely on in the industry. If you haven’t grasped the seriousness of the situation yet. Then there is no use talking to you.

One source of cash that producers have leaned on heavily in these second quarter reports is the expectation that the service industry will fund any field activity. That, to me, in the situation that the oil and gas industry is in, is a despicable act. Another form of cash that is becoming evident in these second quarter reports is the ballooning volume of accounts receivable. Partners are not paying their working interest statements in a timely manner. How many times have we seen a producer start to do this for one or two months before they close the doors. Withholding the net proceeds of the property to the rightful owners of the property, or not paying their working interest distributions are also despicable acts.

But what should we expect. Cash is everything. If you analyze any of the cash generated from operations you will find that the producers did not generate any real cash from the operation itself. Operations, royalties and overheads took all of the money. That doesn’t include the costs of capital, that’s just some of the money that went out the door. Every producer that I have seen have drawn vast amounts of cash from their cash balances, bank lines of credit, or if they have any, asset sales or investors. The consumption of cash is epic. The healthy firms appear to have about a year left of this crisis in terms of cash. Many are at the end of their rope.

Has anyone else noted that the deliverability of oil and gas is down. Yet in both cases of oil and gas the inventories are up and at record levels. This issue of overproduction and oversupply is not going to be remedied in the near term if this is the sixth year in natural gas and the third year for oil. It will take a generation before the overproduction and oversupply is resolved by the existing producers. This is the information which has the investors chompin at the bit! Bankers are swarming the producers with offers on the basis of this knowledge!

We don’t have the time or resources to survive a generation! People, Ideas & Objects have a plan for the industry for the next 25 years that sees the investors and bankers potentially restarting their participation with the producers tomorrow. They will do this if they see a viable plan to achieve energy independence in Canada and the U.S. in oil and gas. First we have to make the existing production profitable. We then have to deal with the long term shortfall of earth science and engineering people. And then we can profitably increase the deliverability on the continent to achieve energy independence. That plan is the Preliminary Specification. Take a week or so to read it. It sure is better than reading these second quarter reports.

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. 

The Integrated's Too

The difficulties being experienced in oil and gas are affecting even the large integrated producers. This is a bit of a surprise to most, including me, these firms have their downstream operations to balance out any difficulties that they may experience in the upstream end of the business. The scope of the cash crisis in the upstream end of the oil and gas sector is now dragging down these large integrated operations as well. BP and Chevron even reported multi billion dollar losses for the quarter. It was very interesting to hear what the CEO’s had to say about these reports. Most specifically Shell’s CEO Ben van Beurden stated he “wants to turn Shell into the best oil company for investor returns.” To me that sounds remarkably like our claim that we provide the oil and gas producers with the most profitable means of oil and gas operations. Which is what our Preliminary Specification does. But it also implies that he understands the impact of our claim in his organization.

Shell, BP, Chevron and Exxon have unquestionably the best assets in the oil and gas business. For that their is no doubt. They also have the best people. They have the scope and scale of operation that provide them with the secure base in which they can invest in their human resources for the long term. Few organizations can approach the situation that way. They also have access to the best forms of financing in the world. Whether that is debt or equity, they have the credit rating and depth of shareholder pool to do what it is they need to do for the next 30 years without much concern for financing. Few companies have achieved this level of success. Yet with all of this they are unable to earn a profit in BP and Chevron’s case and Shell and Exxon’s instances were some of the worst in their history. How could this be? Have they not executed their business plans and strategies effectively?

Simply you could have done all that you could have done in the best organizations in the industry and still been unable to make a go of it in oil and gas. In many ways Shell, BP, Chevron and Exxon have done nothing wrong and everything right. And that could be stated for every other producer in the business. It is the collective work of all of the producers in the industry that is working against each individual producer that is causing the problems. Overproduction as a result of the producers assumption that oil and gas is a scarce resource. Is the predominant thinking that was was necessary in the 20th century. In the 21st century there are new rules that need to be understood. One is that the age of resource abundance is upon us. And it's not enough to own the oil and gas asset, it's also necessary to have access to the software that makes the oil and gas asset profitable.

The understanding that I think Shell’s CEO has of our claim of being the most profitable means of oil and gas operations is that his assets are the best, his people are the best, and his access to capital is the best and therefore he is going to be able to provide investors with a better return than anyone else. And that is the right interpretation of our claim of the most profitability. Just because we provide the most profitable means of oil and gas operations does not guarantee that every producer is going to profitable. They may have profitable production, however it maybe just profitable in comparison to what Shell or some upstart may be able to provide. They may be a poor competitor in terms of the earth science and engineering capabilities or their land and asset base. Their competitive cost structures may be so costly and unproductive it takes their profitable production outside of a profitable commercial enterprise. The point is that profitability is a relative thing. And there will be producers who will not make it in the industry even with the Preliminary Specification operational. However, what we will know when the Preliminary Specification is operational is that all of the industries production was produced profitably and any properties that did not meet their marginal costs were shut-in as a result. Keeping the industry's profits as high as could be by not diluting them with any unprofitable properties producing. That those unprofitable properties shut-in reserves are being saved for a time when they can be produced profitably. And the commodity marketplace is priced at the marginal cost and the investors, producers and consumers are receiving a fair and equitable price in terms of energy.

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.