The situation we detailed on Friday was that the business was untenable. BP’s Chief Economist noted that it would be in the best interest of the OPEC producers to produce what they have and provide the market at whatever price is offered for the next 32 years. With the abundance of supply on hand, stated as being double what is needed to 2050, those low cost producers would find that they would be profitable, but their margins would be slim. For high cost producers like those in North America, you’re out of business. That in essence was the message.
Monday we detailed the methodology behind accounting scandals, past and present. How the innocent were usually caught up in trying to do the right thing, being falsely accused and spending time in prison. Those that may have read the detailed histories of Worldcom and Enron may have seen how unfairly those companies were treated. That there are parallels to the oil and gas industry and People, Ideas & Objects hope that none of the bureaucrats in this industry are ever sent to prison. After all they were only doing what everyone else was doing. They were only competing within the industry and they didn’t know that it was wrong at the time. Give them a break.
Today, with those two posts in mind, we note the narrative in the industry is rainbows and unicorns. The times could not be better and the opportunities never so strong. If you as an investor bet your money, or is it invest your money, I can never remember anymore, you could win the biggest prize of all. Coming from Calgary I have to say that we’re probably better known for the scandals and scams then we are for any business success. We’ve seen them all. Back in the early 1990’s we had this Gold mining company named BreX. If you're interested you can catch Matthew McConaughey’s new movie Gold which is based on that story. What BreX did was find an unbelievable gold mine in Indonesia. It was only unbelievable because they were salting the samples that they sent to the lab to determine how much gold was held in reserve. The scam only fell apart when someone went back to the samples and found that the gold in the samples was placer gold. Which is gold that is only found in rivers, not mines.
Kind of feels like the 1990’s to me in ways. Looking behind the cheerleaders the producers are putting out in front of the investors is rather distracting. However, I have to admit effective. The show must go on. And it is. We spoke of the market capitalizations that my analysis over the holidays showed of the industry. That producers were very highly valued in comparison to their cash flow numbers. Those overvalued cash flow numbers, just like the overvalued earnings and assets. Those are financial performance over valuations. Here I’m talking about the price of the stock being overvalued on the order of three to four times. I suggested that this enabled positions to be liquidated and John Q. Public left holding the stock while it crashes and the company's officers skedaddle. With the earnings reports I’ve seen so far, I think this is highly probable.
Does anyone doubt that shale changed the business? What changes in the methods of operation have the producers undertaken to deal with shale? How have they made shale commercial? What plans do they have to rebuild the aging infrastructure? Deal with the big crew change? Or just move on in a manner that is viable? I haven’t seen anything. But when someone invites me into a dark room I generally run the other way. So they maybe talking amongst themselves about these things in that dark room and we’re just not aware of them. I’m sure that’s what’s going on.
The challenges and opportunities moving forward are the most significant in the industries history. Those were somewhat detailed in BP’s Chief Economists comments about double the supply of oil to 2050. Where’s the plan? What are we doing? I have proposed the Preliminary Specification and have been ostracized for it. Producers have done everything in their power to keep me quiet over the last decades. Why, am I screwing up the scam? Apparently so.
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.