User Community Developments, Part XXXIV

I’ve yet to hear a valid argument against People, Ideas & Objects (PI&O’s) assertion that oil or gas should only ever be produced profitably. No one’s been able to provide a reasonable explanation as to why we would ever produce oil and gas unprofitably. These are commodities that are unlike any other in that they’re not replaceable; you can’t grow a new crop next year or melt them down for reuse. What other commodities meet those criteria? Continuing to produce unprofitably, I believe, is the equivalent of robbing future generations of the use of their energy in ways that are wasteful. If the products were produced profitably, then we can assert consumers used them effectively and efficiently and were therefore not wasted. Are we able to say that about the production of hydrocarbons in the past decades?

We have frequently discussed the Preliminary Specifications standardization of accounting and administration that will be undertaken in oil and gas by our user communities service provider organizations. Every property would be subject to the same objective and standard treatment that is applied to any other property in North America. Natural gas is much more costly to account and administer for, due to its byproducts. Some properties are significantly more complex than others. These will be reflected in the unique cost structures of each and every property. In addition the administrative and accounting costs are all variable under the Preliminary Specification. Making all of the costs of the producers variable based on production. Enabling the implementation of our price maker strategy and ensuring the profitability of each and every producing property.

It will be the role and responsibility of our user community to ensure that the accounting and administrative aspects of each property are both timely and accurate. As well as the method of accounting that is applied is both objective and standardized throughout the North American producer base. As a result producers will know that their profitable production is profitable in direct comparison to all other production across the continent. (There will need to be some special consideration for the consistent full production of heavy oil as its scalability is not economic or viable under any circumstance.) It should be noted that included in those profitability calculations will be the actual prices that were received at the property. Any differentials would be applied however there would be no consideration for any hedging. That is a corporate activity that is something the producer may consider continuing if they so desire. It does not affect the criteria of whether or not to produce a property. The property will be the only basis of evaluation in terms of profitability.

In a world of ever increasing costs due to the advancing difficulty in producing each incremental barrel of oil and gas. The need to remain active and proactive on a costing methodology for how the capital is recaptured and its cash reused by the producer is of concern. Conventional oil and gas will be treated differently than what shale would or should be. With its flush production, steep decline curves and costly reworks this will take a more precise accounting than what has taken place to date. Our user community will need to apply their most advanced thinking in terms of what and how the costs of oil and gas exploration and production are realized. As we’ve also mentioned the recognition of capital provides a return of the cash that was previously invested. Providing a ready source of capital for the producer to reinvest for the future. With the capital expenditures that are forecast the need to source adequate levels of capital are necessary. The only source of capital available to the industry is the recycling of their capital costs on a higher frequency than the multi-decade basis they’ve done in this “build a balance sheet” era. Our user community will need to ensure that adequate capital resources are provided to the producers for this purpose.

Bureaucrats have been intoxicated with the cash flow from oil and gas production in the past decades. The industry is a capital intensive industry and therefore the return of capital that was previously invested has always been strong. The deferral of capital recognition for decades has been a result of the levels of cash they’ve been able to generate in these producer organizations. It has taken them significant effort to understand and develop unique and innovative ways in which to divert these funds into their own pockets. The issue that we have today is that with the Preliminary Specification the volume of cash coming into these organizations is going to be an exponential increase from the bureaucrats' days. Luckily we’re disintermediating them and won’t have to concern ourselves with their hands sliding back into the cookie jar. Where did all that value go? Nonetheless the cash that is generated will be substantial and the need to have better control over this will need to be instilled within the industry, producers and larger oil and gas dependent economies. We should build some software like the Financial Marketplace module of the Preliminary Specification that deals with this!

We’ve seen some discussion recently about production quotas with OPEC+ and Texas, and also some discussion about government imposed production allocations. Our White Paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale” discusses these in addition to our price maker strategy. These discussions are consistent with the Alberta government's production allocations that reduced the province's production by 350,000 boe / day since January 1, 2019. These are not the remedies we’re looking for. They are ineffective as they are unable to impose the production discipline that is needed in the marketplace. Producers shut-in the production to meet the quota and then begin to figure out how to get around the quota. In Alberta there are several ways of doing so. None of the production is evaluated as to whether it is profitable or not, and therefore it is all detrimental to the producers bottom line. Currently the Alberta based production is receiving single digit oil prices. Low prices as a result of continued overproduction as the government mandate has done little to solve the problem they were created for. The only method in which the market will institute any production discipline is through the use of profitability as the means in which a producer is evaluated upon. Then they are motivated by the value enhancement of doing so. The increases in value from implementation of the Preliminary Specification includes saving the reserves for a time in which they can be produced profitably, ensuring that the costs of the reserves don’t have to carry the additional burden of the successive losses that would be incurred if the property continued to produced unprofitably, the producer only produces profitable operations and no longer dilutes their earnings with unprofitable operations and the commodity markets have the marginal production removed from the market and hence the prices will find the market price. Our user community will be the critical resource to enhancing the profitability of the energy industry. Our methodology or price maker strategy has been known in oil and gas since at least 2007. If it were able to be implemented within the current configuration of producers, would it not have been done so by now? The fact is producers and the industry are not configured in any way to provide this information or this mechanism, it is impossible for them to do so. Only the Preliminary Specification can.

Global oil inventories are alleged to be at around 750 million barrels as of Monday March 23, 2020. Oil storage capacity is believed to be about 1 billion barrels. If the demand for oil has dropped by 20 million boe / day and overproduction is at 2 million boe / day. The remaining 250 million barrels of storage may be filled in as little as ten days, or the day after April fools. When storage is full will it be the coronavirus or overproduction and oversupply that occupies the minds of the producer bureaucrats? Will President Trump have time to hear the producers concerns then? What we will know is that oil prices will go negative, the differentiated prices are not that far from zero today, single digits and falling. Maybe producers will understand the best form of storage is the reserves themselves. For example, don’t produce unprofitable production. Maybe the North American producers will wake up to the fact that they’ve been unprofitable all these decades. Maybe they’ll realize they’ve been so unprofitable that they’ve consumed value and cash with each barrel produced. They were only viable when someone else was providing consistent cash infusions. Maybe they’ll realize that investors saw this a few years ago and got out. Maybe they’ll realize that OPEC is still making money as the low cost producers, and will continue to do so. Maybe they’ll realize with all the doors slammed in their face, that blaming everyone, cutting everything and everyone the time for a reckoning will be at hand? That having the ability to withhold unprofitable production is not market manipulation as they have always claimed but just plain business sense.

In summary what’s it going to take to make the transition from the current oil and gas industry to the one we’ve described in the Preliminary Specification. First of all there has to be a continental wide destruction of any and all value contained within the oil and gas industry. Check, complete and good job bureaucrats. There is development of the Preliminary Specification with its highly capable, dynamic, innovative, accountable and profit oriented user community and service providers with the software and software development capabilities that facilitate change. Ones with the power, control, Intellectual Property, budget, leadership, people, revenue sources, licensing, distinct and comprehensive competitive advantages, timing and accuracy of the costs of exploration and production, quality of service, objectivity and standardization of administrative and accounting services and lets not forget the responsibility and authority to get it done. This is a new capacity, capability and functionality in the oil and gas industry. It is not available today and needs to be purpose built to deal with today’s issues and tomorrow’s future.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

Yes, of Course...

Everyone can shut-in now, in fact it seems to be all the rage! World Oil published an article on Sunday March 29, 2020 that identifies shale as a type of rock that can have its production shut-in without any damage to the formation whatsoever.

Shale Threshold. “The market is going to be out of balance for quite some time,” Morris said.

Yergin, the confidante of oil ministers and chief executives, sees the threshold for reinvigorating shale between $50 and $60 a barrel. U.S. crude was trading above the $50 level as recently as Feb. 26.

“At $50, we’ll start to see a recovery and a step up in investment, so long as people feel safe about the price floor beneath them,” he said.

It’s funny that Yergin should put it that way. A big part of shale’s resilience lies in its unique geology. Unlike the so-called conventional fields in Saudi Arabia and Russia, North American shale is rock so dense that it doesn’t degrade or collapse on itself if oil production is interrupted. In other parts of the world, disrupting output can do irreversible damage.

That’s why the bulk of Chevron’s $4 billion spending cut will take place in the Permian, CEO Mike Wirth said Tuesday. It’s a rare field where production can be turned off almost instantly without adverse long-term impacts.

With shale, “the assets don’t go away because you haven’t destroyed the field,” said Ken Medlock, senior director of Rice University’s Center for Energy Studies. “We’ll see a thinning of the herd but the assets will still be there.”

Welcome to the shut-in party pal(s). Not to suggest otherwise, but I always believed that a frac job was to “blast” the rock with water and hydraulic pressure, opening a void for the oil or gas to flow to? Their point in this is; that not until you’ve systemically, comprehensively and financially destroyed everything in the oil and gas industry will you begin to shut-in properties. That you could have shut-in production when we completed development of the Preliminary Specification in December 2013, which suggests that unprofitability is the point in which you shut-in a property. A time period in which bureaucrats lied to everyone about, my list is far too long to include everything so I’ll just list my favorite lies here, market rebalancing, capital discipline and we’ll muddle through. I am going to add “doesn’t degrade or collapse” formations to the top of my list right now. Now with all the destruction they’ve caused they’ll admit shut-in production is the way to go. The issue bureaucrats had before, with shutting in production, was that it took effort to do so.

This problem isn’t going to go away I’m afraid. As I discovered decades ago the industry is not configured to function in this way. It uses the high throughput production model. Which sees maximum capacity produced at all times to offset its large overheads. The Preliminary Specification shifts the industry to the decentralized production model which makes all the producers' costs variable. Then any property that is shut-in incurs no costs. Overheads are incurred by the service providers who will not be conducting any work on shut-in production and therefore will not render any billing for their services. Shifting the overhead costs from industry to the service providers enables producers for the first time to be able to control their overhead costs.

Not only do the service providers have a role in this but also the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. The Joint Operating Committee is the industry standard legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. Using it aligns these frameworks with the compliance and governance that is “currently” managed by the bureaucracy.

This shut-in production enables producers to save the reserves for a time in which they can be produced profitably. The reserves will not have to increase their return on investment when it includes the additional losses of the property if it continues to produce unprofitably. Global oil and gas storage facilities will be augmented and better managed by assuming reserves are a natural form of storage. And the commodity markets will find the marginal price when the marginal barrels of oil equivalent are removed from the marketplace. It is this logic I assume that these people now find so compelling.

Therefore here are a handful of useful questions that people may want to ask these newly enlightened bureaucrats.

• Who will be the producers that shut-in their production? Profitability has been determined by PI&O to be the only means in which to allocate production fairly and reasonably. Therefore what we’ll see from the industry is the continuation of their favorite activity. “It's not them, its other producers, we’re profitable.” The blame game.

• Which properties will be shut-in? There is not a producer in the industry that knows within a range of +/- 25% of their revenues what their profitability at any property is. Ask for the detailed reports and focus on the actual overhead charges. There are no actual overhead costs charged to the properties, anywhere on the continent. Most, probably 85% of overhead is capitalized. It must be that properties manage themselves and the overhead supports the bureaucrats? Don’t ask me, I already know the answers, ask the producers these questions, that’s why they're profitable. 

• If PI&O’s Preliminary Specification makes actual overhead variable, what does this renewed interest in shutting-in consider to do with the producers overhead? The key question, and why what they’re doing doesn’t work. Their overhead is 100% fixed. The same at any level of the production profile. Therefore their profits may appear even more specious as a result. But they do have a plan of course, just lay the overhead off. Those people that were just hanging on by their fingertips trying to keep up while doing ten peoples work, might be able to let go soon. And those that are remaining get ready for more work and soon it will be your turn too. Isn’t oil and gas fun!

Just as the producers told the service industry to cut their costs by 25%, they immediately jumped at the opportunity and reduced the volume of their business which was already on its knees due to this bureaucratically induced depression. This too will inspire and motivate the remaining few people left in the producers to redouble their efforts again. As I said on Friday to the bureaucrats, before you go, initiate and fund the Preliminary Specification. That way you can do something positive for once in your lives.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

Epic Dishonesty

The level of dishonesty that is being pushed by the producer bureaucrats at this time of crisis is quite frankly nauseating. After fighting these people for decades about their destruction of value from overproduction and deceptive accounting practices, the inevitable business consequences of doing so are coming home to roost. People, Ideas & Objects (PI&O) has faced a brutal onslaught for over 15 years of absolute garbage from these people for proposing a solution that enables them to remedy these specific issues, and be profitable everywhere and always. Our White Paper “Profitable, North American Energy Independence -- Through the Commercial of Shale” published on 2019’s American Independence Day details this issue and its solution. Why, if as they’re now claiming, shutting in has been the standard operating procedure in industry, as noted in World Oil, has the industry gone to the verge of negative pricing and completed its full destruction? But also, why the abuse of PI&O, and why the arguments against shutting in production all this time? Or in other words if shutting in was standard procedure, why didn’t industry proceed with the development of the Preliminary Specification at any time since its publication in December 2013?

Shutting in production is the only remedy to overproduction and oversupply which PI&O suggest has been ongoing since the late 1970’s in North America. Ours has been resisted by producers for every possible reason under the sun. The costs and risks of shutting in, as noted in oilprice.com, were never mentioned at any time before and are specious, as there are a variety of temporary operational reasons producers shut-in production, such as workovers etc. The internal processes to shut-in on a wholesale basis don’t exist. Operational decision making authority resides with the Joint Operating Committee. One of the reasons that we have moved to make the Joint Operating Committee the key organizational construct in the Preliminary Specification. And the current systems information in oil and gas as to which property is profitable doesn’t exist. However these processes to shut-in production can be developed by the engineers and by developing the Preliminary Specification. Alternatively if they persist in not wanting to do that, then go out of business.

In a World Oil article it was mentioned that the lack of storage would force the producers to shut-in substantial volumes of production. They indicated that at many times in the past shutting in had been conducted for a variety of reasons, most specifically the 1986 OPEC actions to flood the market. I’m having a hard time remembering these actions. What I recall was the phenomenon of producers crying “oh, whoa is me.” Nothing was done then and only when the global oil storage is full, and prices go negative do bureaucrats wake from their slumber. This is a continuation of the dishonesty we’ve seen over the past fourteen years that PI&O have been actively developing the Preliminary Specification and promoting our solution. Does anyone remember the long held belief in “market rebalancing.” Or how about the common call that we’ve been here before and it always gets better. How many times have we heard the other industry standard bearer of “capital discipline.” There’s also the “we’ll muddle through, and do nothing” as the methods that were proposed as “actions” to deal with the declining prices and destruction of value.

I grant them today’s commentary reflects a change in the bureaucrats tone. They’re not blaming anyone and focusing on their own actions that would be necessary to remedy the situation. This to me is amazing, albeit the horses bolted long ago and are nowhere in sight, probably deceased. If it is reasonable now to shut-in production after systemically overproducing for decades and prices are in the single digits, threatening to go negative. Why would it not be reasonable to shut-in production when the property is unprofitable? Bureaucrats should look around and notice the number of groups that are supporting their organizations. No investors, banks, the service industry and all the people they have working for them. They’ve fundamentally betrayed them with their dishonesty and destruction of their money, careers and livelihood. No one is listening to them, and to say things that are not true about our history is annoying the hell out of me.

Dear Bureaucrat, here’s an idea and a short term plan of action to deal with the situation. Bow out, but before you go, initiate and finance the development of the Preliminary Specification so that you can set in place the righting of your wrongs, reverse the destruction you’ve caused and in a way apologize to all the people you’ve betrayed. Then take a hike!

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

User Community Developments, Part XXXIII

The one upside that our user community and service providers will be able to count on when they commit to People, Ideas & Objects is that we’ve eliminated all of the business risk associated with their move from oil and gas to this new industry configuration. We need people to be involved in this initiative and we need large numbers of people in order to ensure that we complete the task from all areas of administration and accounting in the industry. The only way this can be done is to secure the budget for People, Ideas & Objects in advance of any work being started. And that is exactly what we’re doing. The time spent fooling around by bureaucrats has taken us into a situation where the industry and service industry, as well as the general economy, have been put in dire need of help. Much as we would like to trust our alleged customers we know they hold the attention span of mosquitoes. We would just be getting started and they would see an entire weeks uptick, that’s five consecutive days, in the oil price and cancel these software developments as they would deem them to be unnecessary. As a result effectively killing this initiative permanently. We documented the treatment of ERP software developers over the past three decades by oil and gas producers. This is listed on page 18 of our White Paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” And lastly with the scope and scale of this project we are unable to fund the project ourselves, however need to since the majority of the producers are on a greater than 18 month accounts payable schedules. Therefore once we have our full budget in hand the user community member will be able to transition with reduced business risk and can then provide their full commitment to the project.

We have seen the extent of our good friends the bureaucrats' apparent need to destroy everything that’s in front of them. We have also seen their inability to deal with People, Ideas & Objects since 2003. They’re not interested in building profitable businesses as we are. They would conspire to derail our initiative in the many ways that they’re familiar with value destruction. Just as they’ve derailed and devastated the landscape in oil and gas. We can not afford to risk the user community to this well documented bureaucratic tendency in a naive or trusting manner. They will not be the ones who are forwarding the funds to People, Ideas & Objects. People have ceased to believe, care or take the time to listen or understand those that are and have been in power in the oil and gas industry. It may now seem that all the doors that were once open to producers at one point in time have been slammed shut. The reality is that their opportunities have been closing down since the decline in natural gas prices, as a result of shale, over a decade ago. Investors, bankers and others have seen enough on the natural gas side over this past decade, they didn’t need to know more. It just takes a while for the bureaucrats to run around and test each door for any lingering opportunities. Last week when Occidental turned to investors to step in and help them with the debt they’ve committed to, I thought that this was the height of hypocrisy, boldness and obtuseness. And maybe the end.

Producers will need to become used to this form of transaction very quickly. It won’t be just ourselves that demand cash upfront before any work gets done. After destroying the industry, and the service industry in an even more comprehensive manner, no one will be coming to their financial rescue either. The key difference is that none of their decline was anything to do with their management. To conduct any field operations or get anything done the producers will need to be paying in advance until they can reestablish their trust and good governance with those that they conduct business with. Give it a decade or so before you even try I would suggest. The abuse and destruction of the service industry is the legacy of the existing producers and they will need to deal with this very soon. $18 / barrel of oil should help out tremendously here.

Switching topics now from our budget funding dynamics to communications throughout the user community. We find during this time of self isolation, advantages to the methods of organization that People, Ideas & Objects our user community and their service provider organizations are building. There will be a diverse and dynamic community represented in our user community and service providers. Each bringing their own understanding and knowledge of how their corner of the oil and gas industry operates. Collectively the full scope and scale of the industry's knowledge will be captured. Application of this knowledge in a focused direction, toward building the most profitable means of oil and gas operations, will be achieved through the communication facilities we’re bringing to our users. We are using Google Docs with the variety of tools that are available for the purpose of enhanced communication. If you’ve not had the opportunity to use these I would suggest you give them a try as the more familiar you are with them the more valuable they become.

The nature of remote work will be a feature of the developments of the Preliminary Specification and not as a result of any virus, or bug. Access by the authorized user using the appropriate device reviewing the data and information that they require is what we’ve set out to develop within our Security & Access Control module. Augmenting these features and capabilities will be Oracle’s security applications that are comprehensive and state of the art in the Information Technology and business communities. This will apply to not only our user community but also their service provider operations and extend further to almost everyone in oil and gas that needs access to financial information.

These requirements will place new demands on the skill requirements of those who are user community members and working within their service provider organizations. Information Technologies are becoming increasingly ubiquitous and will continue to demand more from users. However, People, Ideas & Objects are expecting much more from our user community. First and foremost it is important to note that the priority that we are looking for is the knowledge and understanding of the oil and gas industry. That is paramount. However the need to be able to be active in a high technological environment during development, implementation and operations will demand that these skills be of a higher grade than what may be seen as adequate today. This will be what is required to operate in our environment but also, as we noted within the user community vision, the ability to communicate with our developers.

Secondly your ability to communicate with the People, Ideas & Objects developers in their primary skill set will be necessary to enhance the communications between yourself and our developers. It is easier for you to understand the elements of these concepts in relational theory and Java then it is for them to comprehend the full understanding of the oil and gas industry as represented in the entire user community. Therefore to enhance the communications between the developers and the user community it is by far the easiest for the user community to be able to speak generally the language of the developers. As there is no way in which the developers are ever going to fully understand the full scope and scale of the oil and gas industry that is contained within the entire user community. 

A reasonable approach to the task at hand I believe. The connection between these two otherwise disparate points, funding and communication, are important in that the job that is falling to the user community is becoming more critical each and every day. Our user communities leadership will be needed to provide the industry with the future and profitability that it needs. The means in which you will do that is through these enhanced communication with our developers who are well versed in the language and understanding of their own world. Our enhanced understanding of that world would facilitate better communications and in the long run a prosperous oil and gas industry. However, for our user community to be looking over their shoulders concerned about the business risks of this initiative, if the bureaucrats were going to regain control of the producers after a rally in oil and gas prices etc. etc. is unacceptable. We have to eliminate the business risk for our users in order for them to concentrate on this difficult task they have ahead of them. I don’t want to add any additional unnecessary stress or concern but after four decades of mismanagement by these bureaucrats, what other choice is there, or will there be, for industry to choose in the foreseeable future?

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

User Community Developments, Part XXXII

As much as the producers would like us to believe that all of the damage has been done by the coronavirus, we know different. The long term destruction of the industry at the hands of the bureaucrats has been the cause, and will remain so long after everyone is healthy again. Occidental may still be rated as junk with its stock now trading at 13% of what it was before their dreams of Anadarko began. They’re now appealing to investors to help them deal with their secured debts of $39 billion, $75 billion in total debt, and a market capitalization of less than $10 billion. Such is the way of the oil and gas bureaucrat, it’s not their fault. They are trying as hard as they can, don't you know. That they’ve destroyed 87% of their shareholders value is inconsequential. It’s time for the investors to step up and deal with the debt that their dumb decisions created. That’s right it’s the investors turn to bail them out. After turning to everyone including the Easter Bunny they’ve found no support that will sustain their antics. So it’s back to the investors who were never listened to three and a half years ago. The coronavirus based bailouts and the Saudi / Russian tariffs didn’t happen either. Who will help these poor helpless and hopeless souls.

“The search for data, big data being the key, Artificial intelligence and Machine Learning will show the way of the oil and gas industry.” Hogwash, garbage and ridiculous. This is the theme that has guided producer bureaucrats for many decades. Building huge IT playgrounds for the bureaucrats to play in. During the course of this activity it is reasonable to suggest that they’ve lost the script. Which of course they have. There are a variety of software applications, Artificial Intelligence and all wonder of applications of widgets that go whirr in the industry. Just in the area of inventories what is it that you want to know? Bureaucrats can tell you with extreme precision. They have applications using Artificial Intelligence which review satellite imagery for known crude oil storage tanks. Taking measurements of the size of the shadow cast by the tank at the time of the day and year, and GPS coordinate to determine the volumetric size of the tank. They then calculate the size of the shadow cast by the floating roof to determine the volume stored in that tank. Then they aggregate these volumes across the globe or region of interest to determine the storage of oil. Fantastic, spectacular and fascinating what one can do with one's technology today. The problem is what use is this information? The question that they should have asked and obviously never was. Well, the bureaucrats claim to get a better understanding of the markets. Well, bunk. If they have such a good understanding of the market why do they continue to produce unprofitably? The market is sending them the one signal that is necessary for them to understand, the one signal that imputes the production, inventory and demand, all in one, and that is the price of the commodity. Yet bureaucrats continue to ignore the commodity price at great jeopardy to themselves as they pour over these tank inventory readings. Creating more paper reports and processes of untold value destruction that generates nothing discernible. Unable to determine if the property they’re producing is profitable within plus or minus 25% of the range of its revenues. But that’s accounting and accounting isn’t exciting.

The point of course is the need to have users define the software that is developed. Otherwise you end up with science experiments and activities that take a lot of time, energy and money and flush them down the big drainage ditch of value that is oil and gas. In terms of how oil and gas is run is clearly reflected here. It’s a big science experiment. If you're not using the most bleeding edge science then you're not “winning.” It’s not just the software, it’s also the business that the user community keeps focused on. What People, Ideas & Objects user community does is implement common sense into the process of building software. Give the users what it is they want. Forget about what the technology can do and have the business prevail in terms of what is needed to be done. Review the Preliminary Specification, the user community vision and determine what aspect of the technology is driving this initiative. None. Technology for technology's sake is the great misdirection that has clouded and confused the user into either stating its useless or not understanding it. Little has been accomplished after 50 years of technological innovation at this point, in my opinion. Yet we stand on the shoulders of Information Technology giants and are capable of delivering real results if we just focus on the business principles and user communities, and not the shazam.

Cost control and shuffling data between the multitudes of software applications in order to determine that nothing has changed is the art and science of bureaucracy. I was told, when People, Ideas & Objects began our by-line of providing the most profitable means of oil and gas operations. That no one cared about profits, I was called crazy and kicked out of the industry for our dedicated focus on profits, among other things. It is easy to see that the same attitude applies to market prices. Basic business principles are not used, appreciated, understood or accepted in oil and gas. Proponents of these principles are ridiculed and belittled because the bureaucrats know far better, they have the satellite imagery to prove it.

Yet all of this Artificial Intelligence and Machine Learning, brilliance of those that are the top of the producers still have not determined what the issues are in their firm. Is it the coronavirus, too warm of winters, global warming, is it the pipeline companies fault, or governments, OPEC’s or their employing “capital discipline” to deal with low prices and unprofitability? Can everyone see the disconnect that has developed in the culture of the industry as it has moved away from basic business principles into what I really don’t know what to call this. Soviet era bureaucratic makeshift? I would also say it’s delusion however there has been a decided and violent response by these people towards People, Ideas & Objects and our Preliminary Specification. There has been a highly deceptive reporting of the activities going on here for four decades. And all the while it is these principle (the C suite and direct charges) bureaucrats who are the only, and I repeat the only ones who have benefited from their involvement in oil and gas. If it’s naive or deliberate, either way they don’t deserve our attention anymore and need to be removed.

And replaced by those of our user community that will be individually and collectively able to build the software that holds to business principles and user needs. Building software that users need, not what technologists and bureaucrats want. The life cycle of the hierarchy has been exhausted and is now exposed as a non-functioning, counterproductive and value destroying beast. Distributed, decentralized markets such as those contained in the Preliminary Specifications Resource Marketplace, Petroleum Lease Marketplace and Financial Marketplace modules. In combination with the Joint Operating Committee as the key organizational structure of the dynamic, innovative, accountable and profitable oil and gas producer are the future of this industry. But only in the hands of its users to ensure that it never falls into the hands of bureaucrats where it only becomes the space invaders of a new generation.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

User Community Developments, Part XXXI

The three competitive advantages that People, Ideas & Objects pursue are our user community, our Intellectual Property and the research that we do to ensure that the North American oil and gas industry is profitable everywhere and always. That consumers are provided with the lowest cost commodities through a dynamic and innovative industry that ensures them an abundance of affordable products and services. We have outsourced the software development of the Preliminary Specification, and all software development that makes up our Intellectual Property, to Oracle Corporation. It is our user community that will be the source and means in which the oil and gas industry obtains, maintains and deals with the difficult future this industry faces. They will be a key part of the dynamic nature of the industry and producer firms. Anticipating, accommodating and capitalizing on the changes that are needed to avoid the difficulties and realize the opportunities over the next 30 years. Ensuring that the industry never falls into the hands of bureaucrats who create nothing but destruction again. This is the role and responsibility that I see this user community filling. What we can all be certain of is the gaping hole that exists throughout the industry today and our user community members are the only competitive means to change oil and gas’ performance trajectory.

Leadership from the user community will be at the forefront of this capability. Leadership from an individual point of view, but also from an overall community perspective. If elements of the current business model of the Preliminary Specification ceased to perform for the industry, it would be incumbent upon the user community to design and implement the changes that are needed to replace it. Independently, based on their knowledge and understanding of what is required and the prospective demands they see. Through the user community vision they have the power and control of the Intellectual Property that makes up the business models and markets of the Preliminary Specification and what it will ultimately become. Only the user community will be licensed to provide the producer firms with the means in which they can solve their issues and opportunities. Making them the sole point of contact for everyone in the industry for resolution of their issues. To whom do you go to today to have your software and process management changed? Secondly our developers only take instruction from the user community. They are blind, deaf and dumb to all others. User community members are the foundation of the value proposition that they, their service providers organizations and People, Ideas & Objects provide the oil and gas producers. To do so they must have the capability to define and be provided with the budget they need to undertake the above. This is provided as People, Ideas & Objects license raises the revenues from the oil and gas producers to pay for those that provide them with the software and services that ensure they achieve the most profitable means of oil and gas operations. Our user community will not be “blind sleep-walking agents of whomever will feed them.” Habermas

As mentioned, the user community members are individually the principles who head up the service provider organizations that will be providing the oil and gas producers with the administration and accounting from People, Ideas & Objects et al software and services. Each service provider is granted an exclusive license to conduct the full management of one individual or sub process of our application. Each service provider will have the entire oil and gas industry as their client base and will use their unique competitive advantages of quality, specialization and the division of labor, automation, innovation, integration and implementation as well as leadership, to name just the highlights. Having control of the service provider gives the user community member the understanding of the situation in the industry and what needs to be done in order to enhance it and or resolve it. They’ll then have the tools through the People, Ideas & Objects developers to be able to make the changes in the processes that they manage.

The user community members will earn as a result of these activities the part-time hourly income they receive as user community members conducting the analysis and design of the software with our developers. They’ll also have their service provider generating their own unique revenue stream as a result of attaching a fee to each transaction they process. Earning an income and profit as a result of managing their organization. Combined these revenue streams will be significant and provide them with a substantial business opportunity. In terms of their competitive advantages we did not mention price. Each service provider is granted a license to provide software and services on an exclusive basis. We feel the value of this community is in its value proposition which is in the trillions of dollars. For producers to continue to nickel and dime, playing one competitor off another does not provide the value that will be needed for the long run. Competing with other users in the community in terms of how they divide their labor, enhance their specialization and increase their quality will be collaborative. And the oil and gas industry will benefit as a result. There is also an unqualified and unquantified element of our value proposition in that the enhanced specialization and division of labor, as contemplated just in the Preliminary Specification, will be substantial enough for oil and gas to be able to increase their productive throughput with the same resources. Competing on price will ultimately destroy the potential of what this community can provide.

The user community members are derivative of the people who now occupy these roles in the producer firms today. Those that are involved in the administrative and accounting functions of the producer. Under the Preliminary Specification, in order to achieve every cost of the producer becoming variable, the administrative and accounting resources of the producer are reallocated to the service providers. That way the producer will be able to shut-in unprofitable production and through the People, Ideas & Objects system, the service providers will not receive any data from those properties. Hence no work will be done and no billing will be rendered there. Therefore the producers will incur no overhead for any property that is shut-in. The service providers will have the entire industry as their client base and could be faced with losing up to 15% of their revenues due to shut-in production. Something that they can budget and plan for.

The number of user community members that we’ll need is approximately equivalent to the number of processes that will be managed in the People, Ideas & Objects application. Three thousand is the number we have been working on since we began the development of this community in early 2014. There was always time in which to contemplate the opportunity of becoming a user community member. Now the sense of urgency may be different. I can say at this point we are no closer to our budget than at any other point in time, however, things have changed. The discretion of the potential user community member needs to consider this timing issue and conduct themselves accordingly. We have much to do.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

These Are Not the Earnings That We're Looking For, Part XLII

We’ve documented the current culture of the oil and gas industry and how it is incapable of dealing with the crisis that it finds itself in, of which it created for itself. The culture dominates the day-to-day activities of those within the producers, our very good friends the bureaucrats. It is the character of these people that I’ve identified as the cause of industry’s destruction. No matter how hard they try, they can’t buy character. They’re the only financially successful result of the past four decades of oil and gas operations. They are conflicted due to their self serving interests, uncaring nature, all powerful and absolutely unaccountable. The removal of them has been one of our direct objectives due to the destruction they’ve caused. It has also been one of our indirect objectives through the forces of disintermediation overturning industries throughout western economies, and creative destruction. The capacity and capabilities of the current industry to deal with the issues and opportunities of today, to lay a successful foundation where everyone succeeds, for what can only be described as the most difficult future oil and gas has ever seen, is non-existent.

Our Preliminary Specification is best described in our White Paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale” which reflects the business approach we have taken to resolving the issues in oil and gas and laying a solid dynamic, innovative, accountable and profitable foundation for the future. I take full responsibility for the deterioration of the relationship between ourselves and the bureaucrats. I also submit that the bureaucratic inaction, the systemic deception in everything that was done these past four decades and the chronic blaming of others would make anyone hesitant to want to work with them. That is why we have identified them as the source of the problem and will refuse to work with them during our development or at any other time. I do not trust those that have sat back and been the authors of such destruction at their own hands while continuing to line their pockets and deceptively distract people’s attention from their actions. Was it deliberate or were they naive? Either way disqualifies them from further involvement.

The reputation of existing producers could not be lower in the eyes of those that are associated with the industry, the sub-industries and the general economy that supports the industry, I know I’m not alone in this thinking. Cleaning house is the first order of business and providing these people with another chance is beyond the tolerance of even the most progressive amongst us. And to be fair, these bureaucrats had made their choice not to work with People, Ideas & Objects many years ago and that is only reasonable that we respect that now.

What we have in front of us is nothing less than the complete and comprehensive rebuilding of the oil and gas industry from stem to stern. That is the vision of the Preliminary Specification. The bureaucrats would seek to compromise between their model and ours if we allowed them to participate and we foolishly trusted them. Compromise is their method of management. We would never be able to deal with the compromises of a comprehensively failed system. Our tasks will be the further analysis of the conflict and contradictions that we’ll face in dealing with the implementation of the model’s and markets contained within the Preliminary Specification. It is here that we are taching much closer to the way in which the industry has operated since its inception. Using the Joint Operating Committee which is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. These frameworks have been ignored so that the corporate compliance of SEC, tax and other regulations can guide the governance of the organization. This inherent disjointedness between the business and the organization is a result, I believe, of the introduction of computers and the logical processing that they initially undertook. The business of the business has disappeared from the mindset, culture, knowledge and understanding of the bureaucracy.

Bureaucrats have consistently lied and pushed the agenda that “all would be ok, we’d been through this before.” Only to find 5 and 10 years later that we find ourselves knowing that none of that was true. As a result of these deceptions people were willing to concede to the bureaucrats what was necessary for the industry to get through the downturn, knowing that ultimately, as they were told, things would be better. In the five stages of grief this is the first stage which is denial. People were led to believe and in turn wanted to believe that things would get better. Now, as we learn of the oil price collapse, no one is in denial and we’ve quickly moved into the second stage of grief, that being anger. I repeat, the only group that has benefited from the past four decades in oil and gas are the bureaucrats themselves. Until recently they were able to explore new forms of their personal compensation as the only true innovations they were responsible for. Although limited now to outsized paychecks and benefits, their prior accumulation of wealth only requires maintenance which can be provided through those otherwise “measly” sums.

If we continue to believe that all will get better then we are only fooling ourselves and wasting time. This has not just been a deception it is a fundamental betrayal. The current desire to “build balance sheets” is foreign to me. I started in accounting in oil and gas, and had my own auditing firm prior to this software adventure. Is this an objective, a strategy and how exactly do they go about building a balance sheet. The balance sheet is a consequence of the actions of management. If it is to distort the size of the assets then they’ve been successful. If it’s to leverage up debt then they’re wildly successful. Or is it to recognize even greater amounts of retained losses; then there are few who can touch the quality and volume of balance sheet builders in oil and gas. Plumbing the depths of working capital deficiencies could be another part of the exercise of building, and listing the short term liabilities of those that they’ve refused to pay for the past few quarters is also a building process. If I was responsible for the damage and destruction that has occurred in oil and gas then I would involve myself in the process of building balance sheets too, whatever that means. It does look like they don’t know what they're talking about and people would be sympathetic. To address the issue specifically would only open themselves to criminal prosecution.

It’s time to take a sober assessment of where we stand. Are these the organizations that will be able to rehabilitate themselves financially and culturally? Is there anything to rehabilitate? What would be the cost of this rehabilitation, and if we spent that money what would be different? How much time and effort will be needed in order to conduct this rehabilitation? Who’s got the plan for this, and what will the strategy be? It just seems to me that the Preliminary Specification is the easier, cheaper and more effective way to proceed towards a dynamic, innovative, accountable and profitable oil and gas industry.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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 onTwitter @piobiz anyone can contact me at 403-200-2302 or email here.

These Are Not the Earnings That We're Looking For, Part XLI

I want to make clear that I’m not rubbing the bureaucrats' noses in the mess they’ve made. Their own reporting for the rest of 2020 will be humiliating enough for them. What I am doing in these posts, and this post in particular, is identifying the source of the issue that created the oversupply and overproduction of oil and gas. And I want to clearly set out that not only did they blame everyone else for their loss in revenues, which were under their complete and total control, they identified spurious issues that were purposeful distractions from their real problems. We need to ask ourselves why was it so difficult for these bureaucrats to focus on the maximization of revenue, or ensure that all production was profitable? Yet at the same time they were taking their time and enjoying the obstructions that they could put in front of People, Ideas & Objects way. The consequences of these bureaucrats “management” are that everyone has, and is, suffering due to their inaction which they very well knew better. Why they acted against everyone's interest was to better line their pockets and reap the bounty of their absolute power and unaccountable activities. This continues today with cuts to capital spending, cuts to staff and cuts to dividends being the method which they employ to conserve cash and ensure they’ll never have to take any water with their wine. I am not being partisan at a time when we need to work to resolve these issues. I noted last Monday that we were ready to work together with industry to do that. We however are not going to work with the responsible bureaucrats and we will be holding them to account.

We’ve noted before that producers, and indeed the industry at large, have lost control of the financial, operational and political frameworks of the industry. We see today’s political framework is compromised by commentary regarding the past decades healthy and profitable shale surge. The producers' panic call for government support last week didn’t have the support of anyone. President Trump is happy that American consumers will be able to secure their energy at lower cost. Additionally, calls for tariffs on Saudi oil imports reflect the bureaucrats desire to never get down to do the hard work on identifying and resolving their business issues, And are alternatively actively pushing the continued muddling along and do nothing strategy. Seeing much of the same in the situation that they face today that they’ve seen so many times before. I’ll point out to them the significant difference that today’s situation presents with the following fact. For the past three and a half years OPEC+ has been actively removing about a billion barrels of oil from the markets. For the past three and a half years oil and gas investors have been exiting their positions in the North American producers. My suggestion would be to admit who’s fault this is and take care of business. That is not going to happen based on the bureaucrats history and initial actions since last Monday.

I understand that People, Ideas & Objects rubs bureaucrats the wrong way, that’s my job. For them to be taking this extreme of a stance in terms of their abstinence is a reflection of their absolute power and lack of skin in the game. Of the 20 producers we cover, their market cap was $129 billion last night. At the end of 2019 it was $362 billion. A loss of $233 billion just for our sample of 20 producers who are producing slightly more than 10 million boe / day. These losses would be in excess of three quarters of $1 trillion for the gross North American production base. Not bad considering they could have paid just 1.03% of last weeks industry wide loss to finance People, Ideas & Objects Preliminary Specifications software developments and mitigate the past decades downside. Again that was last week, in 2016, not a great year, these producers had a market capitalization of $523 billion, a loss of $394 billion for our sample producers and probably a $1.3 trillion loss for the North American industry. The primary reason that oil and gas companies don’t do this simple math is because People, Ideas & Objects provide for the most profitable means of oil and gas operations. And here is the kicker that makes them apoplectic. It is as we have always said not enough to own the oil and gas asset anymore, you must also have access to the software that makes the oil and gas asset profitable. And they were oh so profitable don’t you know. Even reporting profitability throughout 2019, yet the cupboards are bare and they have no resources in which to sustain even five minutes of this further downturn.

People, Ideas & Objects have had a policy of not speaking to the press. Ours is a complex point of view that can be easily misunderstood and distorted. We are seeking to have oil and gas producers become profitable. And we’re discussing oil and gas accounting systems which to me is the most exciting topic, ever. We therefore have a somewhat small audience but we have a good share of that audience. We are not of the belief that we can maintain this policy of silence for much longer. I would give it about a year. I would ask the oil and gas bureaucrat what it is they’ll tell their staff, their service industry representatives, investors, bankers and all the others who depended on them, and in turn the producers will find who they depend upon, how will they deal with the backlash when all these people outside of People, Ideas & Objects current market realize that the Preliminary Specification is exactly the remedy for this issue and has been available since December 2013? A time in which the loss of trillions in oil and gas revenue is real. A time in which the tangible losses of individuals have been tragic and unlike any time before. A time in which investors and bankers, the service industry too, have all experienced many billions of dollars of losses each year since that time. All unnecessarily so! Will bureaucrats then begin to tell the truth, the fact that their pocket lining was the priority, and they’re sorry? You are sorry aren’t you? Or will they continue to say that I haven’t worked in industry for a reason?

Now that I’ve blown off a little steam. I noted in Friday’s post that we'll be discussing a phenomenon that I found interesting throughout my time working in oil and gas. That is if we take the earnings that People, Ideas & Objects have calculated for our sample of 20 producers for 2018 and 2019. Those being a loss for those two years of $100 billion. Which reportedly generated $160.5 billion in “cash flow.” And understand the decline in working capital of almost 75% during that time. The production volumes at 12/31/2017 were 9,336,293 boe / day for our sample of producers and at 12/31/2019 was 10,106,339 boe / day. An increase of 8.25% over two years. Shale is part of this, however the phenomenon has held all the time that I’ve been in this industry. Engineers and geologists do their jobs well and the natural decline curve is the headwind that they fight against. That is their challenge and their objective is to minimize the impact of it on a year over year basis. They’re also responsible for the further development of, and exploration of new reserves. They don’t give up, they don’t stop and they never seem to fail. There are instances where the production volumes do vary from year to year. As in the years where the financial situation becomes untenable and these efforts are abandoned while the producer is marketed for sale, etc. However left to their own devices, irrespective of the noise going on around them, they succeed. I expect even in tragic times like these, producers' production volumes will continue to rise.

We recently heard from and commented on Chevron’s CEO how they would focus on their pristine assets. It is People, Ideas & Objects belief that this is not where the profitable upside of the oil and gas producer resides. This is elephant hunting with the largest armaments they can get their hands on. Through the Preliminary Specification we implement a different approach to how the industry is operated. Only profitable properties are produced everywhere and always. Any unprofitable properties are placed in an inventory of shut-in properties where the engineering and geological resources are able to apply their innovations to enhance the property and return it to profitable production. We believe this to be a greater challenge, a greater opportunity and one with far greater upside than the current elephant hunting / keystone cops routine. Enabling the producer to focus and prioritize where it is they need to spend their time and efforts as opposed to following along with the parade. Fundamentally remaking the allocation of capital towards productive value driven objectives. Making the business more dynamic, accountable, innovative and profitable.

And finally, in the Wall Street Journal last week Occidental CEO Vicki Hollub was quoted as saying.

“Due to the sharp decline in global commodity prices, we are taking actions that will strengthen our balance sheet and continue to reduce debt,” Occidental Chief Executive Vicki Hollub said. She added that the company can break even with U.S. benchmark oil prices in the low $30s a barrel, though that metric typically excludes several costs.

Our White Paper noted the ability of producers to magically reduce historical costs. When a barrel once cost $60 to produce and can now be produced for $30, historical takes on a new meaning. Today when Occidental quotes a $30 break even price it’s not as though they’ve stopped lying about their cost structures, or that they’ve stopped reinterpreting history, as above they just now indicate when and how it is they’re lying. Speaking of which Ovintiv was promoting themselves after a decline of 72% on March 9, 2020. Noting they had a “Strong Capital Structure, Significant Liquidity and Operational Flexibility. Well no they don’t. At the end of the fourth quarter of 2019 they had $10 million in cash, and negative working capital of $563 million. To put this in context, Ovintiv also has current liabilities of $2.4 billion. There’s a lot that they can’t do with that. I personally have more liquidity and flexibility than they do. Saying whatever strikes them as a positive attribute will continue as the manner in which bureaucrats operate this industry.

Therefore in summary producer bureaucrats will continue to cut the costs of those that are not involved in their personal compensation. Cutting capital, staff and dividends leaves them with adequate “cash flow” for them to survive handsomely, and they politely thank you for that. Secondly, nothing is going to be done when the coronavirus, government largess, the Strategic Petroleum Reserve, Saudi Sanctions, anti-dumping investigations or litigate the actions of Russians and Saudi’s occupy these bureaucrats minds. There’s no shortage of issues that can be raised and in turn raise the short term benefits to their “management.” The trick is not to focus on their performance, revenues or profits. And lastly, there seems to be no propensity for honesty in any of the bureaucrats. Continuing on as if nothing has happened is the modus operandi, and I would assert, it is the ingrained culture of the producer firms. We know an organization’s culture, particularly one as ingrained as the producers, can’t be changed. Therefore it’s time that we exercise the change, one in which bureaucrats are no longer involved.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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 Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

These Are Not the Earnings We're Looking For, Part XL

Our review of the 4th quarter financial statements of the 20 producers we’re following shows us one definitive thing, oil and gas is going to get much worse than it is, and far worse than anyone expected. Under the current management they will also never get better. We’ll discuss this phenomenon in our next post as we have an excellent example as to why this is the case. Our number of producers is down to 20 as a result of anticipating the loss of Obsidian. The holders of their syndicated credit facility have extended a deadline from March 4, 2020 to March 13, 2020. If the corporation fails to meet the conditions set out, the credit facility will become due on April 1, 2021. $450 million is beyond the scope of what is possible and the bankruptcy of Obsidian is therefore imminent, in my opinion. The company hasn’t had a chance since it was busted by the SEC for capitalizing royalties. SEC litigation continues with some of the PennWest principles that were involved in those transactions. Since all the screaming is over for Obsidian we’ll be dropping it from our coverage.

Oil and gas prices finished 2019 at $61.21 and $2.18. Yet cash and working capital continued to be the predominant issue in the industry. Paying creditors at some of the producers appears to be an issue as well as the third quarter trend of ballooning accounts receivable continues. This can only be the result of the producers working interest partners suspending, on a wholesale basis, the payments of their Joint Interest Billings, the amounts of capital and operations that are incurred on behalf of the partnership by the operators. The service industry has been forced to extend credit to the longest known pay cycles known to man, all as a result of this cash crisis. Now the producers are betraying the trust of their partners in these properties. I can only speculate what the consequences of this activity will have over the mid to long term. I think it confirms that the prospects of the bureaucratically managed business of the oil and gas producers is untenable. Trust with the service industry and their producer partners is being actively eroded through this ongoing financial crisis.

Earnings are always a feature in oil and gas. As they were throughout 2019. The fourth quarter did see a loss of $7.8 billion however the year came in at a profit of $14.6 billion. A decline from 2018 earnings of $21.7 billion. This was miraculously achieved even with a 2019 $23.7 billion decline in revenues over 2018. I don’t know how these bureaucrats continue to perform as well as they do! The difficulty however is of course they’ve consumed cash at an annual rate of $7.0 billion. Due primarily to the annual cash flow being $74.3 billion and invested cash flow being $80.5.

One of People, Ideas & Objects claims is that producers need to cost their capital and operations appropriately into the commodity prices they charge consumers. These prices should never be unprofitable anywhere or at any time in North America. The Preliminary Specification decentralized production models price makers strategy provides for this. We believe that the property, plant and equipment account is bloated beyond all sense and recognition of reality. Deceiving investors has required producers to “build balance sheets” as opposed to running businesses. Therefore the need to draw down these balances as a requirement, and People, Ideas & Objects recommend that the industry take a competitive posture in terms of providing a return on investment that competes with other industries. Therefore 2.5 years is what we believe the balances of property, plant and equipment should be extinguished by in terms of calculating the commodity transfer prices to the consumers. It is in that sense that we assumed “what if” the current producers in our sample began to provide this method of accounting based on all others being equal. This calculation shows that these producers had lost $57.0 billion in 2019. Up, or is that down, from a loss of $43.4 billion in 2018. Somehow, saying you lost $100 billion in the past two years seems more consistent with these producers performance, and a number that has an inherently higher level of integrity than a “profit” of $36.5 billion for 2018 and 2019.

When we look at the bloated nature of the property, plant and equipment account. Apply what we believe to be a reasonable reassessment of what is assets and what are the unrecognized costs of past production. We then, on a pro-forma basis, move 65% of property plant and equipment to depletion to better state the affairs of the producer and industry. We see that the debt leverage is completely outside of any acceptable range. Instead of 31% as it stands today, the level of secure debt would be 88%. Considering total debt and total assets the factors become 55% debt to total assets today, and 113% on a proforma basis. It is our opinion that calling the unrecognized capital costs of prior production property, plant and equipment on the balance sheet is inappropriate. Therefore we feel our adjustment brings the overstatement of assets and earnings in line with the actual performance of these producers. The issue arising as a result of this pro-forma recognition is the debt levels of the industry, as represented by our sample of 20 producers, is untenable.

Another factor that we find interesting is the low percentage of working capital / annualized cash flow. For 2020 it stands at 7.304% down from its most recent high of 64.43% in the third quarter of 2016. Odd isn’t it, that was about the time the investors began their march out the door! They say the trend is your friend but I think that producers should look for a new peer group. These ones aren’t doing them much good. Bureaucrats thought they could tread water for the foreseeable future. That is not going to happen. The deterioration of cash and working capital continues and the situation has become such that they are financially damaged to the point where banks, creditors and investors have lost all interest and have begun running the other way. Organizations seeking working capital, who appear to have chronic working capital issues are special kinds of organizations. They’re sometimes referred to as failures. Primarily because they are and they’ll have few opportunities to remediate themselves.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

These Are Not the Earnings We're Looking For, Part XXXIX

Now that we’ve seen the ultimate manifestation of the bureaucrats “muddle along” and “do nothing” plan and strategy. Where they stumble their way into bankruptcy, being accountable to a Judiciary who knows none of the subtleties of oil and gas, with only those favoured souls remaining on staff. The party is about to begin like it’s 1999. This permanent retirement class will maintain themselves in the lifestyle of their choosing and build upon the wealth they’ve already accumulated from the “good days.” That time when they had the investors convinced. It was only inaction, corrupt, lazy and incoherent when we didn’t know or fully appreciate the details of their plan. Let’s give a shout out to Mr. Harold Hamm and his like. The ones who built the industry on the basis of hard work and dedication. Taking the risks and maintaining large interests in their firms. Only to be washed away in the end by the self serving bureaucrats he put in place. That however doesn't qualify him for government handouts.

Disintermediation has been the motivation behind the bureaucrats highly destructive conduct. They learned from People, Ideas & Objects in 2003 that organizations are defined and supported by the software that they use, to make any organizational change demanded changes in the software be completed first. They interpreted this to their benefit by ensuring that they never changed their ERP software and therefore secured their franchise from any competitive method of oil and gas management. Inaction was all that was required to continue to benefit from the revenue streams they controlled. Now with the landscape littered with the destruction that their management has caused, they will be able to easily ensure that nothing is done to wake the judiciary to their plans and strategy when they eventually file for bankruptcy. Being accountable to no one is the ultimate prize for these people.

As you can imagine I’ve engaged my tin foil hat in order to formulate this conspiracy theory. However, I challenge anyone to point out where it is that I’m wrong. After 10 years in natural gas, 5 in oil and almost four since the investors began their exit, nothing has been done to remediate the situation or resolve anything. How come? What’s your theory as to why things are this way? Or is the industry really this profitable and the leakage of cash and working capital just due to the “bureaucratic burden?”

What is the future of the oil and gas industry? To me this is simple. Massive capital expenditures to refurbish, rebuild, explore and produce. This future is what the investors see and they know that it’s not going to be on their nickel. The ask is well beyond the scope of what is possible or reasonable for all the capital resources in the world to undertake. To continue as the industry has for the past four decades of subsidizing the consumers use of energy has to end. These future capital costs have to be paid by the consumer as part of the full cost of exploration and development. After “building the business” for the past four decades investors are now being unceremoniously eliminated through the process of bankruptcy, whether that qualifies as a conspiracy or not. Good job bureaucrats! And let's also give a shout out to those employees who were never part of the favoured souls gang. The only thing I can suggest is look into the opportunities of our user community.

Whether we can subscribe to conspiracy theories or not I don’t think it makes a difference. If the bureaucrats did implement this conspiracy it would show me they have the wherewithal to actually think, plan and execute. Otherwise the bureaucrats have to be assigned the Slugs of the Millennium Award for their dynamic inaction in the face of such adversity. We don’t need them, we certainly don’t want them and can do much better without them. What challenge or opportunity could these people stand up to and how would they proceed through the future we’ve just described. It is like I said if they did conduct a conspiracy as I laid it out with my tin foil hat engaged, then they’ve got some skills but not the ones we’re looking for. Therefore anyway you look at this situation they’re redundant.

The solution is People, Ideas & Objects, our user community and our Preliminary Specification as described in our White Paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” In there we detail the method that our good friends have destroyed the funding mechanisms that are available to ERP software vendors. We stand alone in this market seeking the financial resources to deal with the issues that these producers and industry face. Our competitors have been run into the ground on the basis of the treatment they’ve received over the past decades by these bureaucrats. They’re also constrained of saying or doing anything to disrupt their revenue streams. Leaving us with the only viable method of raising the resources that we need through our Initial Coin Offering. 2019 was a bad year for cryptocurrencies. The market for them has stabilized at high levels though there are few opportunities for any new offerings. And certainly nothing with the calibre of our offering. Therefore we wait, our initial time frame was three years from June 2019 and the progress we’ve made since that time is all negative. Though it is still potentially doable, the opportunity seems far away, just as it did when I started this process back in 1991. The only difference is that the oil and gas industry is the complete wasteland that everyone should have known it would become.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

Where's the Money!

Only a crisis - actual or perceived - produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.

Milton Friedman

Sir Winston Churchill spent the better part of a decade prior to WWII arguing that Adolf Hitler was a threat that had to be dealt with. While still a Member of Parliament, he was ostracised and reduced to writing about what he saw for that decade. On May 2, 1935, upon learning of the imminent German air superiority he spoke in the House of Commons.

When the situation was manageable it was neglected, and now that it is thoroughly out of hand, we apply too late the remedies which then might have affected a cure. There is nothing new in the story. It is as old as the Sibylline books. It falls into that long dismal catalogue of the fruitlessness of experience and the confirmed unteachability of mankind. Want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusion of counsel until the emergency comes, until self-preservation strikes its jarring gong -- these are the features which constitute the endless repetition of history. 

On September 12, 2001 we had learned of a new threat to our way of life. We may be learning of a new threat today in our high levels of dependence on the Chinese economy, and an existential threat that non commercial operations have had on the North American oil and gas industry.

The actions this past weekend of Russia and Saudi Arabia declaring war on North American shale producers is completely rational, reasonable, understandable and predictable. They were inevitable. Over the past three years OPEC+ have removed production off the market in material ways. Ceding market share to North American shale producers. People, Ideas & Objects believed this was evidence that oil and gas commodities were price makers as small changes in volumes made large movements in prices. This lesson was not heeded. In 2017 BP’s Chief Economist noted that the world had twice the required supply of oil until 2050, and therefore it would be the low cost producers choice to produce at whatever price. Shale is the second highest cost production next to heavy oil. These high cost sources of production must take up the role of swing producers. Scaling production up and down to meet the changes in demand. Ensuring that all production is profitable everywhere and always. There are only two ways in which profitable operations can be achieved in North America. Through deceptive accounting as the industry has done for the past four decades. Or fund the Preliminary Specification with its decentralized production models price maker strategy. The choice is that simple. Producers can continue with their strategies of muddling along and doing nothing, augmented now by pristine environmental statements. Continue to blame and excuse themselves while their cash and working capital is consumed even further, but faster now. Or they can hear that jarring gong of self-preservation and fund People, Ideas & Objects development of the Preliminary Specification.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.