How I See the Next Four Months, Part III

With the overhang of oil inventories being increased well beyond anything they’ve been before, prices will remain under pressure until those inventories are drawn back down to normal levels. Elevated inventory levels and these low prices will be the new normal for oil. Historically North America natural gas storage and prices followed this same formula. It was the fundamental collapse of the natural gas prices that have been with us for more than a decade now. Could it possibly be that bureaucratic bungling is responsible for the disaster that is oil and gas? It was then that bureaucrats said they still had oil, and both sides of the business had never been down at the same time. I guess that meant they could go about destroying oil in the same way. Their persistence and refusal to do anything is remarkable isn’t it. This is more or less what happened in natural gas in the shadow of the financial crisis. Nonetheless the speed at which the oil business is being destroyed in North America is accelerated by the coronavirus’ related loss of demand. Making what would have happened in the next few years, real this quarter. The constraints of time are the enemy now. There’s not enough time in which to do anything. However the reason that we have to build the Preliminary Specification was noted in our White Paper. The most powerful economy will always be the largest consumer of energy. Oil and gas will always dominate the various sources of our energy supply.

Now that the financial destruction is complete, capacities and capabilities within the oil and gas producers themselves, but also and most concerning is the service industries, will be the next losses that will mount at an accelerated pace. Commodity price declines were shrugged off by the bureaucrats, price and volume declines appear to have done little to spur any action, but the decline in capacities and capabilities will be the most damaging. The erosion of what is possible has already been lost due to the loss of the financial resources and capabilities. The physical loss of people, equipment, talent and skills will lead to an erosion of the physical assets and permanent production declines. Rebuilding the infrastructure of the industry back to where it was, or where it should be will be a mundane, tedious task for all concerned. Rolling the logs back up the hill is never fun, but first we have to stop the logs from rolling down much further. No one is going to step in front of them when they’re traveling at this velocity. And of course this rebuilding will all have to be done with cash that is paid upfront by the producers as they’ve acquired the credibility of their now well established history. The refurbishment of, and expansion of the infrastructure that would be necessary to meet the continent's lofty goal of energy independence may or may not be possible now. An industry based on bureaucratic “muddling through” just doesn’t seem to fit the bill here. The bureaucrats level of self inflicted damage makes it necessary to choose new leadership to rebuild the industry. 

The lack of integrity regarding what has been said and how things were developing is now becoming a far greater concern than bureaucrats were thinking at the time they mouthed their long list of excuses. Who would have thought! Many of the shares of the producers are already reflecting low single digit percentages of their former glory. There’s nothing here for investors now. It’s all going to go to the banks. The service industry will be looking to get paid and someone will have to tell them that there’ll be nothing for them in terms of the money the producers owe them. There’s nothing in it for anyone, it’s a “sunk cost” and therefore will not see any new investment under this administration. Then again the future may not be in the hands of North American producers. We have stated throughout this blog and the Preliminary Specification that it’s not enough to own the oil and gas asset anymore. It’s also necessary to have access to the software that makes the oil and gas asset profitable. Profitability is unquestionably the issue in North American oil and gas. Does anyone doubt that profitability is necessary and a basic need for everyone’s better health and welfare in oil and gas. 

The greatest risk at this point is the precipitous decline in capacities and capabilities may be severe which could easily be remedied by paying $600 / barrel to foreign sources of oil. At 23,200 man hours of mechanical effort contained within each barrel of oil that would still be the deal of the century. That is $0.025 per man hour. Or we could be forced, under a number of different scenarios, to go without. Which would be a tough legacy for the bureaucrats to live with, I would think. Indeed what these bureaucrats claim and are willing to blame is OPEC+ who are working against american producers to put them out of business. If they knew that then why are they following their script? The bureaucrats have four months, lets see what they can 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.

How I See the Next Four Months, Part II

Four months is not a lot of time. August 31, 2020 is what we’re talking about specifically. Probably around the time the general economies begin their optimal operation once again. A time where oil and gas will have progressed further down the road of destruction that our good friends the bureaucrats have chosen for us. It’s also a period of time in which they have the opportunity to correct the situation and move to a higher performance trajectory. Reconfigure the industry in a way to be profitable everywhere and always. To be truthful it doesn’t seem that anyone is believing the stories that are being told by producers anymore. There is an understanding that oil and gas was in difficulty prior to the coronavirus and blaming these issues on the lockdown doesn’t pass muster. It appears to me that the gig is up. No one left to blame and no more excuses are selling. Who then is responsible for all this damage? 

As I mentioned in Monday’s post the people who are in oil and gas are really dismayed by the producers inability to deal with the situation they’ve put themselves in. Waiting until the storage and refineries stop taking product is not the time in which you begin to deal with the overproduction that you’ve been involved in for the past four decades. Recall our classification of overproduction is the economic classification that states it’s the unprofitable production. This type of overproduction would only happen in an industry for a sustained period of time if there were some serious flaws in the underlying makeup of the industry. The bureaucratic mismanagement has become the culture of the industry where there is no knowledge or understanding of why or how it’s wrong by the majority of the people who work there. The bureaucrats are fully aware of the cash machine they have at their disposal, for their personal use and have used and abused it with little regard for anything else. They too may not have known why or how things were happening the way they were but that didn’t stop them from indulging in what they could get. 

We are on a very steep trajectory downwards to a place that no business or industry has ever been before. The financial statements of the producers have been fraudulent and do not represent the real picture. These producers are wholly inadequate in terms of resurrecting themselves and putting anything together for the future. To determine the real prospects of these firms take 65% of property, plant and equipment and recognize it as depletion in the current quarter. Then I believe that pro-forma adjustment will accurately represent the state of affairs. These are seriously damaged organizations. Far beyond those that will respond to any kind of triage. We have a very serious problem with large productive capacity (overproduction), constrained demand and prices painting a very bleak future. It’s bad enough having low prices now the dilemma is low prices and low volume which will evaporate everything at a rapid scale. This current environment is on top of the diminished financial capabilities that are so far extended that all of the equity in the industry has been destroyed. And up to half of the bank's investments will be providing their industry with a real “haircut” that will send those that are risk averse back to the stone age in terms of appetite for oil and gas. And let's not forget the service industry. The one that is far more damaged than oil and gas. An industry that was used and abused for so long it too will need to be rebuilt from the ground up and funded for the next decade or two with cash, upfront, from the producers themselves. Who else is going to get involved? And who else is going to get involved with any of the producers as long as these bureaucrats, who may be both naive and criminal, are in place. Speaking of restructuring, reorganizations, bankruptcy and chapter 11’s they just don’t address the scope and scale of these issues. There are long term structural complications that have to be addressed within the industry by those who were not party to its demise. 

The sooner we all realize that there is no one at fault other than those that are sitting at the top of these organizations. That the scale of the problem is well beyond what any industry has ever faced or realized before. (Specious accounting has its insidious ways.) And it is this industry itself that has to do the hard work over the next few decades of rebuilding itself and proving over many years, and this many years may be a full decade, that it will be worthy of the trust of those outside the business. Only then will things return to normal for oil and gas producers in North America. Setting our expectations at this level and with this understanding of what we need to be doing, starting with the development of the Preliminary Specification, is the only way we’ll move forward. These chronic excuses, scapegoating and refusing to accept there is a problem or that they’re responsible has to end today if we’re going to move forward. Secondly the funding for the Preliminary Specification has to be in hand as soon as possible and prior to the August 31, 2020 time period. Or the steepness of our downward trajectory will turn further and much sharper downward, towards the rapid loss of our North American production profile in oil and gas. Capacities and capabilities in both the service industry and oil and gas have both been damaged and will be difficult to rebuild as they are. If we go beyond August 31, 2020, North America will become energy dependent to an extent that it has never been before. 

Note that none of this dark scenario affects our good friends the bureaucrats. They’re fine and they thank you for asking. What they may turn to is the need for their action and in doing so balk at People, Ideas & Objects budget. I would argue that now is not the time to discuss it, and I am not going to revise the budget, if I do have to revise it, they will like it even less. I’m sure they’ll be able to find one of themselves who’ll be able to solve this issue with $5 in funding. I’m satisfied that the budget that we published in the first quarter of 2014 adequately addresses the issue as I’ve framed it. I’m also satisfied that we fully understand the issue throughout the time we’ve been working on this solution. Pressure needs to be asserted on these bureaucrats. The most effective route is those within the industry who have a vested interest in turning things around, who’ve determined that they too are unsatisfied with the current outcome can all participate in moving this initiative forward. 

This can be done by showing these bureaucrats they have been responsible for this. That they now have the opportunity to make good on the careers they had in oil and gas by doing the one productive thing in their life. Fund the budget of the Preliminary Specification, and then step aside. That doing so will provide them with the knowledge that they did something positive and they did what was needed to set things right. What I think and what I believe are different than most people. I seem to be about five years ahead. There has been a process however that began when the investors stopped their participation that more and more people have begun to see the light of what is and what has happened here. Oil and gas bureaucrats are well known in their community, if my thinking that they were both naive and criminal with no redeeming qualities becomes the common thinking in five years then they’ll have a problem when that becomes what people are commonly thinking. It would therefore be in their best “personal” interest to ensure that the industry is turned around and that there is no reason for people to think that about them. That is the window of opportunity that is in front of these bureaucrats prior to August 31, 2020. After that, I can’t see anything other than this window of opportunity closing. If we go down that road beyond September 1, 2020, there won’t be much question about any of this, or of them, will there. 

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. 

How I See the Next Four Months, Part I

Storage facilities were filling at a rapid rate prior to the coronavirus lockdown and we would have been at the point where we are today some time down the road. This has been the trend in oil, as it has been in natural gas for the past decade. Natural gas being a continental price, overproduction took less time and effort for it to destroy the price through chronic overproduction by North American producers. Oil being a global commodity market, and with shale only beginning in earnest after the collapse of natural gas, it took longer for the chronic overproduction to destroy those prices. Therefore at some future point in time we would have been in this situation with the unchanging ways of the producer bureaucrats. We see even today the trend of doing nothing, finding a new scapegoat in blaming the coronavirus and now begging for governments to step in and save them. 

Currently the WTI 12 month average Futures contract is priced at $26.97. The 2021 WTI Futures is at $31.79. These are woefully inadequate prices for the producers to be able to sustain their operations. They are also based on today’s information. What we don’t know is if there will be a resurgence of the coronavirus in the fall or not. A note about the 1918 Spanish Flu pandemic was its first iteration was very mild. Only when it resumed after six months did it take on the lethal form it’s famous for. And what about OPEC+. The current production cuts are in consideration of the decline in demand. When the stay-at-home orders are lifted will this cooperation cease and the surplus production expand on the 2 million boe / day surplus supply that was in the market when the OPEC+ agreement fell apart? 

Natural gas futures for Henry Hub 12 - month average are $2.48 and the 2021 Henry Hub futures are $2.71. Which would be fairly good prices if this were the early 1980’s. Clearly none of these oil or gas prices will be able to carry the freight for any prolonged period of time. With the financial situation of the oil and gas producers today, what options will they have? They have no working capital which by the first quarter of 2020 we should see a serious decline of these resources everywhere. Producers financial statements will begin to be published this week and will include the March 2020 month when the global decline in demand became quite evident. Oil and gas property sales are not viable as the prices are well below what they used to be. Will these be the new market prices? Investors and bankers don’t really have any sympathy for the producers. The field service industry has advanced too much credit to the producers as it is and are in more difficult financial positions than the producers are. Governments are unwilling in Canada, and possibly unable (Democrat opposition) to provide any direct assistance to the industry. Treasury Secretary Steve Mnuchin has stated there will be no bailouts and any money producers do receive will be in the form of a loan that will only damage their financial position further, though it may be able to temporarily provide some working capital. 

What these reflect to me is that the financial situation that was present at the end of 2019 has depreciated substantially in the first quarter of 2020 and will have taken a nosedive in the second quarter. How quickly the general economy returns to normal is an unknown. What we do know is that the deterioration in everyone’s personal financial picture has been substantial too. The need for everyone to recalibrate their lives based on these new financial realities will take some time. 

What we saw last week was a continuation of the “muddle along” and “do nothing” permanent vacation policy of the bureaucrats. Doing something about the chronic overproduction was their choice all the way back to December 2013 when People, Ideas & Objects published the Preliminary Specification. Nothing happened and nothing will happen as long as these bureaucrats sit upon their throne. Only when deliveries at refineries and storage facilities couldn’t take anymore oil did these bureaucrats begin to shut-in anything. And this wasn’t any action taken by the producers, it was refineries and storage operators that ceased taking product. And what producers may have shut-in were the stripper wells which we believe to be their most profitable. But no one knows. If this hasn’t disappointed and frustrated everyone that was hoping for a resurgence in the industry, for investment, career or other purposes, those hopes are dashed now. The credibility in the industry is gone. With these non-actions of the producers and these results of the coronavirus on full display, the inability to respond, the blaming of others and pleading for help showing their desperate and pathetic nature, who would be interested in helping or getting involved with these poor souls now? Notice that oil prices only went negative in North America, the source of the industry's global issues.

The dynamic nature of the entrepreneurial Texas economy has been overwhelmed by bureaucratic victimology. That is to say the heads of these producer companies are of this character. I’ve been an advocate of purging them for a long time now, their self-interest, do-nothing, bullying of others is over and they have much to account for. To obtain a consensus of that would be easy. The difficulty is these people are very entrenched and aren’t going anywhere. They are and will be the walking dead, carcases of little to no value, other than to drain what value others have. 

So where do we go from here. The Preliminary Specification is about rebuilding the industry on a brick by brick and stick by stick basis. Our IEO has been shelved due to its inability to respond in the current time frame. The source of our budget is unknown at this point, however, I’m at a loss to see much of an alternative to the Preliminary Specification. I’ve been working to stop this from happening and clearly identified this risk occurring. Our solution, the Preliminary Specification resolves these difficulties in the market today, as they were designed specifically to do exactly that. What we should all be thankful for is the fact that we are suffering from chronic overproduction and not a lack of supply. This buys us the time necessary to make these changes in the industry, if we begin reasonably quickly. The capacity and capabilities of the industry, and most particularly the service industry are going to need to be maintained and to some extent rebuilt, how much damage occurs will be dependent on how quickly we can source the Preliminary Specifications budget and deliver our solution, or the revised industry configuration. Our timelines to do so, as they stand today, are very tight and there is not a lot of flex in our schedule on this basis. It assumes we get moving right away. Which I think becomes imperative if we want to avoid too large of a deprecation in North America’s energy production profile. 

What the ultimate source of our budget will be is unknown to me and I have difficulty conceiving the possibility at this point. But I don’t think the industry can continue down this road without choosing an alternative direction. Expecting the do-nothings to change will be well beyond these time frames. They don’t even see the issue. They probably have many more people they could blame before they get to the real source of the issue. It’s clear to me the culture of the industry doesn’t understand, doesn’t care to understand and won’t do anything to try and understand. We’ll be living in caves by the time they do something. They’re fine and they thank you for asking. This should be obvious from this past Thursday when senior Canadian producers accused Enbridge of being a “monopoly.” This may have been a ruse to show that they are dumb as rocks so that they’re not discovered to be culpable as I accused them in my last Monday’s blog post. Or, they could really be this dumb about business that they don’t understand. Either way it shows that they should not be the ones sitting on top of these firms with such an infantile understanding of business. 

The next four months will be critical for oil and gas. What will it do? What it can do is proceed with the Preliminary Specifications funding and start counting the days where the bureaucrats are sent on their way. Instead, what we’ll probably end up doing is just continue on with their governing principle that “we’ve been here before, and we’ll muddle through.” It’s not People, Ideas & Objects choice. In terms of action we’re ready to do what needs to be done to make the industry profitable everywhere and always. That hasn’t proven enough for the rarified air of these bureaucrats, and here we stand with oil and gas financially destroyed, politically desperate and very embarrassing, operationally the capacities and capabilities in steep decline and as of this past week they’ve now brought the WTI Futures Contract into their den of destruction. But maybe I’m being too negative. Or, maybe I do understand the issue.

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.

Overhead Remains Unchanged

The inability to listen to any market indication will go down as a hallmark of these producer bureaucrats. They haven’t listened to the oil or gas commodity prices since 1986. Haven’t listened to People, Ideas & Objects since December 2013 when we detailed a solution to today’s issues. And they didn’t even listen to their investors issues prior to 2016, forcing them to leave as their only recourse. Always thinking that the producer's brilliance would soon be seen by others and investors would begin lining up just like they used to. Well now they know better, if you don’t take care of business, and just use it as a personal ATM, bad things will happen. Today I want to talk about overhead. And why that now becomes the producers largest problem, next to negative oil prices that is. 

One of the motivating forces that started this adventure of mine was the 1986 oil price collapse. Kind of feels like history repeating itself doesn’t it. Prices eventually fell to $10, which are not that bad in comparison to today’s market. All that happened as a result was producers began a decades long stint of crying and whining about how things were going and saying “oh, whoa is me.” All they had to do was stop producing 10 to 15% and the problem was solved, I thought. And then I realized that they couldn’t. They weren’t organizationally configured to do that. Just as today’s configuration has not changed since then. One of the key differences between the way that producers are managed today and the Preliminary Specifications decentralized production models price maker strategy is the way that overhead is managed. 

What we do in the Preliminary Specification is that we convert the producers fixed overhead costs into the industries variable overhead costs. With each producer currently building accounting and administrative capabilities and capacities within their own four walls, these exact same capabilities are being replicated in each and every producer. These capabilities are not shared or shareable between any of the producers in their current configuration. The Preliminary Specification reorganizes these administrative and accounting resources that are hopefully not seen as a distinct competitive advantage of any of the producers. This reorganization involves taking these resources from the producer firms and allocating them into the service providers, a sub-industry that we are creating from our user community. There, the service providers will each be managing one process where the entire industry and its entire property base in North America is their client base. The service providers otherwise simple process management will be complex and sophisticated through the volume of data that they process. Each service provider will then charge each individual Joint Operating Committee the fee for processing the property. If a property should happen to be shut-in for that production month, then there would be no information passed through People, Ideas & Objects task and transfer network and no work, no processing and no billing would be rendered to that Joint Operating Committee by any of the service providers. Making all the administrative and accounting overhead costs, along with all of the other costs of the producers, variable, based on production. 

Today the producers entire staff of administrative and accounting resources show up each day at 8:00 and leave at 5:00. Expecting to be paid and occupying office space etc for the entire month. Overhead is therefore fixed and constant from month to month. If the producer is forced, for some reason, to shut-in production their overhead remains x dollars just as every other month. However, with the Preliminary Specification, if the producer shuts-in 10% of their production during a production month, their overhead costs will have reduced by 10%. If the service providers were active in today’s oil and gas industry they’re workload would be reduced by the amount of the shut-in production, something they know is a risk in their business, something that they’ll be able to plan and budget for. 

Producers will therefore be able to move up and down their production profile and remain profitable at any level of production. If one month they’re at 350,000 boe then they’ll be as proportionately profitable as they were last month at 500,000 boe. All the producers costs are variable based on production under the Preliminary Specification. 

With shale providing untold volumes of oil and natural gas reserves. In the current business model of the producers all of these reserves are in a race against each other to be produced as soon as possible. Leading to a continuation of the disaster that is today in both oil and natural gas, which would happen under any scenario, coronavirus or not, as there is no production discipline. And I would suggest if we leave things the way they are, we would experience these same market dynamics over and over again during the next thirty years. The production discipline that is invoked by the Preliminary Specification is that only profitable production is produced anywhere and always. Profitability is the only method of production discipline that is fair and reasonable, and therefore able to be adhered to. There are distinct advantages for doing so. The producer's corporate profits are maximized when none of their unprofitable properties are produced, therefore there is no dilution of the earnings from their profitable properties. The reserves that weren’t produced are saved for a time when they can be produced profitably. Those reserves will no longer have to carry the additional costs of the cumulative losses they would have otherwise incurred if they kept producing. And the commodity markets have the marginal production removed from the market ensuring they find their marginal price. 

As we indicated in Monday’s post, these bureaucrats are responsible for their culpable, corrupt behavior. Without the accounting or the systems that are able to provide the performance based reporting no one in the industry knows what the total overhead incurred is. Up to 85% of each producer's overhead is conveniently capitalized. Just think of all those head office cities with their towers of people and try to imagine how overhead allegedly remains immaterial to this industry. In terms of performance there have only been 5 good years in the industry since 1986. That’s the past 34 years, or 29 “bad years,” and some of those, like 2020, seem to me to be really bad years. This past decade has to be considered the worst decade of the industry's history. The current oil and gas industry is facing an existential crisis which is also the largest issue they’ve ever faced. I’m not talking about the coronavirus that started in March 2020. More the natural gas business that fell flat on its face in 2010, much as oil is today, with the investors leaving in 2016. Yet we have a complacent and happy bureaucracy that has done nothing and will do nothing until they’ve stuffed the continent full of oil and gas to the brim. But they're fine, and they once again thank you for asking. Only the anomaly of negative $38.96 oil prices have produced a yawn from these types. Other than that, what action has been taken? Shut-in production, those are being forced on the producers by the refineries and storage facilities that are full! Not until the absolute last moment was anything done. Brilliant!

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.

Corruption 101

I’m setting this post in place for future reference. I've had many people since I published the White Paper "Profitable, North American Energy Independence -- Through the Commercialization of Shale" who are stuck in their ways, debating the issue with me and I am finding these conversations very frustrating. Some have done me the courtesy of reading the White Paper, others have not. Yet the overall cultural inertia of the industry is overwhelming the good sense and judgement of these people. I’ve spent a decade researching and formulating a comprehensive business model that deals with the issues and unique characteristics of the oil and gas industry. A business model that works and has the need of each element of its model operating in consideration of all the other elements in the model. What people are hearing is one small element of the model and are able to, with one half second of thought and with no understanding of the integration of the Preliminary Specification criticize a specific element of it without the benefit of understanding the interactions and dependencies of the whole model, and therefore conclude the entire Preliminary Specification would therefore never work. What I’m hearing is that “we’ve always been here before and it’s always turned around. Markets will rebalance and producers will recover.” More and more of these conversations show the obstinance and incoherent nature of the industry's culture coming through. This is, and has not been a business for many decades. The industry's culture is derivative of criminal naivety and the damage done as a result has eliminated all of the value, goodwill and future possibilities. The existing structure of the organizations that are the producers, their sycophantic head office suppliers who are just as bought into the culture feign not to understand the issues that they’ve created. I’m tired of being laughed at by these people for the things I’m saying when they refuse to admit the basic facts of the destruction they’ve caused. Basic facts such as no investors, no bankers the secondary follow on destruction of the service industry and general economy has occurred through their actions. Today bureaucrats seek cover from governments as the “coronavirus is destroying their business.” Just the latest in a convenient stream of excuses. Realize that people have had enough.

This post therefore rips the bandage off the wound and exposes the damage for all to see. It takes the current situation and relates it in the stark terms that it needs to be understood by these bureaucrats. Throughout our White Paper we note that bureaucrats just don’t listen to anyone or anything. It is over. The investors, bankers and others are gone forever in the current configuration of producers. The service industry will only take cash upfront in a refurbished industry. Bankers are now skipping the bankruptcy proceedings. Circumventing it by foreclosing on the producer and seizing the assets. That way they’ll be better able to manage the assets than has been the case. The people who have been running the show up until now have no credibility with anyone whatsoever. That is why there is no support coming to the aid of the industry. The manner in which the industry has been operated for the past number of decades has been purely for the self interested bureaucrats. We have consistently identified them and held them as being the ones that are solely responsible for all the damage and destruction. And they conducted this purposefully to line their own pockets. Their method was to employ high levels of “capital discipline” with respect to the money taken from investors. However, any cash flow from those investments was to be used in whatever struck their fancy. There are no other people who are responsible for anything. The only way to fix the industry, the only way we’ll find the financial resources is that we find it within ourselves to recognize these facts and begin the humble act of rebuilding the industry in an appropriate manner.

No one conducts a criminal enterprise at the level that has been conducted here and just resumes operation after all of the destruction. There will be a wholesale accounting and those that are responsible for this will be identified and held accountable. Whether they knew or not. By not recognizing the appropriate timing of capital costs in the cost of the product that was sold it inflated assets, profits and cash flow. Where the mantra was “build balance sheets” in a capital intensive industry, it should have been the objective to pass those capital costs on to the consumers as soon as possible. The assets listed on the balance sheet of the producers today are nothing more than the unrecognized capital cost of past production. Financial statements of all producers are materially misstated throughout the industry. Materially is a wholly inadequate word for the purposes here. They are incoherent facsimiles of each other producers' financial statements. Indiscernible as to the performance of the organization in comparison to any of its competitors. They are fudge, designed to be fudge, supported by second class ERP systems from the 1980’s that have been placed on starvation diets so that the accounting would be as opaque as possible. This should now be obvious to all.

Maybe the resources were not provided to the ERP systems providers deliberately to assist in not having the accounting exposed as the ponzi scheme that it was and is. People might ask if this was a deliberate scam or was it a mistake. Read what we said in this section of our White Paper about the history of ERP systems providers on page 18 and determine for yourselves. Why is it that no major ERP vendor provides any oil and gas solution to the industry? If I was running a scam of this magnitude I sure wouldn’t want Oracle to be providing me with my accounting system.

In our White Paper we note on pages 9 and 73, the assertion is made that the accounting conducted over the past four decades was and is a deliberate ponzi scheme perpetrated by the oil and gas producers on the investors and bankers and for the benefit of the bureaucrats. There is no other way to describe it. This is more than anything an accounting issue, as it was with Bernie Madoff, who claimed his innocence, don't you know. Which has led to the naive culture of the industry, as everyone who is in the business today started after 1980, more or less. In business, officers and directors are held accountable and responsible for the actions that they take. If they were conducting a ponzi scheme and were unaware of it, tell it to the judge, I’m sure they’ll be sympathetic. Claiming that they were unaware and did not know is not a defence and will be the reason that they’re hit twice as hard when the day their punishment is levied. And please remember, prisons are filled with innocent people.

And of course the moral and ethical standards of the producers is beyond reproach, we’ll hear. That this alleged corruption claim I’m making is nothing more than the continuation of a long litany of accusations by yours truly. (Of which all have been validated.) Then read the section on page 20 of our White Paper. There it documents that producer bureaucrats have been notorious abusers of individuals and companies Intellectual Property. Stealing from one company to upgrade the capabilities of another company so that price competition is fostered in the marketplaces that they use. Or how they attempted to abuse People, Ideas & Objects Intellectual Property on five different occasions. Contrast this IP abuse, the financial statement facade and the odd inability of producers to use any major software vendors ERP system to the heroic stand these bureaucrats make regarding our decentralized production models price maker strategy. What they assert is its collusion and they would never touch it in a million years. “They are good corporate citizens!” No, they’ve been scamming pretty much everyone and their franchise is challenged mostly by the Preliminary Specifications price maker strategy and therefore have to have a strong argument to fight back with. The fact is for a producer to make an independent business decision to produce or not, based on profitability, determined from actual, factual accounting information is a wise business practice. One that is employed in every other industry, and therefore not collusion. But somehow inconsistent with the purposes of oil and gas? Why would that be?

Isn’t it odd today that the claim that production will be shut-in on the stripper wells and therefore that production will be lost? The profitable assets, unknown to anyone, are the ones that the engineers are not interested in. These so-called stripper wells that produce very low daily volumes, the ones that “can’t be shut-in.” have been producing for decades. They therefore have retired the amount of capital costs incurred, particularly when their wells were drilled and completed for less than $100 thousand. How then would they be unprofitable? Why do the producers look at these as the unprofitable properties? A) they don’t know because their accounting and systems are useless. B) they’re only interested in the “pristine assets” as the CEO of Chevron recently eloquently stated. Remember the first principle of oil and gas is that it’s not a business, it's a criminal operation. 

Ever notice how, as I’ve documented here many times before the boogeyman is always lurking behind every corner. Anytime something negative turns up the bureaucratic finger pointing and excuses are started for a fresh scapegoat to keep the “facade” going. None of the producers ever have anything to do with anything negative, inaction is their claim to fame. They have a thousand reasons as to why my arguments are not valid. If I point out how they’re wrong, they’ll come up with a new one. No one seems to be the wiser of their talking points developments. Watch how this issue will be topical in about a month. 

I’m sure those that were giggling before are now ROFLOL. Fine, let them. But before they make a comment I suggest they pick up a business book and read about some of the companies that didn’t survive the same type of corruption that has been going on here. Start with WorldCom, move to Enron and most certainly take into account the activities of Bernie Madoff. I’m sure for many of the industry bureaucrats these books have been followed religiously in terms of what to do. They've been running a scam and now the scam has been discovered. The administration that caused this, and their cohorts, will not be the ones who are put back in power to run the industry again. This will go down as one of the biggest frauds perpetrated in the western world. 

I’m not going to bother engaging or entertaining them anymore. I’ll just refer to this post and let them read my position here. I’ve got a lot of cleaning up to do. And when they do find that there is a group that agrees with me, on all aspects of the Preliminary Specification and People, Ideas & Objects budget does get funded, don’t call on me, I’ll be busy having the last laugh. I’m not the one who caused this, I’m not the one that needs to be held accountable, I’m not the one that needs to be arguing the point, I’m the one that’s been trying to get it fixed, I’m solving the problem and the bureaucrats have been the ones feeding at the trough at everyone else's expense. 

What People, Ideas & Objects have in the Preliminary Specification is an Oracle based ERP system that standardizes the accounting across the industry, increases the quality of the accounting across the industry, structures the industry to foster innovation, focuses the industry and producers on profitability everywhere and always, and maybe best of all disintermediates the bureaucracy. A business model which has been summarily rejected by these bureaucrats since its publication in December 2013? Yes that’s a question. Based on what we know today everyone better understands the motivations our very good friends the bureaucrats had in conducting themselves in this compromised, self-serving and corrupt way. 

I am open to discussing any aspect of the issues in the industry and our proposed solution. I am however no longer falling for the engagement by those who do not have clean hands, naive or not, on bits and pieces they may find of particular interest or amusement. If you’re interested in discussing anything along the lines of this topic I am here, just be prepared, study what the proposed solution is and have the requisite courtesy of doing so. 

The excuse machine is very effective about getting the appropriate song sheet distributed before everyone starts singing from it, doesn’t it? What we do know is that nothing is ever done about anything. Natural gas was destroyed in 2010. Investors left, except for Warren Buffet, in 2016. Nothing is ever done, it’s always someone else's fault and there’s a convenient excuse for that. Who’s accountable for that and why did this happen?

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.

This is the Bureaucrats One Opportunity

The allegedly smartest person in the business world, Warren Buffett, made a contrarian bet on big oil in the $10 billion loan he made last year to Occidental Petroleum. If the smartest can’t make any money on last year's investments, what does that communicate to the rest of the investment community about this industry? To be fair and reasonable to Mr. Buffett, he no doubt believed Occidental’s financial statements. The search for some government to tell the producers what to do, or to take responsibility for the destruction of the industry continues. The Texas Railroad Commission appears, in addition to Oklahoma regulators to be following down the same path Alberta set in 2019. It should be noted that some Alberta production hit double digit prices this week, even with the mandatory curtailments. There was some bright spot in the discussion however, one producer said that with the curtailments being focused only in Texas that may force producers to shut-in some of their profitable production while unprofitable production in other states continues. Which is bunk. They don’t know what’s profitable and what’s not. If anything is profitable at $20 they’re lying. If they’ve known this all along what have they been waiting for, and why have the government tell them to do so? In related news, Conoco will be shutting in 225,000 boe / day without the message from god, the concern that the formations will be collapsing on themselves or their contracts getting in the way. There are some independent thinking people left on this planet. 

Once this virus has been shaken out of the market there will be little to no storage available anywhere. Oil prices will therefore linger at the bottom for some time. The question therefore is, has the alleged “price war” been resolved. The claim is that Russia and Saudi Arabia could maintain their “price war” until as late as 2022 before either countries foreign reserves are fully consumed. Both have almost one half trillion dollars in foreign exchange reserves on which to draw upon to make up for their governments budget. What do the North American producers have in their cupboards? What is the plan and strategy to deal with this crisis and build for tomorrow? If the situation as it stands today continues until 2022 how will they deal with it without the support of their investors, bankers and others such as governments? Asking for a friend. 

As far as these producers are concerned there is no tomorrow. They spent it and it's all gone. It ended around the time they were taking money from investors each and every year, then turning around and telling them that last year's investments were sunk costs and they didn't consider them. Bureaucrats probably don’t remember those days due to the conveniently short memories they’re dealing with. The consequences of those days are what are being realized today. Overproduction from overinvestment and systemic unprofitable production. But I’m repeating myself, in the same sentence now. Bureaucrats consumed all the value and now all the short term liquidity that was available. They betrayed their field service representatives by having them finance the past 18 months activity and have yet to pay them. Now those service industries are doing work at fire sale prices until the equipment seizes then sell it for scrap. There goes the industry's long term future. Not only do producers not have any cash or working capital today. They’ll need to pay these people in advance so that they’ll buy the rigs and equipment and operate it with the cash the producers give them up front to do so in the future. And boy, are they going to be expensive because no investor is ever going to get involved in that business again. I’ll bet even Warren Buffett would not entertain an investment in them. 

As the bureaucrats have said all along the Preliminary Specification wouldn’t work and they had it under control. That shutting in wells was too damaging to the formation and it was unnecessary as well, they were profitable. Well now we stand here with a fundamentally destroyed industry with no credibility to manage itself in any form or fashion. That they’ll need to pay cash for everything it does for at least the next decade due its irresponsible behavior. People, Ideas & Objects (PI&O) budget being financed in advance is the new prototype of how things will be done from now on. And no one will follow in the footsteps of Warren Buffett. The fact the bureaucrats were so skeptical about the Preliminary Specification should be the ringing endorsement of our validity. However, I want nothing to do with these people. The only thing they can do now is to show some remorse by providing us with our budget before they slip out the back door. That way they can say they at least did something productive to right the ship. That they did one thing during their career that benefited someone other than 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.

"Government Inaction"

We have it now that government inaction is the reason for the “failure” of the oil and gas industry. Just when I thought the producers had run out of excuses and scapegoats. This comes along from Reuters regarding the Texas Railroad Commissioners meeting yesterday. 

But Marilyn Craaybeek, who owns a small oil company, said small producers were failing, something she blamed on government inaction.

“This was my retirement and I will die poor.” she wrote in a letter to the commission in favor of production curbs.

Ok, I think maybe now should be alright to call an end to the excuses and blaming of others. There are signs too of some producers taking responsibility. Such as Scott Scheffield CEO of Pioneer Resources. From the WSJ.

Nobody wants to give us capital because we have all destroyed capital and created economic waste.

If the Texas Railroad Commission does not regulate long-term, we will disappear as an industry.

But with all things oil and gas, there is a culture that quickly snaps everyone’s head back into the appropriate talking points. From the WSJ as well. 

Parsley Chief Executive Matt Gallagher, who supports cuts, warned of deep industry job losses if regulators don’t intervene.

The government is coming for your job now. For the record this blog began in December 2005 and the Preliminary Specification was published in December 2013. Our solution covers off both oil and gas. Now that oil is the hot issue of the day. And the government is the source of the producers difficulties, let's ask these producer bureaucrats to explain natural gas now.  

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 Telegram @piobiz or Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

The End of the Beginning

As a member of the board of directors or as an officer of a producer firm an individual has sworn to do everything they can to ensure their management of that firm they represent will be without question. As a reflection of this commitment it is understood that they’ve placed their personal assets at risk if anything should go wrong. And as a prudent manager they carry insurance coverage to manage their risk during the time they are a director or officer and maintain that coverage for the period they remain liable. The insurance firm of course manages their risk by having the option to cancel their insurance coverage if they see the risks of the officer or director exceeding what they deem to be acceptable. Notice would therefore be sent to the officer or director that their continuation with the producer firm (in this instance) will invalidate their insurance policy. Therefore in order to maintain their insurance coverage that they’ve had over the past, the officer and director will be forced to limit their personal risks and resign. 

With twice the available oil that’s necessary for the next 30 years, every producer producing everything they have will continue to overproduce and oversupply the market. Without any production discipline to control the producers from overproduction, which we’ve described here as unprofitable production, the oil and gas industry will be a failure for each of those 30 years. Long after the coronavirus has gone. We’ve seen this past week how the attitude of the North American producers are driven by myths and how they’ve disregarded any and all means of market signals being communicated to them. Their share prices are in low single digit percentages of what they were just a few years ago. Even the majors have had a haircut that should induce serious and radical change and reforms within those organizations. Investors have walked away and are showing no indication of returning. There is no compelling reason for them to do so. The natural gas and oil prices are unable to support any type of corporate organization. These commodity prices reflect a continued demise of the industry. 

Yet the myths that we documented in our series “Exploding Myths” in late January and early February 2020 are continued to be the only talking points of our good friends, the producer bureaucrats. Discussion today that Saudi Arabia will have to fix this themselves because their costs are $85 / bbl reflect this mythical bias that it’s always someone else’s fault, someone else’s responsibility and they’re profitable don’t you know. Excuse after excuse continues as the collapse of their organizations, and soon their capacities and capabilities become irreversible. 

In our White Paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale” we mention nine times that our plan is to “rebuild” the industry in the vision of the Preliminary Specification. In this blog we mention no less than fifteen times, with most of these occurrences soon after the publication of the Preliminary Specification in December 2013, that we are setting out to rebuild the industry “brick by brick, and stick by stick”. There was never any doubt in our minds that rebuilding would be necessary. The level of destruction the industry is experiencing has only begun. The coronavirus has only accelerated the beginning of this crisis by nine months. We now begin the journey in terms of the context of those next thirty years where the world has twice the oil it needs. Where the alleged “right” to produce will be those that can produce it profitably, and therefore prosper. As there is no other method of production allocation that is fair and reasonable. Contrast this to today’s global oil and gas disasters where there is no plan, strategy or sense of urgency. Only the desire for someone else to fix it.

We could set the direction in the vision of the Preliminary Specification, our user community and service providers with the rest of the industry following in the footsteps of that vision. What would the result be? Would there be a turnaround in the fortunes of the industry? Would investors reposition themselves for what they saw in an industry that was motivated to be profitable everywhere and always. Would the people in the industry who have suffered so much at the hands of these bureaucrats feel that they too have a future and a career again and that they can begin planning and participating in? And I believe OPEC+ would be motivated as well to see that the misguided adventures of these financial carcasses would be ended and would be able to see the North American producers take up the role as swing producer in the global oil and gas industry. The North American producers being the highest cost producer need to assume the swing producer role. What motivation is there for the low cost producer to assume the swing producer role? It is ridiculous that we are being subjected to this logic today, because of the bravado of a few. Therefore if we are losing this impediment to progress then we would have a clean slate as to how to approach the rebuilding of the industry. That is not something that is believed to be necessary by any of these bureaucrats, but that has been the case for four decades when their accounting was deceiving others. Culturally they are fixed in place. Unchangeable, immovable and forever unsuccessful.

I updated the user community vision with the following text that we’re calling it’s charter. Have a look. 

Our user community seeks to find the right solution for the most profitable means of oil and gas operations everywhere and always. We’ve now seen what happens when profits are ignored in the industry. What oil and gas is experiencing is unquestionably the most difficult issue they’ve faced, ever. Our collaborations are not to build consensus or compromise. On the contrary, we have many issues to resolve and some of the most complex that have ever been approached. The resolution of issues lies at the point of conflict and contradiction. It’ll be our user community's job to find those conflicting attributes and contradictions, and resolve them to build the industry software for the next generation, to build the dynamic, innovative, accountable and profitable energy industry we need.

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.

Accounting in Oil and Gas

I’m in receipt of an interesting document that provides relevant information to those who may need to better understand the state of affairs in oil and gas accounting. The document is from P2 Energy Solutions who provide ERP software products to oil and gas companies. One of their cornerstone products is Qbyte which was what IBM sold them when they decided to get out of the business. They have 1600 clients using their various products. And as I’ve stated in our White Paper, “Profitable, North American Energy Independence -- Through the Commercialization of Shale” they’ve persevered on a starvation diet as do all business related software providers have had to do. Producers don’t pay for accounting systems or accounting when there are wells to drill. Besides the value of the company, and everything that is needed to be known is in the reserve report. Accountants are there to pay the bills. P2 does a good job of showing how accounting and systems are conducted in four different ranks of the oil and gas industry. The four categories are Initial, Reactive, Managed and Optimized. The only thing that I think P2 didn’t get right in their descriptions was the amount of “hair on fire” panic and rush that usually accompanies this accounting. 

P2 has done an excellent job of capturing this information in an unbiased manner. They’ve done the industry a favor by ripping the bandage off of this gaping wound to show that the lack of resources dedicated to systems, automation and process management has left accounting for oil and gas in the dark ages. It is no wonder that these producers are unaware of the consequences of their actions. They’re not paying attention to accounting and accounting is unable to fulfill their obligation of providing timely and accurate information about the business beyond the basics. Their business model of “just drill more wells” is providing everyone with the spectacular failure we’re experiencing by not listening to investors when they say they’re dissatisfied, not listening to commodity markets when their prices state clearly they’re oversupplied and not listening to accounting beyond getting them to “pay the bills.” I hope the bureaucrats, those that we identify as the C-Suite and their direct charges, are adequately humiliated.

In our White Paper we noted two characteristics of the oil and gas industry that I want to restate here. The first point implies the culture regarding the capitalization of every cost in sight. Or as producers like to say “building balance sheets.” It has created a culture that has destroyed the capabilities of both accounting and administration. To cater only to the drilling of wells as that is the business as well as the business model. We noted regarding this culture, the consequences of what has developed;

Which is, as far as they’re concerned, the extent of the use and purpose of accounting in oil and gas. This cultural division has grown over the past four decades where accountants ability to assert the business issues does not exist. The release of reserves value through further drilling is the business and the only business as far as the culture of the industry is concerned. The nuance of recording and reporting the accurate timing and recognition of capital costs of exploration and production are not a topic of discussion when “everyone” is following the SEC’s regulated requirements and are “building their balance sheets” faster than “we” are. What we do know is over reported profits begets overinvestment, and overinvestment begets overproduction. Especially when no production discipline exists. p. 10

… a result of the SEC implementing its Full Cost and Ceiling Test regulations for capital assets. These regulations have extinguished the producers initiative to act. If everything producers spend becomes an asset which increases the value of the firm, if everything they produce is almost pure profit, they’re disincentivized to see the situation as anything but wildly successful. “What could be wrong?” Planning, strategy and active management have been ineffective in this environment and as such grew to be unnecessary, therefore not undertaken and atrophied. How else could you describe the past ten years in the natural gas business in which nothing has been done. If the business should ever have difficulties, as it has always done before, “it will work itself out.” p. 14

 

The second point I want to make is that accounting and administrative capabilities should not be a distinct competitive advantage of any producer. Each producer building their own capabilities that are not shared or shareable in their current configuration do not provide any value. They are also fixed in terms of their cost behavior. By implementing the Preliminary Specification we are moving them to the service providers where they become variable based on production. It is also noted that the ability to make any changes to these capabilities in terms of performance or configuration is constrained not only by the current software, but also by the inability to expand the specialization and division of labor of the staff within these departments. Our service providers list as one of their key competitive advantages specialization and the division of labor. This with the defined software capabilities of PI&O provides the capacity and capability for industry to expand the performance of administration and accounting well beyond what they are capable of in today’s configuration. 

Did I ever mention the value proposition that People, Ideas & Objects (PI&O) our user community and their service providers generate for the oil and gas industry? Let me repeat it once more. Over the next 25 to 30 years we provide from $25.7 to $45.7 trillion in incremental value to the North American oil and gas industry. I think that today’s environment provides an understanding of how that value comes about. Producer bureaucrats don’t have a clue what’s going on. Yes, it is that bad. They’ve destroyed the business fundamentally and they have no one left to blame. If you read the P2 document the way I did, the cupboards are bare and producers have nowhere to turn to gain an understanding of where the value or the value destruction is. 

I mention the Preliminary Specification in order to contrast the situation once our solution is operational in the oil and gas industry. What we do is reallocate the administrative and accounting resources from the producers themselves and have them work for individual service providers who work on behalf of the entire industry as their clients. Providing an individual process management that they charge their fee to each of the Joint Operating Committees. The Preliminary Specification then produces full detailed financial statements for each Joint Operating Committee, which includes the actual detailed overhead charged from the service providers, and depletion for that property. This reorganization turns the producers fixed overhead costs into the industry's variable overhead costs. Variable based on production. If the property shows a profit then it will continue to produce. If it is unprofitable it will be shut-in and join the producers inventory of shut-in properties where it can be worked on to improve its performance and return to profitable operations. Then it will no longer dilute the earnings of the profitable properties. Save those reserves for a time when they can be produced profitably. Will not add the incremental losses to the reserves that will need to be recovered in the future. And most importantly today, remove the marginal and unprofitable production from the commodity markets.

We mentioned the other day another advantage of this change in the configuration of accounting and administration which is the standardization of accounting across the industry. This standardized accounting will also be objective, unbiased accounting that will be provided to each and every producer. If a producer receives a financial report that states the property is unprofitable they’ll know that’s on the same basis and criteria that every other property was evaluated and subjected to. That there was no undue influence in the determination of profitability. This standardization would apply to Exxon as it would to the start up that began operations last week. People, Ideas & Objects being a cloud computing provider, it will be available to any and all producers equally. The service providers are billing based on the activities at the property. A working interest owner may or may not be known to each of the service providers. The amount of data they’ll have will be limited to what is necessary for them to process their work. Who the working interest owner is will not necessarily be known to many, and therefore be of little concern to any of the service providers. Establishing a blind objectivity that all producers can rely on to ensure that their performance is being evaluated consistently. 

Therefore in terms of accounting, process management and automation provided by the Preliminary Specification and service providers. It will be a state-of-the-art, dynamic change oriented capability to meet the demands of a dynamic, innovative, accountable and profitable oil and gas producer and industry. There won’t be any difference in the processes that are managed for any of the producers when it comes to the size and sophistication of the producer. It will be standard. The start-up will not need to hire any accounting or administrative staff in order to conduct their accounting, it will all be provided from the existing service providers that service the entire industry. As in the past, their disproportionate startup administrative and accounting costs will not have to be carried for the first decade of their life as they’ll just be paying for the necessary, actual, variable costs of processing their accounting. Gone will be the days when they had to carry that disproportionate load in terms of their overhead costs. 

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.

Interactions With PI&O, Part I

As I’ve noted before, all of the people who are involved in the greater oil and gas economy will see the industry from different perspectives through their use and operation of their specific version of the Preliminary Specifications software. The industry we’re rebuilding will be where people are assured of the steady economic performance that would be a result of producer profitability, everywhere and always. No more boom / bust cycles. Secondly, an industry in which the investors would see profitability as the driving force and primary objective for all concerned. This industry has now learned a costly lesson regarding why profits are needed everywhere and always. The investors hold the tools necessary to keep management performance profitable for all concerned. Once investors see that oil and gas has a plan and strategy to be profitable again they will look to immediately position themselves to earn those profits as soon as the producers have funded and initiated the Preliminary Specification. And lastly understanding that OPEC+ are tired of ceding market share to shale producers that also destroy oil prices, but not OPEC+ profitability, how assured would they be if they saw North American producers were beginning the work to rebuild their businesses based on producing their products profitably everywhere and always? Would they then cease their price war if the Preliminary Specification was adopted and funded by North American producers? What would the world look like without North American based bureaucrats constantly searching for and accusing every scapegoat they can find?

In this new series, “Interactions With PI&O” we’ll be discussing the manner in which people will be interacting with People, Ideas & Objects (PI&O), the software that we produce and the services that are provide through our affiliated user community and their service provider organizations. Today I want to discuss the user community and what software they’ll be using to determine the needs and wants of the producers. They’ll have the most comprehensive view of the industry as they’ll not be isolated to just one producer, but the entire industry and all of its associated industries such as the service industry, the greater oil and gas economy, and all of our software users, which will include anyone in need of accounting and administration for oil and gas. 

We will be introducing significant change to the oil and gas industry and that change is going to be managed by our user community and implemented through their service provider organizations. As a result, their first tool to enable this, and to communicate these changes broadly, will be our operation of a current version of the Preliminary Specification based on the most recent software development build as a demonstration of the ERP system. This would be of great advantage to make our changes communicated, understood and appreciated throughout the larger oil and gas community. Therefore we will begin, almost immediately upon the commencement of software developments, to have a facility where people can go to see and use the latest development build of our software. I would expect at this time the builds would be in the order of weekly however it is difficult to determine at this time. Therefore the iterations of the developments and their changes would be evident for everyone in industry to see as they were developing through the builds. This in turn would assist our user community when their producers, or others, ask for certain features and functionalities that were being developed on top of any prior innovations etc. Both increasing the quality of, the speed, and the understanding of the PI&O software throughout the industry and greater oil and gas economy. Removing the unknowns prior to implementation and having the industry up to speed when we’ve implemented the software and go live. 

This facility's existence has never been discussed publicly before. It’s costs however are priced into our budget. It is very expensive due to the Oracle Licenses which include Cloud ERP, and all the necessary applications that are defined and necessary to support PI&O’s Preliminary Specification. During initial development, supporting producers will be provided with access to the one designated individual, our one point of contact, within their organization to view and interact with the facility. This will be the individual leading the implementation of the PI&O system within the producer firm. It will be their responsibility to present demo’s of the application in YouTube videos or classroom presentations in order to inform the producer staff, capture feedback and forward that onto the appropriate user community member (UCM). 

UCM’s will have access to this facility at all times. That way they’ll be up to speed on the changes that the entire user community has made, be able to solicit feedback from the producer contacts and ensure that all is accurate. Sample data will be prepared by PI&O and will emulate the processes of an active producer. We would appreciate donations of data from the industry when that time comes. The UCM’s will have this facility throughout the years of development both in the initial development phase prior to commercialization, and it is expected that they would have access to a similar facility once the application becomes commercially available. Producers of course will be using the applications live. UCM’s will not have access to the producers systems or data and therefore will need to emulate the producers systems with test data, via the weekly builds, which will be necessary for them to understand the application in its various use cases throughout the industry post implementation. 

As we’ll note in this series, “Interactions With PI&O,” will show the different perspectives on the system are fundamentally different depending on your area of responsibility. The service provider systems will be slimmed down single processes with very limited data. The need however to emulate each of the service providers perspectives will be a requirement for the UCM as well, as they’ll need to see what it is the producers systems look like for each of the service industry representative and anyone else who’s using the software. 

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.

Everyone Sees it Now

Covid-19 is providing a better understanding for everyone about the difficulties that I’ve had in dealing with the North American oil and gas producers. For many decades oil and gas prices have not provided for profitable operations, but I guess a producers' right to produce unprofitably overcomes all logic. As I’ve said 5 out of the last 35 years have been good years. Investors left due to their poor financial performance many years ago. Why hasn’t there been any response or action to either these depressed commodities prices or to their investors exit? What is the argument that is put forward by these bureaucrats that they can defy logic and gravity for so long, and continue to do so in the face of such dire financial circumstances? Are they unaware, or just deceived by their own accounting that shows profitability continuing despite any outside negative or positive influence. I have been trying to sell the industry on the ability to generate real profitability everywhere and always. All that I’ve experienced is a knock-down, drag-out brawl of world class fighters who have no interest in change or profits. My only conclusion is producers “play the long game” don’t you know, and a decade or two is just a minute in real time.

The history of this past decade is horrendous! Natural gas began to decline during the financial crisis and these prices continued to erode due to overproduction in the North American marketplace. A marketplace constrained due to the inability to offload the product to other continents. Natural gas prices remained high in Japan and Europe which launched substantial investments in export LNG facilities. These in addition to mostly Australia's LNG capabilities have now eroded world wide natural gas prices to the point where they don’t even cover the shipping costs to move LNG anywhere. The abundance of North American shale gas has saturated the global markets and its storage facilities. 

Oil and gas bureaucrats knew intuitively then that oil was where it was at, and that is where they went with their shale technologies. Moving U.S. production from 5 mm bbls / day to 13 mm bbls today. By 2014 oil prices began their precipitous decline, and in 2016 OPEC+ stepped in to begin the removal of surplus oil production from the market. As a result they were successful in rehabilitating the price from $29 to $74.15 in June 2018. Reducing their production over three and one half years for a total of one billion barrels that were taken off the market. Or as much as the global commercial oil storage market. Not to be deterred we’ve now seen oil prices as low as the teens. With the prodding of President Trump, OPEC+ wants to initiate a new agreement with the caveat that North America join in, and there is no way in the world North American producers will ever participate in anything that will save their souls. They’re on a suicide mission and they aren’t hiding that fact from anyone now. 

Shutting in production across the globe is generally considered the appropriate resolution to the oversupply issues. Lets restate that, the bleedingly obvious solution. Yet People, Ideas & Objects Preliminary Specification, our user community and service providers which are designed to enable producers to reduce supply by removing the unprofitable production from North America is alleged to be “collusion.” Bureaucrats will never understand the business of the oil and gas business, or make any attempt to even try. Death becomes them. 

Lately we’ve heard these producers state that shale formations are more amenable to shutting in than other formations such as those in the Middle East and Eastern Europe. One of the lies the bureaucrats have been involved in telling is that “they can’t shut-in because the formation will be damaged.” The damage coming about as a result of “the formation collapsing on itself.” If ever there was any indication that these bureaucrats were only doing what they do in order to line their pockets it’s this statement. This is 100% bunk. Proven by the fact that Saudi Arabia pledged to increase their production from 9 mm bbls / day to 12 mm bbls / day within the next few months. Sounds like they experienced significant damage by shutting-in all that production these past few years doesn’t it! The shale formations are fraced multiple times on a lateral that extends many miles. These fracs are caused by upto 60 mm bbls of water being injected to crush the rock so that the oil and gas can accumulate into the fraced areas. Usually sand is injected in the void in order to ensure that the porosity of the void remains high and production continues. By shutting-in a well doesn’t damage the formation. Certainly injecting 60 mm bbls of water would potentially do more damage, I would think. 

The writing is clearly on the wall for all to see the antics of these bureaucrats. In this time of enforced isolation I’ve never felt less alone. The attitude in the marketplace is clearly consistent with the logic that is contained within the Preliminary Specification. It is what businesses do, it is business logic. You don’t produce unprofitably and you don’t do it for four decades. What is and has been going on has now been noticed by everyone, it is obvious and miraculous to most that producers are applying such unreasonable arguments. I have always said the damage and destruction that has been caused at the hands of these bureaucrats has been catastrophic and unheard of anywhere and at any time before. Bureaucrats believing their own specious financial statements, that they are viable and strong, is a result of the corrupt accounting that has gone on for four decades. This has covered over and masked the great drainage of wealth and value out of the industry by their hands. We certainly don’t need these bureaucrats now that the industry is worthless. What’s more these bureaucrats feign not to understand, even today. They are redundant and what’s more they are an impediment to any resolution. The Preliminary Specification is a solution that they were aware of since 2003, its full specification on how to be profitable since 2013. Which proves they had every opportunity to do something and chose instead to line their pockets. People, Ideas & Objects have a plan and a strategy to do better. With the Preliminary Specification, our user community and their service provider organizations. We can rebuild the industry faster, without compromise or continuing with this corrupt and failed system. And have the dynamic, innovative, accountable and profitable oil and gas industry and producers that we need and know we need for the dynamic future we know will be the most difficult. 

I am pleased to have prepared the solution to what can only be described as the largest oil and gas issue, ever. It has been a long battle and this day was inevitable. This day being that I think we may have turned the corner. Milton Friedman said it best and we quoted him with the following quotation in our White Paper.

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.

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.