"Organizations Don't Change, People Do," Part XII

Let us all note the downfall of Chesapeake yesterday. It didn’t have to be this way however organizations don’t change. What does is the people in the industry and they are turning to People, Ideas & Objects user community. Especially when the comments coming out of the bureaucrats are as follows. This is some commentary from the Dallas Fed’s Survey of oil and gas producer executives. From World Oil

One executive commented in detail, “With the ‘Great Crew Change’ retirement of ‘boomers,’ and COVID-19 work-at-home isolation, the industry is de-populating itself of knowledgeable and experienced personnel. That collective knowledge drain is not being effectively replaced by ‘newbies.’ The newer, younger employees don't know much, and while they can stare at computers and run applications, they are making critical land, legal, financial and business errors at an astonishing rate but try to self-buffer from the real world impact of their errors with mental Maginot Lines of mercurial ego! I'm seeing this happen more and more frequently with contractors, purchasers, operators and business-partner companies. It's causing everything in this industry to move at a glacial pace, because so many errors and problems have to be reported to a knowledgeable supervisor, somewhere, who can then give some one-on-one ‘counseling’ to the error-creator, who tries to defend their error to the company, who reported it in the first place. We wind up having to write more memos and e-mails, or make phone calls to a voice-message recorder, than ever before, just to keep basic functions moving that used to be routine and automatic.”

This is new, this is innovative but mostly this is just the same old, same old. The decline in producer and service industry organizations, the capabilities and capacities of the producers that we’ve warned about throughout the years that this blog has been written. Has suddenly been seen as an issue by those that are in bureaucratic power. For the moment at least and here’s the most important point of all, it’s the employees fault! This scores a triple in the second bureaucratic handbook “Muddling Through for Dummies” when you can affix blame, excuse your own chronic inactions on others and create another viable scapegoat. If viable, scapegoat is not too oxymoronic, its double meaning brings a special ring to it. Training and development of their staff is not their job, quite obviously. And if they’re so unhappy with those that they’ve hired specifically, why not do something about their training and development, or termination? Instead they’ll blast their dirty laundry out about their problems and expect someone else to clean it up for them. Here is the solution to all that ails the industry. Cash, derived from continual “real” profitability such as what we’ve defined in the Preliminary Specifications decentralized production models price maker strategy. 

The immunity attached to oil and gas executives is a remarkable phenomenon. I’ve yet to see anyone outside of People, Ideas & Objects and our user community hold them accountable for this multi decade disgrace. I keep asking myself where the CFO’s have been, and where are they now? But then again they are helpless and powerless aren’t they. And I’m talking about all of these producer executives who are helpless, powerless, inept and not that smart. I might want to add they’re apparently illiterate. Unable to read what has been written here since 2005 and People, Ideas & Objects Preliminary Specification which was published over the course of August 2011 to December 2013. 

This oil and gas situation is also particularly interesting from the point of view of its uniqueness in business. This attitude of deniability of any issues or difficulties that they’ve caused, that anything they do run into is the responsibility of others is systemic and it's the only law that is recognized or adhered to. There is no deviation from that anyone, anywhere or at any time in terms of any other thinking. This homogenous thinking is the result of decades in which drilling wells was the business and the only part of the business, which required raising capital from markets, and forms the comprehensive culture of do nothing and muddle along. And why not, show me a bureaucrat that’s hurting financially as a result of the culture of the oil and gas industry. Even in bankruptcy they make out like bandits by granting themselves lucrative bonuses for the hard work they’ve never done and will never be doing. There was an interesting article that was somewhat relevant in the Wall Street Journal on Saturday that spelled out the thinking of an executive in another industry. 

I reject that answer. The biggest talent pool in the world doesn’t matter if the ocean that surrounds it is intellectually shallow. If a business is based in a place that expects social and political conformity, then innovation will falter eventually, because it depends on pushing the boundaries. And if our people find it hard to flourish in every aspect of their lives, then the company will struggle in the long run. I think that as the West Coast becomes more insular and exclusive, other parts of the country will become the biggest drivers of tech innovation.

This executive was moving their technology based operation from Seattle to Texas. Imagine this kind of proactive thinking and issue mitigation being executed in oil and gas? Whether that was on a systemic basis or by an individual producer organization. I’m not suggesting oil and gas is “intellectually shallow,” I’m calling this a drought. We’ve seen these same producer “executives” take credit for the innovations of others that have been used in the industry. “Producer innovations” were alleged to have provided coiled tubing and packers in order to make shale fracing possible. Except we all know the difference between fairy tales and facts. Both of those innovative developments were from the service industry whose providers had to pay dearly with their ostracization and banishment from the industry, for long periods of time, before any producer decided to use them and bureaucrats began to reap their financial benefits. We’ve seen the diversity and dynamic nature of thinking throughout the industry fade to zero over these past four decades. Proving correct the technology executives thesis in the WSJ article. I guess we should have noted too at the beginning of this post the level of dishonesty and fairy tales that have been circulating around the producer firms for the last number of decades. Why actually do the work when you can just take credit for it. That being the other side of blaming, excuses, viable scapegoats and chronic dishonesty. Although in their defence I don't think before 2009 anyone knew or understood that Bernie Madoff was dishonest. 

There will be no other posts this week due to July 1, Canada Day and July 4, 2020 Independence Day in the U.S.  Of note, July 4th 2019 is the day we published our White Paper “Profitable, Energy Independence in North America -- Through the Commercialization of Shale.” The response that we received over the past year has been overwhelming. I have published a number of papers into this market over the past thirty years and none has been received anywhere near the reception of this White Paper. I am very pleased, and would note this is more to do with the need in the marketplace for a solution to the issues in the industry. We look forward to continuing the value adding work that we’re doing for the industry and are pleased that our audience continues to grow. Thank you.

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 587-735-2302 in Calgary or 713-965-6720 in Houston or email here.

"Organizations Don't Change, People Do," Part XI

Looking at the issue of production discipline in the industry. We understand that the attitude of the bureaucrats suggests that they’ve always been profitable and that it’s all the other producers in the industry that have caused the problem. And that to a large extent is the problem. If their firm sought to clean up its act and work within the logic of the decentralized production models price maker strategy, without the Preliminary Specification being built it would be a futile exercise. If they were Exxon going it alone doesn’t get the job done when all the other producers are still participating in the free for all. Production discipline has to be implemented industry wide, or on a North American basis at least. It’s in that way, and only that way, that the industry will be able to prosper and conduct its operations as expected. Bureaucrats state this is collusion! I argue that their argument is not valid for two reasons. The decisions to produce or not are being made independently at the Joint Operating Committee level and in its best interests. Based on objective, standard and actual accounting data and information. This wouldn’t qualify as collusion. And if for some reason collusion was proven to somehow qualify it would fall under the category of implicit or tacit collusion, which is legal. Either way the bureaucrats are holding out the false argument that the decentralized production model’s price maker strategy is something that it is not, or something that is irrelevant to the issue at hand. And choose instead to watch the industry circle the drain. From Investopedia.

The price maker is also a profit-maximizer because it will increase output only as long as its marginal revenue is greater than its marginal cost. In other words, as long as it is producing a profit.

People, Ideas & Objects “price maker strategy” does not reflect that we are fixing prices. What it implies is that we are adhering to the principles of the economic theory of products that reflect “price maker” characteristics. Contrasting the “price taker” strategy employed throughout the industry today. Products with price maker characteristics in markets that are subject to overproduction, experience material downward pressure on product prices. In the shale era of abundance, production discipline must be attained. 

Producers need to understand, and quickly, that as a primary industry the sales of oil and gas are for the benefit of the entire industrial complex. This includes the producers, service industry, tertiary industries and general economy. In many cases such as the service industry their only source of revenue is from the oil and gas producers themselves. They don’t service the retail or automotive industries. The consideration that these groups have been given over the past decades has been very poor as reflected in the commentary of Encana / Ovintiv when they called them “greedy and lazy.” The oil and gas revenues have been the sole source of pleasure and accomodation for the bureaucrats in the many highly innovative ways they’ve expanded the means of executive compensation. All others be damned. Not only have investors come to realize that the oil and gas producers have been running a scam in the past four decades. The bureaucrats assume that the investment and banking community are available to provide “make-up revenues'' to the service and other elements of the oil and gas industrial complex. As I documented in our White Paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale” these days are gone. The investors and bankers are no longer falling for that scam either. If work is to be conducted in the field, it will have to be paid for in advance by the producers, otherwise they’ll have to go without. If a new rig is required then it will have to be paid for in advance. The volume of unpaid bills to the service industry is probably at record highs. Who knows though, it’s not something that the bureaucrats are interested in. And with the looming bankruptcy run we’ll find that these service industry representatives will be given the full scope of their legal entitlement through that process. Which is nothing. Producers should be looking forward to financing and directing the rebuilding of the service industry. Good thing there’s the Preliminary Specifications Resource Marketplace module to do just that. 

It certainly is easier to capitulate on the shale era and say it’s over. As we are hearing throughout the producer population these days. Instead of working to make it profitable, which requires bureaucrats to assert serious effort and make this a business, as we’ve described in our White Paper. Giving up is item number seven in the “Bureaucrats for Dummies” handbook. And I of course can’t agree with them more. If it’s giving up they want to do then we’ll be far better off without them. It’s time for action and if these officers and directors think they can get through the second quarter reporting period unscathed, a) I’ll be surprised, b) we have a long way yet to travel. It would be my opinion that if there is not a “the building is on fire” sense of urgency to act in the boardrooms of the producers then they’ll be personally sued to kingdom come. 

The critical role that investors, us really, play in the oil and gas industry is their wise and prudent direction that they provide. The same role they play in society throughout the public and private financial sectors. It is their money they’ve put into the organization. They are allegedly the smarter of the financial minds as a result of accumulating the capital that they do have. They are generally risk averse and mostly quiet. The invisible hand in Adam Smith’s Wealth of Nations. Their presence or lack of it can initiate action and enable economic growth and stability. As long as they are satisfied with the returns, and those returns are competitive to the others in the marketplace, they’ll remain. When investors leave. When they stop funding the activities in an industry as they’ve done here in oil and gas. There is no stronger signal that should garner the attention of the executives and directors. It is a signal that the market thinks your organization is in serious jeopardy. Actions need to be taken to reverse the trend, if possible, and rehabilitate the organization to be consistent with the market expectations. If not they will be replaced by creative destruction. This is maybe the most important role in which investors act. They leave, almost instantly and mitigate their loss. In oil and gas what we heard was the producer bureaucrats mouth in chorus that they had $x.xx billions on their lines of credit they would use. The window of opportunity to access those lines of credit have been closing for a few years now. They seem to be accelerating and don’t appear to be open to anyone much longer. In the zeal to offset our argument that producers were running low on working capital and had in many cases negative working capital. Bureaucratic scammers began quoting their working capital numbers to include the amount of remaining credit on their lines of credit as part of their working capital. Such financial innovation, once again.

In all of the years that I’ve worked in oil and gas I’m at a loss to remember a time when the discussion in the industry revolved around success and failure. The concept of profitability was raised by us in August 2003 and we have paid dearly for the introduction of that. “Put some cash in the ground,” “build balance sheets,” “pipelines,” “OPEC are at fault,” “praying for a cold winter” the list goes on. Don’t see any discussion of profitability, and the criteria of success or failure can’t be assessed in these talking points either. 

The question does arise now that producers are finding the effectiveness on commodity prices of shutting-in production. What will they need People, Ideas & Objects for? Think of the junkie looking for his next fix. This junkie being a further step down from the comforts of living in a dumpster. Costs are piling up unpaid and they’re unable to get things done as they should. What will compel producers to continue to hold off their production until all of the “unrecognized capital costs of prior periods” are accounted for? (Or the term that we call property, plant and equipment on the bloated balance sheets.) Where will any production discipline come from and how will it be implemented when no one knows or understands what their real costs are? We’ve seen an attitude of bureaucratic entitlement overtake the industry in these past decades. Suggesting that they’re profitable, based on the junk accounting they’ve been feeding investors, and therefore it’s not their fault or responsibility that they’re in the condition that they’re in. It’s for others to deal with and somebody needs to save them. Industry has fallen so far down in such a very short period of time. A decade was all that it took to make the industry the worthless, listless, rat infested, garbage dump that it is. Yet producer bureaucrats just continue to cut away at the one resource that still has blind faith in the opportunities they were once promised. More to the point is, do we make these personnel cuts or miss the payroll and have everyone leave. Missing payroll would terminate the firm instantly. A decision that was obviously made at Chesapeake where they asked themselves “do we skip out on payroll or miss the $10 million interest payment? 

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 587-735-2302 in Calgary or 713-965-6720 in Houston or email here.

"Organizations Don't Change, People Do," Part X

Many have argued with me that the Preliminary Specification will have the effect of raising prices of oil and gas across the globe for the remainder of the oil and gas era. Which is true. Where else will the industry find the cash resources to fund itself? Oil and gas as commodities have now been proven to fall within the price maker category. Not that this is a tool to raise prices precipitously and for no reason. But to ensure that the industry imposes the desperately needed production discipline that has been missing from their operating methods for the past decades. In the shale era, this lack of production discipline is rapidly leading to the demise of the industry. The cash to fuel the industries resources in terms of the various stakeholders has not been a concern of our good friends the bureaucrats. They have been satisfied with their take at the expense of everyone else. The shareholders, bankers, people within the industry and service industry, but also the tertiary industries and general economy have had to suffer due to the lack of financial resources that are generated by the oil and gas producers. This has also been at the costs of innovations that would mitigate the price increases the consumers may face, and reduce the inherent environmental difficulties that are now present in hundreds of billions in somewhat orphaned abandonment costs that have not been conducted but need to be. Where is the money to deal with those costs? The taxpayers outside of Canada are not going to undertake that. This also leaves the difficult question of how the complex and costly future capital expenditures are going to be funded to ensure that the economy is not short changed in terms of its demand for energy. Investors and bankers are now wise to the manner of the bureaucrats. They’re not fooled repeatedly, and it would be unwise to continue attempting to do so. It is the most powerful economy that will be the largest consumer of energy, always. Oil and gas will always be a significant contributor to our energy makeup. I guess we should thank the bureaucrats for their consideration of all of these demands when they were on their personal “journey of acquisition.” If we critically evaluate the oil and gas industry today what if anything about this situation appears temporary to you?

I would suggest that we review what the real cost of energy is today and take in consideration what these costs are and ask if they are reasonable? Soon after being elected Premier of the province of Ontario, Doug Ford stated that he was going to call all the heads of the major oil companies, get them in one room and ask what’s going on, and specifically why were Ontario consumers paying more than what Americans were. Surprisingly this was all we heard about this rant coming from the newly elected. It is true that Canadians pay about 30% more for their gasoline than Americans do. But why is that? Someone must have quickly pointed out to the newly elected, Ontario and Canadian government taxes, but also American’s like to tax gasoline heavily too, and therefore are responsible for high gasoline prices and these trans border price differentials. If the price of gasoline is going up as a result of implementing the Preliminary Specification, in order to support the broader energy industry infrastructure, to deal with the abandonment costs and future capital costs of bringing on the more difficult and challenging energy, why would the government take an increase as well? 

If we are going to stay with market based economies then we should begin to operate based on market signals. The price of the commodities that the producer receives is all the information that the producer needs to know. It contains the global supply of oil, the reserves, the storage capacity, the state of inventory and the level of demand. All within that price. If that price provides the means in which to produce profitably, based on the standardized and variable cost accounting and administration provided by the user community and their service providers, then the property will continue to produce. Just business, which begs the question what is it that the industry has been doing? Managing and controlling their costs so that they stay below whatever proceeds arise from full production. Also known as the high throughput production model. This method is how the industry is configured today. In an environment where oil and gas is scarce it may have provided some value, however we don’t know as a result of all the shenanigans that have been going on. In an environment where oil and gas are in abundance it’s principle of full production to offset the high overheads is out of step with our current reality. 

What the Preliminary Specification relies on is our decentralized production models price maker strategy. The decentralized production model seeks to provide production only if it’s profitable. Converting all of the Joint Operating Committees costs to variable costs, enabling the oil and gas producers to move up and down their production profile and be profitable at all times. The difference between these two methods is the production discipline that is inherited through the decentralized production models ensures only profitable production is produced. Any unprofitable production only dilutes the producers corporate profitability, and would therefore be shut-in which would incur a null operation, no profit but also no loss. People involved in this oil and gas industrial complex need to see the producers perform. People’s commitment will now be contingent on the ability of the industry to transform their performance. Boom and bust cycles should have been worked out of the industry long ago. Expecting people to succumb to this is only testament to the greed and foolishness of the bureaucrats. We see other industries laying off some staff due to being shut down from the virus. These are temporary, and people know it's due to exceptional circumstances beyond anyone’s control. Why does oil and gas consistently do this to people who have been educated in specialized industry disciplines, placed their careers at the hands of bureaucrats and only after twenty years of kids and mortgages do they find themselves on the street?

Getting back on track now, it is the application of this accounting information process that will be the responsibility of the service providers on a whole. Providing standardized, objective and variable services will be their purpose as we mentioned in our previous post. It will be inherent upon the producers representing the Joint Operating Committee for the property to adhere to the production discipline that is afforded them through the decentralized production model price maker strategy. The production discipline I would think would be applied at the 100% working interest or Joint Operating Committee level and involve the entire properties operation as the determination of profitability. Each producer's individual production may be profitable or not and have to be dealt with the result of the voting rights spelt out in the Operating Procedure. Nonetheless the service providers are providing an important role in facilitating these operational decisions based on actual, factual accounting information that is standard across the industry, objective and based on variable costs which contain the detailed revenues, costs of capital, operating, royalties and actual overheads incurred. 

The accuracy and timeliness of the costs of their service provider fees will be the majority of the Joint Operating Committee overhead costs and they will be far more efficient than what each producer is incurring today. What is done today is that each and every producer has to maintain the administrative and accounting resources to meet all of the regulatory and reporting requirements that the producer has. These fixed administrative and accounting costs are replicated exactly in each producer. However none of these costs are shared or shareable outside of the producer. The effectiveness and efficiency of these G&A costs are a major impediment to the profitability of the industry due to the low utilization of these resources. I would suggest that the industry may have been able to attain a 40% efficiency. This is due to the lack of the application and resources to apply any enhanced specialization or division of labor. Whereas the service providers will be able to strive to achieve 100% efficiency at all times and be able to come close to that due to their very advanced state of specialization and division of labor. But also their other competitive advantages of quality, automation, leadership, innovation and integration. I should also point out that the principle of each service provider is a user community member in the People, Ideas & Objects user community and therefore able to directly change the software process that they manage in ways that enhance their competitive advantages, software and services but also the producers profitability and efficiency. 

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 587-735-2302 in Calgary or 713-965-6720 in Houston or email here.

"Organizations Don't Change, People Do," Part IX

We continue to process user community applications for the part-time positions of users in People, Ideas & Objects user community. The application process is spelt out here. These are the critical positions in which the Preliminary Specification will be defined, refined and built based on the knowledge, understanding, skills, experience and ideas of the community. These people will collaborate in their areas of expertise with other members of the community and general population of the oil and gas economy. Gathering, innovating and presenting the needs of the software to our developers. Developers who are authorized to listen to the user community exclusively for input. Users are the critical resource of the oil and gas industry that will ensure that the dynamic, innovative, accountable and profitable oil and gas producers are always provided with the software and services needed to fulfill that criteria. Ours is a dynamic offering that avoids the locked-in, software driven, organizational constraints to industry change. If this interests you, preparation of your application should be well on its way. We are looking for a total population of approximately 3,000 user community members. It is also the user community members that we are looking exclusively to, for the development of the service provider organizations that are necessary to fulfill the dynamic nature of the industries operations. The user community member will be the principle behind the service provider. It will be within that organization that the user community member earns their primary sources of income. 

It will be through the service providers where the people and organizations that the administrative and accounting resources of the producers will be reallocated to. There they will manage one process on behalf of the entire industry as their client base. Using specialization and the division of labor, the software that they develop with People, Ideas & Objects to ensure that a standard accounting and administration is conducted across all of North America’s oil and gas properties. This standardization is critical to ensure that any production that is produced is deemed to be profitable, then the producer is ensuring their corporate profits are the highest possible by only producing profitable production. And that determination of profitability is the standard that was applied to all their properties as well as all other production in North America. All producers therefore know that the criteria used to evaluate profitability, and hence production, is consistent throughout the industry. 

In addition to being standard across the industry service providers will be offering producers there services on the basis that their costs are variable. If the property is shut-in as a result of not being profitable, then that property will not have any of the service providers receive any data through the Preliminary Specification that will cause them to conduct any work, or generate any billing for that property. Creating for that producer a null operation for the property, no profit but also no loss. And ensuring that all the costs of oil and gas exploration and production are captured in the prices that are passed onto the consumer through People, Ideas & Objects price maker strategy. Particularly the capital costs, to ensure they match the timeliness and recognition that is necessary in this era of rapidly declining shale formations. It is in this way that shutting-in any unprofitable properties will stop diluting the producers corporate earnings from their profitable properties. Enabling the producers to achieve the highest level of profitability that they can achieve. Shut-in reserves will be saved for the time in which they can be produced profitably and those reserves will not have to carry the increased burden of making up for the continued losses if the property were to continue unprofitably. The commodity markets would also find their marginal costs when the unprofitable production is removed from the market. The effectiveness of removing production from the market during the coronavirus validates this theory. Consistent application of this process across the industry, always, would enable the oil and gas’ greater economy to fulfill its responsibilities of abundant and affordable energy to the consumer for the remainder of the oil and gas era. A key point as the costs of each incremental barrel produced increases.

What People, Ideas & Objects ERP software will be providing to the oil and gas industry is the explicit knowledge that is captured in the ways and means of industry operations. This will be nothing more than an aggregation of what is already known and available elsewhere, repackaged in our offering through the efforts of the user community. Not to belittle our role here but that is the role that software plays in society. The value lies in the tacit knowledge of learning by doing as well as a myriad of other definitions contained here. It is the critical component of the process that we are all undertaking in making the oil and gas industry dynamic, innovative, accountable and profitable. To not approach the source and application of both explicit and tacit knowledge in the changes we are making would lessen our chances of success. The user community and service providers are the source and application of tacit knowledge, and therefore the keys to success. This has been the perspective of People, Ideas & Objects since the beginning of our efforts in August 2003. If you’ve read the Preliminary Specification you can see clearly the impact that the Agile Manifesto (2001) has had in the development of the software and services that are needed to make the industry and producers dynamic, innovative, accountable and profitable. Specifically the manifesto’s most applicable rules that apply to the user community and their service provider organizations are numbers 1, 2, 4, 5, 11 and 12 which are as follows.

1) Our highest priority is to satisfy the customer through early and continuous delivery of valuable software.

2) Welcome changing requirements, even late in development. Agile processes harness change for the customer's competitive advantage.

4) Business people and developers must work together daily throughout the project.

5) Build projects around motivated individuals. Give them the environment and support they need, and trust them to get the job done.

11) The best architectures, requirements, and designs emerge from self-organizing teams.

12) At regular intervals, the team reflects on how to become more effective, then tunes and adjusts its behavior accordingly.

By no means are these the only rules that we’ve applied, these are only the ones that I’ve highlighted today for the purpose of the user community and service providers. One can also see that there is a role for the producers as well. They’ll only get out what they put into this process. If they decide to sit back and wait for others to carry the freight then they’ll be sorely mistaken when it comes time to use the software and services. It will be far more advanced than what they can comprehend immediately and they will therefore fall back in terms of their performance. In the future it is not that critical to own the oil and asset as it is to have access to, and be able to function with the software and services that make the oil and gas asset profitable. 

People, Ideas & Objects user community and their service provider organizations are the industry structures that need to be built in order to make the changes in the industry to ensure that everyone can prosper. “Can” being the appropriate word since there has to be a willingness to participate. Providing the profitable means of oil and gas operations to the dynamic, innovative, accountable and profitable oil and gas industry. Does anyone argue the critical role real profits provide everyone in an industry? They are the only reason for the existence of the industry and the pursuit of cash flow has diverted the attention away from the value that profits provide, and now everyone is suffering. Accounting is about performance, and ours will be a standardized and variable service measuring the timing and accuracy of the producers performance. 

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 587-735-2302 in Calgary or 713-965-6720 in Houston or email here.

"Organizations Don't Change, People Do," Part VIII

The process of bankruptcy at Chesapeake will seek to deal with the $9.0 billion debt burden the company has incurred. With negative shareholder equity of $3.9 billion, and negative $442 million in working capital there will be no room to maneuver. The Motley Fool has an analysis that is worthwhile to review. All of this occurred during the shale heyday which was also a time of “easy money” or a period where interest rates were negligible. This is the future of the North American producer. If not bankruptcy such as Chesapeake and the few that have already pioneered that route. But delisting as what happened to PennWest, or as they called themselves Obsidian. Or Pengrowth which was purchased for a nickel a share. A Canadian nickel at that. These, as are other companies in the industry, are trading at such small percentages of their former glory that it’s even too painful for me to bother to calculate. Usually one or two companies hit hard times in an industry and are culled from the field. Why would anyone pay over $9 billion for Chesapeake? These are the albatrosses that have been incurred in the competitive environment where “building balance sheets” becomes all the rage. With the expansion of their assets producers did not see any cash being returned due to the low commodity prices producers were charging. To offset those big, bold, beautiful balance sheets that now hold 80% of property, plant and equipment, 9% are inventories and accounts receivable the rest in other assets and goodwill. These “assets” which are really only testaments to the spending spree, are therefore offset with ever expanding volumes of debt and eroded investor contributions. They represent in People, Ideas & Objects opinion the only value remaining in the industry, the unrecognized capital costs of past production, which might be recoverable in the form of cash in the future. How did, and could this disaster happen?

What producers need yesterday is a ready supply of cash. And the only form of cash is more production, which leads to further deterioration in the business but might help with the rent, the lights and payroll that are all due tomorrow. Production discipline in this environment will not be the principle that producers stand by for the next decade. Overproduction will continue until the last producer falls into the same pit as the three mentioned above. 

In the meantime people from every walk of life are thrown into a dilemma as to what to do. You could stay with that promise of big money from the producers. Or take what you’ve got and rebuild your lives elsewhere. That’s what we did in our role as investors, didn't we. We didn’t like being treated poorly and our money used to fuel the lifestyles of the rich and famous. So we left and headed to other industries. And hasn’t that worked out. The NASDAQ has recently been in record territory over 10,000 points, the S&P Oil and Gas Index SPSIOP is 2,277. (NASDAQ was 1,700 in February 2009, SPSIOP was 6,133 in May 2010 and 12,642 in June 2014.) And the NASDAQ used to be considered the dead zone 20 years ago. But the future is inevitable for Chesapeake as it is for the industry. What producers need to do is simple. Recognize how they’ve destroyed the industry and the need to rehabilitate it. Stop lying, blaming others, making excuses and scapegoats and instead take responsibility and act to resolve these issues by funding and building the Preliminary Specification. This will be the most effective way in which they can mitigate their current risk and potential damages. Then operate the industry on a profitable basis for the next decade and prove to the world that this past performance is behind you. 

The industry as it stands today is worthless. The whole point up until now was to find oil and gas reserves. What value do these reserves have? Nothing, if they can’t be produced profitably their present value is zero. Right now they can’t be produced for as much as their operating costs, and they’re almost always produced well below the point of break even. Chronic negative present value. And these reserves are backed by debts that are very highly leveraged. Therefore the sum total of these bureaucratic activities of the past four decades is that the industry is worthless, a drain of investor and banks cash and the banks will always have to be paid first for the vast amounts of disproportionate debt they’re owed. This unfortunately is the reality of the industry's state of affairs. There are no alternatives or opportunities that I can see during the next decade. And this next decades scenario assumes that remedial action is taken today. If it's not...

The belief of the bureaucrats is that investors will swoop in and find great deals now. This is a fallacy of monumental proportions. What the investors see in the industry is representative of a person living in a dumpster, which in Chesapeake’s case is also $9 billion in debt. This individual was once famous and powerful for heading an oil and gas company. Born of the pedigree necessary to find the reserves, they just need help to get out of the dumpster. Is that where and when you throw another billion or two at them? Or, do you hand them your card and say if they ever get back to where they once were to give you a call. It’s about performance, not promise. They didn’t end up in the dumpster because of their high performance. Why would you continue to subsidize their poor performance? Why would you invest in dumpsters when you can make real earnings elsewhere? Oil and gas needs to prove they have the wherewithal to deal with their issues. Taking care of someone on life support because they have an alleged history but refuse to accept they’ve made and continue to make mistakes. That they don’t listen to anyone and continue in their destructive ways, doesn’t appeal to anyone. The only thing that will help in these kinds of situations is the humble approach of looking inward and dealing with what is found. 

I know, organizations don’t change, but people do. What we, as concerned individuals, can do is rebuild our own oil and gas industry to replace this bunch and do so in the vision of the Preliminary Specification. Why not, I am at a loss to find one aspect of the industry that is operating efficiently and profitably. Producers may argue they're not living in dumpsters, but they’re quickly learning. I originally gave them until August 31, 2020 to face their ultimate demise but I think that timeline will be shorter. There is not much time for them to act. And if they don’t, they’ll have no support from anywhere. I’ve spelled it out in this post quite clearly, preaching what each step they need to take. So, let them surprise us and see them do what is necessary. 

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 587-735-2302 in Calgary or 713-965-6720 in Houston or email here.

"Organizations Don't Change, People Do," Part VII

People, Ideas & Objects Preliminary Specification presents a different vision of what the industry provides its stakeholders. Profitability in the real sense, is necessary in order to ensure that everyone is well established and taken care of throughout their careers in the greater oil and gas economy. This way they can maximize their contribution to the economy and ensure that they can build a life for themselves and their families that will be uninterrupted by unnecessary disruptions due to abuse and neglect by others, or as we call them bureaucrats. Ours is a different vision than the one that has brought the industry to the point that it is today. Ours uses the capitalist system in its expanded role of ensuring all stakeholders are considered in the process of exploration and production of oil and gas. Without profitability in the real sense, vs. what we have today, nobody is winning other than the select few who have put the entire complex in jeopardy, the bureaucrats which consist of the C Suite and Directors. 

Stretching everyone to their breaking point is a necessity that happens now and again as challenges are faced within any industry. The fact is the people who are employed in oil and gas have had to “put in 110%,” “make the effort,” and “we have to push through” constantly without any measure of normalcy other than the times where they're laid off. “It’s boom or bust” don’t you know. Which is a ridiculous assertion in the 21st century. Producers should now understand that this has been, and is, unsustainable and inappropriate. We have a concerned and exhausted workforce that knows there are few replacements standing in to take their place. In addition to the exhaustion of the people, there is no cash in the producers which makes all the issues exponentially more difficult. There is no conceivable way for these bureaucrats to comprehend what it is they’re doing wrong. Or is it just guilt and insatiable greed that keeps them hanging on to their old ways? Why in the 21st century would anyone run a primary industry this way?

With the amount of work that needs to be done in the industry, where is the cash coming from to do this work? If we can’t even capture the operating costs incurred to produce, we can’t capture the past capital that has been invested. And we can’t begin to think what will be required for the future capital demands of the industry. Where does the cash come from to manage this demand? Bureaucratic attitudes are that investors and bankers will be so enamoured with their big, beautiful balance sheets that they’ll give them all the money they’ll ever need. Although we’re looking at this issue from the perspective of today, tomorrow is not another day. It is delusional to believe that this bunch can make any headway in this direction based on their current and past performance. 

We noted in our white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” That any commodity that is subject to the characteristics of a price maker, such as oil and gas, would be invoking price destruction by producing below the technical definition of breakeven. Which involves all of the costs associated with oil and gas exploration and production, including capital. Producers today feel that trading the commodity for the price of its operating costs is the acceptable business that they’re presented with. But what we have in oil and gas is an entire industry that has produced everything, everywhere and always below the breakeven cost for the past four decades. Eroding the prices of both oil and gas commodities across the globe. It is in this graph that the production discipline that the industry must adopt, and can adopt through the implementation of the Preliminary Specification, where nothing is ever produced below a properties breakeven point. Providing the producer with the most profitable means of oil and gas operations by ensuring that none of their losing properties dilute the earnings of their profitable properties. Saving their reserves for a time in which they can be produced profitably and those reserves will not have to carry the incremental costs of the additional losses that it would otherwise incur if it continued to produce. And the commodity markets have the marginal production removed from the market and therefore find the marginal price.

The oil and gas industry is a capital intensive business therefore it follows that most of the costs that are passed onto the consumers would therefore be capital in nature. Bureaucrats believe that capital costs are to be collected, saved and cherished on their big, beautiful balance sheets. Which is nothing more than the industry wide talking point for their scam. The current myopic and short term focus has the entire industry on bucket brigade patrol. There is no concept of tomorrow and there is certainly no concept of success or failure, strategy or vision. Not only in terms of how the future success of the industry will be achieved and wholly attributable to the people that will be involved. Those costs between the breakeven point and shut-in price are capital in nature and I can assure you that 70% of these costs are a result of paying for the work that people are doing. It’s also been a result of these people that have provided whatever success that was achieved in the past. Working against the bureaucrats chronic abuse and misuse. (The bureaucrats apparently are grateful and thank us for all that has been provided to them.) Industry as it is structured today doesn’t have the wherewithal to make the changes or the organizational structure to reap any benefits of any future scenario.

After the first quarter reports we learned that Shell had cut their dividend substantially. The first time their dividend has been cut since World War II. Noting that the virus had made unknown, permanent changes in the way that people will be working through technology. Others did not follow and we see now BP follow through on their promise of cutting more people. A simple choice of who do you see suffering the most under the current conditions, the investors or staff? On June 8 the BP CEO Bernard Looney announced the following.

BP has announced plans to cut 10,000 jobs following a global slump in demand for oil because of the coronavirus crisis.

The oil giant had paused redundancies during the peak of the pandemic but told staff on Monday that around 15% will leave by the end of the year.

He then follows up with an interesting quote about the current situation.

We are spending much, much more than we make - I am talking millions of dollars, every day

The second quarter reports of the producers will not be as bad as the first quarters in terms of the earnings. The scam must continue. There may even be some improvements as a result of the reversing some of the depletion that was recorded in the first quarter. Negative depletion in the second quarter will go straight to the bottom line. However what I think Mr. Looney is talking about is the cash that BP is having to spend in order to attain the production that BP is producing. North American producers were claiming their production costs were anywhere from $23 to $36 / bbl which puts production at any time this quarter as a losing proposition, except for the negative depletion, but also a drain on cash. Cash has to be hemorrhaging out of the industry at such a pace that heads are spinning. 

The justification for the Preliminary Specification is evident to all who are knowledgeable in the ways and means of the oil and gas industry. There are many motivations for those that are not interested in continuing their employment in the industry and we understand that decision. There are many people who share my concern and are as adamant that the solution needs to be undertaken quickly and efficiently. These are the people that we see as members, and potential members of our user community.  

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 587-735-2302 in Calgary or 713-965-6720 in Houston or email here.

"Organizations Don't Change, People Do," Part VI

The surreal nature of sitting in a vast wasteland once known as the oil and gas industry is contrasted by the issue of overabundance of the two commodities. Society is fortunate to have this overabundance and we know intuitively that it’s temporary. With the ongoing destruction of capacities and capabilities ultimately leading to reduced deliverability, we’ll be able to remember that so much was being done on the strength of the domestic energy supply. As we now watch and wait while the bureaucrats crawl back onto their couches to resume their siesta, “muddle through” and “do nothing” postures. Gluttony was never attractive but it is inherently understood to be terminal. What does it take to make the necessary changes for the industry to resolve itself and focus on a dynamic, innovative, accountable and profitable future? Please don’t ask me because I’ve known that these days were coming a long time ago and have worked to resolve them. And I don’t have an answer, these bureaucrats have punished me at every opportunity they could. Focusing on building the Preliminary Specification and profitability everywhere and always in this industry generates nothing but bad attention from the couch potatoes who’ve done nothing whatsoever to resolve these issues. Until action is taken we can only be assured that things will get worse.

The problem when we get into a downward spiral and trajectory such as we’re in now is that they become the momentum and only decisive, long term, focused action is capable of reversing that trajectory. Clear, productive and active direction needs to be made by those with the capacity, authority, responsibility and capabilities to do so. People in the industry see none of the necessary actions to rectify these issues and can clearly see the downward trajectory taking us in a direction that no one outside of the bureaucracy and ANTIFA wants to go. I mentioned last week that the overabundance of natural gas that began in 2009 has now spread globally to the point where we may begin a further breakdown in natural gas prices. Or maybe the bureaucrats, the CEO’s and other officers, directors of the producers, will just up and leave? Trajectories and momentum are great things when you build towards the future. 

People who’ve dedicated themselves to oil and gas now want out. It’s not that they’ve had enough, it's that they know where we’re headed and what’s the purpose of traveling further down this road with this bunch of do-nothings? The United States in the post virus world will be the land of opportunity and now is the time to exercise the personal changes to ensure your part of it. I am seeing signs of panic in some of the healthier companies and firms in both oil and gas, the service and subsequent tertiary industries where their primary concern is employee retention. The promise of “big bucks” just doesn’t carry any weight when it comes to that which we’ve seen here for the past decade. It's been ten years since natural gas prices declined! A decade. And nothing whatsoever but lies, blaming, excuses and scapegoats. But then maybe we'll have a “cold winter this next year.” The “active” management in oil and gas can’t even think of new excuses so they're going back to the start and recycling their past diatribe. 

The greatest amount of pushback that I’ve ever received at People, Ideas & Objects was a result of my last Tuesday June 2, 2020 post. The one where I noted that I’ve been constantly harping about this issue since August 2003, and on this blog since December 2005. That the Preliminary Specification was completed in December 2013. All without a pennies worth of assistance from these bureaucrats. All of these have been documenting how the scam the bureaucrats have been running would eventually lead to the death and destruction of the industry. That it was a history lesson, not rocket science. Anytime there is an overt deception to overstate assets and profits there has been a scam being perpetrated by the insiders. That this fraud has been identified and documented by People, Ideas & Objects to exist since the late 1970’s. Leading to a culture that most people in the industry are unaware that it’s wrong, “it’s just the way things are done.” That of course is not the case with the bureaucrats who knew all along what it was they were doing, reaping their personal bounty. That I have been abused consistently by those that are perpetrating this fraud. And now that everyone can see what usually happens in these scams, the fallout, the trillions of dollars in losses for everyone but the scammers. The attempts to silence People, Ideas & Objects and steal our Intellectual Property over the course of the past 15 years proves that they were fully aware of what they were doing and were putting that effort in to conceal their scam from being discovered by others. And therefore the liability they’ve earned today, by finding that today’s oil and gas destruction is 100% consistent with what the Preliminary Specification resolves, makes our good friends the bureaucrats guilty and culpable. 

It has been bizarre that nothing’s ever been done about this isn’t it? A decade of steep downward trajectory and nothing is done. Well let's rephrase that in light of what we know. It’s not bizarre, it was deliberate and now obvious to everyone. If you could be “waiting for a cold winter,” “building your balance sheet,” “rebalancing markets,” “putting cash in the ground” or “seeking Artificial Intelligence and Cloud solutions” that was good enough, wasn’t it? The people in the industry and the associated industries deserved better than to be used and abused by these scammers. I hope some of the bureaucrats have remnants of a conscience and it’s these people they’ve betrayed that haunt them in their elderly years. But… It’s not that the people who’ve been betrayed and are leaving the industry don’t care, they’ve been fighting otherwise for more than a decade. It’s just the obstinance of the couch potatoes is legendary. 

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 587-735-2302 in Calgary or 713-965-6720 in Houston or email here.

Intellectual Property, as a Competitive Advantage

People, Ideas & Objects have always used Intellectual Property (IP) as a competitive advantage of everything that we do. It is IP in addition to our user community and research that form our complete competitive offering. This is due to my personal belief that every industry will be operated and controlled through software in the very near future. Software is derived from IP and this fact is the source of conflict that we all know as disintermediation. In oil and gas, it’s not enough to own the oil and gas asset, it’s also necessary to have access to the software that makes the oil and gas asset profitable. This can now be done through implementation of People, Ideas & Objects Preliminary Specification. That is unless the bureaucrats have some secret plan that they’ve been working on that no one knows about. It appears however that they have nothing as it seems it’s well past the time to have invoked that plan in order to save their souls. I think they’re allergic to action.

Intellectual Property has an interesting challenge to its value in the U.S. Supreme Court. This case will be heard some time prior to October 2020 as it was initially scheduled to be heard in late March 2020. The case is Google vs. Oracle and it involves the use by Google of Oracle’s Java Programming Language in the Android phones and tablets. It is my opinion that this was a direct theft as there was little opportunity for Google to do anything else. Apple was selling the iPhone and had established a lucrative market. Eric Schmidt the CEO of Google was kicked off the Apple board for knowing of the iPhones development and replicating it in Google. The problem however for Google was the operating system. The iPhone used the derivative works of Steve Jobs NeXT developments that had been carried on consistently since the mid 1980’s. The depth and breadth of the system was capable of making the phone fully featured in the marketplace at that time. The only other system that was of equal pedigree in terms of the robustness and capabilities was Sun Microsystems Java which had also begun developments in the very early 1990’s. Google was faced with either creating their own Android system from scratch which would have taken at least the better part of a decade. Or licensing Java, which they did enter into negotiations to do so, with Oracle but backed out of signing. This was also around the time that Google dropped their “don’t be evil” by-line. Java has been licensed by every major provider other than Google. Therefore what Google did was copy critical parts of Java and built Android around that. 

In 2010 Oracle sued of course but lost by unanimous jury verdict which determined that the “fair use” doctrine applied to Google’s use of Java. Fair use does not include the ability to earn revenues from someone else's copyrighted material. The jury was confused by the technical aspects of the case and were unable to determine what the outcome should be. Oracle appealed the ruling and won, which Google then appealed and lost providing Oracle with the latest victory in this case. Google then appealed to the Supreme Court and were initially turned down, however tried again and were successful in having their case heard, which is what will happen this summer. The friend of the court filings are somewhat decidedly in favor of Oracle as theirs is the case that is consistent with the law. And the methods of which the U.S. economy has developed. The altruistic developers believe Oracle should allow the Java code to be free, yet continue to refuse my offers to work for free. It’s also interesting to read Microsoft’s friend of the court submission supporting Google’s position. Claiming that they’ve always been an innovative provider makes me chuckle. Without the work of others Microsoft would not have any products at all. Their comment on page 3 of their Amicus Brief shows this will be their competitive strategy for the future. From the document.

For example Microsoft has for several years been the most active corporate maintainer of open-source projects on GitHub, the leading collaborative software development platform, which Microsoft acquired in 2018. Microsoft also implements APIs from the open-source community in its Windows and Azure products. Similarly, third parties implement Microsoft APIs in their products to enable compatibility and interoperability. Microsoft thus has a profound interest in ensuring the Court appreciates how innovation in today’s computer industry is impacted by the copyright issues presented in this case. 

Reading this makes me think that the developers that store their code on GitHub are doing so in order for Microsoft to have direct access to their “innovations.” The one fly in the ointment in this case is that Supreme Court Chief Justice John Roberts has asked, somewhat forcefully, that an answer to the seventh amendment be responded to in addition to the copyright issue. The seventh amendment only applies to government. And is designed to protect Americans from overt bias in any government civil litigation of individuals. Or in other words, protects us from government tyranny by ensuring a jury of our peers could decide the outcome of their case. How that applies in the Google vs Oracle case is unknown to me and why he’s asking the question indicates that overturning the jury trial would be considered against the seventh amendment. Which would seriously diminish the value of copyright and the means in which the United States has been able to generate their economic capability and development. Both Apple and Oracle, or Sun, spent many years and hundreds of millions of dollars developing these phone platforms. If investors see that these investments are not protected there will be no further developments in innovation. Therefore I believe that the case will be seen to support the appeal court rulings in Oracle’s favour. We’ll soon see. 

The outcome of this supreme Court decision will have direct implications to People, Ideas & Objects and the oil and gas industry directly. The issue comes down to copyright law and the meaning of fair use vs, the seventh amendment and the right of individuals to have a trial jury in civil cases upheld in the courts. Although that is what the Chief Justice has solicited responses for, that I believe is just a red herring as the government is not involved in the initial case of Oracle vs. Google. 

That’s the law. Which is a cornerstone of our Intellectual Properties competitive advantage. However, that is only one of many elements that we see the use of IP being applied here in the oil and gas ERP market space. I feel the most valuable aspect of IP is not the law itself, it is the political application of it. The law provides you with the right, however that is not a static position. Copyright provides you with a monopoly on the expression of an idea. Therefore it is necessary to continue to build on the original idea of the copyright, which in our case is the use of the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas industry. Therefore our use of our copyright, as is the case for Apple and Oracle, is not hanging on the discovery of an idea from a long time ago, it is due to the fact that the evolution of, and most importantly, the research that is undertaken to take the idea and put it into a useable commercial product. Saying that the Joint Operating Committee is the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas industry does nothing for anyone, the Preliminary Specification does, and subsequently the software that is derived from that will be very valuable to all concerned. It is the legal protection of this long development period that is necessary to build out the ideas into useful frameworks. The potential of having this value poached by competitors circumvents the investment in the research. The legal protection is necessary in order to protect the process of turning the idea into value, which is necessary for everyone to progress.

It is in this line of thinking that the legal and political protection of my IP would be consistent either way the Supreme Court rules. If the court upholds Google's claim then my competitors are still facing the minimum of a decades investment in order to develop their framework. However that would be without the protection of copyright and subject to “competitive sharing,” should I say. An untenable situation. One in which no one would be able to fund the research as the risk would be unrewarded. We are in the market and moving forward with our plans and the oil and gas industry is in desperate need for the Preliminary Specification, yesterday. Alternatives will take a significant amount of time to move to the level that we’ve attained. Producers don’t have that much cash. We are beyond the demands of IP’s legal protections and rely more on the political and commercial needs of the situation that has developed as a result of the work that we did when these legal protections were our preeminent method of protection. 

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 587-735-2302 in Calgary or 713-965-6720 in Houston or email here.

Budget Revisions

We will be resuming our series of “Organizations Don’t Change, People Do,” after we take a short break to fit in some timely arguments.

I’ve revised People, Ideas & Objects budget for a number of reasons detailed in this post. Our costs are escalating based on the demands of time. There are ways in which we can effectively deal with these time constraints in systems development. There are three alternatives to choose from in terms of which priority to focus on; time, quality and cost. In systems development you’re provided with the opportunity to select two at the expense of the other. We have always focused on timeliness and quality as the two priorities for the Preliminary Specifications development. This therefore increases our costs. If not for the Preliminary Specification the cost to industry would be substantially higher than just the cost of our development. The value proposition of the Preliminary Specification is $25.7 to $45.7 trillion over the next 25 - 30 years. I would think that most people in the industry can see clearly how our value proposition generates the value that it does. With the destruction that has happened for the past four decades, that we see happening today, and will continue to happen for the foreseeable future. Change is a necessity and our decentralized production model’s price maker strategy enables our value proposition to be realized. Change also needs to be exercised by the removal of the dead weight bureaucrats from their position of power in the industry. 

Conversely we now know with absolute certainty the alternative of doing nothing has been fully explored by our good friends the bureaucrats. Who chose to jeopardize everything for their personal comfort and convenience. Their actions are directly responsible for the damage and destruction that we’re all facing in the industry, and they have few scapegoats left to blame and excuse themselves from. Their “nothing” alternative has now failed spectacularly and we anticipate their exit from the industry in rapid fashion sometime during the remainder of this year. The Preliminary Specification was always conceived on the basis of creative destruction and the active rebuilding of the industry on the vision contained within its business model and markets. There are few other opportunities, in my opinion, and any others have not yet been conceived of, which would take the better part of a decade to be proven operational models to the point where the Preliminary Specification exists today. The choice is stark, there’s today’s environment and there’s a dynamic, innovative, accountable and profitable oil and gas industry that can be rebuilt on the basis of People, Ideas & Objects work. I don’t see a choice, however I do see a greater sense of urgency, backed by the temporary good fortune of an abundance of oil and gas deliverability. The costs of People, Ideas & Objects development have therefore been increased by 38% to $3.7 billion U.S dollars. 

Our margins were allocated between a royalty to myself and the profit that People, Ideas & Objects would earn. In our past budgets this factor was the cost to be at ⅓, profit at ⅓, and royalty at ⅓. Therefore the profit that will be realized by People, Ideas & Objects will also be $3.7 billion U.S dollars. Producers consider this highway robbery and are pointing to these costs as opposed to the value that will be realized once the price maker strategy is implemented. Industry has earned the reputation of knowing what the cost of everything is, yet knows the value of nothing. They no doubt would prefer I operate in their style where I would take the $3.7 billion, build the software, associated user community and service providers. Then prior to making the software operational hold the industry hostage for the remainder of the cash necessary to make this a profitable venture for myself. Therefore I believe there will be two business lessons in this transaction that we’re defining for them. That they’ll be needing to pay cash upfront for the costs of many things they took for granted before. And secondly they need to understand that businesses operate on profitable business models. An expensive lesson I’m sure but one that I’ll gladly provide them. What producers do know as fact today is that I’m patient, driven to solve this problem and not afraid of their crap.

The total of the two categories now sits at $7.4 billion U.S. dollars. Due to the fact that I see no alternatives, that I am in my 30th year of bringing this solution to market and there is a building sense of urgency in the marketplace. I am raising my royalty to $4.6 billion U.S. dollars or 38% of the budget. That brings the total for the development of the Preliminary Specification to $12 billion U.S. dollars. These costs will be allocated and distributed on the following basis. The 2019 year end boe / day production was 38,063,392.46 barrels for Canada and the U.S. Converting gas at the traditional 6 to 1 heating value basis. Therefore our budget which is financed and allocated based on North American producer deliverability is $315.26 for each boe / day as of December 31, 2019 production volumes. Which isn’t bad really. Even with today’s oil price of approximately $37, one years revenues would be $13,616.00 making the one time cost of the development of the Preliminary Specification just 2.31% of that barrel of oil's full year's revenue. 

Spending what is required on developing the Preliminary Specification will stop the behavior of producers sponsoring excessive competition in the marketplace. Producers won’t be able to afford anything else after the development of our solution and they need to learn to respect the rights of others and uphold their Intellectual Property. Once again I’m glad to be the one instructing them on this finer point of business. Focus and commitment to their business beyond the presence of the next bright shiny object has always been an issue with them. This is apparent in their current activities of beginning to return their shut-in production. 

These are the opportunities that are provided to you in a capitalist marketplace when you build value as opposed to destroying it like the bureaucrats have. The need for industry to have some skin in the game here is paramount to the success of the initiative. Bureaucrats have always avoided having any involvement in initiatives such as ours and that somewhat predetermined any ERP developments failure, as it has with the outcome of the industry today. Our user community needs to have the active involvement of all areas of the oil and gas industry, service industry and others associated with it. With producers money, it may be that their involvement would follow? I am also cancelling my personal coverage of any budget overrun as I had pledged to do in the prior budget version. If there are any cost overruns they will be subject to the same margins and pricing requirements defined here, and will be paid by the industry based on North American oil and gas deliverability. 

The producer bureaucrats have managed the industry as if the revenues earned by the producers was money that was theirs and everyone was trying to “leech” off them. In a way that is 100% correct. Oil and gas is a primary industry in which the revenues of the producers are representative of all of the costs associated with all aspects of the oil and gas, service, tertiary and general economy. These “leeches” are also what allow the bureaucrats to be in control of those revenues and hold on to them as if they were their own. The fact is now they’re not, they’ve lost operational control of that aspect of their business. More will have to be done by the producers to ensure that their wants and needs are met by the service and subsequent industries through the sponsoring and direct funding of the innovations and developments necessary to do so. And just as People, Ideas & Objects are doing in advance. Gone are the days where anyone can go to investors and sell them the idea that oil and gas is a good place to invest. Bureaucrats destroyed that opportunity for themselves and everyone else. 

The industry has been managed in a manner that has cost everyone several trillion dollars. The amount that will be lost in 2020 could be close to a trillion dollars just for this year. Without a plan or strategy to rectify the situation there’ll be no change in the industry. Without a renewed focus on profitability there will be no change in the industry. And what are said bureaucrats talking about in the marketplace today? Nothing. We’re probably looking at picking up the pieces of the industry immediately after these bureaucrats leave. Why would they leave? Simple, there's no cash. Without cash you have no business. Making it exponentially more difficult to manage. And without cash what purpose would the bureaucrats stick around when they were only there to ensure they were skimming most of the bounty for themselves. I found this quote from Micheal Milken’s website and it deals specifically with this cash issue. 

The simple rule of thumb is that risk in capital structure should vary inversely with volatility and risk in the basic business. To paraphrase the late Harold Geneen of ITT, you can make a lot of mistakes in business, but you can’t run out of cash. For some companies, even a dollar of debt is too much. This was as true for some airline, aerospace and technology companies of the late 1960s as it was for telecommunications, networking and Internet companies of the late 1990s.

But who knows maybe these bureaucrats have developed a way in which companies don’t need cash. I mean this of course by not needing cash, and yet doing so in a productive way. Investing in your businesses profitability is a productive activity. The value proposition of just drilling wells was never of any value, which is certainly evident today. 

We’ve come a long way since we published the Preliminary Specification in 2013. Certainly it’s timely in the marketplace today, which doesn’t mean that the bureaucrats realize that it’s necessary. They’ll need to be pushed out or left to leave and therefore the need for Preliminary Specification will not be realized until the mid term. There is one criteria that may change that. And that is the looming complete, and possibly somewhat permanent collapse of the global natural gas price. When people learn of negative prices in global natural gas markets they’ll know that somethings rotten. The issue is that the Organization of Natural Gas Exporting Countries ONGEC+ doesn’t exist and shale based natural gas producers went through a wholesale destruction of their business during the financial crisis over a decade ago. Maybe the bureaucrats are feeling there won’t be much left to lose. I see it as additional justification for the bureaucrats to say so long. 

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 587-735-2302 in Calgary or 713-965-6720 in Houston or email here.

"Organizations Don't Change, People Do," Part V

OPEC+ are meeting again Thursday to discuss production volumes. Specifically what is the size of the cut for the month of July? It was agreed previously that their July cut would be reduced from 9.7 million boe / day to 7.7 million boe / day. There are conflicting objectives between their two largest producers Russia and Saudi Arabia. Russia wants to stick to the plan for the July 2.0 million boe / day increase in production and Saudi Arabia wants to extend the 9.7 million boe / day cut until the end of the year. There seems to be room for compromise in the extension of the agreement of 7.7 million boe / day for the remainder of the year. No doubt Saudi Arabia is feeling pressure from the Americans whose credibility is increasing in OPEC+ each day as U.S. deliverability continues to decline. Nonetheless, a two month old agreement with its parties disagreeing publicly, who were allegedly at war with one another prior to those two months, looks really promising to me. 

The severity of the cash situation in the industry is becoming increasingly difficult and more severe, earlier than I thought it would. There are more lay-offs being announced throughout the industry and there is a sense of urgency beginning to be seen in the actions of some of the more senior producers. Cuts this deep must make those people that are remaining wish they were the ones selected. How these producers think they’ll continue with so few resources on a go forward basis is beyond me. But that would not be the point would it. This shows the starkness of the reality that the producers have placed themselves in. That bureaucrats believed they could muddle through this and do nothing about it was a betrayal of the people who work in the industry. That natural gas began this destructive process over a decade ago is evidence that actions should have been taken by now. Now as oil maps the same trajectory and plan that bureaucrats instituted for natural gas, they feign disbelief and are only now beginning to act. As we’ve noted before, if G&A is only 2.9% of revenues during all of 2019 for our sample of producers. Then why is it a 10 - 15 percent cut in G&A is seen as necessary? The fact of the matter is that G&A has always been part of the ponzi scheme's facade. And at today's oil price G&A is, by our calculations which we challenge anyone to prove our numbers otherwise, 28.5% of revenues. 

Continuing in the bureaucratic management method which sees whatever issue is screaming the loudest at the moment. Our White Paper “Profitable, North American Energy Independence - Through the Commercialization of Shale” documented how the monthly overhead and capital costs drain the cash resources of the producers each month with no replenishment. There are no adequate returns of cash in this capital intensive business to make up for the spending that the producer conducts. And as a result you had the unique situation of the annual shareholder fleecing, or as they described it, raising more capital. Only to go back to the market each and every year and tell the investors that the money they gave them last year are now sunk costs. Unfortunately for the bureaucrats the oil and gas investors eventually figured out they were the mark in the scam and left. Again nothing was done. Cash continued to drain in apparently a transparent manner with only myself jumping up and down about it. The issue about cash, and the one that is facing the producer bureaucrats this morning is that without cash you have no business. No cash = no business. And as I noted on Monday: A disaster yesterday, and certainly one today, only to be followed by a bigger one tomorrow, only to add today no cash, no investors, no bankers, no excuses and no scapegoats. Since the publication of the Preliminary Specification I was unable to convince the producers to invest in their businesses profitability by implementing our software, user community and service providers. Suggesting that an industry that doesn’t invest in its own profitability isn’t one that anyone should be interested in. 

Another point about the capital assets of the producers is of course the ponzi scheme aspect of them. Bureaucrats claim they’re costs are $50 / bbl however we believe them to be $150 / bbl when you allocate the costs based on the decline curve. Producers allocate their costs to every known molecule of oil and gas reserves that they have. Then only recognize the smidgen of capital costs for the production from those reserves. Even though those remaining reserves will not be accessed this decade and without massive additional capital expenditures and steep decline curves. Returning cash to the business was never an issue when you had investors to fleece, especially when you lined them up three times around the block. 

The desperation for cash was noted late last week when Occidental cut their dividend to $0.01. That’ll impress the future investors and give the current ones every reason to stay. This is on the heels of an 86% cut from $0.79 to $0.11 on March 10, 2020 and lets not forget how well the stock is doing. Such foresight, such wisdom, such planning, such effective management. The $0.11 dividend never even made it into existence; this management is so proactive. I am trying to be positive here. Cut and run, cut and run. Sorry I was reading ahead in the manual “Bureaucracy for Dummies.” What is there left for our good friends, the bureaucrats? They’ve earned their keep and this was always someone else's fault, that is if you were listening to them. The mass exodus will begin now, I believe, prior to the second quarter reports. The all knowing directors may be the first to go. We’ve mentioned before their insurance coverage may expire if they don’t. Such wisdom and foresight on their behalf, it was just mid May when they committed and were voted in to sit as directors for the coming year. That was just over two weeks ago. This is not rocket science, and I’m not Elon Musk, this is history and should have been well known by the bureaucrats and their directors, especially since I’ve been yelling at them about this. I wonder at times though, does the fact that I was pointing this issue out so long ago attach a liability to the directors and officers of the oil and gas producers? Other evidence exists that shows a lack of action by these bureaucrats. OPEC was instrumental in making production cuts these past three and one half years that had material effects on the price of oil. Yet all we heard from the North American bureaucrats was a continued belittling of them. The shareholders now have evidence of these “officers” and “directors” fraudulent behavior and will now want to recapture some of their investment from these bureaucrats bounty these past decades, and let's not forget they’re insured for this type of risk! Change only happens if we create change. These last statements will have the insurance companies motivated won’t it. Lawyers are starting to perk up, they need work too. After all lawyers like shareholders are people too.

August 31, 2020 may have been too generous of a time allocation for the producers. It would appear that time is slipping away much faster than when I first established it. The one advantage bureaucrats are finding in this coronavirus shutdown is that they don’t have to face those that they’re laying off. We should all question the actions of these bureaucrats in the process of laying people off. Why do that when the next issue that’ll be screaming the loudest will be what triggers the bureaucrats resignation? 

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 587-735-2302 in Calgary or 713-965-6720 in Houston or email here.