The Geologist is in Flight

 I’ve been trying to find an analogy in business that would capture my overall sense of the difficulties that are present for the North American oil and gas producers. I don’t know of any other industry that has had the luxury of destroying capital for four decades and keeping their investors on the hook for their wild spending and ludicrous business ideas. Can we all please stop saying “building balance sheets” and now “protecting balance sheets.” I don’t know what these things mean in terms of organizational goals and objectives. Producer balance sheets reflect the disaster that the industry is in, what are you building, what are you building on and what are you protecting? Generally producers have no working capital, disproportionately high property, plant and equipment, or as we call them the unrecognized capital costs of prior production, massive amounts of equity have been historically raised, all of which has been lost and bank debt leveraged to the moon when you realize those capital “assets” don’t generate any earnings, but in fact demand cash to produce. What good are these “balance sheets” that producer bureaucrats have built now that their irrelevance stares back at them in the mirror? The perfect analogy that I came up with to capture this moment is none other than BreX. Which can be somewhat understood by watching Matthew McConaughey’s 2016 movie “Gold.” Eventually everyone suspected there were problems with BreX and were curious about what was going on, rumours were running rampant. Then everyone knew. Initially it was the Chief Geologist who had jumped 500 ft. from a speeding helicopter in Indonesia. It was soon learned definitively that the Indonesian army tossed him out. Unhappy with their country being used by gold scammers who had perpetrated a fraud in their country. Therefore the shorthand term for the point at which we’re in is “The Geologist is in Flight.” Everyone’s aware of the problem, no one has the definitive news that this was always for the best interests of the insiders, or as we call them here at People, Ideas & Objects bureaucrats. The major difference between these two is that for BreX the gold was never there, while the oil and gas commodities are there but completely worthless, demanding cash to produce and will always be so in the hands of these bureaucrats.

Now that the geologist is in flight, producers don’t have any money, no one will give them any money, they don’t make any money, they claim to be out of the oil and gas business and have moved to the clean energy business. What is it that they're going to do? Their financial status is abysmal and any discussion with those that are operating the industry leaves one with the full understanding that they’re either naive, deluded or criminal. Naw, they’ve kept this going for at least the past 34 years as we noted in our August 10, 2020 blog post. These people have skills! When challenged by People, Ideas & Objects about their guilt and culpability in our June 2, 2020 blog post they did the only prudent thing that executives would do, increased their officers and directors liability insurance. (Please note it’s early September and still no alternative actions have been taken to rectify these issues.) The July 26, 1986 Calgary Herald (newspapers.com) news article documented a critical issue in oil and gas that is wholly consistent with the issues we’re dealing with today and have been present every day since July 1986. We also have the fact that the Preliminary Specification has been available since its publication in December 2013 which identifies the solution to 1986’s issue and quantifies the damages these deviants inactions have cost all those that have unfortunately been involved in the industry. You can’t make anything of these producer firms in their current condition. Notice how since the second quarter reports there’s nothing at all being said by these bureaucrats. Not even any excuses, nothing. They’ve turtled and will remain that way until they're removed. 

The stated position of the bureaucrats for not proceeding with the development and use of the Preliminary Specification has been that our decentralized production models price maker strategy is collusion. Misinterpreting “price makers,” as the economic definition notes, which is what the oil and gas commodities fall under, not “price takers” as the industry is currently assumed to be. And therefore, instead of discussing this topic or researching it they’ll run the industry down to the state that it’s in to ensure they’re not seen as what? What the Preliminary Specification does is provide a detailed, standard, Generally Accepted Accounting Principles type of financial statements to each Joint Operating Committee. If the property produces a profit then it will continue to produce. Otherwise it will be shut-in until such time as it can return to profitable production. Our method ensures that producers achieve the most profitable means of oil and gas operations by no longer producing unprofitable properties, reserves are saved for a time in which they can be produced profitably, those reserves do not have to carry the incremental losses as an additional cost to be recovered in the future when they continue to produce unprofitably and the commodity markets have their marginal production removed from the market. That’s what businesses do. Instead we’ve seen 34 years of overproduction, which is unprofitable production, continue until the oil and natural gas markets have fundamentally collapsed on a global basis. The bureaucrats actions over this period have not proven they’re above questioning? Their excessive executive compensation was allowed because “the business was difficult.” Now we see that they never had any concern for the business whatsoever, only for their pocket books, and have done so in blatant disregard to this well known, chronic, devastating issue, and in later years, the solution in the form of the Preliminary Specification. And on the contrary, they are wholly culpable and guilty. They did have a wide range of viable scapegoats though. To ask where the CFO’s are in this debacle is the appropriate question. They allowed this to develop. Covered their personal risks by increasing their officers and directors insurance coverage and quickly resumed their comfortable positions on their couches, dreaming of new and enhanced means of executive compensation. 

Most of the deterioration and destruction of the industry has occurred while commodity prices were at least 50% higher than what they are today. The clarity in which this is now obvious, that producers never made any money, has only become evident since the investors ceased propping up the bureaucrats' ponzi schemes. People who are working in the industry and to a lesser extent those that are in the greater oil and gas economy. Will soon realize the extent of the damage done will not be overcome in a couple of quarters. We will need at the absolute minimum a full decade in order to heal this damage, it’s that extensive. No one will help the industry. It has to be done by itself. The bureaucrats running the industry have never run a legit business, and don’t know how to. The people who were interested, experienced and talented in the work of the industry will be leaving or have already left, no one appears to be coming in to take their place. The service industry has turned its back on the producers. Investors and bankers? Has anyone seen any of those people lately, or is able to provide an understanding of what they think?

The producers will need to be processed through the reliable and thorough process of creative destruction before anyone will be interested in anything that happens in the North American oil and gas industry. The lawyers will soon be taking care of the bureaucrats and their now lofty and lucrative insurance coverage. But remember litigation is never about the money. Then and only after a reasonable period of healthy, stable profitability with well managed organizations that are fully committed to profitability will they return. The BreX fraud was exposed through the eventful tossing of the Chief Geologist from an Indonesian Military Helicopter. It was at that time that people knew intuitively the rumors were true, that it was a fraud and the end had arrived. The quiet we hear in oil and gas is just the wind surging past the geologist in mid flight. 

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, everywhere and always. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

A Plan to Contrast Muddling Through

 The only reason the accounting department personnel are beginning to take up shelter under their desks is that it's getting close to the end of the third quarter of 2020. They know and understand the situation intuitively and can feel the consequences of this quarters reporting on society in general. It has been a horrendous quarter and the virus has wiped out most of the optimism that I can see. It was the straw that broke the camel’s back. After decades of mistreatment, the decline in volumes and prices on top of the financial damage and destruction that was willfully exercised before, there are only valueless carcasses in those formerly known producers. It’s not as if there were any negative $40 oil price surprises, just the slow and steady loss of blood from that gaping untreated wound. If we contrast today to the demands that can be reasonably expected from the industry in the next 25 years, do we see this bunch contributing to that? Expectations that they’ll be able to resurrect themselves from their current status demands changes be instituted. Something they’ve proven to be immune to, something they’ve proven they’ll “muddle through” instead. The only thing we should be focused on in the short, mid and long term is the fact that OPEC+ currently have over 7.7 mm boe / day of low cost, surplus capacity. The war they declared and was discussed in that July 26, 1986 Calgary Herald article, the one that was recommitted to just prior to the virus’ outbreak. Hasn’t been determined as to who the victor is, it’s not an armistice that we’re under, it's a cease fire. The general purpose of the North American producer organizations has been documented here to be focused purely on the innovative and creative executive compensation that these bureaucracies have been able to institute. What at this time would be the impetus to make any change to that, and hence the bureaucrats primary concern is expressed clearly when they ask “what’s your problem.” For the life of me I just don’t know how they could make the necessary changes in order to address the threat of those surplus production volumes of OPEC+. Only the Preliminary Specification abides.

Investors are making out like bandits in the high tech industries of North America. Real profits, real dividends and real value increases. It would appear to me that President Trump would be looking forward to a second term which would put his methods of economic development in full play for four more years. We’ve only seen the beginning of what can be done. His encouragement of the shift of manufacturing from China back to North America with the new trade agreement being signed is a clear signal that we can leave the widget manufacturing with China, we’ll be going for the high tech manufacturing and robotics that will fuel what is generally considered to be the fourth industrial revolution. That is the vision that I see him putting out. Investors are welcome to participate in that or they can watch their money be frittered and wasted in an industry with no accountability and no understanding, or concern, of what it is they’re doing. Warren Buffett thought he was making his ultimate contrarian bet by putting close to $20 billion dollars into Occidental to finance the acquisition of Anadarko. That went so well didn’t it? He announced in his latest meeting that they’ve disposed of all of their involvement in Occidental, all within the period of one years time. With the “Oracle of Omaha” realizing the risk to the Occidental bonds that he invested in would quickly replicate his realized 75% loss in their shares, the dividends of which weren’t paid but for useless out of the money warrants, who’s going to be the first to defy the odds and put their money down anywhere in the industry?

With what remains in the service industry in terms of record low field activity levels for this century, and quite possibly the previous century too. What isn’t in motion can be sold for scrap metal. Thank god there is a source of cash flow that can pay the few remaining, recurrent bills. And payroll doesn’t hinder them as much as it used to. Such are the blessings of the oil and gas bureaucrats. New investment will be required in order to rebuild those capabilities and capacities once again. Potential new investors recruited for that purpose will soon learn that the prior equipment was sold for scrap in order to pay the taxes on the warehouse. They’ll then think that this would otherwise have been a great investment but a bad business due to the psychotic approach producer bureaucrats take towards their business. They’ll suggest the service industry seek their capital from those producers upfront to expand their capacities and capabilities. Which is only fair as it was the producers that forced them to sell for scrap what had been built by the prior service industry shareholders. Karma's a b...! 

Anyway you look at the secondary and tertiary industries that support oil and gas, they’ll all need to be financially supported by the oil and gas industry itself. After all they just don’t have any other customers for that coiled tubing, etc. It will be the only way the oil and gas industry is going to learn that the treatment they’ve given those that are involved in these secondary and tertiary industries has been abhorrent. Abusive and corrupt would be another way to put it. We should remember that one of the last few sources of capital that was available to the producers was to continue with their field activity levels and pay these suppliers over the course of 18 months. Every source of cash has been exhausted and that’s why field activity levels are at record lows. When you see the homeless on the street begging for spare change you know they need it. It’s not on the basis of need that money is distributed in society. Producers are beginning to understand that this basis of distribution of financial resources applies to them too. They’re having difficulty understanding why this changed on them and from now on they'll be evaluated on the basis of performance. Their only source of cash is to ensure that they’re producing the most profitable means of oil and gas operations. Which is what the Preliminary Specification has been suggesting they do for decades now. Only the Preliminary Specification has this capability and it will require either the producer bureaucrats who have shown no propensity to know or understand their business beyond what their personal needs are. Or it will require those that are interested in rebuilding the industry from scratch once again. Creative destruction has been stifled by our good friends, the bureaucrats, who only understand the destruction half of the overall concept. And as we note in our White Paper “Profitable North American Energy Independence -- Through the Commercialization of Shale.” where we lay out three objectives to be achieved. 

• Build the Preliminary Specification and establish North American producers as profitable in the real sense everywhere and always.
• With the Preliminary Specifications enhanced capability for organizational change expand the industries throughput through specialization and the division of labor. 
• Finally, set ourselves upon the real goal of profitable energy independence across the continent in both oil and gas commodities. 

The Preliminary Specification is a comprehensive business model that deals with the issues and opportunities of the North American oil and gas industry. If bureaucrats can’t be motivated by incremental value and real profitability in their organizations, after facing existential crisis for 34 years, based on their funding the Preliminary Specification, why would investors and bankers be motivated to return and invest now that they understand the producers culture and history as just described. How will the credibility of oil and gas producers regarding profitability come about? They’ve had this opportunity since December 2013 at the minimum. The answer is the producers can’t, won’t and will not ever change. Their cultural differences are too significant for them to bridge. Therefore creative destruction is the tool that capitalist societies use to wipe away the old and bring in the new. Lets use the Preliminary Specification to invoke creative destruction and begin rebuilding for the prosperous future we all should have been realizing from the ashes of these bureaucrats' destruction. 

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, everywhere and always. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Turtle's Don't Lie

 I was thinking about the legacy our good friends the oil and gas bureaucrats have provided us in terms of excuses, blaming and viable scapegoats. Now that these people have turtled, in my world you can take one of two postures, you can stand and fight or turtle. This doesn’t indicate what they’ll do in the long run, however it has been many decades since we’ve seen any positive action from them. I thought why not go back and review some of the reasons we’ve been provided with in these desperate economic times. Looking at these, with many being created over a decade ago, we see the futility of these reasons that were raised and offered as what were asserted to be valid solutions to the issues at hand. We’ll finish with where I think these bureaucrats are in terms of their ability and capability to deal with the situation. We’ve been discussing the cash situation for years now and it doesn’t seem like any of them have any. The commodity they’ve run out of now is time.

Waiting for a cold winter

Before the oil price collapse we had the natural gas price collapse approximately five years earlier, 2010. The issue we were told is that storage was building rapidly and we just needed a cold winter in order to reduce the inventory and reestablish the pricing fundamentals in the North American market. A decade later and natural gas inventories are heading toward record territories. And this year possibly exceeding the storage capacity of the continent. Do the bureaucrats think the price of natural gas will go negative at that point? The issue however has become more prevalent than just North America. With the advent of some substantial export capacity through the development of LNG facilities, natural gas abundance has destroyed prices on a global basis. Maybe the bureaucrats should have looked closer at the situation and determined what the real issues were. “The fact is today that natural gas is a byproduct.” So they now say, or is that just another excuse.

Waiting for markets to rebalance

A close relative to waiting for a cold winter, the rebalancing of the markets is a phenomenon that I was never aware of. Upon further research there is no conceptual rebalancing of markets. Markets are what we’ve all been taught at university. They provide one and only one thing, their price based on the commodities supply and demand. Knowing and understanding all of the elements of the supply and demand, markets are able to determine what price reflects the market. I’d like to see the bureaucrats rebalance that, whatever that means. Within the Preliminary Specification we look at the commodities price and determine if it’s adequate to produce a profit based on an actual, factual, detailed accounting of the property. If it’s profitable then the property should continue to produce, if it’s not profitable, it should be shut-in to ensure the producer firm maximizes their profits by not diluting their profitable properties with unprofitable ones. Those shut-in reserves can be saved for a time when they can be produced profitably. Those reserves won’t have to carry the incremental losses that would have been incurred if it continued to produce. And removing the unprofitable production from the commodity markets would allow them to find the marginal price. I think we can now state unequivocally that markets don’t rebalance because a decade certainly appears to me to have been an adequate amount of time for the bureaucrats to have been waiting. 

We’re profitable

Ok then where’s the money. And don’t count that investor or banker money. Don’t count the remaining credit available on your line of credit. We’ve destroyed this profitability myth many times by calling the producers accounting specious and designed to serve as ponzi schemes. All costs, no matter what kind of cost, will be capitalized on the balance sheet as property, plant and equipment. Which bloats those big, bold, beautiful balance sheets all those CEO’s are building in order to strut down mainstreet with. Can’t remember ever learning about the corporate objective of building balance sheets either. And hence bloating earnings and cash flow numbers until such time as the investors in these producers said they’d had enough and left. Who would have thought? Producers like Husky are canceling projects left, right and center in order to “maintain balance sheet liquidity.” Which is pretty honest really. They just don’t have the money anymore to do what it was they thought they could do with their big, bold, beautiful balance sheets. 

Capital discipline

This excuse was used a number of times when the bureaucrats caught their fingers in the door when their investors slammed it on them. “We’ll employ capital discipline to turn the ship around.” Or something along those lines. This myth seems to be passing into something more real and tangible as the investors / banks / working capital all vanished and real capital discipline is currently being enforced. Who would have thought? 

Have to ensure alternatives don’t become viable. 

This excuse is the evil twin sister of “we’re profitable.” It is for all intents and purposes an admission that they’ve lost money and did so to “ensure alternatives don’t become viable.” This is their moral high road and taking the long term view that they’ll eliminate the competition now before they gain a foothold in order to compete with oil and gas. See how smart they are! Or maybe they just don’t understand the business they’re in. 

Reducing costs through innovation

This is the sickly grandfather of capital discipline. Service industry representatives were initially faced with reductions in producer activity levels of dramatic scale. For the purpose of this discussion we’ll put the number at 50% activity reductions. Then when the producers realized that the service industry was essentially starving and borderline homeless, for all intents and purposes let's call this couch surfing at friends. The producers decided they wanted 50% discounts, again the number is 50 just for the ease of calculations. Overnight the field service costs for any activity dropped 75%. This was heralded as the innovations that were discovered by our good friends the bureaucrats. I on the other hand thought that it was a bit of a stretch. It was either beating up your suppliers unnecessarily. Or, these producers had found another new innovation with respect to historical accounting. 

Can’t shut-in production, the formation will fold over on itself...

Amongst many other superfluous claims. The Preliminary Specification was based on research done in the prior decade. Since 2007 I had been promoting the decentralized production model where unprofitable production would be shut-in as we discussed above. This provided nothing but comic enjoyment for my audience, the oil and gas bureaucrats. They came up with every excuse why they couldn’t shut-in production. My favorite is “the formation will fold over on itself.” Possibly in some huff and puff heavy oil projects this could be the case. In general, no. As evidence of that I would point to the number of times that OPEC has cut production over the past decades in order to remove excess supply. Have their formations been damaged? And what about all those wells that Saddam Hussein lit on fire when he exited Kuwait and were subsequently shut-in? The myth lingered until 2020 when pipelines and refineries said they couldn’t take any more production due to the virus affecting demand. As a result millions of barrels / day were removed from the North American production profile for a period of months. What’s amazing is that all of those producers who did shut-in production are out saying that they now expect to have achieved full production once again as a result of turning the wells back on. This should be Exhibit 2 in the case against the bureaucrats for their destruction of the industry. They obviously knew, as did I, that shutting-in production was not damaging to the formations. They just needed an excuse not to act. When asked by investors as to “why don’t you use People, Ideas & Objects Preliminary Specification?” The answer was “if we shut-in the property the damage to the formation would be too extensive and unrecoverable.” Can you smell the guilt and culpability on this one?

It’s OPEC’s fault, It’s the pipeline companies fault, the government’s fault, the virus… 

These are the viable scapegoats, an oxymoron developed to reflect how the bureaucrats would shift the blame for their misdeeds. That it was OPEC’s fault is a bold face lie. As evidenced in the Calgary Herald article from July 26, 1986 (newspapers.com) OPEC was extending an olive branch to the North American producers. Just as they’ve done every year since and in the “war” that was started earlier this year. Bureaucrats don’t listen to anyone however. 

Pipeline companies have the enviable position of having the producers commission a new pipeline and then they disappear. While producer bureaucrats cut checks to GreenPeace and whoever else that threatened to protest outside their building, pipeline companies began the onerous process of pushing the new pipeline through the gauntlet of regulation, environmental and government approvals by themselves. What producers do is actually nothing. They sit back, hand their difficult developments to a bureaucracy in the form of the pipeline utility and expect them to get approvals from the ultimate bureaucracy, the governments, that’s always plural. Leaving the producers to gripe and complain that there’s never enough pipeline capacity. Well, other than chronic overproduction what is it that you did about it? Now that pipeline companies are actively shutting down and cancelling their projects, how long do the producers think this process will run in the future? What involvement of the producers will be necessary in that process? Or, will they now have to do it themselves? What pipeline company is going to be the first to believe the producers have the wherewithal to make it through to the end and pay the bills?

“The government isn’t doing enough to support the industry.” Whether it’s subsidies, tariffs or other actions the rabid free enterprise proponents dispose of their principles and beg. Thankfully they received nothing.

Who would have thought that one virus would cause so much harm and difficulty to the oil and gas industry in just six months? I have to say this virus is maybe the most convenient, viable scapegoat to cross the bureaucrats desk yet. That may be a new oxymoronic statement, “convenient, viable scapegoat.”

Notice here at no point did we discuss the incomprehensibly difficult future this industry faces or the demands of what a successful industry requires. Contrast that to the preparedness and capabilities that are necessary in which to begin approaching that and you see the utter failure the industry has become in the hands of these bureaucrats.

Bureaucrats now realize the legal jeopardy that they’re in. Increasing their officers and directors liability insurance coverage shows they’ve received the message. The overproduction and oversupply issue has been prevalent in the market for 34 years. The solution was being developed by People, Ideas & Objects for the last 29 years and was completed in its preliminary, workable form in December 2013. Bureaucrats have a record of abuse that is documented in this blog towards that solution. The solution warned repeatedly that if things didn’t change within the industry the precise disaster and destruction we’re experiencing today would occur. Bureaucratic excuses did not identify anything close to the issues at hand. The oil and gas industry followed their script to the letter and in comprehensive harmony in order to reap their bounty. The innovative executive compensation that developed and flourished in the industry these past decades is well known. Realizing the full extent of the risk that they’ve now incurred as officers and directors of these producer firms. They’ve ceased issuing any excuses or new viable scapegoats. They’ve indeed turtled and we are unaware of their next action. The probability is that producer officers and directors in the process of increasing their insurance coverage have provided others with a heightened motivation for increased litigation. Therefore the personal demands on their time will become significant, exactly when time is of the essence for the producers. No one’s left to help and there are no resources available. What to do? 

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Yes, Of Course. Not...

 I find it miraculous that the recommendation in oil and gas is that producers dictate to their software vendors how to prepare their technologies in this or that method. That API’s are the method producers will access the functionality they need. That OpenSource software will be the tools that software developers are to use. Yes of course, I can see their point clearly. Producer bureaucrats want to maintain price as the basis of competition and control the software vendors that buy into this foolishness. That is until we come to the method that the Preliminary Specification will be presented to the oil and gas producers. It will be presented and delivered to them in a browser or equivalent, and each of the users that are based within the producer firms will have access to the Preliminary Specification through a username and password. What could be simpler. (A note here to state that our first module was the Security & Access Control module in order to provide the highest levels of corporate and Joint Operating Committee security. But we’re not discussing this complex subject at this point.) The requirements of having software vendors use API’s and OpenSource software may be valid in most industries, I don’t know. But for oil and gas, or at least from the point of view of People, Ideas & Objects these are moot arguments and will never be under consideration. Review of our Intellectual Property and the means in which it’s being used to provide the most profitable means of oil and gas operations is the only way in which the industry is going to achieve profitability from this point. The use of our Intellectual Property is best understood by reading our user community vision. It is our Intellectual Property that we use to raise our budget, maintain the collaborations in the user community and provide a new foundation of competitive advantages for the user communities service provider organizations. All of these would be unavailable under the methods being dictated here. These service provider competitive advantages do not include price however they do include specialization, the division of labor, quality, automation, innovation, leadership, integration, efficiency and effectiveness as just the highlights. There are a number of our competitors in the market today providing solutions to the producers, however we would assert that their software has failed when their clients are failing too. But I would also like to assert the quote from General Eric Shinseki, “If you don’t like change, you’re going to like irrelevance even more.” The days when producers could dictate how they’ll access software has passed. I would also suggest that they have other business issues to attend to.

I have expressed here many times that People, Ideas & Objects Preliminary Specification is the means in which to ensure producers attain the most profitable means of oil and gas operations. Going as far as to state that the 21st century is the software century and that all businesses will be software businesses. All software is derivative of Intellectual Property therefore the value in any industry falls within the Intellectual Property that is used by that industry. Encapsulating this by stating 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. The question therefore is, will the industry be capable of making themselves profitable in this century without software? I think we have our answer in today’s economically depressed era. I’ve been publishing my ideas that make up the Preliminary Specification since December 2005. I published the Preliminary Specification in its entirety in December 2013. And the issue we address in our product is the same issue that is destroying the North American producers. We’ve recently documented that this has also been the same issue that was in the industry throughout the period as far back as at least July 1986. If these genius bureaucrats were able to develop software on their own, if they were able to solve their business problems, the writing on how to do that has been on the Internet for decades. It’s not that they didn’t try to use the Intellectual Property we developed, it’s just that they were caught and I stopped them. So, is it possible for the existing producers to find their way out of this malaise? Is it possible for them to do so without the software to define and support the necessary changes that will ensure profitability? Is it possible for them to develop their own Intellectual Property to secure the rights of that software? Can they do that in the next quarter before they completely run out of cash? Is it possible for them to copy the Preliminary Specification? These are the types of questions that producer bureaucrats should be asking themselves. They should also ask why they think their credibility over four decades of losing money is more valid than the work that People, Ideas & Objects have been doing these past 29 years? We’ve always been focused on profits, what have they been focused on?

What OpenSource software and API’s provide the producer bureaucrats is the ability to circumvent the need for any Intellectual Property claims by their software developers and to continue to control them. These are outside of People, Ideas & Objects because as you may be able to tell here today, I’m not biting. This is the way producers will be able to cobble together the solutions necessary to continue losing money on behalf of the entire industry and all of its sub-industries. Making sure that this cobbling of hundreds of applications together is replicated by the bureaucrats within each and every producer in order to achieve the same regulatory and business non-performance. The unshared and unshareable nature of the high overhead costs in oil and gas are contributors to the systemic lack of profitability in the industry. It is however as I stated recently, that credibility once lost is never regained. What I can assure the producers is that the methods of use of our Intellectual Property is what and how the Preliminary Specification and the user community and service providers need and will have. Control is something that slipped from their fingertips at some point recently and I’m not the one to stand here and point out the obvious to them. Maybe it was when Warren Buffett bailed out of his very large contrarian bet in Occidental after only one year. 

Nonetheless, why is it that producers have all the rights and privileges of the P&NG leases, while People, Ideas & Objects our user community and their service provider organizations have to renounce all of our rights and privileges to our Intellectual Property through the producers chosen method of access? Clear thinking about Intellectual Property and P&NG leases would indicate that the two work very well in harmony. Two separated by persistent bull headedness, to the point of total destruction, and I’m talking about the bureaucrats here, render both to be more or less useless in terms of economic value. Here’s another suggestion. Quit trying to control everyone else’s business. The service industry is taking things into their own hands now and won’t be doing anything close to what producers asked of them before. The use and abuse they’ve suffered at the producers hands is atrocious and yet, here they are still trying to define how other businesses will be forced to work with them. OpenSource and API’s are great technologies, we may even use some to build the Preliminary Specification. Twisting the purpose of those technologies to dictate to others was what occurred during the bygone days. Take a look at any producer firm's working capital, that era has expired. 

People, Ideas & Objects budget will be raised before any development work will be done. That is zero work is going to be done by anyone until the full budget is funded. We have declared repeatedly that “we will not be blind sleepwalking agents of whomever will feed us.” We are not going to have our organization, and specifically our user community members, subject to industry withholding financial resources half way through the process because they're not getting all the compromises they want, or the price of oil was up $3 one day. We have a difficult job to do and we will be successful at it. This implies that we are not going to be doing business the old way anymore. We are aware of how the industry has been run and the bureaucrats expectations of other businesses. It’s time for them to either slink out the back door and hide from the process servers for the rest of their miserable lives, or stand and face the music in terms of the lawsuits that are coming their way. If they put as much energy into thinking how they could mitigate the damages of those that will be litigating. Funding the Preliminary Specification should be the first thing that comes to their minds. In terms of People, Ideas & Objects we will use our Intellectual Property to raise our budget. This will support our developers and user community members throughout our development to its successful completion. Without our Intellectual Property we wouldn’t have the rights to be able to assert the ability to do what it is that we are doing. Solving the industries issues and establishing the basis of a dynamic, innovative, accountable and profitable oil and gas industry. 

It is frustrating to have not been able to move forward with this initiative. I can thankfully blame the bureaucrats legitimately as they’ve left an existential issue lingering for at least 34 years. I’ve been working to solve this for 29 years and the majority of this work has been fighting the bureaucrats and their dirty deeds. With the Preliminary Specification being available for the past 7 years. It is the Preliminary Specification that eliminates the bureaucracy just as disintermediation does in every industry. This case of chronic inaction in exchange for excessive personal financial benefit has established the legal framework necessary for the litigation of the culpable and guilty bureaucrats who should have done something to avoid this. Instead all they did was increase their executive compensation, and when it was clear that others had been informed of their legal jeopardy, increased their directors and officers liability insurance. We learned of that overall increase in the industry from Reuters on June 9, 2020 which was more than three months ago and nothing else has been done except for the turtling of the bureaucrats. The good news is that if you’ve incurred a loss from one of these producers they’ve plenty of insurance to pay for it. So you might as well all jump in. 

Relying on Open Source software and API’s to solve the industries difficulties will not resolve anything. What is needed is the plan in order to get there, such as the Preliminary Specification, and the financial resources to show the commitment and resolve of industry to those that are dedicated to getting it done. Relying on Open Source software is tapping into the community that supports the software that they’ve developed as a result of their personal interests and passions for better technology tools and features. They were not motivated by money, that’s not why they joined the Open Source project. If they did want to be involved in resolving the industries issues they would want to see the commitment of the financial resources in order to successfully complete the work just as People, Ideas & Objects have done. The producer bureaucrats are only attempting to circumvent the Intellectual Property rights of People, Ideas & Objects that have been established and need them to do our job. And for the producers to acquire this software on a free basis. 

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, everywhere and always. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Oh Jeeve's, Bring the Ferrari Around Please

 It would seem like just yesterday I was harping about the risk of diminishing capacities and capabilities that producers might face if they continued down this road. Actually it was last Tuesday. Things are happening quickly in oil and gas, it may not be fun, but it’s certainly interesting. News last week put in perspective the scope of what is being lost, and I would suggest on a semi-permanent basis in oil and gas today. When I say semi-permanent it would be difficult for me to see how the existing producers could rally and inspire a crew to make mini-donuts. They’ve lost credibility with so many people I can’t think of who would be interested in dealing with them. I’m sure the guy at the Ferrari dealership will always talk to them, and the Jeweler just loves their wives. But in terms of the business of the oil and gas business it’s difficult to suggest that they have any credibility at all. What we do know is that credibility once lost is never regained. The news began with Husky reviewing their otherwise 60% complete West White Rose Project in the east coast offshore of Canada. Stating that “our priority of maintaining the strength of our balance sheet with ample liquidity,” said CEO Rob Peabody. Which I of course interpret as they don’t have the money anymore. Which is true, at the end of the second quarter Husky had a working capital shortage of $223 million. Then came news about Enterprise Products Partners LLP cancelled a 450,000 barrel / day pipeline in the Permian basin. I do wish one of the bureaucrats would comment on this post and give us a reason, excuse, or viable scapegoat as to who is responsible for these dastardly acts. 

It was in that commentary last Tuesday that I noted how the Preliminary Specification dealt with the development of the service industry and others. One that was more constructive than calling them greedy and lazy, or forcing them to accept terms of 18 month payments for accounts payable. And then I found this in the Wall Street Journal’s September 11, 2020 publication of their CFO Journal. It documents how other industries are approaching their suppliers during this time of economic difficulties. 

To help shield themselves from the economic damage caused by the coronavirus pandemic, some big U.S. manufactures are trying something different; They are paying their bills early. Businesses such as Lockheed Martin and Micron Technology that depend on complex global networks for parts and services are worried that prolonged economic slowdown could disrupt their supply chains. Looking to deepen ties with their suppliers, reduce risks or grab market share, the companies are pumping money to smaller businesses that could fail otherwise.

These statements by other industries only reinforce for me that what I stated in the Preliminary Specification is reasonable and logical. And that what has happened in oil and gas is exceptional and unacceptable. Maybe those people who want to leave oil and gas could find some security in those industries. Just a thought.

Global oil and gas prices are depressed due to the continued overproduction and oversupply that has been created in the North American marketplace for the past number of decades. Overproduction and oversupply are created when producers produce oil and gas unprofitably. People, Ideas & Objects assert that all North American production has been unprofitable based on the producers' specious accounting. An accounting that doesn’t recognize the appropriate amount of capital costs necessary for the exploration and production of energy that is sold to consumers. Producing below the breakeven point is where unprofitability begins. Producing below the breakeven point for one producer, in an industry who’s commodities are price makers, has the effect where the price of the commodities will fall below the breakeven price for all producers. When all producers continue to produce below the breakeven price for four decades you have an exhaustion of all of the value from the industry on an annual and wholesale basis. Times were only “good” when investors were willing, which is certainly the case in oil and gas today. No one is making any money in the industry and this is evidenced by the fact that investors left in 2015, banks are in the process of leaving and everyone has washed their hands of the industry. 

Yet here we are in a suspended period of economic depression watching the oil and gas prices deteriorate further each month. Managements of the producer firms have done nothing to mitigate any of the underlying issues created by their chronic overproduction other than to blame, excuse and create viable scapegoats regarding the source and disposition of any of their issues. There is a sense of entitlement and knowing what’s best to do by the management of these producers. There is no sense of urgency regarding the further deterioration in the financial, operational and political frameworks the producers once enjoyed. There is no sense of concern regarding the abandonment of the support and resources of the financial institutions that have refused to entertain any of these producers' desperate financial needs. There is no search for solutions or remedies to what ails the producers and industry. There is little care or concern expressed to those that committed their careers, businesses and investment to the industry. People, Ideas & Objects Preliminary Specification has been rejected since its inception in December 2013 and despite the consistent promotion of it since that time. A solution that deals with the specific issues that are prevalent today and were accurately predicted on this blog since its inception in December 2005. The principles behind it are based on sound business policies focused on real profitability and building the industry necessary to meet the consumers needs for energy over the next 25 years. The alternative that was chosen by the management during the period we were promoting the Preliminary Specification was to run the industry into the ground. 

The principle that People, Ideas & Objects has relied on to make the necessary transition, deal with its issues and to structure the industry so that we provide the most profitable means of oil and gas operations, everywhere and always. Is that creative destruction will be used to regenerate the industry into the new structures necessary to deal with its issues. This is also supported from the Information Technology point of view in the sense that disintermediation is contributing to its own form of creative destruction. One in which most other industries appear affected and not immune from the consequences of. The anomaly or the impediment to creative destruction in oil and gas is that the producers are a primary industry which enables bureaucrats to sit on revenues that are generated as a result of the cumulative activities of the producers and all the subsequent tiers of supporting industries. Such as the service industry and others. And that diverts and obstructs any process of change from ever taking hold. 

This is my issue. I’m not making any headway in terms of progressing towards the solution due to the ability of the producer bureaucrats to rely on this somewhat reliable and controllable revenue stream. It is not a revenue stream that has much capability beyond keeping them, the bureaucrats, in the comfort and style of which they’ve become accustomed. Everyone else will have to do without. This is not a new issue for me. This has always been the case for People, Ideas & Objects with respect to the ability to have the Preliminary Specification adopted. A chronic lack of action on behalf of everyone who has had the responsibility and authority to do anything positive for the industry. I realized soon after the publication of the Preliminary Research Report in May 2004 that I had provided these producers with the solution to their permanence atop their organizations. Suggesting that if they wanted to change their organizations, it was necessary to first change the software. The 21st century sees software defining and supporting the organization therefore without the software changing first, no change will be permanent. This was systemically interpreted by the bureaucrats as; if they never changed the software they’d never be challenged in their franchise. Which has certainly been proven the case here in 2020. Note too as we documented in our White Paper on page 19 that it was during 2005 that IBM was the last premier ERP software vendor to leave oil and gas out of frustration regarding the industries lack of support. 

Since this time I’ve been chasing my tail trying to corner the producers into dealing with their issues. Noting the value proposition was in their favor and would be a benefit to all associated with the industry. This has been anything but motivating for them. Their current systems of personal enrichment were not in jeopardy from us due to their learning that software defines and supports organizations. And their systems were operating fine, why would they address that? When times are difficult and you're waiting for times to improve, that’s when the subsequent storms begin to rage. Also known as bad luck. Bureaucrats thought that muddling through would be the solution as it had been for them so many times before. Shale aggravates this situation tremendously and makes the fallout from overproduction and oversupply permanent. This virus has knocked demand down temporarily and OPEC+ are willing to reduce production to match the temporary drop in demand, however OPEC+ have also been expressing their concerns consistently these past 34 years that this chronic overproduction and oversupply from North America has existed. Before the virus they were actively pursuing another price war with the high costs producers. That’s one issue with three aggravating factors. What will happen next? Clearly anything could happen. What will be done? Nothing, the revenues will continue to pay the bureaucrats their innovative and creative executive compensation until the last day they have control of them. In other words someone will have to take them away from them. 

What we know at this point is that the budget for the Preliminary Specification is nothing like what the producers have faced before. They’ve been critical of the methods of how we operate and the costs of that budget being predominantly Intellectual Property royalties and profits. Yet in the process of rejecting the Preliminary Specification our sample of 19 producers have incurred losses of market capitalization of $44.3 billion since the 30th of June 2020. Our sample size accounts for approximately one third of the deliverability in North America therefore it’s reasonable to assume that the total loss in market capitalization has been $133 billion since June 30, 2020. It’s easier for them to dismiss losing more than $1 billion / day of investors money than realizing the issue exists and the solution is at hand. Since their most recent high in terms of market capitalization at the end of the second quarter of 2018 these same producers have lost $387 billion of their investors' value. That would be $1.173 trillion lost based on our assumption of their deliverability vs. the rest of the North American producers. I think we can all see the point of the bureaucrats regarding the budget of People, Ideas & Objects. 

As I’ve indicated I’ve been putting up the good fight and will continue to do so. The issues I face are somewhat the same issues that I’ve been dealing with for well over a decade now. Bureaucratic luxury is being realized on the basis of a continuous revenue stream the producers enjoy. A revenue stream that was earned by the efforts of all of those that are associated within the oil and gas industry, and who are now seeking employment, opportunities and business elsewhere due to the lack of business in oil and gas and the support of its producers. There is no money for them. All I can say is to come back in a few more decades, I’m sure I will have solved my issues by then. That falls in the category of “maybe.” What I do know for sure is that your enemy is the most dangerous just before their demise. Be cautious out 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, everywhere and always. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Defining Implementation Costs

 Sticking with the topic of our priority, that being our user community, we need to discuss the topic of and definition of our software’s implementation. It is the role and responsibility for the planning, organizing and completion of the implementation of the Preliminary Specification by our user community members. Many of these tasks will be undertaken by them as the principles of their service provider organizations. It will therefore be the role and responsibility of the user community member to determine what is necessary in the development of our software, just as it will be for them to determine what the implementation requirements are. Defining this further as either Joint Operating Committee facing or producer facing types of work. The sources of revenues that support these Joint Operating Committee facing activities of the user community and service providers needs to be clarified and that is the purpose of this blog post. The software development activities fall under the People, Ideas & Objects budget. However, the existing producers are never going to fund the budget of People, Ideas & Objects. I don’t know where the money for our development will come from at this time. But it certainly is not going to come from the current producers themselves. They would have done it by now, well before the point where they lost control of the industry, and now that they’ve achieved that level of destruction, what's their motivation to do anything? 

There was never any intention that the costs of implementation, or these Joint Operating Committee facing costs, were to be incurred as part of the budget of People, Ideas & Objects. The determination of the costs of our user community were based on a 1 to 1 basis with the developers. For each dollar of cost of the user community member to conduct their research, determine the appropriate solution, communicate with the developer and ensure that the solution is built appropriately is mirrored by the developer communicating with the user community member, writing, testing and confirming the code with the user community members and deploying the feature to the build. Our budget covers these development facing costs. It would be at this point that the user community member would turn to the Joint Operating Committees, communicate the needs of the application, ensure that the producers data is being aggregated and organized into the defined processes of the application, etc. Or in other words, the commencement of the implementation of the software application within the Joint Operating Committees and their associated producers. It will be the cost of the user community member, their service provider organization and any costs associated with these implementation activities within the producer firms and Joint Operating Committees themselves that will be billed by the user community member or service provider directly to the Joint Operating Committee to be paid by their respective producer firms.

It’s important to note the Joint Operating Committee is the key organizational construct of the Preliminary Specification and therefore is the point in which implementation occurs. Therefore, implementation via the Joint Operating Committee is the appropriate approach and will reduce the overall costs of implementation when the data are distributed to each of the producer participants of the property. The point that I am making here is that the costs of the implementation is borne by the owners of the Joint Operating Committee directly through billings by the user community members and their service providers organizations. It is these costs that were never considered as part of the development of the Preliminary Specification. I am writing this to clarify any confusion I may have caused when discussing in this blog about both the development and implementation of the Preliminary Specification. Simply one does not occur without consideration of the other. It did not imply that our budget handled the costs of both development and implementation of our solution.

Whether the user community member conducts these implementation services out of their own “user community” based organization or through the service provider organization that they need to build in order to accommodate that requirement when implementation and production, or the software going live occurs, is purely up to them as independent businesses. The part time revenues for the development work would become less involved in their day to day as we proceeded forward, implementation based revenues would begin and then production revenues would commence. Until finally once we are in production with the software and services in the oil and gas industry the user community members will have begun to earn many revenue streams from the Joint Operating Committees. First, or initially the user communities part time revenues from their participation in the development work will continue to be assessed by People, Ideas & Objects and billed to the Joint Operating Committees. And these user community development revenues would continue throughout the life of the softwares expected 25 year life. Implementation revenues will commence at some point and also continue throughout the life cycle of the application. And finally the revenues of the user community members service provider operation will begin for the remainder of the softwares usable and operational life. These service provider revenues will be very substantial as the service providers will be establishing the competitive alternative to what the administrative and accounting capabilities of each of the producers in the industry are providing today. 

Some may feel these assertions and points of view are ludicrous and would never come to be. As they have regarding every aspect of what I have been writing about since December 2005. Today the industry is in a state of collapse. Resurrecting it in the vision of the past doesn’t inspire anyone. The service providers are the key to making the administrative and accounting costs, the overhead of the industry, an industry based capability that is variable, based on production. Replacing the fixed capability that is unshared and unshareable in each and every producer firm. Where each producer has replicated the non competitive attributes of administration and accounting in the same way as each of their neighbor producers. I’m sure there are a variety of alternative solutions to the issues that the industry is faced with. And those may be available as soon as the next decade or so. Today, what options does the industry have? The Preliminary Specification is a workable model that solves each and every issue that has caused the collapse of the North American producer and industry. It is timely and provides a value proposition that is needed desperately to offset the cumulative losses that have been incurred these past decades. It’s easy to point at one or two elements here and there and suggest it’s therefore unworkable. We don’t have that option now and we must make the Preliminary Specification a success.

What won’t happen is that the industry will never have someone bring the solution to them on a silver platter on a speculative cost basis. I suggest nothing will be done anywhere in the North American oil and gas economy on spec for at least a decade. The bureaucrats have destroyed the good faith of the industry. As any service based organization, the opportunity to make any money in providing for the oil and gas industry on a speculative basis is offset by risks associated with just being paid. The need to have this done on a voluntary basis by the developers and users is also something that producer bureaucrats would love to see. And would never happen. Everyone will be compensated for all of their time. The successful delivery of the Preliminary Specification can only be achieved successfully by people fully committing to the project and getting it done. Financial risk doesn’t play into that need, on the contrary it destroys it. We have also stated on many occasions in this blog and Preliminary Specification that we are not going to be “blind sleepwalking agents of whomever will feed us.” We must have the financial resources secured prior to the commencement of any work in order to ensure that we’re not controlled by any group that seeks to compromise or confuse us between the old ways and the need to rebuild the industry in the vision of the Preliminary Specification. We’ve been betrayed by the methods that are in use today, we need to start by rebuilding the industry brick by brick, and stick by stick.

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, everywhere and always. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

A Loss of Capacities and Capabilities, Part II

 We have more news on the service industries difficulties and the actions being taken there. News that Liberty’s acquisition of Schlumberger’s shale assets are to be put in storage were of little surprise to anyone in either oil and gas or the service industries. Surplus capacity of these shale assets are depressing the prices of these services. What was surprising was the expectation that Liberty would be archiving 1 million horsepower currently derived from diesel fuel and replacing it with electric horsepower. Chris Wright the CEO of Liberty notes.

But Wright said building new electric pumps in a market already oversupplied with diesel-powered frac gear won’t be easy. His company already has plans to scrap about 1 million horsepower of frac pumps it just bought from Schlumberger.

“We’ll only build new, next-generation fleets with partnerships with customers,” he said. “I’m pretty confident we will have that out next year.”

Mr. Wright is far more diplomatic than I, suggesting “partnerships” would be the method that he would use to replace this equipment. That is certainly one way to look at it and as I had mentioned in last Thursday’s post. The method that People, Ideas & Objects chose for industry to acquire the Preliminary Specification was for them to pay up front. This is and will be the new reality of how producers and their industry will have to be operated for the foreseeable future. No one is buying the “if you build it, we will come” scam anymore. It’ll be if you want that xyz capability or an increase in capacity, producers will have to pay cash in advance. If producers want to have a financial interest in the xyz capacity or capability then they should build it, own and operate it themselves. However they are not entitled to any of the Intellectual Property of those who have developed their legacy in their businesses, producers will need to have developed their own unique Intellectual Property in which to build, own and operate their fleet of frac facilities or whatever capacity appeals to them. In terms of the bigger picture there is one clear change taking place in the service industry that conversely has been stalled in oil and gas. Liberty is in its ninth year of business and three years ago it was not listed in the top ten of North America's fracers. They’ve established themselves as a specialist in the frac field and as of today are listed as the number two in terms of capacity, second to Halliburton. The change that is taking place is clear to me. And that is creative destruction is creating opportunities for new leadership based on providing new thinking, specialization and the division of labor, and new business models.

In terms of the position you can take your firm, there are three general methods in which to do so. You can lead, follow or get out of the way. Liberty has clearly chosen to lead, Schlumberger has clearly chosen to get out of the way in terms of their shale operations in North America. When we look at these methods and apply them to what the oil and gas industry has been doing these last four decades we see they’ve adopted none of the three constructive possibilities. They certainly haven’t led, they may have followed the book “The Bernie Madoff guide to Building Your Own Ponzi Scheme.” But other than that they’ve just been obstinate in terms of doing anything productive when they should have got out of the way. And as they sit there entering their fifth decade of unproductivity and personal profitability they don’t seem to budge to anyone or anything. Current working capital balances imply that there is some cash remaining, it’s just that it's already spent, and as soon as that cash has been siphoned off in terms of innovative, executive compensation these bureaucrats will be gone. Their exit may not be too much longer based on the current state of financial affairs. A number of key points that I wish to reiterate about these state of affairs in the industry.

• We noted the issues that are present in the industry today, and have been present throughout each of the past 34 years. These were supported with documentation that we noted from July 26, 1986 that detailed exactly what the problems have been throughout these 34 years. You would have thought that doing absolutely nothing would have worked within this time!

• People, Ideas & Objects Preliminary Specification has been available since December 2013 and we’ve been writing about the development of and research we undertook regarding the Joint Operating Committee since December 2005 based on a proposal we made to industry in May 2004. The Preliminary Specification, the research we undertook and all of the 3 million words contained in this blog are about these issues in oil and gas and how we propose to solve them with a comprehensive and workable business model. There is nothing normal about any of this. It is abnormal and I am unfamiliar with any other instance of business being abused to such an extent.

Businesses don’t operate on the basis of accounting deception for four decades. The luxury of having the SEC define the capitalization policies of the oil and gas producers is what made the bureaucrats efforts to deceive appear normal. In fact these SEC regulations were used and abused systemically and this abuse has now become culturally ingrained in every corner of the oil and gas industry. This is represented in the call to “build balance sheets” and the current calling to “protect balance sheets.” Business principles that mean nothing in the rest of the universe. What we do know is that producers have “built balance sheets” and hence fake profits to stratospheric heights. The most competitive producer would have sought to recognize their capital costs as quickly as possible in order to remain competitive in the market for capital. Now all that they have are long term assets which we classify as the unrecognized capital costs of past production and extensive liabilities to show for it. In terms of liquidity and cash flow, not so much and declining precipitously this past decade. The sum total of the industries productive capacity is nothing as it consumes cash in order just to produce. A negative present value. This is all that they’ve done in the forty years since the SEC put the regulations into play. As long as the investors and bankers were never the wiser, the “good times” kept their party going. 

As I’ve preached throughout this period, it is possible to build the Preliminary Specification and turn the industry into a dynamic, innovative, accountable and profitable set of producers and industry. People, Ideas & Objects provide the most profitable means of oil and gas operations and what we were perceived to be doing was spoiling their party. Whether I had that effect is unknown, what I do know is that the situation that we’re in today was inevitable and completely unnecessary. It is standard fare that you over report assets and profits in a ponzi scheme, while also hiding the amount of the “take” being pilfered. Exactly what has been done here. Now faced with the ultimate reality of what it is they were seeking to achieve. Producers are unable to function at basic levels and their capacities and capabilities are declining as quickly as their cash balance. The vision of the industry's future becomes clearer each day and it is not pleasant. Oil and gas prices are barely adequate to cover the costs of production. The world is awash in oil and gas productive capacity and inventories. North America by far is the most expensive producer when we understand that most of what is recorded as assets is nothing more than the unrecognized capital costs of past production. We are now in a period where the volumes produced will continue to deteriorate year after year. And what have our good friends the producer bureaucrats done? They appear to me to have turtled and are hiding under their desks. Waiting for the signal to start the mass exodus which they’ll hide their exit in. I’ve been concerned about this for almost three decades now. I’ve taken nothing but abuse from these producer bureaucrats. I’ve never received a penny in support. If this is not a scam, a fraud and deliberately done, someone needs to explain to me how things such as this can “mysteriously” evolve. Please understand I’m not complaining about my situation. I’m the luckiest guy there is. I truly enjoy this work and will one day get it done. I only raise these points to show the contrast of the actions taken over this history in order to prove that all is not “accidental” as they would allege, that producer bureaucrats were fully aware of the issues and of the solutions that were at hand for many decades.

Sourcing development funds from the producers is the last thing on their minds and is beyond what they’re capable of anyway. Both financially and mentally apparently. Their concern as always will be personal and they thank you for asking about them. When I started this project it was quite amazing to me as I had no idea what it was specifically that I would be doing. All there was to do was to march off in this general direction. Each morning I’d wake up and see a giant black hole that had become my life. I now want to welcome everyone to this giant black hole and offer to take a seat, kick back and enjoy. It’s going to get real rough.  

People, Ideas & Objects claim that 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. Welcome to the 21st century, the software century. Firms aren’t prepared to make the kind of radical changes that are contained within the Preliminary Specification. They mind their business and ensure that no mistakes are made. The producers however did none of that. They made mistakes, big mistakes. It wasn’t just me who saw this issue, the recording of depletion, depreciation and amortization are some of the most critical decisions made in the business world. You have to ensure that the costs of the products you’re selling are priced appropriately not only for today, but for everyday. Producers ensured that they “built their balance sheets” and kept their asset values as high as possible. Making them look profitable and prosperous when they were losing their shirts. If it wasn’t for the investors bailing them out with more cash each year they would have been out of business many decades ago. This is not rocket science, it’s generally understood in the basic accounting courses. Apart from what I would call these deliberate mistakes, I don’t think there has ever been an industry that has faced the type of difficulties that the oil and gas industry is now facing as a result of this fraud. Bureaucrats won’t be happy with these charges. Any claim of innocence by these bureaucrats should be discussed with the judge assigned to their case. If the industry was lucky and had everything go its way, it would take at least a decade to recover from this. A very serious and comprehensive problem that can only be solved through creative destruction such as what the Preliminary Specification prescribes. 

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, everywhere and always. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

A Loss of Capacities and Capabilities

 Producers generated a shrug of the shoulders and a yawn when hearing the January 17, 2020 Wall Street Journal’s report of Schlumberger’s plans to exit the North American shale market. Producers think that petro dollars would always have them back barking and begging for more. Schlumberger’s move wasn’t anything to be concerned about, in fact it was just noise. Then on September 1, 2020 the sale of Schlumberger’s North American shale business to Liberty Oilfield Service was announced. Certainly the assets of Liberty will remain and they are in the fracing business. However, the loss of faith by an International leader of the market is a serious comment about the future of the oil and gas industry and shale particularly. Throughout the Preliminary Specification, and specifically in the Resource Marketplace, Research & Capabilities and the Knowledge & Learning modules the rebuilding of the capacities and capabilities of the producers and most particularly the service industry is one of the key objectives. When an industry loses control of the financial, operational and political frameworks of its domain, that includes the capacities and capabilities of the industry and sub-industries in which they had come to rely upon. We’ve discussed this many times here and in the Preliminary Specification. It is one of the permanent and lasting effects of not taking care of business. The only thing that producers could parrot was that I was crazy. Well if I’m crazy I’m still able to see the brick wall you’re driving towards, and producers feign not to be able to see or listen to anyone telling them anything other than the approved talking points. I’ve stated many times before when the world considers you crazy you need to do two things. First you don’t argue with them. Second you find liberation in the fact you’ve got nothing to lose and you never gave a damn what people thought anyways. 

We noted a few weeks ago how the academic world is scaling down their engineering and geology faculties due to a lack of demand for graduates. Even Texas A&M saw just one third of their graduates able to find positions in oil and gas. However the following graph did show this to be a temporary blip in terms of geological time. That by 2060 everything should be pretty much back to the way they were before things became so messed up. 

Our Resource Marketplace module looks to rebuild the service industry on a fundamentally different basis. The abuse that producers have orchestrated these past decades over all of their vendors has been unacceptable and was needing to be changed. This abuse is represented in the facts of today where Schlumberger may be leading the charge out of the market. Two particular activities of the producers' abusive behavior are of concern. They both stem from the facts that oil and gas is a primary industry and the producers generate revenue from the commodities sale. That is considered the “producer's money” and they’ll ensure that they’ll never have to spend it on anything other than creative, innovative and excessive executive compensation. The two abusive behaviors are the abuse of others Intellectual Property and the use of “their money” to keep everyone else on a starvation diet. In the case of Schlumberger, as with all service industry operators, they are not primary industries and do not have any secondary industries in which to use their fracing equipment. The producers inherently know this and during any of their orchestrated downturns, immediately expect 50 - 75% discounts from the service industry representatives. Leaving few alternatives for the service industry other than to take the money. In addition to this scaling back of their prices, producers cut their activity levels in the industry 50 - 75%. Making the decline in revenues realized by the service industry particularly acute, where the best they could hope for would be to maintain 25% of their prior periods. The Resource Marketplace module rebuilds and supports the service industry on the basis that it’s an extension of the producer firms. One where the service industry is established on a fair and equitable basis that considers the primary industry revenues the producers enjoy were not solely generated without the service industry. 

The second activity the producers conduct that circumvents their capacities and capabilities in the long run is regarding Intellectual Property. IP is the foundation of any business that would claim itself to be innovative. Such as the producers claim themselves to be. However what it is they’re claiming are the innovations of the service industry. The innovations from the producers themselves haven’t been seen for many years and decades. One could argue that a highly innovative oil and gas industry would not find themselves in the pickle that the producers find themselves in today, would it? If someone should happen to stumble upon an innovation that would be useful to industry then the following process would be invoked by the producers. They would agree that it was useful, however would not use it until such time as the principles behind the technology were released to them. This would include everything necessary for the producers to understand the tool, process or widget. If the developer refused to hand over the information they would be shut out of the industry for the better part of at least a decade. If the information was handed over they would find a willing group of producers able to use it as intended for what would seem to be about a year. Then, suddenly, many competitors would appear with the same product, process and widget of the innovator. Oddly, some of the vendors' competitors have directors and shareholders that are members of the oil and gas producer firms they initially met. Establishing price competition from the information that is handed to them by the innovator is the first order of business for the producers. Although the service industry has been very successful from an innovative point of view, it's always been on the backs of providers who held on to their technologies and eventually had the producers come to them. Companies such as the developers of coil tubing and Packers Plus. What more evidence do you need than the disregard they’ve shown to People, Ideas & Objects Preliminary Specification. Unwilling to provide them with the IP I was locked out of the business. What producers were unaware of was how obstinate I can be and how badly mismanaged they were. 

What we always hear from producers is their zeal to cut costs further. That is the business of the oil and gas business. Spending money at a blistering rate and beating up their vendors. Encana, now Ovintiv, went as far as to call the service industry greedy and lazy on many occasions during the better periods this century. It would seem I’m the only one calling the bureaucrats greedy and lazy now. Maybe I’m too harsh towards those responsible for the damage and destruction in the industry. I should maybe understand they’re doing their best. No they’re not, they’ve helped themselves the best they can but that’s it. If it doesn’t boil everyone’s blood outside of these producer bureaucrats for the damage they’ve done then you should check your pulse. This was unnecessary with the specific solution to the problem available in a timely manner. It just happens to also destroy the bureaucrats party time and cash flow. If you can forgive those that have done this damage to all of us then you're a far better person than I. I can’t accept it and we’re not finished yet. The extent of the damage is still hidden from most. No one airs their dirty laundry. And it will take a significant amount of time to just turn this around and get it moving in the right direction. I’m afraid the loss of capabilities and capacities has only begun which leads to the next, inevitable consequence of the bureaucrats party time, the loss of deliverability on the continent. That’s the big pickle, but everyone understands that now.

What the Resource Marketplace module of the Preliminary Specification does is establish the ability for the producers and service industry representatives to communicate in ways that will help the service industry to secure the Intellectual Property of their new products and services. Establish a market within the service industry where these producers can have some direct impact on how those innovations are developed. The two other aspects of this communication process is that the producers would be able to call out to the service industry what it is they’ll want, need and the overall direction they’re moving. Alerting the service industry to changes. It would also provide an opportunity for the service industry to have some of their ideas sponsored and financially supported by the producers in the initial stages of development. The purpose here is to make the service industry and oil and gas industry responsive to one another's needs. Making for a dynamic and innovative environment where the fostering of new ideas would be the premier way in which costs are controlled. Considering the decentralized production models price maker strategy would also be operational, the oil and gas industry enabling it to operate at a steady state of real profitability. Therefore the service industry will grow to ensure that the needs of the producers are their primary concern everywhere and always. And not just how to survive the next downturn. 

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, everywhere and always. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.