People, Ideas & Objects Capital Structure

 Although there is good news for producers that bolsters their optimism for the future. The good news doesn’t last much more than an hour or two. The bad news that is announced is ignored and not considered in the topics of discussion so that “boom” can be the momentum that sweeps the industry, once again. Bad news such as the probability that sanctions will be lifted leading to an additional 1.6 mm boe exported from Iran and Nordstrom 2’s imminent completion, all but delaying the European LNG import market from developing at this critical time. We should never speak of such negatives.

Historical analysis of the past 30 years that People, Ideas & Objects have been in the market for oil and gas ERP systems, is a worthwhile exercise for determining what has happened to oil & gas and why their difficulties will continue. It has a lot to do with how the bureaucrats approach the news that I’ve laid out here. They only celebrate the short term victories and ignore the protracted long term difficulties for another day. “Another day'' never comes about because there is always more good news to discuss. Most will assume this to be a happenstance occurrence, though after decades of watching this I see a rhyme and rhythm in the methods of the bureaucrats. There is a long term strategy and plan in place. It doesn’t have anything to do with the producer firms themselves. In Calgary by the time the May long weekend comes about, the streets are cleared of gravel and the Ferrari's, Porsches, Bentleys and Lambo’s are taken out of hibernation. The number of them this year was truly amazing. Might be due to the lockdown causing a greater itch to get out. Many people noticed and commented about it. Is this maybe where the money went? I do not deny the perks of what one earns in life, I’m only suggesting that they earn it by building value. We have offered the Preliminary Specification to the bureaucrats and they have denied interest due to the fact it disintermediates them from their source of personal wealth generation. The Preliminary Specification has a value proposition in the trillions of dollars which can be readily understood how this value comes about as a result of the bureaucracies disastrous management. Bureaucrats will not invest in the producers business to enhance its profitability. What does this say about them? 

In the early 1990’s when I began this adventure it was a different business in the oil and gas ERP market. The number of ERP providers was at least 20 and it was a vibrant area with much activity. Today it’s a ghost town that resembles a decrepit old mining town that was never built to last. Only one decrepit old person still lives there with a portable generator to power his computer and post to his blog on the InterWebs. All the “big guys” were the first to move out. IBM, Oracle, PriceWaterhouseCoopers left out of frustration in dealing with bureaucrats that refused to pay for what it was they used. Alternative solutions were then financially engineered under the “consolidation” method with P2 Energy Solutions now providing the bulk of the industry with their software. We can assume they make a living however they’re on a tight bureaucratic leash. Subject to a business model that enables them to provide for whoever feeds them. What we can be assured of is the failure of the oil and gas producers and industry is also a failure of the ERP systems used by those companies in the industry. (Note P2 have done the best they could with the limited resources provided by the bureaucrats. They are good people working under impossible conditions.) If producers were using appropriate systems would the industry have failed so spectacularly? From the oil and gas bureaucrats point of view we need to ask is this a failure? In what sense would they consider it a failure?

In terms of using a first tiered ERP systems provider the producers do not have the concern that their accounting will be reliable and transparent. That is a bureaucratic positive. By keeping P2 on a starvation diet ensures that no major software developments will be undertaken by them to improve that situation, and P2 will also be the lowest cost solution. A double positive for the bureaucrats. Lets add an extra positive here as it also avoids the direct threat of disintermediation that Information Technologies are causing other industries everywhere else. After all, the bureaucrats are just trying to “muddle through” a difficult situation, not of their making! Another positive for the bureaucrats. I could go on but I think I’ve made my point. The consequences of this history and what has been experienced in the oil and gas ERP marketplace is the investors behind those 20 solutions and initiatives have walked away with their heads handed to them. A history, legacy and performance that satisfies the bureaucrats just fine. One that doesn’t hold them to the higher standard that a first tiered ERP system would instill. One that would cut through the opaque nature of oil and gas statutory reporting. One such as the Preliminary Specification which uses as its base the Oracle ERP Cloud / Oracle Fusion Applications. What they have is a history, legacy and performance that doesn’t instill the desire to have any competition to P2 being fostered and developed that would challenge bureaucrats organizationally. These methods formed an effective block towards any ERP systems development progress. That has to be considered a bureaucratic success.

We recently documented the vision of producer consolidation being orchestrated in the industry today. With all of its attributes and features that benefit the broadening and deepening of the bureaucracies. Remember bigger bureaucracies are better! We know from our research that organizational structures are defined and supported by the ERP systems that they use. They are therefore also constrained. The unchanging ways of the ERP systems the producers have used over the past thirty years are therefore testament to the establishment and security of the bureaucracy throughout the oil and gas industry. What we see today is that bureaucracies have a well defined and detailed vision of how their consolidated business models ERP systems will provide the value generation necessary for that profitable and prosperous future. These are backed up with a comprehensive and deep understanding throughout the culture of the industry on what is needed for them to make these changes. Sorry, my mistake, I keep forgetting only People, Ideas & Objects have provided these with our user community vision and Preliminary Specification. 

ERP systems providers have always been approached and managed this way, it is reasonable to expect this will always be the methods and means that oil and gas bureaucrats approach the issue of accountability and integrity of their accounting, and the development of their ERP systems. With one significant caveat. They will do so under their management and control. In other words internally, where each producer is actively involved in their own systems development. Incurring the same costs as the other consolidated producers in equal and exact proportions and with the exact features and functions. All to gain no distinct competitive advantage. Their way of conducting their business is just that near and dear to their heart. 

For myself, continuing to throw money at the wall in an attempt to secure a position in the oil and gas ERP market space would be futile and a waste of valuable resources. Seeking the volunteer efforts of people within the industry would be a disastrous pursuit as it would capture the substance of the issue and its solution, only to attract the bureaucrats attention and a waning interest in the participants. Subsequently any initiative would have died on the vine, never to be resurrected and we would have provided the bureaucrats with a list of “culprits'' they needed to attack. A new approach was necessary and one that would deal with the realities of the situation as defined here. An approach that considered what was possible in terms of the Information Technologies on offer as a result of the deployment of the Internet. That adopted the necessary and only method of quality software developments, user community participation at its core, enabled through a powerful user community vision. A new architecture, organizational structure and design that dealt with the issues and opportunities of the oil and gas marketplace. The Joint Operating Committee which is the key organizational construct of the industry, the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of “what” and “how” everything is done in the industry.

When I began this work in 2003 I was pleased that I had resolved what it was that was compelling me to work on a software solution for so long. I was never able to clearly express or articulate what it was I was doing. After September 2003 I was able to state unequivocally in my mind that I had found the key to the solution, the Joint Operating Committee. The kindest response to my declaration was “what’s the issue.” For most of the rest of the world it only confirmed what they had suspected for many years. Nonetheless it needed work. To take it from the idea of using the Joint Operating Committee and conduct the research necessary to make it a viable, workable business model. In my defence this type of work can only be undertaken by one individual. It is hard grueling work that needed to prove that both the industry and the producers could be configured and supported by software that would function and enable the producers, industry and service industry to prosper in a new model. Answering the question would it work and provide value in a coherent manner. I believe that question has been answered in the Preliminary Specification. The needs of our user community came next and we began that work as our first priority in the first quarter of 2014. Publication of our user community vision was the beginning and we have established our user community as one of the three key competitive advantages of People, Ideas & Objects. Subsequently the ripening of the situation and issues in the oil and gas industry. Issues that are currently being well defined in the financial destruction at the hand of the bureaucrats. This destruction is close to being complete, it will not stop until bureaucrats are removed through either creative destruction or disintermediation. It is here we stand today with these three necessary components of the four ingredients to put the industry back on a successful trajectory. 

The fourth ingredient is of course the financial resources necessary to complete these software developments. People, Ideas & Objects, the organization that I have assigned my copyright to commercially exploit this Intellectual Property, is unable to provide the assurance that any investor we take on would make any money in oil and gas ERP software. Banks are allergic to software in general. And small market products, being the number of saleable items / the number of producers, are of no interest to venture capital. I therefore own 100% of the copyright of this research and product as represented in the Preliminary Specification. And the majority of People, Ideas & Objects. I am patient and some would say stubborn. Money wasn’t what motivated me. I had to get these ideas out of my head so that I could live in peace. That has been accomplished and would certainly appreciate the opportunity to finish. But that may not happen. We have an obstinate opponent who has all the necessary financial resources to sustain their obstinance and lifestyle.

Newt Gingrich has a quote regarding the efforts of Winston Churchill throughout the decade leading up to WWII. Churchill was ostracised and vilified for his constant attacks on Hitler throughout the 1930s. Gingrich stated “Churchill ultimately came to power (as Prime Minister of Britain) not because his arguments won out, but because reality caught up to his arguments.” This is the method in which difficult tasks are undertaken. We may not be where we need to be yet, but the bureaucrats are farther away from where they were comfortable and once in command. What we are doing may seem impossible to most people, however they should have joined me in September 2003. All I can say is that I’m glad I’m nowhere near that place anymore. 

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

They Put the Viable, in Viable Scapegoat

 Last summer People, Ideas & Objects began a campaign to point out the associated personal risks to the bureaucrats of their inactions over the past decades. Highlighting the length of time the issue of overproduction had been present. Noting the date in which our solution in the form of the Preliminary Specification was published. Last week we noted how these bureaucrats have suddenly acknowledged that the oil and gas commodities are now in fact price makers! The critical and necessary change in an underlying assumption of how the industry has been operated and how this overproduction issue has existed for thirty five years. We had also been discussing the legal risks bureaucrats had placed themselves in as a result of not acting on the issue or our solution. And that by building the Preliminary Specification, it would provide bureaucrats with the ability to state “issue mitigated, nothing litigated” as a strategy to fulfill their fiduciary duties. We could see this wasn’t motivating them and therefore flipped our strategy to “nothing mitigated, issue litigated.” If they're not interested in working with us then that is their choice. What is clear now is they’ve chosen to pursue that strategy of mitigating their personal risks by implementing the price maker assumption within their consolidation business model and strategy. Although we appreciate that they appear to have begun to listen to us. The question we need to ask, on their behalf is, will it be adequate to resolve chronic overproduction?

Let me first add my two cents to the argument and assure everyone, and I am willing to provide a guarantee for this, that the consolidation business model and strategy will be effective in dealing with the chronic oil and gas overproduction issue. As we’ve seen before, as soon as the oil price dips to negative $40; bureaucratic action replaces words and some production will be shut-in without any excuses. Or was it the refineries refusing to accept any more product? This is the threshold in which they’ve proven to find acceptable before and as we note in the remainder of this post, is the cultural, systemic and bureaucratic way of their future. What I think needs to be asked is, how did this issue insidiously ruin the industry while those responsible stood by and benefited financially and so substantially?

Another question we need to ask is, outside of the expanded domain of the bureaucracy what is the purpose, vision and benefit of the consolidation business model and strategy. We have seen over the past three and a half decades a capacity to avoid the necessary actions to resolve this or any issue. There was always a readily available chorus of producers to sing in perfect harmony as to why, what and how the industry was affected and their response. These included some of their Championship winning excuses, blaming and as we described viable scapegoats such as. ‘Praying for a cold winter,” “we’re profitable,” “we’re profitable at $50, $40, $30, $20!” “market rebalancing,” “it’s all about cash flow,” “it’s OPEC’s fault,” “we can’t shut-in production as it will damage the formation,” “we’re going to apply Artificial Intelligence and Machine Learning to the business to gain improvements,” and “the government has to save us with direct support or tariffs.'' There are those that are employed in their Rube Goldberg machines that use Artificial Intelligence to analyze the global storage tanks with floating roofs to determine the current state of the market. And let us not forget the classic stand by, “muddle through.”

How is it that thirty five years have passed? It seems just like yesterday doesn’t it? Over the course of the past thirty five years how many producers, even by using their specious accounting, can lay claim to overall profitability? Of those that have existed during that period, none have earned any profits even using their methods of deferring all their capital, overhead and some interest as property, plant and equipment. Such is the Championship form of these bureaucrats. Taking the exceptional items such as Apache’s $28 billion loss in 2015, Chesapeake’s reclassification of $24 billion in retained earnings. The losses reported in 2016 and 2020 would all but wipe out anything positive from all of the prior periods to the beginning of the overproduction issue in 1986. Once again that is using their suspect accounting. We have to remember these balance sheets continue to contain disproportionately bloated balances of property, plant and equipment that are nothing more than the unrecognized capital costs of past production. Or we could restate that to read as future unrecognized losses. 

Production discipline is the issue in the market today. Granted under the bureaucrats price taker thinking, where the market magically accepts everything that is produced. How will discipline be instilled in the proposed business model of the bureaucrats “new” price maker consolidation model. According to the definition “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.” What is the motivation for them to employ the necessary level of production discipline? Within the Preliminary Specification it is real profitability everywhere and always. When the unprofitable properties are removed from the production profile the producer's profitability is maximized when they’re no longer diluted by unprofitable production. This is achieved as a result of the reorganization of the administrative and accounting resources of the producers into service providers in order to achieve the variable overhead in each and every Joint Operating Committee. The granularity in the accounting conducted under the Preliminary Specification achieves the capability of each Joint Operating Committee to have financial statements prepared each month to provide this accounting information. Information that is not produced today, and is unproducable in any form whatsoever in the industry. Therefore we will need to ask the bureaucrats how will their “new” accounting achieve the necessary granularity for them to determine precisely which properties are profitable and which properties are not? We have seen through their past accounting that everything, everywhere is always “profitable” therefore this may not be an issue!? 

Hence we begin to see the prefix viable that People, Ideas & Objects always attaches to scapegoat. People always give these bureaucrats the benefit of the doubt, “they have to try it first, I guess” at which point the bureaucrat will respond “yes, we’ll muddle through it somehow.” The annual general meeting season will soon be over and the need for viable scapegoats and the acceptance of price maker and consolidated business models will no longer be of concern and will ultimately and eventually be replaced by next year's even more viable scapegoats. Alternatively price makers could be asserted to be failures and have the theory of oil and gas price maker set back in terms of its viability and acceptability in the market. “We embraced it, and it was proven to be incorrect.” Much as if they might say today “we shut-in production but still lost money.” Here’s an idea, use the two as a fatal one - two punch combination. “We tried shutting in production to increase prices and both of these theories failed when we lost money.” The existing bureaucratic culture is regressive, but a new dynamic culture inherent in consolidated bureaucracies is what is necessary to replace it? Will this be what provides the much needed production discipline?

My posts lately have taken on an enhanced level of criticism and sarcasm. The nagging question I have is when are the bureaucrats going to take on the responsibility and accountability of their past actions, and do so outside the domain of their personal concerns? Begin to undertake the obligations they hold in ensuring that affordable and abundant energy independence is achieved on this continent? I certainly am not apologizing, I am asserting that this must stop and the only solution is through the tried and tested means of economic creative destruction. The tool that has been used in these times and on the occasions when the status quo proves to be inadequate to resolve the issues it faces. The only solution as it stands today, from a creative destruction point of view, is People, Ideas & Objects, our user community and their service provider organizations implementation of the Preliminary Specification. The natural forces of disintermediation and creative destruction are being obstructed through the diversion of industries revenues away from the development of these initiatives. And therefore are unnecessarily directly supporting the status quo behaviors that have been proven to be disastrous.

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

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

 We noted in our last number of posts that in the future, unsuccessful oil and gas producers would be parking themselves in the reception area of all the major investment houses. Unable to achieve profitability through their continued support of the bureaucracy and lack of desire to be transparent or accountable by using the People, Ideas & Objects ERP system that comes about from the future development of the Preliminary Specification. While at the investment firm they’ll watch as the industry's successful and profitable producers are continually and repeatedly greeted with open arms and warmly welcomed while the producer proudly delivers another handsome dividend check. This is the alternative vision that is painted by us when we’re provided with the financial resources to proceed with building the Preliminary Specification. 

Using an innovative business model designed to ensure that the producer firms are provided with the most profitable means of oil and gas operations everywhere and always. Addressing the two critical issues that have plagued the industry for the past number of decades. Overproduction as a result of no production discipline anywhere in North America. And the pure symptom of that issue, the chronic lack of any capital discipline. Or do I have the source and symptom of the issue backwards? No one doubts the bureaucrats have feathered their nests as their one and only priority. In doing so the consequence is the size and disproportionate appearance of their “balance sheets” and the pride they show in them. The fact that they strut these things about has to be the modern equivalent of the emperor's new clothes. They are disgusting vile things that show they are heavily indebted and have never made any real or fake money. That’s right, it’s been so long now that the quality of their earnings generated through their specious accounting are being seen as inadequate and a disgrace too. 

We recently discussed the cultural trend of the bureaucrats “groupthink” that we call the “Keystone Cops.” Traveling about the continent at full tilt to the next great thing, only to find the riches really weren’t there and then immediately, in lock step, on to the next. Clean energy being the direction we’re all headed to now in an unauthorized and unaccountable manner. Clean energy has never been considered an area where investors have been provided strong accountability or where anyone has sought performance, it’s the base where the greens do their moral preening. Therefore bureaucrats anticipate a warm welcome and to be treated as the kings they believe they are by bringing legitimate, recurring revenues to the table. Iterations through each stop along the Keystone Cops route are coming faster and faster. Just yesterday it seemed that consolidations were the new nirvana that held so much promise. Strapping another equally large albatross on top of your albatross will certainly assist in overcoming any airborne issues. The destruction of Occidental through the process of acquiring Anadarko was not instructive. Occidental, one of the premium independent producers was well positioned to weather the storm and prosper however the industry developed. At the time the Keystone Cops were after the Permian and what better than Occidental to take the wealth of value they had and acquire Anadarko for an enterprise value of almost $70 billion. To make it even more real they had the stamp of legitimacy with Warren Buffett putting in tens of billions of dollars to finance it. The acquisition was made a mere 18 months ago and it's times like these that Occidental can look back, already, and say those were the good old days. But here’s a tip, don’t mention Warren Buffett’s name, I did, but I think I got away with it. 

I've been running around writing about solutions to what bureaucrats believe are invisible issues in oil and gas. Making accusations about the quality of their earnings and the value of the assets that are reported on their “big, bold, beautiful balance sheets” of producers. Their attempts to sell properties to generate the cash to make up the difference from the investors' absence haven't worked as the entire industry is having to live off the net proceeds that it generates. Which is almost nothing after the bureaucratic take. These property sales were not effective in raising any money as there was no market or cash held within the industry, however they had the effect of diminishing the perception of the value of oil and gas assets in the marketplace. If oil and gas producers began trading properties for $0.10 on the dollar they’d finally come around to reality, I thought. Therefore I believe the purpose of these consolidations was to ensure they reestablished the “asset markets” value based on evidence of the value producers had recorded in property, plant and equipment. Somebody then brought up the dusty share printer from the basement, cleaned it up and the bureaucrats began issuing share certificates to other companies as currency in the “consolidation” process. Lawyers were even thinking their days had returned. Producers then used their favorite currency, shareholder dilution, to reinstate the value of their balance sheet assets by paying full book price and more for the acquired companies. Brilliant? With the small amount of cash available to purchase shares in the first quarter being so much smaller than in 2020. The amount of shares purchased in the first quarter was $754 million in 2021 down significantly from 2020’s purchases of $1.28 billion. We’ll have to wait for the full picture to be reflected in the second quarter. This has been a long term “feature” of the bureaucrats' management. For example stock repurchases in 2019 were $3.04 billion in the second quarter for a total of $6.34 billion in the first half of that year. The point being that once reestablishing the market price of these assets of other oil and gas companies they only needed to purchase their own shares aggressively to bring that price up. This may go down as one of the hallmarks of a well “managed” business in bureaucratic mythology.

If you consider the value proposition that the oil and gas producer bureaucrats have been using. Which is also the business model they are proposing to continue with. Theirs seeks to allocate these inflated capital costs equally across each molecule of petroleum reserve that they’re able to book as reserves. Recognizing only the current production volume / the reserves volumes as the percentage of capital that is recognized in the current period. This is a reasonable and valid business model that would provide long term value for all stakeholders, in 1820. A time when incidents and accidents, events and occurrences didn’t happen over the period of time in which the thirty years those reserves remained potentially productive. Today, the industry itself is challenged with many business issues that question how and what will the future of oil and gas be even next year. Consumers are being educated today as to the real value of gasoline as a result of a pipeline cyber attack. Investors today are being treated to a wealth of options that were never considered even a decade ago. These are providing real value and a performance trajectory that is setting the standard for all investments to compete within capital markets. 

Oil and gas can’t, won’t and will never achieve the types of performance trajectory that are available in other industries today. What they can offer is substantial performance on a reliable, consistent and secure basis. Using the People, Ideas & Objects Preliminary Specification we provide for the dynamic, innovative, accountable and profitable oil and gas producers with the most profitable means of oil and gas operations, everywhere and always. Once we’ve built the system that is. Where if the property is producing its profitable, and profitable from the real sense of the term profit. The performance trajectory of each producer will still be differentiated in the marketplace as the key capability in the market is their land & asset base, their earth science & engineering capabilities and capacities the producer is able to employ and deploy. Profitability in the real sense is not a fixed characteristic; it is a variable that is defined as anything above the threshold of costs. This is People, Ideas & Objects, our user community and their service provider organizations definition of the value proposition that we provide oil and gas. Contrast the current value proposition of the 1820’s model; which reflects a calm and serene environment, to the management effectiveness reflected in the Keystone Cops routine we’re presented with. 

Lastly we should all welcome Chesapeake back into our sample of producer firms. Reviewing their first quarter financial statements are quite remarkable. If all of our good friends the bureaucrats were considering bankruptcy you’d be crazy not to pursue it as aggressively as you could. And don’t forget to declare those $29 million pre-bankruptcy bonuses for the bureaucrats. With an increase in working capital of $1.7 billion to negative $253 million, $1.4 billion of this being a reduction in short term liabilities. Reduction in long term debt of $7.3 billion and a reclassification of retained losses of $23.9 billion to retained earnings of $295 million. All thanks to the service industry, investors and bankers being cast adrift in the middle of the Pacific ocean to experience the real consequences of the bureaucrats actions and the bankruptcy courts. The one consequence that I could see is they dropped 15,575 boe / day and now only produce 431,000 boe / day. Such is the cost. The CEO did vaporize in the first part of May. Was he pushed or did he leave? Now would be a good time to exit but there is one question remaining. Chesapeake the corporation declared bankruptcy and absolved itself of its obligations. The officers and directors did not do so, and as a result remain accountable and could be sued for their actions in causing the well quantified damage to the service industry, investors and bankers prior to and creating the bankruptcy. If only the service industry, shareholders and bankers could source some evidence such as the July 26, 1986 Calgary Herald Page 33 on newspapers.com documenting the beginning of the OPEC war on North American overproduction and the beginning of their financial demise. Or the Preliminary Specification which resolves this specific issue that was published in its final form in December 2013 to the bureaucrats. Then they might have a case against Chesapeake or any other producer in North America.

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

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

 There is remarkable news in the industry. What has been denied by bureaucrats for over thirty five years is now considered the common sense, de facto logic of how the industry has always operated. Oil and gas commodities are now considered price makers. From Forbes.

To conclude, the U.S. shale revolution has been in full force for 12 years, but I think that the industry just now might be waking up to the fact that we could have much higher prices and Americans would still require massive amounts of oil and gas.

The Colonial pipeline attack just demonstrated how entrenched these commodities really are in our daily lives - not nearly as replaceable as some suspiciously insist that you think.

The definitions of both price maker and price taker are provided from Investopedia.

A price maker is an entity, such as a firm, with a monopoly that gives it the power to influence the price it charges as the good it produces does not have perfect substitutes. A price maker within monopolistic competition produces goods that are differentiated in some way from its competitors' products. 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.

And

A price-taker is an individual or company that must accept prevailing prices in a market, lacking the market share to influence market price on its own. All economic participants are considered to be price-takers in a market of perfect competition or one in which all companies sell an identical product, there are no barriers to entry or exit, every company has a relatively small market share, and all buyers have full information of the market. This holds true for producers and consumers of goods and services and for buyers and sellers in debt and equity markets.

Given that the industry has now accepted price makers, why has it taken so long to come around to this fact? I first mentioned “price maker” in the sense of implementing it within the industry through what eventually became the Preliminary Specification on our November 11, 2008 blogpost entitled “Times Like These Call For…” Granted this was in the middle of the financial crisis and bureaucrats may have had other things on their minds, such as their deteriorating personal fortunes. That was twelve more years that I’ve been ostracised, vilified and run out of the industry for only stating what is now considered to be the common sense, the prevailing logic. Well to be honest, I’ve always been attacking the bureaucrats too. A guy has to have some fun!

What might have happened in this past decade if the Preliminary Specifications price maker strategy was operational and providing shareholders with the appropriate returns for their investment, keeping the industry intact and together. All this devastation and destruction throughout the greater oil and gas economy was not by accident. It was deliberate and a consequence of the ignorance, uncaring and self involved nature of these bureaucrats. Officers and directors who went out of their way to silence me as the Preliminary Specification is a direct threat through disintermediation to their ways and means of operating the oil and gas industry. I repeat myself again when I state that the overproduction was known to be an issue since at least July 26, 1986. I chose to do something about it in May 1991. They chose to ignore it, blame others, lie and raise viable scapegoats for their inactions. I subsequently published the Preliminary Specification in December 2013. Now bureaucrats think they have a solution with consolidations which will provide them the answer to the problem of overproduction, the cause of which is from “small producers having to pay their debts.” The lies and viable scapegoats only become more surreal. From the above noted Forbes article.

Yet still, U.S. shale gas (and oil) producers must be cautious to not overproduce.

The days of double-digit annual percentage increases should be over. 

Pioneer Natural Resources CEO Scott Sheffield thinks that the shale industry should consolidate more to maintain operational and curb volume increases from smaller producers – firms that need more production to pay down debt.

Moreover, the smaller players are less tangled in the ESG web and typically go under the radar of environmental groups obsessed with “Big Oil:” “Energy Giants Ditch Oil and Coal Projects. Smaller Rivals Want Them.”

This is nothing more than the bureaucrats' admission of guilt. The history, between People, Ideas & Objects and these bureaucrats, tells a distinctly different story and clearly defines the legacy of their management. Providing the evidence of their culpability. Thirty five years of an ever present overproduction issue staring them in the face and they did absolutely nothing. Seven years of our solution being screamed at them, and all they did was fight as vigorously as I feel they possibly could have. Now, after the wanton destruction that they caused for everyone concerned in the greater oil and gas economy. This destruction being obfuscated through bureaucratic lies, blaming, deception and viable scapegoats that makes no one believe a single word any of them says. With everyone turning their backs on these bureaucrats they now realize they’re truly alone and their only hope for survival is to enhance their revenue stream, to make themselves truly profitable. They expect that the “business model” of consolidation will lead them back onto the road of bureaucratic nirvana. This too is nothing more than an admission of guilt. If their consolidation issue is as effective as they assume it will be. Why didn’t they implement it sooner? Or is "consolidation" itself the real viable scapegoat?

You have to admit that Donald Trump's comment in defence of Jimmy Carter the other day was appropriate. Someone suggested the Biden administration was as bad as the Carter administration. Trump replied that “Jimmy Carter mishandled crisis after crisis, whereas Biden has created crisis after crisis.” How would our good friends the bureaucrats justify their existence if not for the problems they face? How many times have we heard them say that “oil and gas is so hard to manage?” What would any bureaucracy be without a long list of crises and difficulties to define why they exist? What bureaucrats are saying over these past thirty five year period is the destruction caused in their business is a result of the difficulty and complexity of the oil and gas business. I would have to add under their management. Consolidation is nothing more than the expansion of the bureaucracy. Expanded bureaucracies are good for bureaucrats, a strengthening and broadening of their domain serves to entrench them further. Bureaucrats don’t exist to solve problems, they justify their existence through the creation of them. Primarily in the effort to ensure they’re seen as the ones who are active and involved. How long do you think it will take for these dastardly “small” producers to rear their despicable heads once again, and dare to produce in a newly configured producer firm? What will be the solution for the bureaucracy when they’re faced with new production that destroys their price maker strategy? Be careful with your answer, you may just become the next viable scapegoat. The question that I’ve asked many times before is who is going to be the bigger fool five years from now, but let's change that to two years? Will it be these bureaucrats thinking as they do today? Or will it be everyone else holding the bag and counting the losses of what could’ve, would’ve and should have been, again?

The Preliminary Specification does two critical things that the industry will need to be doing on a go forward basis. Ensuring that the industry is financially robust where profitable energy independence is achieved throughout North America. Producers must be profitable, in the real sense of the term to ensure that it remains viable for all concerned. That people can plan careers and families around their commitment to the producers and there is a constant source of new and innovative companies that are being brought along in the service and oil & gas industries. And the second aspect is that the consumer not only needs to be assured of a stable supply of energy. That the energy it does consume is the lowest cost available to it. This demands the producers undertake a reorganization to establish innovation throughout the greater oil and gas economy. That is done throughout the Preliminary Specification but most specifically in the Resource Marketplace, Research & Capabilities and Knowledge & Learning modules. Innovation needs liberty and free speech not incrementally higher levels of bureaucratic malaise. Thirty five years is a long time to address an issue as devastating as the destruction of the commodity markets. Innovation in the creation of issues is not a value generating exercise. And consolidation is not an innovative approach to what has ailed the industry for thirty five years. When people can’t contribute openly, then nothing innovative is going to happen. Would this be the case in a consolidated bureaucracy? In our research we learned that innovation was not a happenstance occurrence. Organizational structures had to be purpose built with the associated industry resources aligned to support them to foster the innovation within the producers but most specifically in the service industry. This is the second element of the Preliminary Specification ensuring that the consumers are provided not only with a secure energy future, but also an affordable one. 

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

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

 In reviewing our sample of producers' financial statements the contamination from consolidations in the first quarter 2021 is too prevalent to be making any reasonable decisions regarding comparisons to prior periods. As a result of these consolidations our sample size has been reduced by 1 to 18 with 5 companies participating. The acquired producer in our sample was acquired by another producer in our sample. Many of these acquisitions were material in terms of their size with the overall production profile of our sample increasing 8.9% to 10.05 mm boe / day. Debt of the producers is another telling factor that shows the inability to make any worthwhile conclusions or comparisons. It appears that banks were leaning heavily on producers to have their debts paid down. This is best expressed in their diminished working capital, making any claims of capital discipline suspect when they have no cash, no access to capital during a time while their banks are this demanding. Clearly the banks want out of the oil and gas business. Working capital of these consolidated producers was up 10.2% to total $12.85 billion. Even though the banks were drawing down many of the producers' loans, the number of companies who completed consolidations increased our sample's overall debt load by 6.5% or $10.09 billion. We anticipate further difficulties in making these comparisons in the second quarter as there have been some material acquisitions and other activities in the second quarter.

I’m still at a loss to find any detail regarding overhead. In addition, the enhanced detail we were beginning to see regarding the capitalization of interest appears to be waning. Additionally the fact of the matter is that reported overhead never made any sense to me in comparison to the real numbers when I was on the inside. I have only been asking for transparency in these numbers for many years. And let us not confuse this argument with the standard bureaucratic talking points of “overhead allowances.” They are not relevant to this conversation as the gross total of all overhead allowances across the industry or any specific Joint Operating Committee are $0.00. 

It is People, Ideas & Objects' argument that overhead is the second reason, after pricing issues, that profitability is never earned in the industry. The accounting method of capitalizing the (alleged and unknown) majority of overhead proves that its effect on profitability is material. However, it is also the key reason for the discharge of cash out of the business, with little to no cash being returned to the firm. From an administrative and accounting perspective each producer must attain a certain level of capacity and capability in these fields in order to maintain compliance with regulations etc. These capabilities and capacities are not shared or shareable in their current configurations between producers and are replicated and incurred within each producer. Nor do these capabilities and capacities form any part of the distinct competitive advantages of any of the producers. It is through the capitalization of the majority of these costs, we have alleged capitalizations are as high as 85% on average across the industry and will hold to that until we’re proven wrong with the facts. The producers current capitalization policy diminishes overheads level of materiality in the financial statements. 

Another key point that we’ve made to bureaucrats about their overhead capitalization policies is the erosion of the firm's cash resources. Which is also part of the reason that capital was demanded each year from shareholders and how working capital now diminishes each quarter. Overheads are incurred each month. The capital or cash consumed by the capitalized overhead costs are not recognized as a current cost by producers and are deferred for as long as possible. On a straight mathematical basis of property, plant and equipment / depletion is currently at 15.05 years for our sample of producers in the first quarter of 2021. In reality, due to annual capital expenditures, it may take three decades for that specific overhead incurred today to be fully realized as a capital cost and passed on to the consumer as depletion in the income statement. This is as they say in the industry “putting cash in the ground.” This is done for no other purpose that I’m aware of than to hide the scope and scale of overhead, but also to defer the discussion of what may be included in overhead. A topic we’ll leave for another day, but be assured it involves our good friends the bureaucrats. These overhead costs are not being passed onto the consumers in a timely manner as a result of the specious accounting of capitalizing a sizable volume of overhead and then not recognizing the full capital costs of each barrel of exploration and production. Hence the invested cash is not returned to the producer, it only sits in the ground for thirty years or however long it takes to be recognized. In the meantime the producer scrambles to find the cash to pay for next month's overhead as they, as a result of this accounting treatment, do not maintain what is commonly referred to as a “float” in business. We’ve pointed this fact out to the bureaucrats for many years now and there has been no change in the methods they’ve used. What is in those costs that they’re concerned about? Another question that would / should be asked is. What is the materiality threshold of the producers audit firm during their annual audit? When I was auditing it was a percentage of revenue, I don’t know what it is today, but I’m sure if we asked a bureaucrat they’d know. 

It is the deferral of recognizing the cost of capital in the exploration and production of oil and gas that is what enables producers to claim “profitability” consistently. Enhancing “profitability” at the expense of operating the business appropriately. Enhancing “profitability” to attract the investors to make up the difference. We feel that property, plant and equipment is best understood as 65% of it should be reclassified in a pro forma adjustment to depletion as we consider it to be nothing more than the unrecognized capital costs of past production. Our pro forma adjustment establishes the past performance of the firm without this monkey business. Additionally, the deferral of material volumes of overhead exacerbates this issue by deferring even more costs. But also drags the firm's cash with it as these are the monthly incurred expenses that consume cash, which are not recognized in the current period, passed onto the consumers and hence returned in a timely manner to deal with the following months expenses. When investors and bankers are abundant, this is not an issue. When investors and bankers are absent, it’s a cash crisis of monumental proportions even though overhead is just 4.33%? Why is it that when producers are faced with difficulties immediately begin trimming a percentage of their staff? If they laid off 20% then they’d only save 0.866% of revenues and profits. Do you think there’s maybe more to the overhead story than what’s being reported in the financial statements of the producers? And why has our discussion and our solution, which deals with the lack of profitability, the demand for cash from investors, bankers or working capital, been ignored and denied?

The Preliminary Specification handles overhead in a fundamentally different way. We are disintermediating the producer bureaucrats. We are using specialization and the division of labor to enhance the capabilities and capacities of the administrative and accounting requirements in the oil and gas industry. We are removing the administrative and accounting resources from the producers to allow them to focus on their key competitive advantages of their land & asset base, and their earth science & engineering capabilities. Moving the accounting and administration to the service providers that are organizations headed up by a user community member affiliated with People, Ideas & Objects. There they will specialize in one process and manage it on behalf of the entire industry. Charging each of the Joint Operating Committees for any work that is completed by each of the service providers in that production month. If there is no production from a property, then the service providers will receive no data and no work will be conducted and subsequently no billings will be sent to the non-producing Joint Operating Committees, creating what we call a null operation. Enabling producers to have truly variable overhead costs, based on production. As a result the property that is profitable, from a real profit point of view, will produce and not be diluted by the losses from the unprofitable properties. Reserves would be saved for the day when they can be produced profitably, those reserves will not have to incur the ongoing losses as incremental costs if they continued to produce and the commodity markets would have the marginal production removed from the market enabling them to find their marginal prices. 

People, Ideas & Objects ERP system includes the service providers, and user community members as principles in their organization, in preparing and providing the accounting and financial statements of each and every one of the Joint Operating Committees. Information that is not produced today. In addition to what is produced today, but with enhanced transparency and accountability. That’s maybe why we have such difficulties with bureaucrats about the acceptance of our Preliminary Specification? The accounting provided by the service providers will be standardized as the process will be comprehensively reviewed during our development to enhance these processes to their ultimate level. Therefore they will be for each and every producer standard and objective. If a Joint Operating Committee is reporting a loss at a property it will be taken as valid that it would be in the best interest of the producer, their reserves and the commodity markets to ensure that the property was shut-in for the next production month. They will know that all other Joint Operating Committees received the exact same accounting treatment as theirs and it will be incumbent upon them to ensure that they maximize profits for their shareholders. Invoking the long lost production discipline throughout North America and a new capital discipline as to what wells were drilled, where and when as the ability to attain real profitability to achieve production would be a real threshold to secure funding. Producers that didn’t adhere to these principles would not be profitable in the real sense of the term. Leaving them forever waiting in the receptionists waiting room at all the major investment houses.

It is these points of view that have diminished the bureaucrats claim to continue. Why have they refused to consider what People, Ideas & Objects suggest is real profitability? Why have they refused to account for the overhead they incur? Why have they refused to change to a method of overhead and accounting that is more transparent, detailed, standardized and objective?

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

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

 The first quarter 2021 reports of our sample of producers are out and I have to say that I am disappointed. There appears to be a significant regression to the old methods of reporting profit. Stuffing balance sheets by putting cash in the ground is culturally instinctive. Bureaucrats have a heritage of their past efforts, are proud of those efforts and as a result have returned to strutting their achievements down mainstreet to determine who wins the annual biggest balance sheet competition. Any recognition of the capital costs in the cost of the commodity of a capital intensive industry will have to wait once again until such time as the oil and / or gas prices turn negative. 2020 saw what I feel was a reasonable amount of depletion being recognized and the subsequent losses of almost $70 billion being reported for the year. Now, one Canadian producer has even reversed some of their 2020 depletion and reported only $0.68 of capital costs per boe for the first quarter. But of course, and why wouldn’t they? It is a simple matter of regression towards the mean, the mean of the past forty years reporting methods. It’s not that last year began to address the overcapitalization issue, it only addressed the results, symptoms and consequences of that issue. Which of course is the chronic overproduction in the industry. Leading to the April 2020 negative $40 oil prices which proved our good friends the bureaucrats couldn’t care less. We’ve moved from recognizing the capital assets of these producers over the course of 5.2 years at the end of 2020, to now 15.08 years in the first quarter of 2021. It is far better, in the bureaucrats mind, to “build balance sheets'' and “put cash in the ground” than evaluate the performance of the producer by passing these capital costs on to the consumer and recover that previously invested capital for reuse in the process. Investors can be assured that producers don’t need any cash is the message they’re sending, therefore they’ll have no cash from production, profits, investors or banks. If they critically evaluated their performance on a business basis they’d have many more losses such as 2020’s than what their massive “profitability” that 2021 is reported and shaping up to be. If only they’d realize that “putting cash in the ground” could be used as their future “bank” if they began working with People, Ideas & Objects Preliminary Specification.

My comments certainly contrast the spontaneous “boom” proclamations coming out of nowhere these days. And I resent having to be the one that looks at things critically. I would prefer to build solutions but there are irresponsible bureaucrats in control who only state “Forget about the past, that’s history, and only listen to what I say today.” Which oddly seems just like what was said each and every year before doesn’t it. But does anyone remember these types of statements from all of the producers last year? From WorldOil April 9, 2020 Entitled “Oxy Wants Financial Aid, Not Market Support, For U.S. Oil Companies.”

In a sign of how important the appeal is to Chief Executive Officer Vicki Hollub, employees are being urged to send a pre-written wish list to Congress members. Among other things, the company wants the government to “provide liquidity to the energy industry through this period of unprecedented demand destruction and unsustainable pricing until normal economic conditions return.”

Or from the same article,

“This letter lists the steps our government needs to take immediately,” Hollub said in the email to employees. “Now more than ever, we all need to inform our elected officials that inaction could result in long-lasting harm to the U.S. economy.”

I’m only rubbing salt in their wounds however, how can they now stand there and say “boom.” The quoted article reflects the difficult time a year ago when the government was the viable scapegoat at that moment. The time when they had really faced the music, as for some reason no one else they betrayed would step up and help anymore. Ultimately they were turned down and it appears, once again, as it has so many times before, taught them absolutely nothing. Which leads me to question whether it's that they don’t read their financial statements or they don’t understand them. What I’m disappointed about is how could these producers be so poorly managed? I’ve been accused of having a disproportionate sense of urgency and should be more patient. I understand that however I would ask, who is it that needs to be the patient when cash is as critical as it’s being reported. When it’s understood the bureaucrats are not focused on the business of the oil and gas business. And they’re focused on the business of their personal business and don’t have the time to concern themselves with their responsibilities as officers and directors of the producers they’re supposed to be managing. How else does a primary industry with the potential of oil and gas fall into such a state as it is currently and record the kind of performance over these past four decades? I only reviewed a few of the Annual General Meeting materials to gain a better understanding of the topics of concern and issues to be addressed and voted on. Only reviewing a few was all that I could stomach. Accountability is not something that has been expected of these bureaucrats over these 40 years, it’s not part of their culture. Being unaccountable is a bureaucratic feature of the business. Another feature of the business has always been the declining value of the stock once the AGM’s are complete. Who is it that specifies the time of the year in which stock repurchase plans can be implemented?

These reflect the culture of oil and gas is incapable, and has no capacity to change. In a world of disrupted business, the destruction authored by our good friends the bureaucrats and the uncertainty in the global economy. It’s nice to know that the producers are as well managed as they claim to spontaneously be in these times of difficulties. The wall of trillion dollar costs that include rebuilding, refurbishing and reclamation of the infrastructure and the seven crises that we’ve listed are not an issue if they never acknowledge them. “Boom” is the key word that makes it all go away and the sunshine pour in. What we listed as Crises number seven was the Biden administration. Last week we saw a hint of even further dealings to come. The Biden administration has now instructed the Fed and Treasury to figure out ways in which to write policies that are pro climate change. This has been interpreted to mean they’ll pressure banks to stop loaning money to producers. Being that the shareholders of the producers are as disenchanted as they are. That the bureaucrats are using once again their share certificates as their printable currency, this time to fuel their “consolidations.” Chronic, repeated, unnecessary and unwise dilution of shareholders is also a feature in oil and gas. Banks are already hesitant and withdrawing. Now the government wants to instill an even stronger bias against the industry. With  the comical routine of their “capital discipline” invoked in harmony by producers once more. Capital structures being diluted and leveraged far beyond what is acceptable or reasonable for anyone to glean any value from the industry. And if there was any value it would only be diluted in some manner in the future. With real profitability never seen and fundamentally misunderstood or corrupted. What would be in it for anyone other than the bureaucrats for their take off the top?

If only someone would come up with a solution to these issues and provide a means where the producers would have an organization and method that could provide them with the most profitable means of oil and gas operations everywhere and always. That is People, Ideas & Objects Preliminary Specification, our user community and their service provider organizations. But those have been rejected by these bureaucrats as too radical. It stops the bureaucrats from destroying the industry any further by disintermediating them and replaces them with the means to better manage the industry here in the 21st century with the issues and opportunities it faces. Consolidation is the answer to the problem, according to the bureaucrats. I happen to think the bureaucrats are the problem and building bigger bureaucracies through consolidation will be far more detrimental than good. 

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

I Swear, The Cops Were Here Two Minutes Ago

 Clean energy transitions are all the rage in oil and gas. Producer bureaucrats have been committing to the transition in hoards this past year in an attempt to outdo one another, please note it’s never on the basis of any performance criteria. It’s just the place to be, and if you’re not there get your press release drafted quickly or hire a public relations firm before your Annual General Meeting. “Sophisticated” producers will have those greenpeace demonstrations and “smart” investors making their green new deal talking points well known during the Annual General Meeting question and answer period. Rallying support for the cause and the diversion of investment that must be considered a necessity when the “issue” is so prevalent in consumers minds. Don’t fall for it. Outside of the producer firms talking points and Biden’s latest trillion dollar spending bill there doesn’t seem to be too much investment happening in the clean energy “industry.” Maybe it's all make believe? If Warren Buffet’s Berkshire Hathaway does not receive shareholder approval to file annual environmental reports. Where the voting was 75% against, I’m certain that oil and gas producers unauthorized diversion of their revenues into clean energy will be fine, don't you? What I do know is that the oil and gas industry has had a characteristic behaviour, a culture, that I’ve labeled the Keystone Cops that moves the industry wholesale from one favored investment into another in lockstep. Clean energy is the newest target, previous targets, from a Canadian perspective included heavy oil, SAGD, and any other number of activities that demanded the producer to be fully committed if they were to have any hope of ever competing for and in fact raising capital from the markets. 

What we do know about the comedy routine of the Keystone Cops was as soon as they entered the storefront of where the burglars were reported, seconds later they would be exiting out the back of the establishment and running down the alley to the next alarm, all within a matter of seconds. And that is what we see today with our producer bureaucrats. Shale was it as we know. Except it didn’t perform and no one is being fooled anymore. Now those who established the shale frontier and were the first officers into the building in an attempt to catch the shale burglar are the first out the back door, and on to the next five alarm calls. And I’m speaking of course of Chesapeake who are actively getting out of oil shale now that the performance of the firm, post bankruptcy, is not what investors were looking for. We see the placement of their oil shale assets onto the market a day after the CEO suddenly announces his (forced?) retirement. Two days notice for a CEO is the expectation these days. So if you were involved in a shale producer in some form and are now feeling lonely and abused you too may want to keep up and get an understanding of where to go in this fast paced world. “Responsible emissions” are what Chesapeake’s looking towards. Something I’m sure that’s performance based. This is what accounts for responsible and accountable performance by bureaucrats. There’s no more value in oil and gas for the Keystone Cops to chase so they’re moving on to other industries. Clean energy is the one that satisfies for today, there has never been the expectation of any “earnings” so they’ll fit in this time. Tomorrow it may be electric vehicles, satellite Internet or the space race itself. Haven’t you heard, Elon Musk is famous! I just don’t know why no one believes anything the bureaucrats say anymore. 

This is the nature of the past four decades in oil and gas. If it works out great, if not where’s the next alarm ringing. Never has it been thought to stop and try to make what it is they’re doing profitable or perform from a business point of view. Such as People, Ideas & Objects describe in our White Paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” Producers current accounting is not even structured, configured and is not sophisticated enough to determine which property is profitable and which ones are not. This is probably due to the fact that the bureaucrats all know the properties are not making anyone any money, why then would they want to prove it to themselves. It’s times like these, what could be described as the anticipated beginning of the much awaited boom to compliment the boom / bust culture that we see things are truly different. Usually it was all about positioning to “make hay while the sun shines.” Maybe it’s the results of the covid restrictions but it looks more to me like an abandonment of the industry is underway. The movement to clean energy and CEO’s dropping their resignations is the only clear sign of any activity. Oh, and profits too, the reporting of vast profitability.

The Wall Street Journal is reporting that up to 90 new airlines are being launched around the world in 2021. I’ve never understood the airline industry. It violates a basic principle of mine that companies fall within one of two categories. Capital intensive, or labor intensive, airlines being both types of business which seems to me to be too difficult to break out of the unique demands of both. Add to that the devastation that’s occurred during the pandemic to the airline industry and you have an industry that’s in significant difficulty. Not as much as oil and gas in my opinion but significant. Yet here we see abundant entrepreneurship and venture capital being put into an industry that is structured for radical change. Oil and gas, a couple of shrugs, two “oh woe is me” and on to clean energy. Sprinkle in a bankruptcy or two and have the service industry take the real consequences of the abuse and fraud perpetrated upon them by the bureaucrats these past decades. You can still see signs of investors on the horizon, that however is just the dust they’re kicking up as they gain real speed getting away from this industry. 

Of the producer firms in our sample, People, Ideas & Objects have been harping about working capital as an issue that has been growing more difficult since the investors began leaving five years ago. We noted that banks somewhat caught on to the charade of the bureaucrats last year and were commenting publicly that they were surprised and disappointed to see the actions of management in the Chesapeake bankruptcy. The granting and distribution of a substantial pre-bankruptcy management bonus. Where the announcement of that bonus was just hours before the actual bankruptcy. It would seem that the first quarter producers are still struggling with their ever increasing working capital deficiencies. The first quarter of 2021 is no different as the producers' banks seem to be draining producer bank accounts nightly in some cases. And demanding the repayment of their loans on an accelerated basis in order to retire the outstanding debt. There’s lots to look forward to in business after the virus, just not in oil and gas.

In a case of “fool me twice,” for what I believe to be the fifteenth time. It would appear that everyone has caught on and are acting as expected when they’ve been so fundamentally betrayed. Possibly Chesapeake’s CEO feels he’d better get out now and people will forget his name when all the other producers CEO’s soon follow out their doors too. I’ve been writing about the solutions to these issues for 30 years now as I know it was early in the month of May 1991 that I began this trek. I’ve asked a lot of questions as well as developed the Preliminary Specification. It’s interesting to me, and it might be interesting to you my readers, that at no time in the past year(s) were any answers to my questions provided. It’s as if they’re ghosts with the only sign of their existence being the fact they’re still drawing paychecks and the occasional resignation letter. 

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Robot's Are Deaf!

 Alternatively, do they have Optical Character Recognition? Can they read these posts I’m writing in their lofty board rooms and offices of our very good friends, the bureaucrats. They’ve proven they’re automatons, driven by a culture of their own making that can not deviate from its culturally driven programming. The past number of posts I’ve intimated that we’re replicating the holistic culture of models and modules in the Preliminary Specification that would somewhat create a different culture for another age. Except that is not what we are doing. People who work within the administrative and accounting fields of oil and gas will understand how they’ve become the lower rung automatons that feed the beast. Doing little of anything in terms of adding incremental value as a result. It’s what's always been done and will continue to be done in that matter until someone says otherwise. Knowing there is a better way and all but forced to turn that cog or continue spinning the wheel. 

It is true that we are proposing to build a well orchestrated Information Technology based system designed around the cultural norm of the Joint Operating Committee. One that fully deploys the value and purpose behind those IT efforts of more efficiently and effectively managing the producers data and processing. Those are the two attributes that computers excel at and any purpose other than that has been of limited application, including Artificial Intelligence. People, Ideas & Objects plan is to employ people in the process of the higher level attributes of what humans do well and are what we excel at. These include our ever growing list of providing leadership, unstructured problem solving, acquiring and processing new information, deciding what is relevant in a flood of undefined phenomenon, issue identification, creativity, collaboration researching, developing ideas, design, planning, thinking, negotiating, compromising, innovating, financing, conflict and contradiction as analytical tools, observation, reasoning and judgement. This can only be done if we leave the computers to reliably do what they do best and to do so under our full control. Where change is a necessary and daily occurrence that enhances these human competitive advantages repeatedly and incrementally over the long term. Change that is an inherent part of the structure of this well defined system.

Instead what we have is the expectation that what has worked in the past will continue for the future. Except no one but the bureaucrats are pleased with the past. If the situation was as inert as it's represented here we’d see the producer firms dissolve quickly. The fact is they have an abundant level of fight in them and have proven this to me time and time again. Disintermediation has been working to eliminate the redundant and unproductive hierarchies from societies method of organization and management. The use of the Internet as the tool to manage “things” has provided significant benefit throughout society. However, as each industry has fallen to the forces of disintermediation those that remain and are actively resisting these forces: Are as a result all the wiser and knowledgeable in terms of how to continue the fight and survive. People, Ideas & Objects are facing an adversary in the bureaucrats who are enabled with the revenues of a primary industry and using a defensive plan that began its development in the late 1990’s when Steve Jobs introduced iTunes to fully disintermediate the music industry. 

Do I ever consider that maybe one of the stumbling blocks to progress may very well be People, Ideas & Objects budget? I’m certain that it is, and I have no doubt that many in industry will just immediately discard many of the ideas based on the “ask” of our budget. To those I say so long! However let me explain my position. The scope and scale of the application is substantial. User community developments are more costly, but necessary in this environment. No one knows all the attributes of even 0.5% of how the industry operates on a detailed basis. Therefore these have raised the costs of our development. As we detail below there will be a sense of urgency once we begin these developments and that has a cost as well. You can have any priority in software development that you want. Either features, timeliness or cost, pick two at the expense of the other. We have selected higher costs as the non-priority of our development due to a pending and looming sense of urgency. 

These costs form ⅓ of our total budget with the remainder being what I’ve described as the detailed allocation of our margins. These margin allocations are all payable to me in the form of either Intellectual Property royalties which should rightly be seen as a cost to industry, or dividends. They are based on the IP that has, and will be, developed and the profit of People, Ideas & Objects. It has been tradition in oil and gas that producers do not pay for IP, and certainly not royalties. I can currently vouch for that. However the larger point that may be missed by the bureaucrats who seek to secure the return of their investors is that their inability to invest in their organizations profitability is possibly one of the reasons for their investors continued absence. We have always stated that it’s not enough to own the oil and gas asset anymore, it's also necessary to have access to the software and services that make the oil and gas asset profitable. If they can’t, won’t and will not ever develop the Preliminary Specification then possibly their investors fully understand and appreciate that. If producers won’t do anything to prove their profitable, what is there to attract an investor? The only thing left is that history and legacy as represented in those big, bold, beautiful balance sheets that have been built by “putting cash in the ground.”

Our budget is also based on the value that we provide to industry, what is commonly referred to as a value proposition. It used to be scoffed at by the producer bureaucrats that $25.7 to $45.7 trillion dollars over the next 25 years could be quantified and presented as legitimate. Looking at the industry critically no one can say that these numbers are inappropriate. When we understand that the makeup of our value proposition includes others' estimate of the $20 to $40 trillion dollar of needed capital expenditures for the following 25 year period. Capital that bureaucrats expect to come from investors as a result of their ridiculous business model. It is necessary then to understand that People, Ideas & Objects Preliminary Specification provides the method to source those funds from the consumers. Having consumers pay for the full costs of capital, operations, royalties and overhead of exploration and production. And it's not that consumers would need to pay $20 to $40 trillion more for their energy, it is in fact that investors would no longer be on the hook for that “ask.” Secondly, consumers would be subject to funding the producers current needs when producers captured that cash they previously “put in the ground,” realized it in the current period and used it for their purposes of running the producer firms operation. If as the Preliminary Specification proposes, this cash would then be used again and again as it’s cycled through the business. A business does not collect and cherish their capital costs in an effort to build them as high as they can. They pass their costs on in an accurate and timely manner to consumers as they’re incurred, the general subject and purpose of accounting. The other $5.7 trillion is the expected real profitability that I’m always ranting about. Lastly, I’d like to think of that decade when I was researching this project that I would have eventually been paid more than the minimum wage for my time at some point. That my compensation would be based on the value that I generate for others. After all that is how businesses operate, profitable businesses that is. 

Even though our budget may seem high. We are more than competitive in comparison to the performance of the bureaucrats business model. Taking our cost to build the Preliminary Specification and amortizing that over the proposed 25 year life of the system and allocating a portion of that to each barrel of oil equivalent produced during that time. Assuming a continuous 39 mm boe / day North American productive capacity is sustained throughout that period, incurs a cost of $0.0421 / boe. How does four and one quarter cents / boe compare to the past 25 year performance of the bureaucrats? Some may have picked up on the use of my allocation of our budget over the usable life basis of amortization. Somewhat the same method used to deplete reserves of the oil and gas producer and the method that I’m so critical of them using. I’m clearly only trying to relate to the bureaucrats in their own logic and language. The scope and scale of the damage and destruction is truly unfathomable. I chose to not be a participant in that and sought to build solutions at what has turned out to be fantastic personal financial costs. I’m not complaining,  I believe I’m building value and I’m only stating I feel that I’ve earned it. 

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

If Not Us, Who? If Not Now, When?

 This title is a Quote from John F. Kennedy

What right did the bureaucrats have to destroy the value of the greater oil and gas economy when they were the ones authorized and responsible to safeguard it? Starting with the oil and gas investors and working their way throughout to those in the tertiary industries that support the people in the oil & gas and service industries. No one but the bureaucrats have remained financially unscathed by the damage that’s been done. On the contrary, these bureaucrats have benefited financially throughout this period. Why has this happened, and was it done on purpose are just two of the many questions that can be legitimately asked? Particularly when the solution in the form of the Preliminary Specification has been available to them since December 2013, the overproduction issue prevalent in global markets since July 1986 and absolutely nothing has been done to even acknowledge the issue or People, Ideas & Objects solution other than blaming, excuses and the creation of viable scapegoats. There’s no one who begrudges them their fair share of any executive compensation they’ve earned, if they’ve earned it. Profitability from the real sense of the term was never a concern to them. If producers were to maintain real profitability the inherent, necessary and associated revenues of a primary industry would be provided to sustain the greater oil and gas economy. We can now see and agree that this did not happen. Real profitability was never relevant or a priority in oil and gas, it was cash flow. It is now after decades of this thinking that we find this focus has led to its inevitable conclusion. Cash flow is nothing more than the previously invested capital of a capital intensive industry being returned. There never was any incremental value being built, only the prior investors' cash being returned, and then freely diverted to what the spending machines' most recent selling point happened to be. Today it’s the move to clean energy. And just like the Keystone Cops our bureaucrats are consumed by their new passion to catch that bright shiny object.

People, Ideas & Objects have tried to hold them to account, they’ve failed to respond to their investors leaving the industry, they’ve failed to respond to the commodity markets signals not to overproduce, they never accepted any criticism and never sought to resolve their issues or conduct any change to their methods. Proving time and again they are culpable and guilty. What’s worse is that they’re in no way indicating their intent to do anything other than what has put them in the lofty financial position they’re in, and the difficulties everyone else is in. These facts do not absolve us from action today. We must recognize and enforce our obligations to fix it. We have no right to sit back and point fingers, let them take the blame and do nothing about it. If it is as I suspect that people believe covid to be the culprit for the industry difficulties, then we’ll learn soon enough the truth of that possibility. It is easy to forget the trajectory of the industry was steeply downward and although covid makes for viable scapegoats of continued bureaucratic inaction, that is all that it has achieved. I see the trajectory that we were on last year has only steepened and accelerated further during the past year. Producers' debts have become difficult to understand how they’ll improve and not become critical soon. Oil prices are high as the desire to avoid the comprehensive loss of control exhibited by North American producers in natural gas pricing has been OPEC+ governing principle during the pandemic, in my opinion. The resumption of their war on North American producers will restart soon and North American producers will have substantially less in which to deal with the situation. This may be considered a dire prediction that will never be validated. I would encourage anyone to review the history of the North American producers pricing and actions over the past forty years. It’s in fact just the same old, same old. 

Bureaucrats have well established that responsibility is not their forte’. Why are we expecting different behavior and conduct at this time? Change of the nature and scope that is prescribed by these issues is beyond the cultural tolerances of these producers. They are failed organizations and they have failed by the choices these bureaucrats have made. Choices that were made in the bureaucrats best interest. It is remarkable to me that the understanding that oil and gas commodities are price takers is still their only acceptable point of view. Producing oil or gas into large markets where all products are magically taken away to their final destination, is what I assume is the conclusion necessary to support this thinking. Price makers demand that producers use market signals of the price of the commodity to determine if the price permits profitable production, if so produce, if not shut the production in. That is what businesses in all other industries all over the world do. For bureaucrats to justify this fairy tale belief in markets they’ve constructed elaborate Rube Goldberg machines that require staff to “determine the market” based on Artificial Intelligence of the height of the shadows of floating oil tanks captured by satellite images around the world. Using this analysis to determine what the global inventories are and what these guru’s expect to see, while their prices continue to decline due to overproduction. To me this thinking is madness that has driven the entire industry and all those that depend upon it into unnecessary corporate and personal financial difficulties. Why didn’t bureaucrats listen to their investors as they walked out the door? Losing the support of your investors is the most detrimental thing that can happen to a firm. Why don’t they listen to the commodity market price and stop producing well before it hits negative $40? When was it that their Rube Goldberg machines were indicating the oil price was headed to negative $40? There is nothing that can be done to reach these people, sit them down and be rational about. Their conduct is abhorrent. 

Why haven’t these obvious and detrimental errors been corrected? They once claimed the Preliminary Specification was not viable? A reasonable conclusion, however one that is now refuted by the fact that so much devastation has been caused by their management inactions and the fact that their business model has failed. The output of one man, the Preliminary Specification is inherently fallible? Agreed, however the first and next step in our development is for our user community to expose it to that larger community and build upon it. To fill out the skeleton of what the Preliminary Specification currently is with the necessary detail. As the counter argument, I’d also point out that any “committee” or other “working group” set with the task of resolving the industries issues through a newly designed organizational structure and software configuration would have their compromised and incoherent specification available in about a century. It is the type of work such as the Preliminary Specification that can only be conducted by one individual. It requires the lonely “walk through the woods” to find the answers to the problems. Taking the necessary time to explore each and every one of those frustrating bunny trails. Research of that nature which took me over a decade to complete. A decade of seven days a week, nine hours a day with a sense of urgency that I was late and it was needed yesterday. That is the method that these types of developments are made and the only way they’re completed.

I have argued repeatedly that the risk we run in this destructive process is that the situation gets out of control and out of hand for anyone to deal with. Then, as their history dictates, officers and directors seek greener pastures elsewhere. Last week we saw the “sudden” departure of Chesapeakes CEO. Not to speculate, but why? We also see in the few first quarter reports that have been published the sunshine and rainbows accounting has returned in full force. Their profits to me are wholly illegitimate. Will people buy it this time? Will it be assumed all is in hand once again, forget about the necessary changes and leave the situation to only manifest itself again at the end of this year. Where overproduction destroys the commodity prices, OPEC+ declares a war and the remainder of that script has been seen and understood many times before. This is madness and it certainly is not business.  

This is my frustration, this is my dilemma. This is my unsolvable problem. Bureaucrats know that no one can stop them from their methods. As long as they hold the primary revenues of the industry they’ll control what goes on in the future. Which is nothing but destruction. It has become so corrupt that the only purpose is to line the pockets of those bureaucrats. Mouthing the same words in harmony with all the other producers is their security that no one will be able to rise above them. Today that message is clean energy. The questions, I believe they should be asking themselves are the following. If they resume business as usual in the financial state the producers are in, what will OPEC+ next step be? And maybe it won’t be this month or quarter, or even this year. The industry is in a terrible state and could be finished with one minor correction to the production deliverability of the cartel’s profile at any point. That wouldn’t even need the declaration of a price war. They’ve already begun this process and are 25% the way in and North American producers are behaving like they have the world by the tail. Do we truly need to wait for that day to happen? Or do we have to wait until the banks realize their exposure is too great and the capacity of the industry to repay their loans is in question? Or any other number of scenarios that the industry is not configured to withstand the slightest headwind of any kind. We have been left with a looming disaster that bureaucrats are acting out their best performance to try and deceive us with. What are we to do when that happens? Is that the point we should wait for, before we act? 

Maybe I’m too biased and bought into an effort that I’ve invested my career into fixing? Possibly, and I would be certainly willing to accept that if things didn’t appear to be spinning further out of control. I only hope these comments about me being too invested are based on a comprehensive analysis of my research and the Preliminary Specification as developed, and not on a quick and cursory review of the last one or two blog posts. I can accept that I’m wrong but the industry, or whoever, had better not be wrong in their evaluation as to what to do about this. There is more at stake here than the success or failure of People, Ideas & Objects, and as the title suggests; If not us, who? If not now, when?

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.