100% Predicted, 100% Realized

 First, for the record: in the ongoing debate across the oil & gas sector—largely a mechanical repetition of legacy talking points—there has been no substantive engagement with the issue of approximately 10 Bcf per day of Permian gas flowing into Henry Hub priced as a by-product. That volume, treated effectively as surplus, has exerted a structural influence on Henry Hub pricing. Given that Henry Hub functions as the continental benchmark, the implications are systemic. The upstream pricing distortion affects capital allocation, reserve valuation, infrastructure planning, and long-term competitiveness across North America.

Yet there has been silence. No governance reckoning. No strategic reassessment. The absence of accountability at the level of officers and directors of Permian or any producers is conspicuous.

The title of this post reflects a self-assessment of the Preliminary Specification and the body of analysis published before and after its August 2012 release. Every structural concern raised since then has been incorporated into that framework as a proposed solution. What the Preliminary Specification anticipated—organizational fragility, capital erosion, systemic underperformance—has since manifested not only as an industry crisis but as a broader challenge to service-sector viability, political and economic independence, and societal competitiveness.

Recent developments underscore the trajectory.

• Liberty Energy has signaled a strategic pivot toward powering AI infrastructure as a core future growth vector—an understandable diversification move from a leading frac operator that has endured sustained margin compression from producer capital discipline.

• Harold Hamm of Continental Resources has halted drilling in the Bakken and redirected attention toward Argentina.

• Meanwhile, majors are consolidating long-life, conventional positions in North Africa and the Middle East. TotalEnergies and ConocoPhillips have secured long-term extensions in Libya, Chevron has entered the country, and Iraq is again positioned as a strategic anchor.

The rationale presented publicly is straightforward: to prevent production decline in the 2030s, large-scale, durable conventional resources are required now. Libya and Iraq offer scale, existing infrastructure, and long reserve lives.

However, these are also firms built on shale expertise. When leading shale producers collectively pivot capital away from North America within a compressed time frame, it is reasonable to ask whether this is cyclical repositioning, a signal of structural exhaustion or leadership failure.

The hypothesis advanced in the May 2004 Preliminary Research Report was that producer profitability was largely financial and specious in nature—dependent on continuous external capital rather than internally generated. That premise has held and therefore several consequences logically follow:

• Investors eventually recognize the asymmetry and withdraw.

• Cash flow proves insufficient to sustain normal operations.

• Service providers absorb the initial contraction.

• Field capacity is cannibalized, degrading capital structures.

• Deliverability maintenance falters.

• Dividend sustainability erodes.

• Leadership exits, leaving hollowed enterprises behind.

Instead of exiting, leadership appears to be redeploying geographically—retaining authority, capital control, and governance positions while shifting exposure offshore. That choice raises additional risk considerations. Jurisdictions such as Libya and Iraq present geopolitical, regulatory, and accountability variables materially different from North America. Two years from now, today’s public positioning will be evaluated against any performance reality.

The broader picture is sobering. Over two decades, the industry was entrusted with what may have been the largest concentrated endowment of wealth in modern history—North American shale. The outcome, measured in capital efficiency, balance sheet durability, service-sector resilience, and pricing stability, reflects deep structural misallocation. In other words, absolute destruction.

The absence of financial engagement with People, Ideas & Objects has consistently identified these systemic failures is not incidental. It suggests that unaccountability is embedded in the culture and governance model itself, deliberately.

The concern now extends beyond North America. If the structural deficiencies that impaired shale capital are exported into fragile jurisdictions, the consequences will not remain contained.

This is no longer a cyclical downturn narrative. It is a governance, accountability and capital-structure failure of historic proportion.

Dividends, Buy-Backs, Or Cash Flow?

 It is difficult to understand how producers have allowed their essential service sector to deteriorate so severely. As the industry’s primary actors, they know full well that the tier-2 and tier-3 ecosystem is not peripheral—it is economically interdependent. Producer revenues are not created in a vacuum. They are made possible by a geographically dispersed, technically sophisticated service network that enables operations at continental scale. By forcing that network to absorb the entire impact of every boom-bust cycle, producers have systematically eroded its capacity, talent base, and capital structure.

Service Sector Liquidation

This follows on Liberty Energy Ltd's fourth quarter 2025 report which saw their highlights for the quarter fall within the domain of supplying energy to Artificial Intelligence installations. Liberty is the largest capacity frac operation. Chris Wright, the founder of Liberty is President Trump's Energy Secretary. Or Texas Pacific Land (TPL) partnership with Bolt Data & Energy to build large-scale data center campuses on its West Texas land, supported by a $50 million U.S. water supply rights and investment. Are these consequential?

The damage is now structural. Service-sector investors have largely concluded that re-entering the industry under the current model is economically irrational. Having financed and built the infrastructure once, only to watch its economics repeatedly destroyed by cyclical collapse, they are unwilling to recapitalize it again without credible reform and meaningful producer skin in the game. Suppliers will no longer participate in a system that systematically externalizes downside risk to them while producers capture all the upside.

The dominant producer playbook—aggressive cost compression during self-inflicted downturns—mistakes a tactical tool for a strategy. Cost discipline is necessary to root out inefficiency; it is not a substitute for an operating model. Sudden, drastic cuts to quarterly drilling programs ripple violently through the service complex, destroying equipment fleets, workforce continuity, technical capability, and regional readiness. These are not frictionless adjustments. As shale decline curves steepen and global energy demand continues to grow, a chronically weakened service sector is becoming a binding constraint on supply responsiveness. Mobilization, staffing, skills development, and operational reliability are becoming materially more difficult—and far more expensive. The long-term risk is a permanent impairment of North American supply capability.

A real solution requires institutional redesign, not another round of incremental austerity. Implementing the Preliminary Specification would be a disciplined, market-based effort to build the institutions that stabilize both producers and the service sector. Without that architecture, volatility will keep destroying productive capital.

To Dividend, or Keep The Lights On

The financial history of the past four decades reveals a deeper governance failure. When the industry quietly shifted its primary performance metric from profitability to cash flow, the consequences were entirely predictable. Capital allocation discipline collapsed. Spending—often funded by outside capital—became conflated with value creation. Earnings strength was mistaken for revenue growth, while underlying competitiveness eroded. The cash flow now being generated is simply inadequate relative to the capital intensity and risk profile of the business.

By 2015, investors had effectively closed the spigot on incremental equity funding. The implicit ATM machine was shut down. Large institutions did not sell everything; many still hold significant positions. But they made it unmistakably clear they would no longer finance structural underperformance.
Recent fourth-quarter 2025 disclosures bring the tension into sharp focus. Major institutional holders—BlackRock, Citadel, Bridgewater, and others—continue to maintain substantial oil and gas exposure, with many producers 70–80% institutionally owned. Officers and directors are under intense pressure to sustain elevated dividends and share buybacks, the classic signals of high-return, competitively advantaged businesses. Yet deteriorating operating cash generation has made those distributions increasingly dependent on working-capital liquidation. Sector-wide working capital has been in structural decline since 2015, eroding financial resilience. The growing talk of tapering buybacks and dividends is simply recognition of that reality.

The industry now faces a binary choice: continue managing financial optics, or undertake genuine structural reform by developing and implementing the Preliminary Specification. The latter path rebuilds competitiveness, restores profitability as the central metric, and stabilizes the service ecosystem on which production ultimately depends.

Every dollar of capital producers must now deploy is to rehabilitate their own performance. And is capital that, by itself, will not deliver a return to shareholders. The window for incrementalism is closing. Without fresh capital, without leadership, and without a functioning organizational model, the best days of the North American oil and gas industry may already be behind us.

A Title, a Deadline and a Date

We have been focused on developing a paper first announced on November 27, 2025. I am pleased to have been able to turn full attention to this work. The subject matter is necessary for the industry, integral to the Preliminary Specification, and fundamental to securing producer infrastructure for the future.

We are now in a position to formally announce both the title and publication date. The paper will be released on Friday, March 27, 2026, under the title:

A 21st Century Marketplace Vision for Oil & Gas:

People, Ideas & Objects 

Preliminary Specification

with

Autonomous Asynchronous Transaction Orchestration

The four-month preparation period reflects both the complexity of the problem set and the rigor required to address it credibly. This work is intended to move the discussion beyond incremental reform toward a structurally modern marketplace framework aligned with 21st-century operational, financial, and governance realities.

Billions and Trillions, Again.

 Delivering bad news runs counter to my generally optimistic outlook, so I will begin there. I have updated the natural gas losses for the 2025 calendar year. The result is an additional $364.8 billion in lost value across North America, bringing cumulative losses this century to $5.035 trillion. For ease of communication, we will round that figure to $5 trillion. That rounding is intentional and strategic. We will not round the annual loss, as doing so would imply producers lost approximately $1 billion per day, a distinction they would rather avoid. Accordingly, the precise figure—$364.8 billion—must be written down and repeated accurately. We are well aware of how sensitive producers can be about such matters.

To compound the issue, total realized natural gas revenue this century amounts to $3.56 trillion, substantially below the $8.6 billion that could have been achieved under the Preliminary Specification. The opportunity cost is neither theoretical nor abstract; it is documented and cumulative.

These losses are calculated as the differential between the realized natural gas price and the price that would, should, and could have been achieved absent systematic self-inflicted price dilution by producers. Historically, natural gas traded on a heating-value equivalency with oil: six thousand cubic feet of gas to one barrel of oil (6:1). Both commodities contain equivalent energy content, and prices reflected that reality, with modest deviations.

That pricing discipline collapsed following the entry of shale, beginning in July 2007. Since then, natural gas prices have deteriorated dramatically. In March 2024, the ratio reached an extreme of 52.4:1, and since July 2007 has averaged 19.57:1. This scale of price destruction reflects a complete absence of pricing or market strategy. That this has persisted for nineteen years—fourteen of which coincided with the availability of a clear solution in the form of the Preliminary Specification—is indefensible. The “drill and produce” business model was predicated on the assumption that it could not fail. It did.

For fourteen years, People, Ideas & Objects has endured a form of purgatory, promoting the Preliminary Specification to industry participants who demonstrate little understanding of business fundamentals. Along the way, we have documented failures that show a profound disregard for historical record and shareholder capital. The origin of the $5 trillion natural gas loss became unmistakable when I examined the LNG trade a few years ago.

Producers sell natural gas to LNG facilities and shippers at Henry Hub prices. Those prices, distorted by chronic shale overproduction, have been among the lowest in the world. LNG buyers purchase gas at Henry Hub—$1.55 per thousand cubic feet in March 2024—liquefy it, ship it at a cost of approximately $8.00, and sell it into global markets at prices that have, at times, exceeded $50. The value transfer is staggering.

Independent validation of this dynamic appears in the litigation between Shell, BP, and Repsol and Venture Global. Shell and Repsol lost to Venture Global; BP’s decision went against Venture Global. These arbitration outcomes involved multi-billion-dollar claims, with Venture Global disclosing in its most recent annual report that the Shell decision alone could represent an additional $90 billion in revenues. Identifying trillion-dollar value dislocations does not require years of analysis—sometimes it takes five minutes of clear thinking. What remains inexplicable is why producer officers and directors appear unwilling or unable to engage in the actual business of oil and gas.

For years, I have challenged producers to stop treating associated gas from the Permian as a byproduct. I have urged them to consider alternatives to selling gas at deep discounts—or even negative prices. The Permian is the second-largest shale gas producer in the United States. This is not waste gas; it is a valuable resource that is being deliberately destroyed. I have raised this issue repeatedly on this blog. The response has been silence.

Perhaps LNG buyers have paid closer attention. If so, producers may eventually discover that they misplayed their hand and will look for someone to sue in order to rehabilitate their image.

Henry Hub

This point bears repeating. Natural gas is produced in the Permian, both from gas wells and as associated gas from oil wells. Regardless of origin, it is delivered to Waha Hub, then transported via pipelines and facilities into Henry Hub, the continental point of sale for natural gas. Every price on the continent is netted back from Henry Hub.

By dumping so-called “byproduct” gas into the pricing nexus for all North American gas, Permian producers are exerting a massive downward force on prices. This practice must stop. Reinjection alone would be cheaper than the value destruction currently underway. Overproduction is unprofitable production. Oil and gas are non-renewable resources, and through convenience and institutional inertia, trillions of dollars in value are being sacrificed.

Higher gas prices would benefit producers immediately through revenues, but the larger impact lies in reserves valuation. As prices rise, reserves increase in value, and probable and possible reserves migrate into proven categories. This increases enterprise value, even if it does not appear on the balance sheet. Accounting measures performance, not value—a distinction producers continue to misunderstand.

The critical question is how much of the $5 trillion loss is directly attributable to dumping associated gas into Henry Hub. The answer is a substantial portion. That said, the loss calculations are benchmarked to realized oil prices, which themselves have been depressed by chronic oil overproduction. Oil may well have its own parallel $5 trillion reckoning, though we lack an objective counterfactual for what oil prices should have been.

Despite this, producers continue to insist they are “price takers,” not price makers, filing quarterly and annual reports with rationalizations to justify the continuation of failed policies. Even Harold Hamm felt compelled to take a swipe at this line of thinking—just before boarding a ship to Argentina.

The record, however, is unambiguous. Price takers do not destroy trillions of dollars in value. Only price makers who refuse to acknowledge their responsibility can do that.