A Permanent Loss of Accountability? Its Decision Time!

 This post should be considered an amendment to our response to an RFP of July 2021. It is also an increment to our value proposition of $660.6 billion that producers could quickly reclaim on behalf of their investors in the appropriate selection of a tier 1 ERP system. 

People, Ideas & Objects et al take a great deal of pride in the fact that throughout our history of pursuing these critical oil & gas issues. We’ve been able to identify what can only be described as the greatest issue the oil & gas industry has ever faced. We were then able to provide a comprehensive solution in the form of the Preliminary Specification, and do so a decade ago. And this was all done while taking on the best of what the industry could throw at us and without a single penny of their money. What we can all understand is that the officers and directors of the producer firms have personally benefited from the value of the industry, and no one else has benefited as a result of their efforts? Producer firms stand today with a fundamental inability to be profitable at any level of price. Profits are what drive an industry forward for all concerned. Acceptance of a boom / bust cycle is madness and just bad management. Incapable of delivering reliable and secure levels of product for consumers. The only thing producer bureaucrats, the officers and directors are capable of, is generating excuses, blaming others and viable scapegoats.

The Preliminary Specification is a decade old, what if its existence was no longer available, would there be any dividends, stock repurchases or paying off of bank debt by producers? What if the threat of having the option to use the Preliminary Specification no longer existed in oil & gas? The producer firms officers and directors may be on the verge of making what would be an ideal situation for them permanent. What they have and have always wanted is just around the corner and only People, Ideas & Objects, our user community and service provider organizations are standing in their way. Producers have cash streaming in, unaccountable organizations that could overnight and at a whim be involved in a variety of different businesses, with accounting methods that have been accepted by all concerned in the industry for decades, including the CPA firms, and a culture of fill in your own adjective here. It’s decision time as the producers are moving now to seal their legacy of unaccountability and non performance in the selection process of a tier 1 ERP system. 

One of the specific requests and requirements by the oil & gas producers investors is that they implement a tier 1 ERP system, such as Oracle Cloud ERP or SAP. The base of the Preliminary Specification is Oracle Cloud ERP and would therefore qualify for this requirement. SAP is used by a few of the oil & gas producer organizations and they are currently offering their solution as we speak. SAP’s system is designed for manufacturing companies where the ability to organize first, second, and third tier industry product production, just-in-time is attainable. Major auto manufacturers use it and SAP makes them their priority as it does any global manufacturing concern. SAP sells their product to oil & gas producers however does not have an oil & gas solution. On September 12, 2022 SAP will host 11th Annual Conference in Houston and virtually, and have published a white paper to reflect what they’re selling in oil & gas. On page 6 we see they focus on “Paving the Way for Business Model Innovations” indicating they don’t have a plan. However we read on.

• Oil, gas and energy companies pursue a bold vision for 2025 to deliver safe, reliable and sustainable energy products and services focused on the customer and enabled by innovation.
• To do this oil, gas and energy companies will implement new business models with a keen focus on sustainable energy transition. This will include investing in renewables, focusing on retail, electric vehicle (EV) charging at fueling stations, and carbon-cost reduction. 
• To manage the magnitude of data volume through production and operations, collaboration on access to, and analysis of data require intelligent technologies such as AI and machine learning. Connected machines and business processes can help realize industry 4.0 aspirations. 
• Larger oil, gas and energy companies will continue to diversify into adjacent industries such as utilities, solar and wind power, and energy storage.

SAP’s white paper shows the focus on Information Technology to solve the issues facing oil & gas. Touching on all the key talking points, yet we find no instance of the words accountable, accountability or performance. Anyone who knows about this market must stand back and marvel at the success of SAP and its marketing. This white paper and their Houston conference reflects this marketing brilliance which has been stellar and a study for some of the best examples in business. What I see SAP doing here is they’re making public the news that they’re selling unaccountability to producer officers and directors who want to maintain their chronic lack of accountability. Maintaining and permanently securing a lack of accountability in the organization through the ERP software cementing their bureaucratic manner and method of operation for the long term. I’m predicting massive sales of SAP once the September 2022 conference is over. Once SAP is implemented, producers will be defined by their officers and directors in whatever business they may happen to choose that day and built upon the framework of unaccountability that has worked so well for them personally. In terms of “what, how and why” SAP proposes to resolve the oil & gas issues and opportunities there is nothing in their white paper. On the contrary it’s heavily focused on environmentally based clean energy transitions in a “safe, reliable and sustainable” way, continuing with the unauthorized diversion of oil & gas revenues that oil & gas investors created with their investment in the oil & gas business. Profits continue to be irrelevant, therefore producers' money either comes from trees or investors. What should also be stated is that without a defined plan in place, SAP’s system will need to set out to define, design and architect the system. A process that took a decade for People, Ideas & Objects as it does for all appropriately built systems. Then the system will need to be built through the culture that exists today. 

Some might say that it will be difficult for SAP to build a solution in an environment where the Intellectual Property being commercialized by People, Ideas & Objects exists and will therefore need to be avoided. That however will be a bureaucratic feature, and not a bug. The Preliminary Specification will become the excuse that producers will state “we can’t enhance the performance accounting or accountability due to the existing IP that legally has to be avoided.” This may become the latest, and greatest viable scapegoat of all time. When I published in 2004 that organizations were defined, supported but also constrained by the ERP software they used. Producers interpreted that as the point in which no further developments of any kind would be done to any of the ERP systems they used. Cementing their organizations in the bureaucratic stasis that they are. Enabling them to secure their hold on power for a few decades longer. Not looking at the need to establish the permanent software development capability of the Preliminary Specification to ensure continued organizational development. Therefore in 2022 the prospective avoidance of People, Ideas & Objects IP will be a further extension of this same logic that precludes producers from ever attaining any level of performance or accountability expected of them. 

As pertinent background information, I began this adventure in 1991, I spent the first year promoting Oracle to join in the development of client server systems for Canadian oil & gas. This initiative failed in February 1997 as a result of my firm's inability to secure any commitment from oil & gas producers. Or in retrospect, I believe now that producers rejected the system due to the high level of accountability being introduced. Oracle subsequently tried on their own with their own product and found the same outcome, no participation from the producers for the same reasons, and left in 2000. There is an inherent level of commitment evident in Oracle's near decade long actions regarding oil & gas ERP systems that is not evident in SAP’s. A 22 page white paper and three day conference are superficial in comparison to the Preliminary Specifications 3 million word, viable business model and an active user community that began its development in 2014. Accountable ERP systems have been deliberately avoided for at least the three decades of my involvement and those who offered such products have not benefited due to their specific pursuit of enhanced producer performance, accountability and integrity.

Oracle’s market capitalization is now $206 billion and is the premier ERP provider in the world according to Gartner, SAP’s is $109 billion. I do not recall SAP’s efforts to build an oil & gas solution in the manner that Oracle or IBM have. Together Oracle and People, Ideas & Objects can build the Preliminary Specification to solve these critical issues for the oil & gas industry. And do so by first avoiding the issue of these officers and directors of the North American based producer firms and their desire to maintain their systemic lack of accountability. 

Looking at the decision to purchase and implement an ERP system. It’s expensive, it’s time consuming, it affects the management of the firm and tightens the compliance and governance of their actions. It holds the officers and directors accountable for their actions and decisions. Accounting is about the reporting of performance and as I’ve documented throughout these writings the oil & gas producer bureaucrats have morphed the purpose of their accounting to recording value as they’ve chirped in their “building balance sheets” mantra. The ERP decision is made at the board of directors level based on the officers recommendations. Due to the high cost, time and disruption that occurs in the producer firms that undertake ERP implementations, this level of the organization's involvement is mandatory to make the decision. Once the decision is made it would not even be considered again for at least seven years and only if management were dissatisfied. 

I became aware of the specific ask for a tier 1 ERP implementation by investors a few years ago and am unaware of how long it has been since it was first requested. What we do know is that unlike the move to clean energy which was implemented the night the investors allegedly asked, and in what I’ve described was an unauthorized manner, we are unaware of any producer investing in ERP systems. On the one hand moving into unrelated, uncompetitive industries, that have no record performance or value generation, no history of success and massive government involvement is done immediately. The producers, officers and directors will be able to justify these actions with the simple viable scapegoat that they’re “saving the planet,” and the reason they’re not profitable is “they haven’t figured it out yet” for their continuing poor performance. Focusing on oil & gas and enhancing its performance doesn’t intrigue them for some reason, recall they abandoned shale as “non commercial” less than 2 years ago. Alternatively enhancing the level of accountability of their actions by implementing the Preliminary Specification, our user community and their service provider organizations is obviously never going to happen if SAP meets the tier 1 ERP requirement demanded by their investors and selected by the producer officers and directors. 

I’ll emphasize the year I started this was 1991, 1992 with Oracle and both ours and their initiatives failed due to the inability of producers to get involved? Yes, that’s a question. This isn’t an issue of the investors that began in 2020 or whenever they first requested the ERP system upgrade to tier 1. This is a culture, a behavior and an infestation across the North American producer population for officers and directors to maintain their enhanced personal financial compensation. It is a necessity that producer firms implement the Preliminary Specification in order to wrest control from the hands of a small cadre of bureaucrats that have found the source of their personal wealth is through a deliberate, destructive and dangerous level of unaccountability. One that has caused enormous risk to now be realized in societies inability to source profitable energy independence from secure, reliable and affordable oil & gas and about to be permanent if they implement SAP’s ERP software. 

I would like to take a moment to speak about those ERP providers that are in the market throughout this time and the stellar efforts they’ve done. It's one thing to avoid the tier 1 ERP providers and maintain the history as I’ve briefly described here. There are a number of ERP providers that cater exclusively to oil & gas that have been in the business for many years and decades. They too have experienced the abuse of the producer bureaucrats who seek deceptive levels of accountability. To suggest these ERP providers have been put on a shoestring diet would be unfair and more appropriate to describe it as a second hand shoestring diet. Never paying for the application itself was a common tactic, only signing a service contract. Never sponsoring any changes to the systems they used. Producer bureaucrats have the systems they want providing them with the obscurity they desire, why would they change that? Ensuring that their accounting and ERP systems were always inadequate. And I say that with all due respect to my competitors who have done the impossible in the most hostile of business environments. And should they have provided the accountability necessary, they too would have been on the outside looking in.

Let me suggest a hypothesis that builds upon the situation that we have today. If oil & gas producers had the appropriate tier 1 ERP providers in place for the past decades of this history. Would the industry have fallen into the financial, operational and political crisis that we see the greater North American oil & gas economy has become today? Is it the lack of effective ERP systems, including SAP, that have reported inappropriate results of producer firms that enabled the industry to fall into the disaster and destruction that it currently is? I’ll reiterate that the lack of effective ERP systems is the deliberate and desired outcome of the producers' bureaucratic officers and directors actions over the course of these many decades. 

The questions producer officers and directors should be asking themselves. Will consumers demonstrate the same tolerance, patience and perseverance that both their oil & gas investors and People, Ideas & Objects have displayed these past years? Or will they want answers sooner and hold producers accountable for their energy demands and whatever else may be on their minds? Will they demand more than “muddle through” as an answer, and who will they turn to to heat their homes and earn their living? Having a permanent, entrenched and SAP supported, unaccountable organization is a greater concern for the consumers than the oil & gas investor. Investors could always sell their interests. I would advise these officers and directors to rethink their approach and ask themselves, just because they can continue with their unaccountable ways, does that mean they should? No one questions that the oil & gas reserves are in place as a result of the shale formations. No one questions the oil & gas producers capacity to spend investor money to increase deliverability. What’s different today is that investors aren’t volunteering for the “dupe” role anymore. And producers never were able to earn “real” profits. History may not repeat itself. Will it be a case of oil & gas everywhere, and not a drop to burn?

In writing this I fully understand the implications of doing so. Making this a self fulfilling prophecy is not what I’m intending to do. I am attempting to show the jeopardy we may realize as a result of cementing the established bureaucracy in a term that will last at least the seven years in which SAP will be current, with much longer term consequences. Who will step up after that to assert themselves if People, Ideas & Objects fails in the market, yet the IP of the Preliminary Specification will need to be accounted for in any future solution? And even if there was someone who felt they could provide a better solution, would they be leading their product forward with enhanced performance and accountability in the manner that both Oracle and People, Ideas & Objects were ostracized and vilified for today?

I also want to clarify, it should not be misunderstood that I’m conceding the point. After 31 years, that’s not even on the table. What I am stating is that the stakes for all concerned will be growing exponentially more difficult in what appears to me to be this next phase of our journey. More difficult for all those associated with People, Ideas & Objects but also for all those who are dependent upon the North American producers in some form. We are heading to what appears to me to be a “quick decision” being made by the producer bureaucrats to adopt SAP based on satisfying their “investors input.” That although it satisfies the general requirement of a tier 1 ERP system. It’s a decision that is made in the best interest of the officers and directors continued, deliberate and destructive lack of accountability and as with so much of their activities is specious. To suggest that People, Ideas & Objects may benefit from the decision made from the producer firms is an argument that doesn’t comprehend the value that’s been destroyed by this deliberate bureaucratic sloth and doesn’t understand the relationship we have with producer bureaucrats.

Recommendation

Nonetheless here is People, Ideas & Objects recommendation to North American producers. Select the Preliminary Specification as the industry standard ERP system. Bold, audacious and justified on the following basis. Today producers may feel they’re sailing on for a good run and do not have to concern themselves with the past. What is evident in their second quarter 2022 financial statements is that there are legacy damages and difficulties ahead. The greatest that I can see is the lack of trust, faith and integrity the capital marketplace holds for the producer firms. Cash flows are strong and support the lofty valuations producers feel that they may have earned through their obstinate “muddle through” strategy. However, these valuations are not being believed, and in most cases North American producers are trading at half those valuations. 

The handful of producers that are able to perform at the level of their cash flow multiples should be participating in the development of the Preliminary Specification as well. Those that are not performing will be the ones who will be desperate for revenue and putting their entire production profile on the market despite the implications to the commodity price. It might be wise to remember the negative $40 prices of April 2020 of which no one individual producer was responsible for. The Preliminary Specification recognizes the Joint Operating Committee and the integration of the partnership will enhance the collaboration and innovation throughout the property, your firm and the industry. 

The selection of the Preliminary Specification may be seen as the producers first step in reclaiming their integrity in the eyes of their investors. There would be value in doing so. As the differential in terms of the cash flow multiple vs. the market capitalization of our sample of 18 producers representing 11.562 million boe / day is $220.2 billion, therefore potentially triple the number for the North American producers. It may be that the capital market is predicting a decline in the oil & gas producer firms, or, is the fact that this is consistent across many quarters more valid? Of the more active traders in these firms markets are the producers themselves. In the first half of 2022 $13.4 billion in share buybacks were conducted. Without the share buybacks how understated are these differentials? I have been critical of these share buybacks and suggest they’d be better off as special dividends. However, this argument seems to be getting through as many of these share buybacks are now being held as treasury shares as opposed to being canceled. A far more productive method.

What if the following scenario was the case. Producer bureaucrats ceased to be subject to the whims of the commodity price swings and learned to build value everywhere and always through the implementation of the Preliminary Specification. 

• How much of that $220.2 billion for our sample of producers and $660.6 billion for the industry differential would be reclaimed by proceeding with People, Ideas & Objects et al? 
• How much larger would that differential grow if producers selected SAP? 
• If officers and directors choose SAP does that prove People, Ideas & Objects allegations of deliberate and destructive lack of performance and accountability? 
• Are these concerns of the producer officers and directors? 

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil & gas industry with the most profitable means of oil & gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects. Please join our community on Twitter @piobiz. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

I Thought This Was Just an Investor Problem? Part V

 What I find painfully obvious are the issues in oil and gas have evolved into a more dangerous and difficult period. To state there’s an overall level of unpreparedness is necessary to describe this. People, Ideas & Objects pursued these issues as persistently as we have due to the fact that businesses in the state that we felt the oil and gas industry was in and headed to, pass through three distinct phases of degradation. Each phase becomes more severe as we move through them. Financial destruction leads to difficulties that are eventually felt throughout the industry. From the investors and bankers initially, to the employees of the firms and eventually on down the line to those who are providing services in the supporting industries, whether that be companies or individuals. Oil and gas is a primary industry that can best be described as saying it’s at the top of the heap. There are not many primary industries and the privilege of obtaining primary revenues has been abused by our good friends the bureaucrats as a license to better their personal financial interests at all others’ cost. 

The extent of the financial damages are represented to be catastrophic by People, Ideas & Objects. We’ll be able to determine how far they’ve fallen when attempts are made to resurrect normalcy. The initial follow-on consequences of the financial deterioration of any industry are the subsequent loss of what an industry was once capable of doing at volume. This is only reasonable and intuitive. Producers today are not picking themselves up and leaping tall buildings. The rebuilding of capacities and capabilities that have atrophied and were deliberately destroyed through the bureaucrats “market rebalance” theory of suspending field activity for two to seven years while demand catches up to market supply. The service industry will be a necessary component of the return. The final or third phase of these financial difficulties are the impact they have on consumers. Supply constraints become the issue leading to “demand pull” inflationary pressures for consumers. Choices to either pay the difference, seek alternatives or to go without being the three consumer options. This is the issue we’re suddenly at in terms of consuming oil and gas and the one People, Ideas & Objects were working to avoid. We’ve noted these points throughout our writings and as far back as the initial Preliminary Research report (May 2004) in which we determined the Joint Operating Committee was the preferred option for the dynamic, innovative, accountable and profitable oil and gas producer and industry. These were ignored and only raised the ire of the bureaucrats as it was a serious challenge to their well established franchise of self aggrandizement. 

It is the most powerful economy that uses the most energy. Each barrel of oil provides 23,200 man hours of labor. Unquestionably the consumer's best deal of the millennium. I have stated these points repeatedly, only to have been ignored. When I said profitability in oil and gas was an issue I was laughed at and told that cash flow was the point of the exercise. When I asserted that oil and gas commodities were price makers instead of the price takers they were assumed to be by the industry, I was ignored. The warnings and concerns that I’ve expressed here are documented throughout the time of my writings. They are consistent and focused on the one issue that has now become what I believe to be a life and death issue that will be unresolved in the short term. Bureaucrats will laugh and ignore it, but there were at least 11 people who died as a result of the Texas snow storm last year. The economic consequences of that event were felt far and wide. We’re no longer talking about one snowstorm in one state. Nor are we talking about just snowstorms. 

We therefore need to ask ourselves why did this happen? I’ve always directed my anger and frustration at those who are solely responsible and accountable to ensure this didn't happen. The officers and directors of the producers themselves, or as we call them bureaucrats. They saw their role was to fill their pockets with what can only be described as innovative and excessive executive compensation. As I’ve documented throughout these writings they’ve betrayed their shareholders by lying to them about their activities and performance over the past forty years. Something I’ve detailed in terms of what and how they did so throughout these writings. Yet they ignored it. I’m not raising these points to say I told you so, I’m raising them to show that these bureaucrats were well aware that what they were doing was causing serious problems and difficulties. Which would eventually lead to their current financial damage, industry wide destruction and follow on consequences to consumers. Creating an impact far in excess of most businesses. They didn’t care and today continue not to. They’ve discovered the nirvana that they always sought in their dealings. A place where accountability and performance could never be questioned. Where their lifestyle would be sustained by oil and gas revenues while they failed consistently in their clean energy “efforts” of an unknown nature. Undeterred they would continue to work as hard as they could to “save the planet.” Claiming, as they have stated so many times before, they’re responding to the demands of their shareholders. This time for their investors' concerns for the environment. By doubling down on the myth and lying they do everything for shareholders. Yet they’ve failed to respond to their investors' 2015 protest and strike to correct for their lack of profitability and accountability. In the past few years there has been an explicit demand from investors for producers to upgrade their ERP systems to tier 1 providers, such as Oracle Cloud ERP, the base of the Preliminary Specification. I’ve chronicled their self interest and behavior in this blog since December 2005 and now we’re supposed to believe that this altruistic environmental approach is their motivation?

That we would call this anything but a tragic failure is unacceptable. There has been no discussion regarding any plans or strategies for the future. There are no concerns or consideration about their past lack of accountability, profitability or their investors' lack of support, investors who left in protest of bureaucrats' actions up to six years ago! Silence is not acceptable, yet that is all we’ve ever received under their “muddle along” method of operation. The most convenient corporate strategy to cover for an irresponsible and uncaring executive. We have a leadership that believes their future lies elsewhere and has now summarily given up on oil and gas without the least bit of effort to affect any remedy. When a remedy has been available for at least eight years, the remedy they actively ignored, abused and laughed at. Consumers are now faced with the financial costs of these past inactions and an unknown future. Complicated by a continued non response, lack of concern, caring or action. Most importantly, a time in which consumers are exposed to serious risks associated with their standard of living and quality of life due to a lack of energy and / or its high cost. How did we get here? I can’t scream any louder or swing any harder at these bureaucrats.     

What is it that we can reasonably expect to happen as a result of their continued administration? Maybe a better way to ask this question is the following. How stupid do they think we are? Now that they’ve settled into their optimal strategy of clean energy will they move back to oil and gas? We’ve seen no evidence of that and I would question the validity of their claims and opportunism if they tried. What is the financial state of affairs in oil and gas? Are they financially endowed now that prices are higher? Or are they, as People, Ideas & Objects claim, heavily indebted, financially non performant with culturally incapable organizations that move at the speed of dried cement? Many people have moved on from oil & gas, but also the service industry. Will they be convinced to return with the potential of as much as one months pay? Will the oil and gas faculties in the universities fill up based on these latest commodity price changes? Only in four years to dump their graduates into a potentially empty, vast unemployment situation? Damaging the university's reputation further? Will investors in the service industry who saw their past investments cut up for scrap metal reinvest on the basis of a newly printed purchase order? The reputation of these bureaucrats precedes them. They’ve used these and other tricks a few times before and the consequences were realized by those who believed them. In other words that was us, and would be again if we expect any reasonable change from past behaviours. 

It’s important to point out. They’ve been laughing at my arguments on this blog since 2005. They chose to do nothing about their business until it degraded to this level. Their decision to deal with it was to declare it untenable and to pursue clean energy. Are we all now going to jump up because the inevitable supply constraints have caused prices to jump and start the party with these bureaucrats all over again? Being in an abusive relationship is something that puzzles people who see the victim repeatedly return to the bully. Case in point. 

I see my job as finding the way out of these difficulties, providing an alternative and to offer a choice. I think we’re headed into very difficult times as a result of the manifestation of these problems and something needs to be done. We have always been prepared to rebuild the industry brick by brick, and stick by stick. A phrase I first stated in this blog on October 17, 2008. What I see now is my analogy of the log rolling down the hill is well advanced. Things are happening at a tremendous speed and we are seeing bureaucrats sticking to their green energy plans as a means to avoid responsibility and accountability. No vision, no plan and no strategy for oil and gas. When people see a house on fire they’ll stand around and watch it burn. No one runs into burning buildings but well trained Firemen and no one steps out into rolling logs deliberately. People, Ideas & Objects spent over thirty years working to avoid this and have failed to build the fire houses and hire the Firemen. North American oil and gas is now a tragedy, in my opinion, no one would be surprised at that. I have a greater sense of urgency to begin the rebuilding of the industry, I trust that is shared.

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

I Thought This Was Just an Investor Problem? Part IV

 It was not that long ago when oil and gas producers went out of their way to abandon dirty oil and gas to commit to the development of clean energy. Doing so with oil and gas revenues in hand would not have been too great of a challenge for them, or anyone. However, People, Ideas & Objects et al and there are a few others, are working hard to make sure that they’re held accountable and responsible for this and other past decisions. Whereas they’ll be expected to continue to move on with their clean energy initiatives and develop their ideas with their own skills and knowledge but also their own sources of financing. We see today the development of new market expectations that this is done in the form of making clean energy reliable. The dependence on unreliable sources of energy while we enter the cold seasons in the Northern Hemisphere is an issue that is making governments in Europe and China revisit their misguided ways. I might be jumping the gun by suggesting to these governments that they’ve got some help on the way and to wish both these former oil and gas bureaucrats and governments good luck in their policies and challenges. Meanwhile People, Ideas & Objects have been able to resolve the oil and gas issues our good friends have nudged us into. Oil and gas will always carry the freight in terms of reliable energy for as long as this century keeps ticking along. To abandon it as they did is only the most recent example of irresponsibility and unaccountability. The most recent example of what they’ve been able to get away with for many decades now. Here’s a suggestion that might make their careers in clean energy easier in the long run. Listen to your investors. 

There are three issues that face the North American consumers as a result of the status of the oil and gas industry. Our competition outside of the continent knows we are wholly dependent on energy and this is a foundational reason we’re able to maintain our dominant economic position. These oil and gas producer bureaucrats' betrayal has provided our foreign competitors with the leverage they need to extract value from us. Therefore we’re unable to fully control our future in the manner that we would have if we had been able to achieve profitable energy independence, the objective of the Preliminary Specification. We do have an abundant amount of oil and gas reserves to meet our needs for the remainder of this century. They are however proven to be useless as they’re unable to be produced profitably. This may therefore be a short to mid term issue and something we can remedy, and our foreign competitors may understand that it’s in their best interest to be wise and considerate. The metaphor of a log sent rolling down the hill by the bureaucrats four decades ago is apt in our current environment. What could have been easily resolved then is impossible today. To stop the log rolling down is extremely difficult and dangerous at its current speed. To begin rolling it back up the hill would be strenuous and time consuming. And then what would we have, a reasonable facsimile of what we have today. There comes a time to start over and forget about the old and do things differently, such as what has been proposed in the Preliminary Specification. A proposal that will mitigate the three issues of time, effort and money consumed in otherwise recreating a broken wheel. 

The difficult question of time in coming up with an alternative becomes costly as the alternatives viability needs to be proven. Ideas are plentiful but will they work? That’s the hard part and the time consuming aspect of the changes we need to make. Using the Joint Operating Committee was a good idea in 2003 and no one knew if it would work. If we were to adopt it how would industry and the producers need to operate and would that be worthwhile? Would it make economic sense and be profitable? Difficult questions such as these need to be answered and that took me ten years to figure out. That research is provided in this blog and the product of that research is the ERP software defined in the Preliminary Specification. That it’s as viable and valuable as it was when it was published in December 2013 shows that it’s the right solution. That it’s the only idea that has completed the comprehensive research necessary to become viable is the situation we’re in today. Alternative solutions are not available as nothing else survived which threatened the bureaucrats' existence as we disintermediated them. Maybe we have ten years in which we could evaluate other ideas but that’s not my decision. With the time based costs being incurred throughout, it's time to stop this damage and destruction. Remember it's a boom / bust cycle. These cycles have become shorter during their peak and longer at their valley. Their volatility is more extreme as a result of the reckless irresponsibility of the bureaucrats' management these past four decades. 

The effort needed to build the Preliminary Specification is substantial and sets in place a new cost paradigm. One that suggests that it’s no longer enough to own the oil and gas asset. You’ll also have to have access to the software that makes the oil and gas asset profitable. The nature of the complex environment we operate in where change is happening faster and our capacity to deal with it needs to be inherent within the organizations and industry structures. Information Technology is a way of life and is the means to the efficient and effective development of the dynamic, innovative, accountable and profitable oil and gas producers from this point forward. Profitability is the missing ingredient that has caused this disaster, crisis and destruction that we’ve all witnessed in the industry. We’ve all seen what it’s like without it, now we know why it is an important ingredient and why we must build profitability into everything that we’re doing. 

And that ERP software that makes oil and gas profitable everywhere and always in North America is the Preliminary Specification with our user community and their service provider organizations. I can tell you that I am personally satisfied with the budget that I’ve defined to build the Preliminary Specification. Satisfied both personally and professionally. The process that it has gone through in the past five to six years has been one in which the focus was to reduce the time required to deliver the software to market. We’re not committing to a timetable as we do not have the money to go through that costly process. We have estimated that the time commitment equals approximately five thousand man years of effort. However the principle is that the more we spend the less time we’ll take building the solution. I therefore approached where it was that we could cut substantial amounts of time out of the deliverables time frame. The most concrete example is our move to refocus People, Ideas & Objects as a user community, research and Intellectual Property firm as our three competitive advantages. Removing the software development aspect of our organization and contracting it to Oracle reduces our time to market substantially. We no longer have to spend the half to full decade necessary building the requisite capabilities necessary to have a high performance development team, purpose built to meet these needs. This change is costly to do, however the time of delivery is reduced substantially, our quality goes up, we in turn can focus on the key aspects of the oil and gas attributes through our user community and the delivery of their tacit knowledge through their service provider organizations. Developing real value for the oil and gas producers and consumers.

Our budget is also based on the value that we generate. There is substantial value in the Preliminary Specification and that makes it an investment from the point of view of industry. That principle is the means in which I’ve used to support the price of our product. I believe in profits earned as long as they are based on the value generated. This can be determined through a comprehensive review of the Preliminary Specification. We are building the solution with this budget which covers the cost of People, Ideas & Objects, our user community and developer’s. There will be additional annual costs for the capacity and capabilities necessary to support the costs of a permanent ERP software development capability and capacity. Our user communities service provider organizations are independent of us and are licensed users of our software. They are independent businesses responsible for the administration and accounting capabilities and capacities that we’ve discussed throughout. They are a replacement to the existing administrative and accounting resources of the producers. We are looking to them to handle the implementation of our ERP system both on an initial roll out and subsequent updates. Their business models are the result of the decisions they’ll make internally. None of their costs are involved in our budget. 

The value we generate is therefore as follows. The Preliminary Specifications business models ensure that “real” profitable production is provided throughout the North American market and at all times. In addition the reorganization of the industry and producer firms are structured around a capacity and capability to continually exploit specialization and the division of labor providing two additional key values. First, the throughput capacity of the industry will be enhanced continually by using fewer resources. These increases in output from specialization and the division of labor are the only principles of enhanced organization that have built any value over the past 245 years since Adam Smith developed them. It is also through these principles that we’re able to institute the shared and shareable approach to building the industry based, variable overhead cost, administrative and accounting, capabilities and capacities. This will eliminate the redundant duplication of identical, non competitive capacities and capabilities in overhead being incurred in each and every producer. Another attribute of how we build value is the establishment of Intellectual Property as a principle organizational structure within the Preliminary Specification. This will reduce the wasteful and costly method of disorganized duplication of making the same mistakes over and over within each producer and within each fiscal year. More can be read in the Preliminary Specification about these and they are just a few of the means in which value is attained for the dynamic, innovative, accountable and profitable oil and gas producers. There are others attributes for those in the service and tertiary industries that are critical supports to a successful, profitable industry. It is only in these ways that the consumer will know that they have an abundance of reliable, affordable energy. Where their value is gained through its consumption which generates for them 23,200 man hours of mechanical leverage per barrel. That their choices of what energy source to use is theirs and will consider all that they need in order to make the appropriate decisions based on those needs. This is how problems are solved. We’re seeing how governments, like oil and gas bureaucrats, are unable to even identify the correct issues within the appropriate decade. 

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

I Thought This Was Just an Investor Problem? Part III

 Consumers throughout the world are learning the distinct advantages of the business principles used in North American oil and gas. “Muddle along,” boom / bust cycles and “market rebalancing” are all done with the bureaucrats, our name for the producers officers and directors, wallets in mind. When markets are ignored as they’ve been in the pricing of oil and gas commodities, the cycle's extremes become more dramatic with each iteration of the cycle. One year we may see negative $40 oil and the next $40 natural gas. This of course is how you operate an oil and gas concern. Real profitability has never been earned at any point in the industry at any of the North American producer firms in the past four decades. Is profitability the symptom or the cause of these commodity price fluctuations? A profitable, healthy oil and gas and service industry are of great benefit to the oil and gas consumer. With our Preliminary Specification the only cost inflation that would be seen by consumers would be the incremental costs of retrieving the additional reserves. Shale being comprehensively more difficult and costly than what was done in the 1940’s, etc. And this trend will never stop. There would be an abundance and availability of viable resources available to the consumers at the lowest possible cost, including an element of profit. These profits enable dynamic, innovative, accountable and profitable oil and gas producers. A healthy and profitable oil & gas and service industry are the only way that these are going to come about. People, Ideas & Objects hypothesis of why there is a current lack of profitability is as follows. 

The history of this issue begins with the late 1970’s SEC instituting an accounting method for the recognition of assets in oil and gas. Known as Full Cost it became the regulation for all listed producers on U.S. exchanges. Enabling the producer to claim as the outer limit of what their asset costs on their balance sheet would not exceed the present value of their reserves at the day's current commodity prices. Note the key words here of cost on the balance sheet, not value, accounting is not about valuing the company it’s about assessing performance. Over the course of the 1980’s this rule was quickly misinterpreted by the oil and gas bureaucrats to mean cash flow was the important factor of evaluation, you could include all the costs incurred by the firm as assets and they proceeded to devise ways in which to do so. Soon overhead, interest and all manner of costs were capitalized without any consideration of the impact on performance or follow on consequences. The issue is a result of the bureaucrats misinterpretation of the rule, not the rule itself. It would be the most competitive and performant producer that would seek to reduce their account of property, plant and equipment to $0.00 as quickly as possible. The real consequence of what happened is well known and understood in the business community and has been repeatedly documented as a known issue in accounting as the following. 

This description of fact was well understood by bureaucrats in oil and gas, yet they chose to do nothing for over four decades. Over capitalization of the firm's asset value leads to an equal amount of overreported profitability. If none of the costs of the firm are incurred in the current quarter, but deferred for several decades later through depletion, profitability in the current quarter will be substantially higher. However, that profitability is not representative of the performance of the firm. When companies over-report their profitability then investors overinvest into the sector in anticipation of earning higher profits. Overinvestment leads to overproduction of whatever products a firm produces, and the pricing of the commodities in the producer's case will collapse. These commodity prices collapse as a result of oil and gas as commodities following the principles of price makers, not price takers which is the assumption of the bureaucrats operating in the industry. When prices are so low as to invoke losses under the Full Cost method then bureaucrats invoke the “market rebalancing” principle of capital discipline which reduces capital investment, causing the industries productive capacity and service industry capabilities to deliberately atrophy over a two to seven year period to where the market supply and demand “rebalance.” I stated the following analysis of pricing in the oil and gas industry in our White Paper “Profitable North American Energy Independence - Through the Commercialization of Shale” on July 4, 2019. 

What People, Ideas & Objects provide in our Preliminary Specification, if we could assume the accuracy of this graphs numbers, is the point at which the property would be shut-in would be at the breakeven point and below. The reason for this being the production discipline gained through knowing that producing any property unprofitably only dilutes the producers corporate profits. Producing below the breakeven point is the point where unprofitability begins. Producing below the breakeven point for one producer, in an industry who’s commodities are price makers, will have the effect where the price of the commodities will be dropped below the breakeven price for all producers. When all producers continue to produce below the breakeven price for four decades you have an exhaustion of the value from the industry on an annual and wholesale basis. Times were only “good” when investors were willing.

I may not have explained myself clearly to the CFO’s in the producer firms. The difference between the graphs well breakeven and shut-in prices are what’s called the contribution margin. In these cases the contribution margin is determined by taking the total cost of the well and dividing it by the producible reserves that are allocated to it. If the well cost of $5 million dollars exposed 200,000 barrels the contribution margin would be $25 of capital costs were incurred for each barrel of oil found. Therefore the only profitable operation will be beyond the well breakeven price and that is why it has to be the point in which the well would be shut-in when prices drop below it. It had become unprofitable on a performance basis and was unable to return all of its costs. The assumption that the full 200,000 barrels would be retrieved in a period of time that satisfied the capital markets is incorrect. For these purposes let's assume the wells lifetime was 20 years. A return of capital over the course of 20 years is inconsistent with the story that has been told by producers in the past decades, inconsistent within any recent commodity pricing environment and wholly inadequate by capital market standards to have the return of just the capital investment in that time frame. Shale demands heavy rework costs in order to maintain production and to capture those reserves. The $5 million is just the starting number, there will be more costs incurred as soon as two years from the commencement of production. A more accurate, actual, factual accounting of the wells performance is part of the Preliminary Specification. Today, producers quote “recycle costs,” which are the results of engineering “what if” scenarios based on current service industry quotes. These lead to their allegations that they can be profitable at $50, and when the price drops below that, $40 until the price drops below that and they become profitable at $35. This miracle is either “recycle costs” based on abused service industry provider quotes. Or some otherwise unknown development in historical cost accounting. 

“Pay no mind to those accountants over there; they don’t understand the engineering and geological brilliance of the work that we do. They’re paper pushers and we build stuff.” Allocating costs over the reserve life may have been a reasonable assumption in the 1950’s however in the capital markets of today where money demands actual returns far in excess of these in a much short period of time, these are not the points that will sell the investors to return. Note: I did not raise the integrity, trust, faith and goodwill that the bureaucrats destroyed with their investors and bankers as an issue that would preclude them from participating. The financial facts can be remedied and other issues as to the fact that people have been lied to and cheated can’t be. That’s why I didn’t discuss the fundamental lack of integrity, trust, faith and goodwill that bureaucrats acquired during my discussion in this post. But then somehow I just did! Of course officers and directors of the producer firms all know these business principles discussed here. Whether that is price maker, breakeven or performance. They chose to do nothing but ignore these and to concern themselves with their new business principles of “putting cash in the ground,” “building balance sheets,” “rebalance markets,” “capital discipline” and “we’re profitable.” I study / read Winston Churchill and have another one of his quotes, this one from his first book on WWII entitled The Gathering Storm, “Nothing was wasted that could contribute to the process of waste.” This should be put on the desk of each and every bureaucrat. For clear identification purposes that is. 

I can’t imagine anyone arguing that these bureaucrats should be kept in power for a couple of more cycles of this rollercoaster. The issue should be clear in 2021 as it was for Qatar's oil minister in that Calgary Herald, July 26, 1986 article entitled “OPEC Minister Can See Economic Destruction.” (Paywall.) And the Preliminary Specifications publication in December 2013. Removing officers and directors is a difficult question. How should it be done and by whom? I’d sure do it, but if I could it would have been done long ago. Proxy wars during annual general meetings are for losers. Besides, the majority of those meetings will be held in May 2022 and that is after the winter months and two months into spring. I think we can bring consumers into our happy little party of highly motivated investors, bankers, service industry, oil and gas employees and those in the tertiary industries that benefit from oil and gas. To have the industry operated on the basis of a more reasonable approach. One that expands the thinking beyond what it is today. The solution is in hand in the form of the Preliminary Specification. How we implement this so that we all don’t freeze in the dark or pay everything we have to these bureaucrats this winter is unknown at this time and beyond my capabilities. I’m not suggesting that I can solve it this winter, it will take a while for us to do our work, and an unknown amount of time until we can begin the process and have a better understanding. My comment only suggests that we shouldn’t let those responsible benefit from the destruction we know they chose to cause.

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

I Thought This Was Just an Investor Problem? Part II

 The number of companies that have made the decision to permanently work from home appears to be increasing, at least in the Calgary market. As a proponent of this method of organization I support the trend and find that the best of this change has not yet been experienced. During lockdown and fear mongering by dictators people haven’t been able to get out as they would normally. And once living as free individuals again they’ll begin to find that working from home has many attributes and advantages above those already experienced. The many key features of the method realized today include the ability to control your day’s effort from both a professional and personal standpoint. Higher productivity from the employers point of view. Reduction in the travel time to and from work, but also to meetings and a possibly temporary reduction in business travel. These are just a few of the highlights with the constraint of a 9 to 5 office being somewhat of an archaic idea that is seemingly limited in its purpose. Companies can experience reduced costs and an expanded number of working hours per day. Covering off all the time zones of the North American continent as the time in which they’re operational. Accepting that some people are morning people and I am not.

This is an opportunity that is embraced in the Preliminary Specification and was considered prior to the virus induced trend. Our solution provides a means in which producers are profitable everywhere and always. It also resolved the reason that producers consume cash in the horrific manner they have in the past four decades. Looking at the overhead costs incurred by the industry we see in the financial statements of our sample of producers have incurred 3.59% of revenue as of the second quarter. These are immaterial amounts and no one would be concerned about those. However they’re also not the amount of overhead that is incurred by the producer firms. People, Ideas & Objects suggest that on average 85% of the overhead in the industry is capitalized to property, plant and equipment. We’ve requested on many occasions that producers could educate us on what these amounts are, and what they consist of, however none of them have taken us up on our free audit offer. Of course we don’t want to belittle a cost of only 3.59%. I can only go on my personal experience in the industry which is what defines the 85%. What’s included in those accounts are what we believe to be material amounts of executive compensation above and beyond what may be known. But that is just a suspicion based on that same personal experience gained in decades of employment in the industry. Remember boom times are good times. Perks, once established… 

Overhead costs are recurring monthly expenses that are recaptured in the prices of the products and services a company sells. However, when a producer sells oil or gas, their defined purpose is to “build balance sheets” and “put cash in the ground.” This overhead treatment of capitalizing large portions of overhead ensures they’re meeting their defined purpose. However leaves them short of material amounts of cash that were incurred in paying the overhead costs of the firm each month. When investors were compensating for the entire year's capital budget, these overhead costs were included there and as a result were covered in their majority. And now they have to be sourced by “new” sources of money each month as they’re not included in the price of the commodity other than the sliver of depletion recognized each year. The disappearing cash issue is there is no cash float in the oil and gas producer where the majority (85%) of the overhead costs are replenished through the sale of oil or gas. Cash and working capital have diminished into a critical issue in the industry as a result of these “3.59%” overhead costs. This material and constant drain on cash has been rectified in the Preliminary Specification in a variety of ways. 

First we eliminate the overhead allowances that are used to charge the Joint Operating Committees for the approximate costs of the overhead incurred. The issue that People, Ideas & Objects have with these is they’re not adequate for the purposes of dealing with the costs of overhead in the industry. Secondly the monthly and annual value of all the overhead allowance charges incurred within the industry total nothing. Zero may also not be an accurate representation of the overhead costs in the industry. Swapping charges in the Joint Operating Committee are not representative of the true cost and avoid the reality of recording actual overhead to the property during the month in order to determine the Joint Operating Committees actual performance and spontaneous, summary and universal declarations of profitability. Other than during periods of negative $40 oil prices. The Preliminary Specification, through our decentralized production models price maker strategy, reallocates the administrative and accounting resources of the producers into the service providers that are owned and operated by our user community members. These are the individual firms that are handling the individual process of accounting and administration on behalf of the industry. They’ll charge a fee for their services directly to the Joint Operating Committee. Therefore each property will now be evaluated on the basis of its actual, factual costs and if it remains profitable it will remain producing. Returning the cash of all of these overhead costs back to the producers in what is considered a cash float. If it is shut-in due to its inability to produce profitably then no information will flow to the service providers, no services will be provided and no billing will be rendered to the Joint Operating Committee. Therefore the property would incur a null operation, no profit, but also no loss. Our decentralized production model changes the makeup of the industries overhead costs from the fixed cost, producer based accounting and administrative capacity and capability. To become industry based, variable cost, accounting and administrative capacity and capability. Variable based on production where production is only produced if it's profitable. This is only one aspect of the many changes we make in the Preliminary Specification. We need to tack back to the point of the post now.

The topic at hand is working from home in combination with these complications from the producer's overhead issues. The ability of the Preliminary Specification to convert the Joint Operating Committees overhead to the actual, factual costs that are incurred by the individual service providers. And do so on a variable basis depending on profitable production that includes the actual overhead costs. The reallocation of the administrative and accounting resources of the producers into the service providers can be done in combination with the permanent shift to the work from home of these resources. That assumes the service providers choose to work from home with their staff. That would be their decisions as to how they operate their business; however, accessing the talent pool that they need may require them to have access to a geographically diverse resource base in order to provide their most competitive offering. 

The competitive advantages that are being brought forward through the development of the Preliminary Specification and formation of the service providers are substantial. Turning overhead costs from fixed to variable nature is necessary but another key point may be missed in the transition. And that point is the secondary reason profitability is an issue in oil and gas. That is the desire of each bureaucracy to build their necessary infrastructure of administrative and accounting capabilities and capacities, which are substantial in oil and gas, into each of the oil and gas producers. None of these costs are shared or shareable in their current configuration, or form part of the producers distinct competitive advantages. Each of the producers are incurring 100% of these costs individually. These costs are not in any way different than the hundreds of other producers in the industry. People, Ideas & Objects et al standardization and building of an industry wide administrative and accounting capability and capacity eliminate the redundancies of each producer attempting to replicate these same costly non-competitive attributes within each firm. If overhead was 3.59% it would be a waste of time. With the diminishing cash and working capital consumed by the capitalized overhead it becomes a necessity. The extent of these two changes of making overhead costs variable, and an industry based shared and shareable capacity and capability are dramatic. We have discussed the development of industry based capabilities on many aspects of the producer firm to include our ERP systems, which include Oracle Cloud ERP. Oracle now has a 90 day release period that demands executive attention. These system changes have to be accommodated in the organization and need executive focus on how they’ll do so. Attributes such as these, when using an industry based capability as contemplated here, can disperse the workload across the industry on a shared and shareable basis. Implementing the solution within the service provider organizations. 

Additional competitive advantages of the service providers include and are not limited to the following. Quality, specialization, the division of labor, automation, innovation, leadership, integration, issue identification and resolution, creativity, research, ideas, design, planning, thinking, negotiating, collaboration, compromise, financing, reasoning, judgement. There is a strong division of labor between People, Ideas & Objects delivery of the software and the service providers as well. The Preliminary Specification captures the explicit knowledge within the software and the service providers use their tacit knowledge in deployment of their service in combination with our software. When CFO’s in oil and gas have had difficulty over the course of the past four decades in determining where their cash has been going. Hence the demand for repeated stock issuances. You can only imagine the difficulties that I’ve had in trying to market this kind of logic. Discussing fixed vs variable, shared and shareable, cash float by recovering overhead costs, corporate vs the Joint Operating Committee did nothing to help them “build balance sheets” or “put cash in the ground.” Or maybe, it was the director's choice not only to ignore the opportunities to adopt our initiatives, but to also mismanage their cash these past decades? Keeping their ERP systems providers on the starvation diets makes for ready excuses. After all, what is it they’ve been telling us?

The point of this series is to show why this is not just an investor problem. That it has now manifested itself into the financial destruction of the producers. Which has taken the service industry and comprehensively destroyed it. Where the capacity and capabilities of both oil & gas and the service industries are unable to meet the needs of consumers. To hire back the people with the promise of healthy compensation is met with the reasonable question, for how long? Investors in the service industry are far more jaded than the oil and gas investor. Having watched their equipment being cut up into scrap metal for cash. Natural gas is currently selling for $40 in Europe (as of Tuesday October 5, 2021), homestead of windmills where the wind never blows. Which is not all that high considering Russia has now increased its price guidance to $295 to $330 (Approximately $8.80 to $7.73 /mcf)for the winter months. It was also 9 degrees in Helsinki and 21 degrees celsius in Rome on that day. This is the road that these producers directors chose to take their firms when they decided that all of their previous decisions, made in Keystone Kops fashion, didn’t reveal the riches they promised. I can categorize the discussions I’ve had with directors over the course of the past twenty years into two different types. Paraphrasing in both instances of course. The first would be “what’s that.” Meaning what are ERP systems. The second would be “I’m not talking to the management about this, they’re doing such a great job that this would not be worth their time discussing.” As a consumer of oil and gas, and if you’ve been reading this blog for any period of time, this is the unfortunate but absolute 100% and easily determined outcome of such bureaucratic… fix your own adjective here. Officers and directors of oil and gas producers are wholly responsible for this. People, Ideas & Objects have proven the cause of this began as far back as that Calgary Herald article from July 26, 1986 “OPEC Minister Can See Economic Destruction” which eerily sounded like the difficulties over the past thirty five years and predicted today’s outcome. People, Ideas & Objects solution to this was published in the form of the Preliminary Specification in December 2013. How many more second chances should they get?

No one outside of these officers and directors received any of the financial benefits from any of the prior periods activities. Nothing has or ever will change as we’ve documented that the shareholders representatives, or directors as they call themselves, will never consider alternatives. If you think they didn’t have enough time to consider their options then please scroll down to the time I began writing about these issues. What makes anyone believe now that prices are headed to a period of unconstrained panic driven premiums will we now see any of the proceeds from these producer bureaucrats. The last thing that we will ever see happen is the investors move back into the oil and gas and service industries while these officers and directors occupy their current positions. They left in 2015 and bureaucrats' proven and absolute behavior will stand as it has for the past number of decades. To have a dynamic, innovative, accountable and profitable oil and gas industry requires these people to be purged with extreme prejudice, the investors will then return with new officers and directors in new producers to begin the development of the Preliminary Specification et al. Besides, current management can move on to their chosen direction in clean energy. Let them feel the burn as a startup clean energy company without the revenues from oil and gas making them complacent and idly biding their time. Motivate them to do the hard work while the heat is on to get it done before they run out of their personal money. Only through that risk will clean energy issues be resolved. 

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

I Thought This Was Just an Investor Problem? Part I

 The case for producers pursuing clean energy was unauthorized from the point of view that it’s not what their shareholders invested in. Approval for the diverting oil and gas revenues to other businesses was not sought or approved in any of the firms that I’ve noticed. These diversions appear to me to be designed to avoid looking at what it is they’ve been doing these past decades. The renouncement of their ability to commercially produce shale was the precursor to their shift to clean energy. The effect of these decisions have now potentially been realized in looming shortages of oil and gas this winter. Subjecting us to the whim of our offshore competitors and freezing in the dark. Who were these producer bureaucrats to have made these decisions to cut off our use of oil and gas by replacing it with unavailable and unattainable clean energy for what they deemed to be better for the planet? Did we ask for this? Was that their role and responsibility? Why are we not making these decisions for ourselves? It is these bureaucrats who I’ve been arguing destroyed the financial and operational structure of the industry for their own personal financial gain. It is they who used their power to enrich themselves at the expense of everyone else. It was they who had the opportunity to choose otherwise with the building and implementation of the Preliminary Specification as the solution and they chose not to. It’s not that I haven’t been providing them with a full understanding of what the fallout of a lack of profitability would be, as it seemed they needed to be told. It was their use of power that made the decision to move to clean energy in an unauthorized manner. And it is that power in their hands that we reap the consequences of these looming energy shortages and high energy prices. I look forward to what it is they have in store for us next. Who’s to say that next they won’t see an opening to actively compete with WalMart and Amazon? From the point of view of their responsibility to have produced profitable oil and gas everywhere and always, their shift to clean energy was just as irresponsible as an unapproved movement into retail would have been. 

With repeated and express requests from their shareholders to address their profitability, accountability and ERP systems. Producers repeatedly chose to pass. We documented the total lack of concern or desire on their behalf when on August 31, 2021 the board of directors of these producers refused to consider the necessary investment in the Preliminary Specification. An investment from the point of view that the value proposition realized would more than offset the cost. Choosing to stay with ERP systems from providers they’ve driven into the ground through a lack of financial resources. Producers efforts in maintaining their hold on power being secured through their ERP providers being kept alive on life support. They can now invest in clean energy and no one would know the details, performance or outcome of what was occurring other than the absolute failure they were experiencing. Undaunted in their quest, they would continue in their heroic effort to “save the planet” which is none other than their currently developed, innovative, business principle. We’ve seen that investors have always been the driving force of action in the industry. I have difficulty in qualifying these and can’t determine if they're an excuse, blaming or viable scapegoat, for the justification of all forms of various initiatives in the past decades. Investors demanded that Encana split into an oil firm and a gas firm. Investors demanded oil and gas producers no longer produce oil and gas. Investors demanded producers focus on clean energy. Indicating that the bureaucrats are mere serfs of their betters. Yet we’ve never seen any action in the primary role of the corporation to deal with the two driving issues that have led to their financial destruction. Profitability and accountability deficiencies have driven investors' participation to be withheld for the past seven years. Maybe there’s a long list of investor demands the bureaucrats are doing their best to get to. Or… 

Clean energy was necessary as shale was declared non commercial. Just as conventional oil and gas was declared non commercial and led to shale. Which was after the frenzy in heavy oil, which followed Steam Assisted Gravity Drainage (SAGD) which followed any other fly by night trend that struck the bureaucrats fancy. Never accepting that they were not profitable. Cash flow does not represent incremental value, necessarily. For four decades they sustained themselves on the good graces of their investors who were lied to and cheated out of their money each and every year to make up for their inevitable spendaholic shortfalls. "Building balance sheets" is not cheap. Soon we’re going to be hearing the excuse that their audit firms signed off on their financial statements! Yes they did, didn’t they. Which of course absolves them of all responsibility, guilt or culpability. Not. 

I commented recently that if prices do hit $600 / barrel it won’t be enough to fix the producer firm's issues. They're far too damaged to survive any future outcome. Which is probably their motivation in the current scenario. Just as China begins to implode on their debt bomb they’ll have many opportunities in a controlled economy to try new innovations to fix it. Shutting down payments to foreigners would be considered a possible innovation worth trying. We’ll see in about three weeks. Nonetheless financial issues have a tendency to become too big to deal with. We made it out of the 2008 financial crisis however the cost of doing so is still being tallied and it’s only getting worse. Oil and gas went through that same point in the early 1990’s, after the collapse of oil prices in 1986, and remedial efforts have yet to be acknowledged. Bureaucrats believed “putting cash in the ground” was one of their innovative business principles and I think they remain proud of the concept today. The deception that the investors were operating under, fueled by producer financial statements that literally record every cost as an asset for decades, was realized in 2015 and certainly nothing is going to change producer bureaucrats' position today. During 2021 producers have doubled down on their specious accounting methods and doubled the number of years they’ll deplete their assets. But that was the situation in the second quarter, they have the last half of the year to “build their balance sheet” further on these old tricks. The point to consider here is for every dollar of equity there was any equal or slightly larger amount of debt that was obtained by the producer firm. Over these decades the amount of debt of the producers on a relative basis is stratospheric in my opinion. Fueled by equity infusions and low interest rates for two decades, no one could spend fast enough could they. It’s my opinion that the declaration of clean energy initiatives is the realization of the music stopping in the game of musical chairs. The problem is there is no safe place and nowhere to sit. 

I’ve written before how I have a severe allergy to commodity price hedging. Even thinking about it makes me nauseous. If you want to have a performance based organization the last thing you would ever do is hedge the commodity prices. “Hey, they sold all the production forward for x years, we’re profitable (in the terms they understand), we’re a utility, no need to put any effort in now as it will make no difference other than to make a possible mistake.” And therefore hedging of commodities has always been the method that is used to hedge any profits in the industry. Producers had a special accounting trick for this too. It’s called non-GAAP reporting. GAAP requires the company to report hedging losses, non-GAAP doesn’t. If they lose on hedges no one will know as the media only quotes the press release which always quotes non-GAAP earnings. However in the fourth quarter of 2021 the reporting of non-GAAP earnings will no longer be possible if they materially misstate the producer earnings. Which I believe they do. Nonetheless the commodity prices being realized on some of the producers production is not the commodity prices that are driving the industry frenzy. Losses in the third and fourth quarter due to profit hedges will be interesting. I noted in the second quarter the profit hedges, as I call them, were material for our sample of producers at $8.1 billion. But that was more than 5 days ago!

Lets not forget they’re unable to produce the profits that are necessary to sustain their operations. If you’ve never seen a “real” profit, what does it look like, how did you earn it and can you repeat it? If your organization was built in the past four decades from a culture where “real” profitability was never understood or discussed, what can be done today? I don’t know isn’t an answer for these purposes. Destroyed and damaged organizations need excuses and diversions to pursue and obfuscate the issues they’ve caused. Only to create the larger issues for us now and the coming winter months. If only we could have contained this when it was just an investor problem. It’s only going to get better as we progress down this road with these people. They’ve created a disaster and crisis that will be one for the history books. But sure, let’s give them another chance and see how they’ll do. Count me out. When a difficulty such as oil prices collapse as in 1986 or whenever. It's time to deal with issues. Oil and gas is a capital intensive industry where the return of capital invested is done in the form of cash flow. The cash flows were initially strong enough to maintain the facade of viability. Then investors were needed to augment that. Now the capital invested is inadequate, there's no investors to cheat, the debt remains and the cash flows are too weak to maintain anything but the powers that be in the lifestyle of their choosing. Clean energy never looked so good.

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.