Who's Going to be the Bigger Fool?

 Further to our discussion of Monday and Wednesday. Producer bureaucrats have displayed two characteristics regarding their fiduciary duty to manage their investors money. There is never any question that the commitment made to their investors is fulfilled to the letter through their rigid “capital discipline.” However, once the cash is returned in the form of oil and gas revenues the use of that money is fair game. The WSJ was the latest to notice this in their article “Shale Companies Had Lousy Returns. Their CEO’s Got Paid Anyway.” Now that producers have set their sites on other horizons they’ll use those revenues to support a business where the performance has never been proven. And the lack of performance in oil and gas will be sloughed off as “it's a dying business.” Further evidence that we must not accept that they can continue in their unaccountable fashion. If this did happen, and we’re here again in a decade from now, who would be the bigger fool?

The producer's third quarter 2020 reports reflect there is, and should be, a sense of urgency in terms of action to resolve the industry financial and operational issues. World Oil began discussing the difficulties inherent in oil and gas as a result of the situation producer bureaucrats have placed the entire oil and gas economic system in. This article argues that OPEC+ once again assumes the “swing producer” role in the market. I have argued that the swing producer is the North American producer. This assertion has been based on my misunderstanding of what the definition of swing producer is. Wikipedia provides the definition that World Oil and others are following, however I still assert that the swing producer is the one that alters their production volume to meet the demand in the market. Whether OPEC+ is trying to punish the market, the role of the swing producer, at this time is not in question. And just as it is stated overtly in the July 1986 Calgary Herald articles that we referenced on newspapers.com. OPEC has been instituting a war in the market in order to distill some cooperation among North American producers as to the chronic overproduction and oversupply that is a result of the North American based high cost producers. Overproduction and oversupply being defined as unprofitable production that has been conducted in North America for many decades. North America is the high cost producer and therefore would fulfill what I consider the swing producer role in that they will increase or decrease production based on the profitability of their production in the market. As the high cost producer their production will become unprofitable first, with OPEC production, being the lowest cost producer, continuing at a steady state always. The swing, or high cost producer would add or subtract production based on each of the properties ability to earn a profit. This would be enabled through the implementation of People, Ideas & Objects Preliminary Specifications decentralized production model’s price maker strategy into the North American market where we provide the most profitable means of oil and gas operations, everywhere and always.  

The cyclical nature of the industry's boom and bust cycle is a bureaucratic feature, not a bug. Claims to have been profitable have contrasted the five good years that I could identify out of the past 34 years. They say it’s the nature of the business and they’ll muddle through! Most people are sick of it, as industries all across the globe have worked to eliminate the boom and bust nature of their industries. Since 2008 what car manufacturer has had a bad year? None, because what they do is manage their inventories to ensure they don’t overwhelm the market with products that will kill their auto market prices. The exact thing every other business does and what we’ve recommended in the Preliminary Specification, but these producer bureaucrats have accused People, Ideas & Objects of “collusion” when we recommend that they too begin managing their inventories. Our response to their charge of collusion has been to question them on how are the independent business decisions of a producer at the property level, based on a standardized, actual, factual accounting considered collusion? We still haven’t heard their excuse, blaming or viable scapegoat regarding our argument. 

It takes intelligence, effort and a variety of other difficult attributes to make a profit. None of which has been evident in the C suite of any of the North American producers. But why not just stuff one's pockets full of cash and sit on the couch. They’ve consistently looked down their noses towards OPEC and their suggestions of working to stabilize the market. Suggesting that North American producers were all dominant and all others would be told what to do. It is true that at one time Houston was the centre of the energy universe. It should have been incumbent upon the management to have worked these boom / bust cycles out of the business by now, as they have in most other industries. We’ve only begun to see the depths of destruction that’s been conducted by those that were responsible for building the business. 

What we know at this point is that North American based producers will never implement the definition of what real profitability is or what real profits mean. They know, as do most business people, that the difference between real profits and making fudge are the same difference between vacationing in Hawaii and working in a coal mine. One of those takes work, effort, risk and skill, the other doesn’t. Why would you fly from Hawaii to take up a forty year career in Pennsylvania coal country? People, Ideas & Objects always felt that bellowing at sunbathers on the beach in Hawaii would be a futile marketing campaign therefore we took a different approach. Our marketing has always focused on those that have been affected by the inactions of the bureaucrats and to clearly identify the damage it's causing today and in the future. Our campaign has also been to promote our solution to what ails the industry and replace the disastrous bureaucracy through disintermediation. To organize our user community, which we began doing with the publication of our user community vision in March 2014, to resolve this inevitable and consequential disaster. You can only imagine how popular I was when I was completing the Preliminary Specification and speaking of the looming demise of the industry in January 2014 when oil prices were averaging $91.17. Yet seven years later this is where the bureaucrats have taken us, so much for being visionaries, and does anyone doubt what bureaucrats see in the clean energy future?

We noted earlier this week that the bureaucrats' answer to their insurance risk, culpability and guilt they’ve incurred is that they’ll move off to other industries. Capitulation of any and all responsibility is directly in line with their genetic predisposition and moving away from that which they’ve been entrusted with but destroyed. Leaving the devastation behind, and all those that have been damaged by these individuals actions. How much delusion exists within these bureaucrats when they consider they can just “shift” to clean energy with minimal staff, those being the ones they haven’t cut, the diminished resources they have at their disposal and no support from investors or bankers? A service industry that will need to be actively rebuilt with direct producer involvement and cash. And they have sugarplums dancing in their heads about zero emissions. Leaping tall buildings in a single bound, traveling faster than a speeding bullet. Clearly bureaucrats are not tough enough to stand the heat, therefore let's get them out of the kitchen. The issue now is what do shareholders and the employees of the producers have in terms of legal rights in litigation against the bureaucratic officers and directors of the producers they’ve been involved with? In a word plenty. The standard of care necessary for these individuals is that they’ve… from Wikipedia.

Tort liability is predicated on the existence of proximate cause, which consists of both: (1) causation in fact, and (2) foreseeability. A plaintiff must prove that his or her injuries were the actual or factual result of the defendant's actions.

The cause was and is the chronic overproduction and oversupply brought about by specious accounting that I’ve documented throughout this blog. The overproduction and oversupply is also documented in the commentary of Qatar’s Oil Minister in the July 26, 1986 Calgary Herald articles. The foreseeability arrives as a result of considering that I’ve been at this for 29 years, which only proves that I’m not as bright as an oil and gas bureaucrat. Yet, I was able to foresee the issue and start working on a remedy in May 1991 and had the Preliminary Specification published in December 2013. Guilt and culpability are reflected in the bureaucrats desire to cover their risk with ever more officer and director liability insurance coverage, paid for by the producers.

And from Legal Match.

A tort is an act that results in injury, suffering, unfair loss or harm to another person. Torts are governed by tort laws and serve two basic purposes (1) to compensate the victim for any losses caused by the defendant’s violations; and, (2) to deter (discourage) the defendant from repeating the violation in the future.

I would therefore ask the following questions;

• Were they (bureaucrats as officers and directors) aware of the systemic and chronic overproduction and oversupply of oil since July 1986? If not why not?
• Were they aware of the systemic and chronic overproduction and oversupply of natural gas since 2010? If not why not?
• Were they aware of Shale's inability to generate free cash flow for the past decade? 
• Were they aware of People, Ideas & Objects Preliminary Specification as a solution?
• Why were officers and directors liability insurance coverage increased in July 2020?
• Did they know, or should they have known about these imminent financial difficulties?
• What assessment of the shift to clean energy and / or zero emissions was made?
• Why is this shift supported and subsidized through oil and gas revenues?
• What actions or inactions were taken with respect to any of the above?
• What have the organizations CFO’s commented internally about the over capitalization, over supply and over production issues? What were their concerns about clean energy and zero emissions targets?
• Conversely, what has been asked of the CFO’s about the issues regarding their financial statements, the business environment or People, Ideas & Objects Preliminary Specification?

After these discussions have been undertaken it would need to be determined if fraud or fraudulent misrepresentation was involved. For determination of that we see the legal definition from Legal Match.

5) Fraud or Fraudulent Misrepresentation

Fraud is deliberate deception to secure unfair or unlawful gain. The intent behind fraudulent misrepresentation make it the most serious of all types of misrepresentation. As a result, it carries the most severe penalties. The required elements for a tort cause of action include the following:

Intentional misrepresentation or concealment of a material fact.

The misrepresentation is made with the intent for the other party to rely on it.

The other party does rely on the material fact.

The reliance on the material fact harms the person.

Fraudulent misrepresentation need not be a positive verbal assertion. It can be any act that would deceive another including simple gestures, innuendos, half-truths, and in some instances, silence.

I’m not a lawyer and therefore I’m not going to get into the finer points here. We’ve heard the bureaucrats suggest, when asked about the destruction that has been created on their watch, “that they too had lost money.” I find this a curious comment in light of the facts presented. A) who cares that they’ve lost money, B) who was in the best position to stop the loss, and indeed had the authority and responsibility to do so, and C) is this just another excuse posing as a deliberate deception?

The sequence of these events is the issue that has been present in the market since July 1986, People, Ideas & Objects solution has existed since December 2013 and nothing has been done whatsoever to remedy the losses, damage or devastation that these officers and directors have caused. We know that there was ample time and opportunities in which to work to resolve and avoid these issues and the only producer efforts were to “shoot the messenger” People, Ideas & Objects. We know two things today. Muddle along and doing nothing, the de facto strategy throughout this time, has failed catastrophically. We detailed this risk to the officers and directors in early June, July and August of this year. Yet nothing has been done except the increase in insurance coverage and the shift to clean energy. It looks to me like we’re being played for fools again. Shame on us?

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Parler or Twitter @piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

I Say We Want a Revolution!

 Bureaucrats have been rewarded with three vaccines that have increased the prices of oil and gas, and hence the value of their shares. I was saving this gift for the bureaucrats' Christmas however since they're now in the holiday mood and are being rewarded for doing nothing, I thought I’d indulge them. The gift that I find keeps on giving is the one we documented last summer. The two Calgary Herald articles “OPEC can see Economic Destruction” and “Return to Glory Days Unlikely.” Recall these articles documented situations in the industry that mirrored the events of today, however they were written on July 26, 1986! These can be sourced from Newspaper.com (paywall) and are listed on the front page of the business section or page 33 of that day's paper. The quotes that best reflect the situation that exists today are. 

Qatar's oil minister has called on both OPEC and non-OPEC nations and industrialized countries to cooperate with OPEC to work out a policy aimed at restoring stability to the world oil market or face grave consequences. 

He said that continuation of the current situation would lead to destruction of the economies of both oil producing and oil consuming countries. 

“OPEC has no choice but to continue the current policy of capturing a fair share of the market until non-OPEC producers discern the importance of co-operating with OPEC.” Oteiba was quoted as saying. 

And

However, what those [OPEC] ministers do at the International Hotel on the shore of Lake Geneva could help decide a lot: Whether gasoline and heating oil prices will continue to drop or rebound instead, whether the devastated economies of oil producing states and provinces like Oklahoma, Texas and Alberta will continue to crumble and whether the debt problems of Mexico will get more severe. 

Only Saudi Arabia, which started the price plunge by boosting its output so it could protect its market share, has gained revenue amid the price war. That oil rich country is earning 10 to 15 percent more oil exports than last summer. 

Amid lower prices, the number of active oil rigs in the United States and Canada has plunged. 

As we noted in August these symptoms of overproduction and oversupply have been the case since at least July 1986 and have been evident each and everyday since. It is the reason I began this journey in May of 1991 to build a system where producers could just shut-in production. Something they were unable and unwilling to do in that era of the industry. And as we see since that time there has been nothing done about a critical, global, existential issue to all of those involved in oil and gas. It is only today we find the radical change of the producers moving out of the business to pursue their lofty dreams of clean energy and zero carbon emissions. As we noted in our “radical” recommendation on Monday, let them go, or have them spin off the oil and gas exploration and production to their existing shareholders. We could also just kick the bums out. That clean energy future with zero emission is what the bureaucrats have bought into, we should free them of these oil and gas assets and allow them to travel unconstrained into their new quest. This is what everyone else has been denied over the past four decades due to their bureaucratic mismanagement and let's admit it, fraud, corruption and self dealing. 

Corporations are structured so that directors and officers of that corporation are held personally accountable for any and all shortcomings that occur knowingly or unknowingly by the principles in these organizations. People, Ideas & Objects is another attempt by myself to take “another kick at the cat” after prior failures in the oil and gas ERP market. This attempt began in August 2003 with the commencement of our comprehensive research into what a dynamic, innovative, accountable and profitable producer would need in terms of using the Joint Operating Committee. This research took the better part of a decade with the result being the Preliminary Specification being published in its final form during December 2013. It's been since that time the officers and directors have been well aware of this solution in the market. Even if I was the only one that was aware of the published Preliminary Specification it doesn’t matter. There existed a published solution in the market as of December 2013 that the officers and directors should have been aware of and that fulfills the standard for shareholders to meet the demand of the courts to prove these corporations should have known. This is the law of torts and we’ll be discussing this more on Friday. 

How this particular part of our journey began was with the publication of a series of blog posts on June 2nd, July 6th and 8th of 2020, and subsequently, that detailed the manner in which insurance companies managed risk in their portfolio of officer and director liability insurance. That insurance companies will force the cancellation of coverage if the individual continues to work for the company they deem as too risky for them to continue. Forcing the individual officer or director out the door of the producer in order to maintain their insurance coverage. It’s in the July 6, 2020 blog post that I note the Reuters article stating that increasing officers and directors liability insurance coverage was a trend they’d noticed. People, Ideas & Objects asked explicitly if this is implied guilt and culpability?

After six months has passed a quick update in terms of People, Ideas & Objects activities. Shows that none of the North American based producers have contacted us in any way shape or form. And why would they, I’m just a guy behind a keyboard. The only action that we can document on the bureaucrats behalf is the wholesale exit from the oil and gas industry into clean energy and zero carbon emissions. I have stated here throughout my writing that bureaucrats can’t, won’t and will not ever do anything to resolve their issues. They’re genetically predisposed to avoid action unless it involves covering their personal compensation or risk. 

Whether we have the investors force a spin off of the oil and gas assets into new corporations or summarily fire the bureaucrats is a choice that someone needs to make. Either way let's make Christmas just as special for these individuals as they have for everyone else. It’s time for action and I’m one guy with a keyboard, but I also have the solution to what ails the industry. There is no reflection of any care or concern being expressed for the profitability of the industry, other than what it can do for these individuals' pocketbooks. Take these oil and gas revenues away from them before they declare ever larger annual bonuses for the job not done. We never want them using oil and gas revenues to support their activities in an unrelated industry which has repeatedly proven itself to be uncommercial even with substantial government subsidies. I’m now calling for a revolution within oil and gas to clear out the bureaucracy.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Parler or Twitter @piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Warning! Radical Recommendations Ahead

 There is abundant discussion throughout the North American market regarding the changing business landscape and environment. About the changes that organizations are undertaking and particularly in this era where the virus demands so much of everyone. The discussion that I want to begin with today is the topic that I’ve seen in a number of areas recently. Of how the American economy has never been subject to the kind of radical and revolutionary changes that we are seeing in many areas. And particularly the radical and revolutionary style of changes proposed by People, Ideas & Objects with our Preliminary Specification. Many oil and gas bureaucrats are suggesting that they do not subscribe to the radical method of change as that is not how Americans have evolved and developed. Suggesting that incremental change and adopting evolutionary principles and processes is how best to manage an organization and the industry. The question is do they have a point and is the Preliminary Specification out of step with the reality of how the American market has developed? These are my thoughts, comments and recommendations about evolutionary vs. revolutionary organizational, technical and cultural change. 

The Preliminary Specification suggests that North American producers recommit to the oil and gas business and learn what real profitability is and why it's important. Controversial when I began, I know, however is it as radical as it once seemed? Many producers have now set clear objectives for their organizations which include a shift to “clean energy,” based predominantly on wind and solar, and the adoption of zero emissions targets. These being only the most recent, viable scapegoats. If you’re as confused as I am with the incremental and evolutionary changes these producers have claimed, I too am failing to understand what it is about the Preliminary Specification that they’ve always found so distasteful, radical or revolutionary? Getting out of the business is less radical than making the business profitable? With that in mind I would suggest that they read Mark P. Mills, Senior Fellow of the Manhattan Institute and his paper “The New Energy Economy:’ An Exercise in Magical Thinking” regarding the physics of “clean energy.” And People, Ideas & Objects review of his paper on page 96 of our white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.”

First I’d like to note that in terms of incremental changes in the market of oil and gas nothing has changed since the implementation of the SEC guidelines for recording capital assets. This was the point where the focus on assets became the cultural norm in the industry and led to the issue of overproduction and oversupply that we’re dealing with today. Simply over capitalization of assets leads to commensurate over reported profits, which has led to an over investment in the industry, creating overproduction and oversupply. The SEC made the change to full cost accounting in the late 1970’s and in terms of change in the industry very little has occurred. The producers have been able to raise vast amounts of capital in order to fund all types of projects that may or may not have been viable at the time or ever. Specious accounting of recording the majority of any and all of the producers costs to property, plant and equipment created the end result of overproduction and oversupply. For purposes of this discussion People, Ideas & Objects also describe overproduction as unprofitable production. This has become the culture of the industry and there has been no deviation from it throughout North America. Look at the symmetrical way in which producer financial statements are presented and you see bloated balances of property, plant and equipment, and now after decades of destruction, massive debts offset those balances, with not much of anything else. No working capital. No retained earnings and in fact most have lost all and more of their share capital structure. 

As we documented elsewhere the overproduction of oil became a global issue at least as far back as July 1986. We documented this in August 2020 in a number of blog posts that detailed the symmetry between what the issue was then and what the issue is today. There is no deviation whatsoever from what the story was back then. I guess one could argue that the major difference between then and now is that these producer bureaucrats have also destroyed the natural gas business, initially on a continental basis and now on a global basis. Incremental change has been the modus operandi of these producers, allegedly, and they’ve personally done extremely well throughout these past four decades. Establishing that oil and gas is a difficult business and therefore the need to be compensated in the top four of industry leaders is their reward. That is the top four for 2019. And that is the point for these oil and gas bureaucrats isn’t it, why change what is obviously working so well? 

The Preliminary Specification is wholesale, radical and revolutionary change. The kind of change that would have occurred incrementally over the past four decades if things weren't working out so well, for the bureaucrats. Everybody else in the greater oil and gas economy have lost substantially in terms of capital, earnings, careers and business. But who’s counting, the bureaucrats will want to have a talk with them! Our Preliminary Specification addresses the changes that are as significant as that which are represented by the changes in energy prices, the global energy demand structure, shale reserves and the impact of Information Technology to disintermediate old, bureaucratic organizational structures. The kind of change that would reverse the industry's destruction and rebuild the industry on the basis of a new definition of “real” profitability, disposing of the specious methods of the past. The kind of change that addresses the very difficult future the industry faces in the next 25 years on the basis in which its devastated landscape exists today. A landscape that now includes the relatively new cost of escalating reclamation costs over these next 25 years. Costs that will fail spectacularly in terms of earning any return on investment from oil and gas, wind or solar and probably net zero emissions. I distinctly recall in 1988 that the industry strategy would be to muddle through and do nothing to resolve the difficulties that they faced at that time. A time when oil prices were $14.87, a full $0.43 higher than in 1986. Maybe 2021 we’ll see that muddle through strategy finally pay off? Or certainly in 2022!

And maybe I’m mistaken about the American economy and how it evolved. The most powerful economy in the world never took any chances and just assumed its premier role through passive, incremental change at a glacial pace. That’s how the most dynamic economy ever known to man came about? Creative destruction and spontaneous order were myths perpetrated by Europeans in the late 1700’s and enhanced by Hayak in the 1940’s. Far too long ago and far too distant to be relevant in North America today! I can not comprehend that it has taken as long as it has for the industry to accept the lifeline that People, Ideas & Objects Preliminary Specification has extended. There are certainly large political issues for bureaucrats to accept around our use of Intellectual Property as I’ve implemented it overall. Issues that have traditionally been trashed by said bureaucrats in their first five minutes of consideration. Yet for the sake of the industry and trillions of dollars in damages they’ll never accept that Intellectual Property is now the basis of the oil and gas industries value determination and generation, as it has become in every other industry. Such that it’s not the oil and gas asset that reflects the value in the industry. The value is realized through the producers access to the software that makes the oil and gas asset profitable. Heads exploding in the C suite! 

“No radical or revolutionary change” is the excuse not to accept the Preliminary Specification, yet clean energy is now the place to be and what about the new fad of adopting net zero emissions targets! Essentially changing the nature of the business fundamentally. Are people making money in these “clean energy” initiatives, is there value to be generated in these or is it unreasonable to ask what is the compelling reason for making these changes? It is fashionable, teenagers love it and it covers up a lot of the damage that’s been done in oil and gas. Kind of like a new, bright shiny object to focus on for the next few minutes. I think it’s just the same old story we’ve heard so many times before. “Can’t do this because of that,” only to find that bureaucrats are moving on with more dramatic efforts than the ones they’re denying are possible. Resistance to change is an inherent human condition. In oil and gas, bureaucrats are stricken with another condition where they’re unable to comprehend anything regarding profits. When you can come up with excuses such as “we’re out of that business” we see how easy it is to make those excuses as opposed to doing the hard work of figuring out how to make money. 

My recommendation is simple. Usually when a business becomes unviable to an organization they jettison it through to their shareholders in what’s commonly referred to as a spin off. I suggest these producers spin off their oil and gas exploration and production to their shareholders to see if they can make them viable and profitable. Clearly the current organizations that own these revenues are incapable of comprehending the need or purpose of profits, and have abandoned the investors business of oil and gas. Therefore it would be incumbent upon these producers to ensure that they wash their hands of these issues and move on with their chosen lines of business in clean energy and zero emissions. In fact in doing so they could achieve their second business objective immediately. Note too that a spin off would show the world these bureaucrats were serious about their commitment and were therefore never benefitting from those dirty revenues that oil and gas assets provided them in the past. A clean break as it were. And think how it would be perceived in the rest of the oil and gas economy, they would feel they too would have an opportunity to make something of their careers, businesses, investments and capital. This takes the bureaucrats radical idea of getting out of oil and gas, and makes it seem evolutionary to me, more of a natural process.  Or we could just have the bureaucrats removed.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Parler or Twitter @piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.