Showing posts with label Service-Provider. Show all posts
Showing posts with label Service-Provider. Show all posts

Tuesday, November 07, 2023

OCI User Community & Service Provider Competitive Advantages

 The following is a brief summary and description of the distinct competitive advantages shared between our user community and their service provider organizations. These are the accounting and administrative resources that will be redeployed from the producer firms to be headed up by our user community members in their service provider organizations. These resources will be used to manage oil & gas and associated industries processes. Each advantage shows the unique nature of the competitive environment we seek to build. This is to ensure that North American oil & gas producers are provided with the most profitable means of oil & gas operations, everywhere and always. 

Overall the reallocation of producers' administration and accounting resources in this manner provides several advantages. First it enables People, Ideas & Objects decentralized production models price maker strategy. Establishes a sub industry between producers and the Information Technology community. Employ Professor Paul Romers' non-rival New Growth Theory by sharing administrative and accounting resources industry-wide. Producers will no longer need to build and maintain redundant and costly infrastructure for accounting and administration. Producers will share industry-wide capacity and capability. These competitive advantages eliminate ERP constraints that cement organizations into unchangeable structures. Enabling specialization and division of labor, spontaneity, serendipity and creative destruction to return as powerful tools for competition.

We purposely create these distinct competitive advantages in administration and accounting. Delivered to the industry by our user community members and their service provider organizations. It is this unique configuration that enables these major economic forces to be applied and iterated upon. This creates substantial value and is responsible for the majority of our identifiable, tangible value proposition. When producers are prosperous, all those associated with the industry will realize that prosperity. The proof of that statement is in today's chronic downturn.

Accounting & Administration Expertise

Having acquired extensive experience and training in their fields, our user community members will provide administrative and accounting expertise. This applies to their service providers as well. We offer Cloud Administration & Accounting for Oil & Gas as a sub-industry between technology and oil & gas. Filling a gap between the two as we feel they’re not communicating effectively. 

Analysis of Conflict & Contradictions as Analytic Tools

Conflict and contradiction indicate where the issue's source is. Analysis of these two factors will reveal alternative solutions. When we apply these to the business environment, behaviors, communication methods and other factors, they can provide insight and understanding into issues and their resolution. These are some of the more advanced tools that will be needed to handle the incredibly large volume of issues the industry and our users will have to resolve in the future. 

Application of AI & ML

Artificial Intelligence is overrated in the marketplace at this time. AI is a module in the Preliminary Specification where we can establish effective and efficient algorithms from our user community. These algorithms can be shared across the industry. Offsetting the inordinate cost of each producer involved in the difficult business process of developing, testing and proving AI algorithms. And draining the market of valuable resources to be used elsewhere. Machine learning is a far more effective tool that will be valuable to our user community due to the distinct perspectives they'll have on industry data. They’ll have data sets of the individual processes they manage. That processes data for the entire industry. This data set would be interesting to analyze from the point of view of its unknown unknowns. 

Automation

Automation will be implemented to ensure that the most effective and efficient operations are provided to producers participating in these developments. Relieving administrative and accounting resources to pursue higher level, value added opportunities. Reduction of costs in this sense is worthwhile as it implies high automation levels. Automation doesn’t just reduce costs directly it does so indirectly through error reduction. Error reduction reduces time. What admittedly is becoming a critical resource as we proceed through the 21st century economy. 

Accounting data sets for producers are inadequate for automation purposes. As well as for general financial reporting purposes. The need to organize and manage the firm's data in appropriate formats is a necessary first step before automation or Artificial Intelligence can be applied.

What information consumes is obvious. It consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.

- Nobel Laureate and Professor Herbert Simon.

Collaboration

A collaborative, collegial environment would be the basis of a competitive environment between our user community and service provider organizations. The basis of collaboration and cooperation is the importance of the work they're undertaking and their critical role in rebuilding the oil & gas industry on performance and profitability criteria. 

Licensing of our user community and their service provider organizations provides the exclusive right to manage an individual process. This is on behalf of the entire North American oil & gas industry. The potential tangible and intangible benefits from service providers will be substantial. To compete on price circumvents the long term value generated from pursuing specialization & division of labor, sharing more broadly and other methods that take time and investment to materialize. Value that is realized by all producers.

Compromising

Finding solutions in a world of difficult and complex issues requires creative solutions that meet the needs of those parties. Although we are rebuilding brick by brick and stick by stick there are established industry methods, regulations and processes that need to be adopted. We need to create effective ways of implementing and organizing them. This demands that our user community members offer industry solutions that work for all concerned. 

Creativity & Design

Some may struggle to imagine creativity in administration and accounting. However there is nothing that will be more critical in the discovery, testing and implementation of effective and innovative procedures that provide value to the oil & gas industry. We published the Preliminary Specification in August 2012 and soon after, in March 2014 began the development of our user community. As a result people within the larger oil & gas industry have had the model in the form of the Preliminary Specification and our user community vision in their minds for the better part of a decade. Understanding what their involvement could be, should they decide to join our user community based on the principles set out in these documents. Enabling them to prepare themselves, both directly and indirectly for our development and implementation to begin. 

Creative Destruction, Spontaneity & Serendipity

Each of these is an established economic principle that has been eliminated from the 21st century business landscape through ERP software. The unchanging methods and procedures that software defines in organizations, and particularly ERP systems, lock organizations into rigid and unchangeable situations that only serve the status quo. People, Ideas & Objects have established through our user community and service providers that they can make the effective changes necessary to ERP systems. These changes will be derivative of the Preliminary Specification. Establishing a permanent user community and software development capability is necessary for businesses to evolve throughout the 21st century. 

Explicit and Tacit Knowledge

Providing software in the marketplace is a small part of the solution today. Software captures explicit knowledge and codifies it within process management. It is the service provided with that software that provides value. Tacit knowledge must be included in the service package. Where producers' accounting and administration are managed, such as our Cloud Administration & Accounting for Oil & Gas. Software and services must be able to make the changes necessary to proactively accommodate the accelerated pace of change of today’s market, and what we can only assume will be the case tomorrow. 

Ideas

The uniquely human element that will be in demand. An idea that generates a dollar today will produce a nickel tomorrow. The need to have exponential volumes of ideas will be a demand of the future in everything we do. How these are captured and implemented in our Cloud Administration & Accounting for Oil & Gas software and services will be a necessary part of our user community. And with the shared and shareable model these ideas, once proven, tested and appropriately implemented will be leveraged throughout the industry. Building value for everyone. We believe oil & gas needs to be efficient in process management. The accounting and administration of a producer firm are not distinct competitive advantages.

Innovation

The Preliminary Specification and supporting services are based on innovation. Innovation is a defined and replicable organizational process, according to our research. These have been incorporated throughout the sub-industry we're building. Importantly our user community and their service providers can affect the changes needed to facilitate innovation in efficient and effective ways through the design of their organization.  

Integration

Integration or implementation falls under the responsibility of our user community and service providers. These are the critical components and the final steps in ensuring the quality of software and services we’ll provide. Integration begins on day one of development in terms of planning and preparation. Our user community members will ensure that their service providers are appropriately implementing process management. As the principal owner of the service providers they’ll be duly authorized and responsible.

Issue Identification & Resolution

“Muddling through” is over. There will be no more ignoring oil & gas issues. People, Ideas & Objects provide the tools, methods and Organizational Constructs to address and resolve issues. We see that software is the issue in that it seals organizations in concrete. Which is commendable from a governance perspective, however it must be innovative and capable of change to achieve the high level performance trajectory of a dynamic, innovative, accountable and profitable organization in the 21 century. This will be an order of magnitude more difficult than what the oil & gas culture knows. As difficult as the industry situation appears today. Consider how much simpler it was only a decade or two ago. What will it be a decade from now in terms of the issues and opportunities these firms face? To be unprepared as we are today is dangerous and reckless. 

Judgment

Not a distinct competitive advantage of computers. A uniquely human characteristic that will be the basis of understanding for the remainder of this century and as long as we choose. Oil & gas is valued in the consumer marketplace. The threat of shortages and their impact on civilization is unfortunate. Setting the proper landscape for a more dedicated environment in which oil & gas can prosper and conduct its business operations. What is our judgment regarding the capability and capacity of current producer organizations to realize these opportunities? When each barrel of oil equivalent provides 10 to 25 thousand man hours of equivalent labor it is the consumer who benefits. This is the producer's value proposition, our focus and drive. Why would oil & gas ever be produced unprofitably when it is irreplaceable and limited?

Leadership 

I expect that our user community will provide leadership in the administration and accounting of North American oil & gas producers. Expectations that include the development and evolution of business models and "what, how, and why" profitability is earned. It will provide the industry with the tools to evolve at the speed and capacity required to meet future needs. 

Negotiating

Negotiations and compromise on the basis of interactions between producers and our user community will be frequent. Compromises and negotiations on the Preliminary Specification however cannot and will not occur. The business model is integrated and dependent on that model functioning together. Changes at the Preliminary Specification level may have implications unknown in other areas of the system. If these changes are necessary, they can be analyzed and corrected based on the most comprehensive understanding, once developed. While we haven't fully comprehended all its implications, we should be cautious before disrupting it. 

We are instituting a cultural shift in industry management. Moving away from “muddle through” to a culture of performance and profitability. There will be attempts to resurrect “muddle through” in its many forms by the status quo. We need to be wise to these and ensure that they are excluded from the Preliminary Specification. 

Planning

Planning in a dynamic environment is futile. It however communicates to participants the information necessary to begin the process. It is the first step. 

Quality

Define it, clarify it, communicate it and ensure its implementation. It used to be when you drove downtown to work in the morning, and returned at night. You would see 2 - 3 cars broken down on a 15 mile trip. Japan exploited this opportunity to enter the North American auto market. They introduced reliability. There has been a shift in software reliability in recent years primarily because of the cloud computing era that secured the environment of software and services. Phones are far more sophisticated than people realize since Steve Jobs started in the 1980s after being fired from Apple. And Sun Microsystems with Java’s commercial release in 1994. Cloud Administration & Accounting for Oil & Gas, standardization, objective accounting and other methods will provide higher reliability on top of these technologies. A duly authorized, responsible, and capable user community can do so much more. 

Research

Primary research is abundant in the 21st century. We can choose to stand on the shoulders of giants, or recreate it again if we like. The amount of primary research unused at this point is probably larger than what has been implemented. There is rich ground here for value generation for those that can turn these ideas into reality in oil & gas. In light of all the competitive advantages listed under our user community, putting research under their domain is a natural fit. We see this as highly complementary to the research People, Ideas & Objects will conduct. 

Specialization & the Division of Labor

It has been the source and generation of all economic value realized since 1776. However, software disables its natural development process of “gap-filling” when it has no capacity or capability to change, and the organization has a vested interest in the status quo. Producers have relied on “cost cutting” to generate value for decades and have nothing to show for it but a fundamentally destroyed service industry. Specialization & the division of labor in terms of the development of our user community and their service providers will continue to be a priority. They will introduce the same to the entire oil & gas industry.

Thinking

The contrast between “doing” and “thinking” may grow more significant as we proceed through the 21st century. Writing is thinking. It is becoming increasingly difficult to provide basic services, such as oil & gas, in a timely manner. More may not resolve the issue. Getting ahead of the game may be a thing of the past and a luxury we can tell our grandchildren about. We live in an environment that will require testing hypotheses of various scenarios and assessing the results. Determine what is right based on what generates value for the firm. An environment where what an individual gets out of it is based on their value that they generate.


Wednesday, September 13, 2023

Disintermediation of Oil & Gas, Part II

 People, Ideas & Objects occasionally provide updates on our activities in the greater oil & gas community. These updates focus on how people in the industry can become active and turn it around. Using the Preliminary Specifications vision. There are business opportunities available in the North American oil & gas marketplace regarding our disintermediation efforts.

Producers' officers and directors have not listened to investors and bankers. Additionally, their unwillingness to invest in their organizations' profitability, which is undisputedly the most profitable investment they could make, raises further concerns among investors. As a result, People, Ideas & Objects allege previous market failures, along with those that precipitated Oracle and IBM's exits. Were due to the inability to source support for appropriate ERP systems development from any corner of the North American producer population. This lack of support has extended into its third decade and today's oil & gas ERP systems reflect that fact. Producer firms provide little financial support to our competitors. If appropriate governance and accountability had been implemented, would the industry have fallen into the current situation? We suggest that ERP system failures and producer actions are no more than the convenience of not having to deal with investors' accountability demands.  

As People, Ideas & Objects have demonstrated through our legacy of pursuing profitability based on the Joint Operating Committee. An unwavering commitment to oil & gas since August 2003 seeking to avoid industry issues today. A protracted conflict between ourselves and producers, officers and directors that began with their giggles. Has resulted in the complete destruction of a primary and all its secondary industries. That statement may elicit more giggles from the bureaucrats' sycophantic entourage. However we’ve seen no evidence of trust, faith or goodwill from anywhere towards the producer firms' officers and directors. Producers must play a vital role in actively rehabilitating the service industry through direct philanthropy. And the inventories of work-in-progress, which we suggest may be as long as a seven to ten year timeline, have been cannibalized to the point where they're counted in months instead of years. This occurs as all U.S. basin production profiles decline. A giggling leadership group that doesn't understand profit, why it's so crucial, or how to earn it. It sits atop cultural manifestations of this lack of understanding. Of course we are unaware of the effectiveness of their investments in clean energy, retail, iPhones or space exploration. 

Granted others may not see it the way I do. The most accurate analogy I can suggest is a gigantic log rolling down the mountain. It’s now half way down and threatens to level the town. What do you do? The first thing I suggest is that we don't ask industry leaders. 

In an unrelated manner we’re adding two new logs to the fire in the form of further discussion of our user community. This includes their service provider organizations and Profitable Production Rights. I will also highlight any notable changes. Secondly we announced our Sales Commission program that will have this community actively involved and benefiting financially from the sale of People, Ideas & Objects Preliminary Specification. Please see the Wiki for further details. And the other recent announcement was our Whistleblower program which has details available here.

These remind us that Oracle CloudWorld 2023 is September 18-21, 2023. Registration for the free “On Air" conference may still be available. If not, the presentations will be available after the conference for a month. We don’t know what will be the focus of this conference. I would anticipate a further extension of the change in direction founder Larry Ellison and CEO Safra Catz took the company at last year's conference. Having filled out the full scope of enterprise needs in operating systems, databases, development, ERP and other enhancements. Making them as secure, robust and accessible on Cloud ERP as they are today. The next logical step was to work with partners to enhance the level of automation possible with such a strong foundation. Last year's conference was about movement in that direction with a few examples of Oracle Cloud ERP new features. 

Oracle's pursuit of these automations will benefit North American oil & gas producers with enhanced value generation. Although many appear to be intangible gains in value it is not too difficult to see the overall benefit of reduced time spent filing, checking and approving expense reports, etc. Oracle is seeking to build value for their global customer base through generic business processes. If producers joined People, Ideas, & Objects they would gain the intangible value Oracle has generated. If they continue to persist in their obstinance, they’ll only be set up with even more structural disadvantages than all the other industries that compete on North American capital markets. Which at this point may be their motivation. In addition to Oracle's advantages, this community would bring similar advantages from automation to the North American oil & gas attributes of the Preliminary Specification.

Lastly we would reiterate that investors are disappointed in the performance and lack of action by oil & gas leadership. They see opportunities and feel excluded from the market due to past performance. However, knowing that past performance is unacceptable. Producers who supported the development of communities focused on developing the Preliminary Specification. And fully fund these development needs. Investors may support producers' capital structures in anticipation that change arrives soon and future performance makes today’s investments sound.

Our User Community

Those who are new to People, Ideas & Objects, they may be unaware of the developments of our user community and their associated service providers. They are our primary focus, competitive advantage and we have been active in our user community development since March 2012. Our user community is unique because of three structural components. These include 1) they are licensed to make changes to the underlying Intellectual Property. 2) People, Ideas & Objects developers are licensed to only take input from our user community. And 3) they have discretionary control over their budgetary processes. They work part-time on the Preliminary Specification development. Gaining an understanding from their ownership of their service provider, industry input and their knowledge from the years they’ve worked in oil & gas administration and accounting. They’re able to make the changes to their ERP systems and processes that are necessary to ensure producers remain dynamic, innovative, accountable and profitable, everywhere and always. 

Specialization, the division of labor and sharing of the administrative and accounting infrastructure at the industry level are three among dozens of distinct competitive advantages for our user community service providers. They’ll specialize in the development of a process and in doing so, earn the service provider license to manage that process on behalf of the entire North American producer population. (In most instances.) Service providers are a reallocation of the producer firm's administrative and accounting resources into the various service providers to achieve the three noted distinct competitive advantages. Service providers will be the source of the majority of these individuals' income beyond the part-time income they earn as our user community members. Service providers are expected to be of reasonable size and maintain revenues from which our user community members can build substantial value. 

Service providers conduct process management and bill the various Joint Operating Committees for their services. In this way, producers who are unable to profit from a specific property can shut-in that property. The service provider then receives no data for that property, no work will be conducted by them and the Joint Operating Committee will record a null operation. At that time, it will be able to apply its innovations towards moving the property back into profitable production as soon as possible. The benefits of doing this across the industry are documented throughout the Preliminary Specification. They fall under the Preliminary Specifications decentralized production model’s price maker strategy. 

The point I'm making is that our user community is a substantial career choice for those in the administrative and accounting areas of the oil & gas industry. To provide for producers to begin to build a prosperous and profitable future for all concerned, including themselves.

Profitable Production Rights

Long ago we realized producer officers and directors would never fund the Preliminary Specification as they would be highly conflicted with their personal best interests. Therefore to raise the budget that we feel is necessary to develop the software and support our user community we would need an alternate means of raising money. We also knew that the only method that would prove valid in the long run would be that it has to come from oil & gas production itself in some form. If the industry did not pay for it, they’d show no respect or interest in it and the exercise would become futile. The logic behind how we came up with Profitable Production Rights and Flexible Profitable Production Rights developed on the following basis. 

Investors expressed disappointment and displeasure with the producer's officers and directors. Producer officers and directors had not participated in appropriate governance and accountability and have today no comprehension of what is meant by profit. They don't know how to earn it, why they can’t and are culturally constrained to make the changes necessary to be truly profitable. What People, Ideas & Objects see as a dead end for the current officers and directors. Outside of what is available in the oil & gas ERP marketplace it’s a simple matter of you getting what you paid for. And since at least the mid 1990s the producers have participated in nothing. The only alternative offering that identifies today's issues and resolves them is the Preliminary Specification published in August 2012. It is based on ten years of research into what, how and why the solution needs to be. Therefore we believe we have the only solution to industry issues today. 

In order for the industry to rehabilitate itself, it will require a rebuild on a new culture of performance and profitability. What the Preliminary Specification focuses on. A rebuild, not a situation where we listen or consider what the current culture or officers and directors expect of their environment. The Preliminary Specification is a full on disintermediation of how computers, iTunes, the iPhone, Pixar and the many other industries that Steve Jobs disintermediated.

Profitable Production Rights simply grant access for each boe to be processed through our Cloud Administration & Accounting for Oil & Gas software and service facility we are building through this community. There are approximately 35 million boe produced each day in North America and therefore there are equal numbers of Profitable Production Rights. Each sells for $600 and entitles the owner to process one boe through the facility. Producer firms will need to license or rent the Profitable Production Rights necessary to process their production. In order to acquire that capability they’ll need to negotiate with the Profitable Production Right holder for monthly access to their rights. Or…?

Some comments on People, Ideas & Objects' handsome budget. I have worked to solve this problem since 1991 and have experienced a number of costly failures in the marketplace to date. I have worked since 2003 to bring about the opportunity for industry to resolve the damage and destruction it has seen at the hands of these officers and directors. My value is earned, in my opinion. My value is not determined by the past 32 years at minimum wage in terms of back pay. I feel I can deliver a substantial value proposition to the oil & gas industry and it is packaged with a big bow at the moment. I have traded one third of my earnings and one third of my Intellectual Property royalties from this to subscribe to 33% of the Profitable Production Rights in what are called Flexible Profitable Production Rights. Which indemnifies the Profitable Production Rights holders from any production being shut-in due to a lack of profitability, with the caveat that the producers are actively looking to bring it back into production. Any suspension or abandonment of the property releases the Profitable Production Rights holders to seek other production. I know that since 1991 I’ve worked as hard as humanly possible to solve the problem. If this is unacceptable, I am fine with that.

This is a brief summary of these rights. They are being rewritten as we speak and will be published in three blog posts starting October 4, 2023. Again they are stated here as a means to show the various ways that we are actively disintermediating the oil & gas industry and setting in place the solution, how this community can participate in doing so and the value they can earn from these activities.


Friday, July 10, 2020

"Organizations Don't Change, People Do," Part XV

Unlike ANTIFA People, Ideas & Objects are not interested in tearing things down. ANTIFA’s objectives in tearing things down is wholly consistent with the oil and gas bureaucrats who have and are doing a very fine job in their specialized discipline. And just like ANTIFA, they are of the staunch anti-profit and anti-capitalist mindset. People, Ideas & Objects are rebuilding the industry brick by brick, and stick by stick due to the fact that the damage and destruction is so comprehensive. People are seeing the decline in the industry is rapidly getting worse and there are no attempts to even admit there’s a problem. Trying to save what is left and reconstituting what is already destroyed would be a more ambitious objective at this point than just starting over. We have a lot of work ahead of us at People, Ideas & Objects and the sooner we get our budget funded the sooner it’ll be completed. Our objective is to save the industry from the bureaucratic destruction, we are not the ones that are attempting in any way to destroy it. Our solution provides a viable business model that identifies and deals with the business issues that are present in the marketplace today. And also provides a foundation for the industry to resolve future issues and build a foundation for a dynamic, innovative, accountable and profitable producer and hence the entire oil and gas industrial complex associated with the producers.

Absolute control of people’s workday has been the domain of the bureaucrats and their minions in oil and gas. Little is done without a comprehensive command and control environment where the features and productivities of the administration, accounting and governance of the organization replicates a computerized 1950’s scenario. This is the domain that provides the bureaucrats the protection from outsiders such as People, Ideas & Objects and our radical ways. It is how the bureaucrats ensure that any value which is generated is siphoned off and delivered to them personally. Meanwhile in the rest of the world, the 1960’s, 70’s, 80’s… to today have evolved differently. People are expected to do their jobs in a time and place where the expectation is the job is completed in a timely manner. The assumption is made that people have the capacity to think and do what is necessary without the direct supervision of those that provide no real value anymore. As bureaucrats are threatened more and more these days they have the reins tightened and ensure that the organizational discipline and control is broken down to 30 second intervals. This is where we stand today, with organizations that would be competitive in the 1950’s, which just as the former Soviet Union proved their system no longer built value, the bureaucrats system no longer does either. We can either ride the downward spiral with those that have destroyed most of what was ever provided to the industry, or we can replace them and rebuild in the vision of the Preliminary Specification

When will the producers begin to act responsibly and begin to deal with their issues? Deferring the discussion to people and groups that have none of the responsibility for this downfall is well beyond tiring for most people. We heard last week it was the employees fault. No, it’s no one's fault other than the producer bureaucrats themselves. Instead of working to build the business it became a culture of digging into the gravy train for one's own benefit. Producers are responsible for the greater oil and gas industrial complex that they rely upon. It is the source of their capabilities and capacities, which they gladly take credit for, and the groups that are abused financially so that they’re able to access more. These two behaviors are inconsistent with the needs of the service industry and tertiary industries. They are at the behest and are beholden to the producers and do not function for anyone else outside of the industry. They are the reasons producers generate revenues from oil and gas sales. Oil and gas is a primary industry and the producers need to begin operating in a manner that recognizes the fact that they need to support and develop all of the resources they rely on for those revenues. Expecting investors or banks to fund the producers themselves and to finance the innovations and organizations in the service industry has been used and abused to the point where it won’t be available on that basis again. Producers will need to work effectively with all member organizations of the industrial complex and begin to move it forward as they require it. In other words the bureaucrats have blown it. And there will be no second or third chances. 

But I repeat myself. And I ask what it is that can be done to move this forward with such an obstinate group of do-nothings. There is no instinct of self preservation or inclination towards action. Bureaucrats are seeing the looming bonus that will be available once they declare their organization bankrupt and that only prompts them to expand their personal shopping lists. Ten years ago natural gas declined and is showing every sign of a looming global collapse. It has been five years since the investors left without a whisper of concern or anything beyond a shrug. And just as they’ve destroyed natural gas they went on to prove they could do it again in the oil market six years ago. Oil takes more time and effort to destroy due to it being a global market but it looks like 2020 is the year they can begin congratulating themselves on a job no one wanted done. At least they have the coronavirus to blame.

Second quarter financial statements are about to be published in the month of August. What will these read and how will they be presented? I think it’s reasonable to assume that they will show the end of the line as any reasonable person would define it. I know that for a lot of people who work within that greater oil and gas industrial complex the exit doors are getting very crowded and it’s only motivating more people to do the same. Issues regarding the retention of people contrasts the layoffs bureaucrats are executing. People are wanting out and they’ve had enough. They see where this is headed and know instinctively that they don’t want to be there when the roof caves in. Call it survival mode. 

Many such as those that are interested in our user community are not giving up on the industry. They just don’t want to be part of the decline and destruction anymore and want to be part of how things get turned around. They know and intuitively understand that society in general is wholly dependent on oil and gas just as people are dependent on oxygen. Without them it’s terminal. North America stands as the premier economy in the world. For that to continue it will need to remain the largest consumer of energy. Oil and gas will always be a large portion of the makeup of our energy source, at least for the remainder of this century. Energy independence and security are worthwhile, attainable and liberating for our position in the world economy. These are spelt out in our White Paper “Profitable, Energy Independence -- Through the Commercialization of Shale.” Something that frightens and scares the bureaucrats because they know they wouldn’t be involved in that, and therefore the gravy train they’re used to would also subside. 

We will always have choices in how we fuel our economy. The issue is the efficiency that is derived from oil and gas is undervalued today. That undervaluation will cease and be overcompensated if the producer bureaucrats continue in the selfish manner that they are. Purchasing our energy from offshore can always be undertaken until the infrastructure is rebuilt from the destruction that we’re witnessing today. The issue would be how much would it cost and how long would it take to turn this ship around. When each boe has the mechanical leverage of 23,200 man hours it can be easily defined as the deal of the century at today’s prices. I prefer to call it the crime of the century when producers are unable to recognize the business is not a business in any way, shape or form. Nonetheless the choice we’ll have is to compete in the world economy with one arm tied behind our back by paying others $600 / barrel while the North American oil and gas industry is reconstituted. If we began this now by adopting People, Ideas & Objects Preliminary Specification, funding its budget and moving it forward then there would be less time and risk of this happening for a protracted period. 

I’m sure that what is going to happen with our good friends the bureaucrats is that they’re going to frame this with their classic spin. If I could be so bold as to suggest for them what they should call it. “Living the Dream.” In their case I’m of course taking the critical point of view that they have their heads in the sand. Although it could also be suggested that this is what they intended all along with the associated destruction being the vision or dream they were always pursuing. I could associate a few other points to the phrase but they would be redundant too. However if the bureaucrats aren’t catching the sarcasm, they are certainly free to use the phrase. 

I will be taking the next four weeks off returning August 10, 2020. 

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

Wednesday, July 08, 2020

"Organizations Don't Change, People Do," Part XIV

Just a quick note to follow up on Monday’s post. We originally raised the point about Directors and Officers insurance coverage in our June 2, 2020 post. We subsequently learned producers increased the officers and directors coverage. But since that time nothing has been done. Monday’s post noted that the solution to what ails the industry is for the Officers and Directors to cover off their personal risks, in what I allege to be a reasonably clear insurance fraud. This is not acceptable and should be dealt with. They are the ones that are responsible, accountable and the only ones with the capabilities to act. Yet they’ll just sit and watch what they’ve done in the industry play out without a shrug, care or concern for anything. They’ve got insurance coverage and they couldn’t be happier or more content. Whatever happens in the industry will be beyond their control and they can say they upheld their strategy of muddling through and doing nothing. What is not being considered is the time that we’re in and the state of affairs of the industry are demanding remedial action. Oil and gas prices at these levels do little other than to keep said bureaucrats comfortable. There is no future and the prospects for the future fade each passing day. Whether that is LNG facilities which can no longer find markets, pipelines that can’t be built, the service industry capabilities further eroded or producers preparing people for more losses, more lay-offs, more bankruptcies and more write downs. The second quarter will be the worst quarter in oil and gas, ever. What we’ve learned is that the alleged leadership wanted to skate on through this without any risk by increasing their insurance coverage. And that is all. 

Quiet is the only word to describe the atmosphere in oil and gas. There are the layoff announcements that have the bureaucrats competitive juices flowing once again. “I’ll see your 500 souls and raise you another 200!” Such zeal. All of this is done with no consideration of the future of the industry and how it will function beyond the third quarter of 2020. But then again they’ve been bereft of any planning or strategy for four decades, what good would a plan provide today? With $40+ oil prices bureaucrats are back in the money due to the fact that their royalty and operating costs are below this price. That makes them “profitable” and “cash flow positive” and somewhat assured that the good times are just around the corner, or at least next week. The capital and overhead costs are all being capitalized so these costs will linger in that big vat of unrecognized capital costs of past production. Why would that change? The fact is their innovation in terms of their compensation can resume and start providing bureaucrats with the fruits of their strenuous labors once again. 

In Canada I can say the bureaucrats have been operating these past few years on the basis that all employees are at their desks, figuratively speaking, throughout the day. Activity levels on the street and in the +15 system have been minimal to none while the working hours have been enforced. I always thought that this was so that bureaucrats could ensure that control was maintained at all times. The coronavirus has broken this hold on the staff’s time and location during working hours. It really doesn’t matter where you are does it? The quality of life for most has been increased due to the capacity to work from home. Once the virus is done, I would think that this would be difficult if not impossible to make the change back to the bureaucrats rigid control regime. Other industries are seeing the ability to work from anywhere as a real quality of life issue and a benefit for their staff. It also seems to be a boost in productivity. With the reputations that are being so rightly earned in the industry today, producers would be the odd man out if they tried to continue with their prior version of controlled lockdown. Could oil and gas compete for talent without the ability to work from home?

The converse of this is that the work from anywhere opens new opportunities to the people who were once committed to the industry and may see things differently since their forced exit. Other industries may be as accessible from their current locations just as easily. The loyalty and commitment in terms of being the scapegoat for all that is wrong in the industry is just the latest example of why the bureaucrats will never get this back under their control. Admission or self-reflection as to how we arrived at this point are in short supply. 

People can see now that the shale basins are not going to be turning around, whatever that means, anytime soon. Optimism has waned and the facts are as stark as ever that the industry has issues to face. More and more I’m hearing that the service industry will be the impediment to any quick turnaround. As bad as the oil and gas industry is, the service industry and those that make up the rest of the industrial complex have had it. These people and their companies are being betrayed and are exiting the continent leaving literally nothing in their place. The people who had worked, and the tacit knowledge of how things were done, are walking away and these capabilities will need to be rebuilt from the ground up. Offering big wads of money doesn’t motivate anyone when the trust and belief in the industry is at the levels the bureaucrats have now chosen to operate at. The only question the people have is will there be a second paycheck on the basis of that handsome offer?

OPEC+ the scoundrels the bureaucrats always alleged they were, who allegedly are playing dirty tricks somehow, ended up with all aces. Is this because of their actions or the self-inflicted gunshot wounds of the North American producers? At $40 OPEC+ are profitable in the real sense of the meaning of profits. Sure they’re countries budgets may not be fully funded but when was the last time that Canada’s or the United States federal budgets were? And when did it become the sole responsibility of the oil and gas industry to solve all the financial commitments of the government? Operating costs for Saudi Arabia are $3 / bbl. Ghawar has been producing since 1948 and I doubt has much capital left to retire. OPEC+ have 9.7 million boe / day of surplus capacity until the end of July 2020. This will hang over the market like a dead weight, satisfying any increase in demand for the foreseeable future. $40 oil is going to be as good as it gets for a number of years. In terms of natural gas pricing I think it’s really bad news there as well. The producer bureaucrats haven’t been profitable in natural gas since they first collapsed the price in 2009. Here is a graph of these prices in North America, Europe and Asia. It would appear that the world is now awash in shale gas too. 



Once natural gas prices collapsed in 2009 the race began to reverse the existing facilities for LNG imports and expand the LNG export capacity. The global markets were unaffected by the shale gas overproduction and oversupply in North America. Therefore the global prices were much higher making the LNG business viable. Now with LNG export capacities of the U.S., Australia and Qatar flooding the global market, natural gas prices are emulating the shale based decline of 2009. 


Understanding this only took ten or eleven years for North American producers to orchestrate. And with oil starting in 2014, that means we have four or five more bad years before things turn around, or collapse further. I’ve never stated how long I think it will take for producers to turn this ship around. Eleven years and they still don’t know or understand the issues. It will be at least a decade before the industry pulls itself up to a moderate operating level. That is with the implementation of the Preliminary Specification. The extent of the damage is reflected in this Deloitte & Touche report that shows somewhat accurately the state of affairs. 

HOUSTON (Bloomberg) --Almost a third of U.S. shale producers are technically insolvent with crude at $35 a barrel, according to Deloitte LLP, highlighting the industry’s acute financial strain even as oil prices rebound from a record low earlier this year.
West Texas Intermediate edged up to $40.06 a barrel at 11:38 a.m. in New York, a substantially higher level compared with most of the last few months, especially April, when prices briefly went negative. But the rebound will do little to prevent 15 years of debt-fueled production growth catching up with many shale producers, Deloitte said in a study. Technical insolvency is an accounting way of saying a company will face problems meeting debt repayments.
“New and unforeseen headwinds continue to jolt the industry’s progress,” authors Duane Dickson, Kate Hardin and Anshu Mittal said in the report. “Although the sub-zero price was a temporary dislocation, this intense volatility highlights the fragile state of the industry.”

I would suggest that this report understates the situation in oil and gas as I understand it. It is appreciated that others are beginning to see the industry's problems and difficulties. I would also suggest that Deloitte & Touche are party to the disaster that is oil and gas as they are the ones who are charged with ensuring that accounting is accurate and timely. Now they’re finding that not only are they the ones that should have been standing in the way of the bureaucrats. They should have been the first to raise the issue. We can look at the roots of the problem and see that it is first and foremost an accounting issue of over reported profits, overreported assets, overreported cash flow, overproduction and oversupply. All at the expense of the investors who had been assured their audits were meaningful. That’s right, I forgot, oil and gas is where everyone in authority does nothing about everything. And none of these comments mitigates the CFO’s as culprits in any way.

Maybe a good exercise for those at KPMG, PriceWaterhouseCoopers, Deloitte & Touche and others would be to account for the comprehensive losses that have and will be incurred as a result of this disaster. Start with the investors and bankers, then those that have been laid off. Then it might be easiest if they just took the entire service industry's value and trashed it, after all that’s what the producer bureaucrats have done. Maybe these accountants can add an estimate of what their oil and gas industry billings will be once this decline has reached bottom. I now see why the engineers and geologists thought that the only purpose of accounting was to “pay the bills.” This is pathetic and sadly I’ve spelled out a role for these accounting firms in the development of the Preliminary Specification. I’m curious to know now if it's beyond their capabilities and their capacity to understand that role. 

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

Monday, July 06, 2020

"Organizations Don't Change, People Do," Part XIII

Bureaucrats have made out like bandits over the past decades. Unaccountable for their inactions is the only way to describe it. As we’ve stated the Preliminary Specification eliminates the bureaucrats in oil and gas, just as all industries are being disintermediated. The Internet and software have that effect on organizations in the 21st century. We see the bureaucrats' motivation for enhanced personal financial compensation is in stark contrast to the destruction their inactions have caused. Inaction motivated to save and protect their personal financial empires from threats such as People, Ideas & Objects Preliminary Specification. These bureaucratic acts of inaction and enhanced personal financial compensation were done for the same reason we were subject to the ostracization and attempted thefts of our Intellectual Property. The only issue the producers face now is will they act in time to save the industry from falling off the cliff. No one would argue that our trajectory is downward and steeply so. The question in the market would be, is it going to get better by continuing to do nothing? The time frame in which to evaluate this is best understood to be what we commonly refer to as July. It seems awfully quiet these days. The only apparent news is coming out of Exxon who commented on their looming second quarter report. Softening people up for the wicked left uppercut they’re about to throw later this month. 

After Shell announced they would be recognizing an additional $22 billion in asset write downs. Exxon announced that it would not be recognizing any write downs in the second quarter of 2020. Adding language that included “may not account for all adjustments and charges required to fully reflect the changes in industry conditions.” However, Exxon announced it was having a difficult time these days. They did say they’ll be reporting a second consecutive loss in the second quarter of 2020. The consequences of this chronic malaise have nothing to do with the people in power. They’re passengers just as we are, they’d claim. This stupefying passivity of the producers, being passed off as “normal operations” is another aspect of the producer bureaucrats that has become very tiring. Here’s a suggestion, fund their share of the Preliminary Specification.

A key point to keep in mind for the remainder of this post is the purpose of accounting is to record the performance of the organization. It is not for the purpose of valuation. Markets determine the value, accounting records the performance and producers build balance sheets. This behaviour is consistent with the culture of the industry. The objective everywhere is to build balance sheets, big bold beautiful balance sheets. I still don’t know what that means. There have been charges made by a former Exxon employee Mr. Franklin Bennet and others that parallel the charges and allegations that People, Ideas & Objects have made regarding the industries accounting practices and culture. Accounting practices that have been instituted and systemically practiced throughout the industry since the late 1978 change by the SEC to accept only Full Cost Accounting in terms of recording exploration and production assets for oil and gas companies. The WSJ notes,

An Exxon spokesman said the company is in compliance with accounting rules and SEC regulation about disclosures to investors. 

Which is exactly the point and the source of the issue at hand. Producers have failed to recognize the SEC has defined the outer limit of what is acceptable accounting practice. Not the goal that every producer must achieve each and every year. This misinterpretation of the rules has led to the demise of the industry. When you overstate your capital assets, which this convenient misinterpretation does, profits are overstated as well. Specious profits raise excess amounts of capital from the markets, excessive investment brings about overproduction. Overproduction as we’ve defined it here is unprofitable production. These “fake profits'' generate what People, Ideas & Objects call the unrecognized capital costs of past production sitting on the bloated balance sheets as property, plant and equipment of each and every producer. A producer seeking to be the most competitive in the marketplace would have retired as much of their capital costs as quickly as possible, especially in a capital intensive industry. This would have seen their previously invested cash recycled quickly from the capital assets account of property, plant and equipment, be recognized as part of the capital costs passed on to the consumer in the process of producing profitable production on the income statement and returned to the balance sheet in the form of cash to be used in paying dividends, paying off debt or funding further capital expenditure requirements. This assumes they’re receiving profitable commodity prices such as the Preliminary Specifications price maker strategy provides. But why run it as a business when you’ve convinced investors that you’re profitable with specious accounting and they’re lined up around the block trying to get in. Eventually the accounting scams become more concerned with the methods and means in which to “get more” for the guilty parties, and less about the business at hand. What’s most surprising is the fact that nothing is being done when the entire industrial complex is collapsing, amazing. 

Producers now want to be evaluated based on their revenues less operating and royalty costs during times of trouble, which is an acceptable thing to do. Recognizing capital during difficult times can be suspended to ensure the organization survives. Producers may want to claim this in the second quarter of 2020. However, People, Ideas & Objects assert the point is moot when the facts clearly state that they’ve been doing so consistently for the past four decades. This graph provided from @SoberLook shows that the common industry interpretation of break even and the time in which properties would be shut-in are different. They shouldn't be. It also shows the interpretation of breakeven by the industry is inconsistent with the term. 



Maintaining production in the short term while prices are poor may be necessary until such time as the issue affecting prices is resolved in the market. This is common sense and everyone can agree that it's the appropriate methodology for the very extreme short term period of a month or two, at the absolute most. However, what’s happened is that the culture of the producers, driven by their misinterpretation of the SEC regulations, have seen them continue to produce well below the “Well Breakeven” price for the past forty years. Doing so for one producer, when the commodity is subject to the characteristics of price makers, causes the price of all of their production to drop below the marginal price. When this industry produces all of its production for decades below its breakeven price you have an erosion of the global oil and gas commodity markets pricing systems where no one will make any money, ever. This began with the oil market price collapse in 1986. For the period extending beyond the extreme short term the “Well Breakeven” has to be recognized as the Shut-in Price or there will never be any money made in the oil and gas industry. Producers only ever reported profits by deferring the recognition of their capital assets, in a capital intensive industry, for decades at a time. Doing so made them appear profitable which created the investment scam which enabled them to produce such innovations in Executive Compensation.

Cash and time have all but run out for the industry. When you’ve run out of cash, the simple request to investors and bankers for more, along with financial statements that show you have none, and don’t produce any cash are all that’s needed to watch them sprint the other way. These are the most certain signals that the organization is unable to deal with whatever ails it. The time to deal with this issue is upon the bureaucrats this month. They can fund People, Ideas & Objects budget before they publish their financial statements, or they can stand and be dealt with by the market after producing their second quarter reports with their classic blank stare regarding the lack of strategies and plans they have to move forward. That is the choice that chronic deferring and denying these past decades provides you. 

We’ve noted before the producers Boards of Directors and Officers as individuals have upgraded their personal insurance coverage that indemnifies them from any risk of the personal costs of litigation arising from their term at the organization. So we can assume they think they have the personal strategies and plans in hand to be able to weather the storm. Therefore why have a corporate strategy and plan? If there is fall-out it will be in the form of investor lawsuits against the Directors and Officers alleging they didn’t fulfill their fiduciary duties. If that should be the case the question comes down to whether their insurance companies will find a clause in their contracts that eliminates the Officers and Directors coverage due to clause “abc” or “xyz?” We’ve all known and experienced how insurance companies like to control their costs. With what can only be trillions of dollars being lost in the greater oil and gas industrial complex. And flying by the seat of the bureaucrats pants is how the oil and gas industry has chosen to be run. Will the insurance companies, upon seeing that there were fraudulent scams by these bureaucrats, those that have been identified, documented and alleged by People, Ideas & Objects and those identified in this WSJ article. The people responsible, accountable and capable of remedying the issue, have done nothing to stop the destruction of these trillions of dollars in investor and others losses, and with the full knowledge of the Preliminary Specifications existence and availability since December 2013. Will that preclude the insurance companies from having to meet their global industry wide commitments? Asking for a friend, who has a follow up question too. When the Directors and Officers upped their insurance coverage last month, does that imply culpability and guilt? Would that also be seen by the insurance companies as dishonest behavior or misrepresentation regarding their obligations and insurability? Say an insurance fraud? Instead of addressing and fixing the problem, upholding their fiduciary duty, just upgrade your insurance! Brilliant, kind of fits in with the muddle along and do nothing strategy. With all the devastation and destruction in the greater industrial complex of the oil and gas industry, I think we can satisfy ourselves that we've definitively found the source of all the destruction. I told my friend he should talk to his broker or agent to get the answers he’s looking for. In the meantime I’ll be upgrading the insurance on everything I own, moving it inside and setting the house on fire to enhance my insurance claim. I should have thought of this before!

With the landscape of ruined careers and financial catastrophes by those that chose to believe oil and gas to be a “good” place to establish a career or business. Are satisfied to know that those that are responsible for this, that were never held to account and were the only ones capable of doing something about it for the past decades. Will be more than adequately covered in terms of their risks by the insurance they’ve now purchased, and in most instances, form part of the innovative personal executive compensation we’ve seen them create. It’s these kinds of actions by the leadership that make oil and gas so special. The problem is these people are otherwise unidentifiable as they walk down the street. Which kind of makes the situation more difficult to accept. But we always knew they were nameless and faceless bureaucrats. 

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

Monday, June 29, 2020

"Organizations Don't Change, People Do," Part XII

Let us all note the downfall of Chesapeake yesterday. It didn’t have to be this way however organizations don’t change. What does is the people in the industry and they are turning to People, Ideas & Objects user community. Especially when the comments coming out of the bureaucrats are as follows. This is some commentary from the Dallas Fed’s Survey of oil and gas producer executives. From World Oil

One executive commented in detail, “With the ‘Great Crew Change’ retirement of ‘boomers,’ and COVID-19 work-at-home isolation, the industry is de-populating itself of knowledgeable and experienced personnel. That collective knowledge drain is not being effectively replaced by ‘newbies.’ The newer, younger employees don't know much, and while they can stare at computers and run applications, they are making critical land, legal, financial and business errors at an astonishing rate but try to self-buffer from the real world impact of their errors with mental Maginot Lines of mercurial ego! I'm seeing this happen more and more frequently with contractors, purchasers, operators and business-partner companies. It's causing everything in this industry to move at a glacial pace, because so many errors and problems have to be reported to a knowledgeable supervisor, somewhere, who can then give some one-on-one ‘counseling’ to the error-creator, who tries to defend their error to the company, who reported it in the first place. We wind up having to write more memos and e-mails, or make phone calls to a voice-message recorder, than ever before, just to keep basic functions moving that used to be routine and automatic.”

This is new, this is innovative but mostly this is just the same old, same old. The decline in producer and service industry organizations, the capabilities and capacities of the producers that we’ve warned about throughout the years that this blog has been written. Has suddenly been seen as an issue by those that are in bureaucratic power. For the moment at least and here’s the most important point of all, it’s the employees fault! This scores a triple in the second bureaucratic handbook “Muddling Through for Dummies” when you can affix blame, excuse your own chronic inactions on others and create another viable scapegoat. If viable, scapegoat is not too oxymoronic, its double meaning brings a special ring to it. Training and development of their staff is not their job, quite obviously. And if they’re so unhappy with those that they’ve hired specifically, why not do something about their training and development, or termination? Instead they’ll blast their dirty laundry out about their problems and expect someone else to clean it up for them. Here is the solution to all that ails the industry. Cash, derived from continual “real” profitability such as what we’ve defined in the Preliminary Specifications decentralized production models price maker strategy

The immunity attached to oil and gas executives is a remarkable phenomenon. I’ve yet to see anyone outside of People, Ideas & Objects and our user community hold them accountable for this multi decade disgrace. I keep asking myself where the CFO’s have been, and where are they now? But then again they are helpless and powerless aren’t they. And I’m talking about all of these producer executives who are helpless, powerless, inept and not that smart. I might want to add they’re apparently illiterate. Unable to read what has been written here since 2005 and People, Ideas & Objects Preliminary Specification which was published over the course of August 2011 to December 2013. 

This oil and gas situation is also particularly interesting from the point of view of its uniqueness in business. This attitude of deniability of any issues or difficulties that they’ve caused, that anything they do run into is the responsibility of others is systemic and it's the only law that is recognized or adhered to. There is no deviation from that anyone, anywhere or at any time in terms of any other thinking. This homogenous thinking is the result of decades in which drilling wells was the business and the only part of the business, which required raising capital from markets, and forms the comprehensive culture of do nothing and muddle along. And why not, show me a bureaucrat that’s hurting financially as a result of the culture of the oil and gas industry. Even in bankruptcy they make out like bandits by granting themselves lucrative bonuses for the hard work they’ve never done and will never be doing. There was an interesting article that was somewhat relevant in the Wall Street Journal on Saturday that spelled out the thinking of an executive in another industry. 

I reject that answer. The biggest talent pool in the world doesn’t matter if the ocean that surrounds it is intellectually shallow. If a business is based in a place that expects social and political conformity, then innovation will falter eventually, because it depends on pushing the boundaries. And if our people find it hard to flourish in every aspect of their lives, then the company will struggle in the long run. I think that as the West Coast becomes more insular and exclusive, other parts of the country will become the biggest drivers of tech innovation.

This executive was moving their technology based operation from Seattle to Texas. Imagine this kind of proactive thinking and issue mitigation being executed in oil and gas? Whether that was on a systemic basis or by an individual producer organization. I’m not suggesting oil and gas is “intellectually shallow,” I’m calling this a drought. We’ve seen these same producer “executives” take credit for the innovations of others that have been used in the industry. “Producer innovations” were alleged to have provided coiled tubing and packers in order to make shale fracing possible. Except we all know the difference between fairy tales and facts. Both of those innovative developments were from the service industry whose providers had to pay dearly with their ostracization and banishment from the industry, for long periods of time, before any producer decided to use them and bureaucrats began to reap their financial benefits. We’ve seen the diversity and dynamic nature of thinking throughout the industry fade to zero over these past four decades. Proving correct the technology executives thesis in the WSJ article. I guess we should have noted too at the beginning of this post the level of dishonesty and fairy tales that have been circulating around the producer firms for the last number of decades. Why actually do the work when you can just take credit for it. That being the other side of blaming, excuses, viable scapegoats and chronic dishonesty. Although in their defence I don't think before 2009 anyone knew or understood that Bernie Madoff was dishonest. 

There will be no other posts this week due to July 1, Canada Day and July 4, 2020 Independence Day in the U.S.  Of note, July 4th 2019 is the day we published our White Paper “Profitable, Energy Independence in North America -- Through the Commercialization of Shale.” The response that we received over the past year has been overwhelming. I have published a number of papers into this market over the past thirty years and none has been received anywhere near the reception of this White Paper. I am very pleased, and would note this is more to do with the need in the marketplace for a solution to the issues in the industry. We look forward to continuing the value adding work that we’re doing for the industry and are pleased that our audience continues to grow. Thank you.

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

Thursday, June 25, 2020

"Organizations Don't Change, People Do," Part XI

Looking at the issue of production discipline in the industry. We understand that the attitude of the bureaucrats suggests that they’ve always been profitable and that it’s all the other producers in the industry that have caused the problem. And that to a large extent is the problem. If their firm sought to clean up its act and work within the logic of the decentralized production models price maker strategy, without the Preliminary Specification being built it would be a futile exercise. If they were Exxon going it alone doesn’t get the job done when all the other producers are still participating in the free for all. Production discipline has to be implemented industry wide, or on a North American basis at least. It’s in that way, and only that way, that the industry will be able to prosper and conduct its operations as expected. Bureaucrats state this is collusion! I argue that their argument is not valid for two reasons. The decisions to produce or not are being made independently at the Joint Operating Committee level and in its best interests. Based on objective, standard and actual accounting data and information. This wouldn’t qualify as collusion. And if for some reason collusion was proven to somehow qualify it would fall under the category of implicit or tacit collusion, which is legal. Either way the bureaucrats are holding out the false argument that the decentralized production model’s price maker strategy is something that it is not, or something that is irrelevant to the issue at hand. And choose instead to watch the industry circle the drain. From Investopedia.

The price maker is also a profit-maximizer because it will increase output only as long as its marginal revenue is greater than its marginal cost. In other words, as long as it is producing a profit.

People, Ideas & Objects “price maker strategy” does not reflect that we are fixing prices. What it implies is that we are adhering to the principles of the economic theory of products that reflect “price maker” characteristics. Contrasting the “price taker” strategy employed throughout the industry today. Products with price maker characteristics in markets that are subject to overproduction, experience material downward pressure on product prices. In the shale era of abundance, production discipline must be attained. 

Producers need to understand, and quickly, that as a primary industry the sales of oil and gas are for the benefit of the entire industrial complex. This includes the producers, service industry, tertiary industries and general economy. In many cases such as the service industry their only source of revenue is from the oil and gas producers themselves. They don’t service the retail or automotive industries. The consideration that these groups have been given over the past decades has been very poor as reflected in the commentary of Encana / Ovintiv when they called them “greedy and lazy.” The oil and gas revenues have been the sole source of pleasure and accomodation for the bureaucrats in the many highly innovative ways they’ve expanded the means of executive compensation. All others be damned. Not only have investors come to realize that the oil and gas producers have been running a scam in the past four decades. The bureaucrats assume that the investment and banking community are available to provide “make-up revenues'' to the service and other elements of the oil and gas industrial complex. As I documented in our White Paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale” these days are gone. The investors and bankers are no longer falling for that scam either. If work is to be conducted in the field, it will have to be paid for in advance by the producers, otherwise they’ll have to go without. If a new rig is required then it will have to be paid for in advance. The volume of unpaid bills to the service industry is probably at record highs. Who knows though, it’s not something that the bureaucrats are interested in. And with the looming bankruptcy run we’ll find that these service industry representatives will be given the full scope of their legal entitlement through that process. Which is nothing. Producers should be looking forward to financing and directing the rebuilding of the service industry. Good thing there’s the Preliminary Specifications Resource Marketplace module to do just that. 

It certainly is easier to capitulate on the shale era and say it’s over. As we are hearing throughout the producer population these days. Instead of working to make it profitable, which requires bureaucrats to assert serious effort and make this a business, as we’ve described in our White Paper. Giving up is item number seven in the “Bureaucrats for Dummies” handbook. And I of course can’t agree with them more. If it’s giving up they want to do then we’ll be far better off without them. It’s time for action and if these officers and directors think they can get through the second quarter reporting period unscathed, a) I’ll be surprised, b) we have a long way yet to travel. It would be my opinion that if there is not a “the building is on fire” sense of urgency to act in the boardrooms of the producers then they’ll be personally sued to kingdom come. 

The critical role that investors, us really, play in the oil and gas industry is their wise and prudent direction that they provide. The same role they play in society throughout the public and private financial sectors. It is their money they’ve put into the organization. They are allegedly the smarter of the financial minds as a result of accumulating the capital that they do have. They are generally risk averse and mostly quiet. The invisible hand in Adam Smith’s Wealth of Nations. Their presence or lack of it can initiate action and enable economic growth and stability. As long as they are satisfied with the returns, and those returns are competitive to the others in the marketplace, they’ll remain. When investors leave. When they stop funding the activities in an industry as they’ve done here in oil and gas. There is no stronger signal that should garner the attention of the executives and directors. It is a signal that the market thinks your organization is in serious jeopardy. Actions need to be taken to reverse the trend, if possible, and rehabilitate the organization to be consistent with the market expectations. If not they will be replaced by creative destruction. This is maybe the most important role in which investors act. They leave, almost instantly and mitigate their loss. In oil and gas what we heard was the producer bureaucrats mouth in chorus that they had $x.xx billions on their lines of credit they would use. The window of opportunity to access those lines of credit have been closing for a few years now. They seem to be accelerating and don’t appear to be open to anyone much longer. In the zeal to offset our argument that producers were running low on working capital and had in many cases negative working capital. Bureaucratic scammers began quoting their working capital numbers to include the amount of remaining credit on their lines of credit as part of their working capital. Such financial innovation, once again.

In all of the years that I’ve worked in oil and gas I’m at a loss to remember a time when the discussion in the industry revolved around success and failure. The concept of profitability was raised by us in August 2003 and we have paid dearly for the introduction of that. “Put some cash in the ground,” “build balance sheets,” “pipelines,” “OPEC are at fault,” “praying for a cold winter” the list goes on. Don’t see any discussion of profitability, and the criteria of success or failure can’t be assessed in these talking points either. 

The question does arise now that producers are finding the effectiveness on commodity prices of shutting-in production. What will they need People, Ideas & Objects for? Think of the junkie looking for his next fix. This junkie being a further step down from the comforts of living in a dumpster. Costs are piling up unpaid and they’re unable to get things done as they should. What will compel producers to continue to hold off their production until all of the “unrecognized capital costs of prior periods” are accounted for? (Or the term that we call property, plant and equipment on the bloated balance sheets.) Where will any production discipline come from and how will it be implemented when no one knows or understands what their real costs are? We’ve seen an attitude of bureaucratic entitlement overtake the industry in these past decades. Suggesting that they’re profitable, based on the junk accounting they’ve been feeding investors, and therefore it’s not their fault or responsibility that they’re in the condition that they’re in. It’s for others to deal with and somebody needs to save them. Industry has fallen so far down in such a very short period of time. A decade was all that it took to make the industry the worthless, listless, rat infested, garbage dump that it is. Yet producer bureaucrats just continue to cut away at the one resource that still has blind faith in the opportunities they were once promised. More to the point is, do we make these personnel cuts or miss the payroll and have everyone leave. Missing payroll would terminate the firm instantly. A decision that was obviously made at Chesapeake where they asked themselves “do we skip out on payroll or miss the $10 million interest payment? 
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. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 587-735-2302 in Calgary or 713-965-6720 in Houston or email here.

Tuesday, June 23, 2020

"Organizations Don't Change, People Do," Part X

Many have argued with me that the Preliminary Specification will have the effect of raising prices of oil and gas across the globe for the remainder of the oil and gas era. Which is true. Where else will the industry find the cash resources to fund itself? Oil and gas as commodities have now been proven to fall within the price maker category. Not that this is a tool to raise prices precipitously and for no reason. But to ensure that the industry imposes the desperately needed production discipline that has been missing from their operating methods for the past decades. In the shale era, this lack of production discipline is rapidly leading to the demise of the industry. The cash to fuel the industries resources in terms of the various stakeholders has not been a concern of our good friends the bureaucrats. They have been satisfied with their take at the expense of everyone else. The shareholders, bankers, people within the industry and service industry, but also the tertiary industries and general economy have had to suffer due to the lack of financial resources that are generated by the oil and gas producers. This has also been at the costs of innovations that would mitigate the price increases the consumers may face, and reduce the inherent environmental difficulties that are now present in hundreds of billions in somewhat orphaned abandonment costs that have not been conducted but need to be. Where is the money to deal with those costs? The taxpayers outside of Canada are not going to undertake that. This also leaves the difficult question of how the complex and costly future capital expenditures are going to be funded to ensure that the economy is not short changed in terms of its demand for energy. Investors and bankers are now wise to the manner of the bureaucrats. They’re not fooled repeatedly, and it would be unwise to continue attempting to do so. It is the most powerful economy that will be the largest consumer of energy, always. Oil and gas will always be a significant contributor to our energy makeup. I guess we should thank the bureaucrats for their consideration of all of these demands when they were on their personal “journey of acquisition.” If we critically evaluate the oil and gas industry today what if anything about this situation appears temporary to you?

I would suggest that we review what the real cost of energy is today and take in consideration what these costs are and ask if they are reasonable? Soon after being elected Premier of the province of Ontario, Doug Ford stated that he was going to call all the heads of the major oil companies, get them in one room and ask what’s going on, and specifically why were Ontario consumers paying more than what Americans were. Surprisingly this was all we heard about this rant coming from the newly elected. It is true that Canadians pay about 30% more for their gasoline than Americans do. But why is that? Someone must have quickly pointed out to the newly elected, Ontario and Canadian government taxes, but also American’s like to tax gasoline heavily too, and therefore are responsible for high gasoline prices and these trans border price differentials. If the price of gasoline is going up as a result of implementing the Preliminary Specification, in order to support the broader energy industry infrastructure, to deal with the abandonment costs and future capital costs of bringing on the more difficult and challenging energy, why would the government take an increase as well? 

If we are going to stay with market based economies then we should begin to operate based on market signals. The price of the commodities that the producer receives is all the information that the producer needs to know. It contains the global supply of oil, the reserves, the storage capacity, the state of inventory and the level of demand. All within that price. If that price provides the means in which to produce profitably, based on the standardized and variable cost accounting and administration provided by the user community and their service providers, then the property will continue to produce. Just business, which begs the question what is it that the industry has been doing? Managing and controlling their costs so that they stay below whatever proceeds arise from full production. Also known as the high throughput production model. This method is how the industry is configured today. In an environment where oil and gas is scarce it may have provided some value, however we don’t know as a result of all the shenanigans that have been going on. In an environment where oil and gas are in abundance it’s principle of full production to offset the high overheads is out of step with our current reality. 

What the Preliminary Specification relies on is our decentralized production models price maker strategy. The decentralized production model seeks to provide production only if it’s profitable. Converting all of the Joint Operating Committees costs to variable costs, enabling the oil and gas producers to move up and down their production profile and be profitable at all times. The difference between these two methods is the production discipline that is inherited through the decentralized production models ensures only profitable production is produced. Any unprofitable production only dilutes the producers corporate profitability, and would therefore be shut-in which would incur a null operation, no profit but also no loss. People involved in this oil and gas industrial complex need to see the producers perform. People’s commitment will now be contingent on the ability of the industry to transform their performance. Boom and bust cycles should have been worked out of the industry long ago. Expecting people to succumb to this is only testament to the greed and foolishness of the bureaucrats. We see other industries laying off some staff due to being shut down from the virus. These are temporary, and people know it's due to exceptional circumstances beyond anyone’s control. Why does oil and gas consistently do this to people who have been educated in specialized industry disciplines, placed their careers at the hands of bureaucrats and only after twenty years of kids and mortgages do they find themselves on the street?

Getting back on track now, it is the application of this accounting information process that will be the responsibility of the service providers on a whole. Providing standardized, objective and variable services will be their purpose as we mentioned in our previous post. It will be inherent upon the producers representing the Joint Operating Committee for the property to adhere to the production discipline that is afforded them through the decentralized production model price maker strategy. The production discipline I would think would be applied at the 100% working interest or Joint Operating Committee level and involve the entire properties operation as the determination of profitability. Each producer's individual production may be profitable or not and have to be dealt with the result of the voting rights spelt out in the Operating Procedure. Nonetheless the service providers are providing an important role in facilitating these operational decisions based on actual, factual accounting information that is standard across the industry, objective and based on variable costs which contain the detailed revenues, costs of capital, operating, royalties and actual overheads incurred. 

The accuracy and timeliness of the costs of their service provider fees will be the majority of the Joint Operating Committee overhead costs and they will be far more efficient than what each producer is incurring today. What is done today is that each and every producer has to maintain the administrative and accounting resources to meet all of the regulatory and reporting requirements that the producer has. These fixed administrative and accounting costs are replicated exactly in each producer. However none of these costs are shared or shareable outside of the producer. The effectiveness and efficiency of these G&A costs are a major impediment to the profitability of the industry due to the low utilization of these resources. I would suggest that the industry may have been able to attain a 40% efficiency. This is due to the lack of the application and resources to apply any enhanced specialization or division of labor. Whereas the service providers will be able to strive to achieve 100% efficiency at all times and be able to come close to that due to their very advanced state of specialization and division of labor. But also their other competitive advantages of quality, automation, leadership, innovation and integration. I should also point out that the principle of each service provider is a user community member in the People, Ideas & Objects user community and therefore able to directly change the software process that they manage in ways that enhance their competitive advantages, software and services but also the producers profitability and efficiency. 

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