People, Ideas & Objects Tactical and Strategic Changes, Part III

 The stink coming out of oil and gas indicates that the situation is ripe. It’s my belief that People, Ideas & Objects have put forward a viable and credible solution to the issues that are more than evident to everyone now. I have and will continue to be patient however, the time necessary for me to act definitely is upon us. The industry can’t afford any further time wasted. Our case has also been made as to what the contrast would be between an industry operated under the Preliminary Specification, our user community and service providers vs the current bureaucracy. We see today in the inactions of the bureaucrats nothing has changed. Their pursuit of consolidations, increased drilling activity, unauthorized clean energy transitions and the always hilarious “capital discipline” lasting for about a week is just more of the same. For the life of me I'll never understand why they consider that we're the bad guys for focusing on their profitability. As bad as it is, nothing will ever change. Therefore we’re changing it for them. From Forbes

The risk is that the surge in private shale activity overtakes the “restrained growth” narrative that has defined public operators since last year. Larger-than-expected production growth could depress WTI prices and hurt producers and oil services companies. 

Much of what the Preliminary Specification does is define and support the oil and gas producer firm, industry and service industry around the use of the Joint Operating Committee. The legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the oil and gas industry. Joint Operating Committees begin at conception, to represent the partnerships that are systemic throughout the industry for the variety of reasons they’re created. All of the actions involving engineering and earth science of the producer firm actively recognize the Joint Operating Committee. It is the administrative and accounting that has deviated from this business to focus on the accounting, tax, regulatory and compliance issues of the corporation. It is here that the communication between these two silos, the business of the Joint Operating Committee vs the administrative and accounting within the producer firms, ceased to effectively communicate. I believe the aggravating factor in this separation was the introduction of computers in the 1960s. When they arrived it was asked what would / should / could be done with them. The answer was accounting, tax, regulation and compliance for the corporation. And the producers' two silo's separated further each year from there. The adoption of the cultural means of the industry, the Joint Operating Committee, within the Preliminary Specification provides us with an extensive and productive opportunity to redefine the future work that is done throughout the industry and to do so profitably, and in the real sense of profits.

Since the late 1700s the source of all value creation has been a result of the further specialization and division of labor. The efficiencies are endless and therefore the Preliminary Specification has implemented high levels of specialization and division of labor, particularly in our user community and their service provider organizations. We have also developed an enhanced industry wide ERP software development capability and capacity in People, Ideas & Objects. These capabilities and capacities will be able to further iterate on the subsequent expansion of specialization and division of labor to cure the gaps that are discovered in the course of the day to day of the user community and their service providers work, and fill them with new roles and processes. Filling gaps is the method in which specialization is enhanced, this is simply done when the gaps that are identified are subsequently filled with new processes and resources. However without a purpose built software development capability, driven by an active user community and an enabling user community vision in which to enhance the software, no changes can or will take place. The software must be changed first in order for any organizational change to be lasting through to the next change or iteration. When people seek to change the organization without the changes to the software first, they’ll fail and regress back to the methods defined in the current software process. This is one of the many reasons that oil and gas has failed to change and progress. Producer bureaucrats have failed to sponsor any activity in the ERP marketplace for at least the past three decades. Therefore the status quo bureaucracy remains unchallenged in their methods of management and incapable of dealing with the issues and opportunities that stand before it. The speed and performance of their organizations are incapable of dealing with their environment and are represented in the financial statements which accurately predict the producers imminent demise. If producers were using successful ERP systems would their businesses be so unsuccessful? People, Ideas & Objects suggest that it’s not enough to own the oil and gas asset anymore. Access to the software that makes the oil and gas asset profitable will be the critical value generating element of the oil and gas industry. 

Another aspect of our Preliminary Specification is that the overhead burden of each individual producer will be substantially reduced as a result of the changes we’re instituting. These changes are a result of the burden of the producers' fixed-cost, unshared and unshareable, administrative and accounting capacities and capabilities are reallocated to the variable-cost, shared administrative and accounting capacities and capabilities of the service provider organizations. Providing an industry based administrative and accounting capability that is variable in its cost, variable based on production. The other attribute we’re using to reduce the costs of administrative and accounting, yet increase the performance and quality of our offering, is to use specialization and the division of labor to do more with less. These two elements of the Preliminary Specification work to enhance the cost performance of the producers. We believe that overhead costs are substantial, and are another one of the reasons for the producers chronic unprofitability. We also apply the inverse logic of this principle in the area of software development. When each producer approaches the need to develop their own software the demand on the markets IT resources outstrips supply, escalating the costs of the resource. More importantly it is the unshared nature of this redundant spending on these costs within each siloed organization in areas which are not distinct oil and gas competitive advantages. The demands of highly specialized software developments are no longer a capability that can be attained in-house, we believe, by a commercially viable oil and gas producer. Therefore the Preliminary Specifications consolidation of the industries resources on one focused ERP software development in an objective, standard and compliant manner offers better functionality and capability at considerably less cost and higher quality to each producer.

There is a fundamental principle within the Preliminary Specification that governs how the producer will operate in the future. Essentially oil and gas will be operated as a profitable business. Novel concept I know. Bilking investors had a good run but Bernie Madoff is no longer with us. The legacy of his thinking remains in the industry and there will be no future investments made by any investors capable of funding the capital demands of the North American producers. Simply for the reason that there isn’t enough capital on the planet. The blog series in which we identified four new categories of incremental trillion dollar costs of paying for the unrecognized capital costs of past production, rebuilding, refurbishment and reclamation also need to be considered. The producers will need to prove they can be profitable in the real sense for at least a decade, and compete on the capital markets with all other industries before they can reclaim any renewed reputation with investors. Therefore People, Ideas & Objects believe the only source of cash large enough to satisfy the needs of the dynamic, innovative, accountable and profitable oil and gas producer and industry are the consumers who will have to begin paying for the full cost of capital, operations, royalties and overhead costs of oil and gas exploration and production with an element of real profitability. The bureaucrats have rightly interpreted this not only as the demise of their franchise but also as really hard work.

All overhead costs should be passed on to the consumer in the current period. Not stored in property, plant and equipment for a generation as it is today. If oil and gas is a capital intensive industry, does that not imply that the majority of the costs that will be passed on to the consumers will also be capital in nature? Currently all of the costs including overhead and interest of the producer are capitalized and stored in property, plant and equipment for as long as possible by the bureaucrats. This enables the CEO’s to compare who has the biggest balance sheet among their peers. “Building balance sheets” and “putting cash in the ground” have become the talking points throughout the industry. These reflect the disconnect between those that are operating the industry and reality. It is lunacy and they should look critically at why these ever became the objectives they each parroted to one another in perfect harmony for many decades.  

Cash is the hypercritical resource that never stays in one place for long in oil and gas. This is also the reason the investors were annually fleeced for another round of dilution of their prior years investments. The reason for the chronic demand for cash throughout the industry is easily understood if anyone were to apply basic cash management principles. Oil and gas bureaucrats operate a spending machine, money only goes out. The cash that comes in from the sales of oil and gas has to pay for everything each month. Nothing is ever returned. Producers are seeking to build balance sheets and put cash in the ground. Therefore none of these costs are being recognized in the commodity prices that are passed on to the consumers. Therefore these overhead monies are not replaced each month in the form of a “cash float” as it is known in business. For example overhead is capitalized to the tune of 85% on average across the industry. (Still waiting for evidence to the contrary.) Therefore none of these overhead costs, which include rent, salaries, Post-It-Notes, telephones, etc are ever recovered in the current period from the price of the commodity to cover next month's charges. These overhead costs represent the ever expanding, bigger, better, bloated balance sheet of the CEO. That’s their job! Therefore each and every producer has to start anew each month with the fresh challenge of finding cash to pay the light bill etc. Secondly when producers seek to capitalize everything to property, plant and equipment in order to emulate the value of the firms reserves, they’re not passing these capital costs on to the consumers. Therefore they are storing the cash literally in the ground. But then that is what they’ve been telling us. Cash goes into the spending machine. Needs to be reloaded with fresh cash from an outside source each and every month. I’m beginning to see why the bureaucrats have fought so hard to keep me quiet all this time. They either don’t understand what I’m saying, they don’t want to air their dirty laundry or they don’t want to get caught. I guess then I have one question. Why is it that we never see any details regarding the breakdown of overhead incurred in producers. Is there something in there they don’t want us to see?

While the investor watches the behavior of the oil and gas bureaucrat, causing them to nervously shuffle their papers about and begin sweating from simple questions such as what is it they're hiding? They may want to drop another quick question or two on them and ask. Why is it that they don’t use a first tiered ERP systems provider such as Oracle? Why have they stuck with the same systems that began in the 1980s and why is the Preliminary Specification, which is an Oracle based solution, the only solution being offered in the market? Where and what are the existing competitors proposing? Where are their solutions to the industry issues? A question for the vendors might be, since their product was being used in the market how is it, and why is it that the industry failed while using your product? Would the industry have failed if it had appropriate systems in place? And why is it that the industry does not have any tier one ERP systems provider implemented? Why would the bureaucrats, who I’ve alleged are operating a Bernie Madoff style of operation, want to have systems that have failed to make the industry successful? Why are they so satisfied with low quality systems and poor accounting practices? (Again this is not a comment on the high quality of the people who work within oil and gas.) Credibility is what the bureaucracy lost. People, Ideas & Objects provided a means in which they could re-establish their credibility in terms of real profitability. They’ve slammed that door shut on themselves. It’s now time to deal with that and that is what People, Ideas & Objects, our user community and service providers have done. 

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

People, Ideas & Objects Tactical and Strategic Changes, Part II

 In this the second part of a series defining the revised tactics and strategies for People, Ideas & Objects to ensure that the oil and gas industry will transition to the dynamic, innovative, accountable and profitable producer and industry we all need it to be. Patience has been applied, we’ve attempted to work with the bureaucrats, we might have said some things that offended them but so what, and even held out that we could be their best friend in light of the fact that they’re now in such legal jeopardy by not upholding their fiduciary duties. Using our car analogy to reflect the difficulties in oil and gas. The analogy being the car that was trailing oil for the past few miles, began steaming and then lost power. Parked at the side of the road, the owner tried to resurrect the forward momentum by using the battery to turn it over, which lasted about an hour. For purposes of this analogy that was approximately equivalent to the year 2015 in the oil and gas industry. It’s been seven days since the vehicle's breakdown and the owner's family are finding it more and more difficult to find the food and water they need to survive. They have the viable scapegoats of it being too hot and too far to travel to the next town and of course there is no reception. An aggravating factor is they’ve all had the flu this past week. Cars continue to pass on the highway but no one stops and even tow trucks looking for people to save, just pass them by. This family is hopeless and helpless and no one will stop or anything! This no doubt was OPEC’s fault. Other than muddle through there doesn’t seem all that much to do?

I could continue as the analogy to our good friends the bureaucrats never breaks down. “Muddling through” is a lifestyle choice that demands commitment. Just stay with the vehicle until someone rescues them. Conversely what do the producers expect to happen now? What’s their plan and will it work? 

The good news for the producers is that their share values have been rallying handsomely over the past six months. The reason why is an interesting question that we’ll no doubt learn in a short period of time. The week of March 8, 2021 established itself as the high point for our sample of producer firms. Covid has had a detrimental impact on the industry and for that there is no doubt. With the vaccines distribution, relief from the lockdowns and the resumption of “normal'' coming back into focus. This however doesn’t create any benefit for the producers. And just as the impact of the virus is waning across the globe, relief from the flu provided the same effect for our family over the past week they’ve been stranded at the side of the road. It didn’t solve their problem. 

Two of the kids in the back seat of the car decided they might be able to help their parents solve their problem and get them back on the road. One grabbed the playing cards while the other got hold of the checkbook. The first one, thinking that consolidation of assets was a good strategy, started distributing the cards in exchange for “assets” of the car. Representing each card as a share he started by buying the front seats and quickly moved on from there. The daughter began scribbling in the checkbook which caused a “feeding frenzy” between the kids as to who could consolidate the most assets the quickest. It soon turned out that the parents had acquired all the shares and junk bonds the kids distributed and ended up owning each part of the car that was sold. This provided the occupants of the vehicle with ample activity for the better part of each morning they were stranded. Eventually, in frustration the baby threw the cards and checks out the window on a windy day. Which began the kids' consideration of their next move in terms of financial engineering. 

What to do next in oil and gas? It doesn’t seem to be a question that is being asked across the industry today. Drilling is picking up and that is consistent with the actions of the great science experiment that involves acquiring land, drilling and producing, rinse and repeat. Bureaucrats will argue that this is the business and belittle the argument that accounting performance has nothing to do with the reality of the value they produce once they access those valuable oil and gas reserves. It is here that the cultural standoff begins between those that are running the oil and gas producers and the “accountants,” as we’re called. “Accountants should do their job, pay the bills and get on the bus with everyone else.” We are told. That those involved in the science experiment have not conducted any activity in the past four decades on the basis of a competitive operation, where financial performance was a necessary and primary criteria, is not relevant to them. When accountants bring in depletion costs and impairments they’re “non-cash attributes.” Allowing bureaucrats to convince themselves they’re not real costs, “they’re history.” That these costs were incurred as a result of the money handed to them from their investors is not understood or appreciated, and to account for that spending is something they have not done and will never do as far as they’re concerned. That was never part of the plan and they foresee no reason to change any of this. Eventually, as far as they’re concerned, investors will return and the industry will resume its way’s once more. Comprehension that the reserves that are revealed are useless and valueless if they’re consistently produced unprofitably is something that will not, and can not be heard or understood by bureaucrats. 

Let’s have a look at that plan and see how things are in terms of supporting it financially. During times of crisis it is considered prudent to survive in the extreme short term and to do so by not considering the cost of capital in the thinking of what is “financial performance.” The issue with oil and gas is that this is how the industry has been operated for the past four decades. Capitalizing every possible cost that is incurred by the producer and only recognizing the share of capital costs of production in relation to an allocation to the entire reserves base. Leaving as People, Ideas & Objects suggests an inordinate amount of property, plant and equipment on the balance sheet. This amount is in stark contrast to all other aspects of the financial statements and appears as a distorted figure that is not representative of the firm. We believe that it should be regarded as the unrecognized capital costs of past production. Therefore the industry has been operating in somewhat of a crisis mode by never recognizing the appropriate level of capital cost in the commodity prices it passes on to consumers. Instead storing these capital costs on the balance sheet on the basis of “building balance sheets” and “putting cash in the ground” as key corporate objectives. Producers now stand with distorted balance sheets that have become representative of the major issue in oil and gas. That being over reported assets beget equal amounts of over reported profits. Which attracts a disproportionate amount of investors creating over investment in the industry and subsequently suffering as a result of overcapacity and overproduction. In commodities that are price makers, such as oil and gas this overproduction has led to unprofitable prices being realized for 28 of the past 35 years. 

The overhang of assets on property, plant and equipment became a critical audit issue in 2020 for the producers across the industry. Will it be the same for 2021, or how about 2022. How does the industry deal with the legacy of this past that distorts their performance and is more representative of a culture that feigns it doesn’t know or understand the difference? Does it continue to accelerate the depletion and impairment of its capital costs to bring it in line with the market's understanding of what property, plant and equipment is? Or should they await the results of the SEC investigation into Exxon’s overreported asset allegation and potential shale producer review. If they do finally recognize these capital costs of past production the account of property, plant and equipment will come into line with the expectations of reality and can be relied upon as a reliable gage of the producers performance. It however will also eliminate retained earnings in every existing producer, if there are any retained earnings remaining today, and in most cases create a negative equity situation where the debt of the producer is higher than the value represented in total assets. Which begs the question what do the banks think of this situation? 

The majority of the producers would fall into the category of having debts larger than their assets once their unrecognized capital costs of past production are recognized appropriately. This alarms the banks and the regulators for two reasons. First the banks have clients whose leverage exceeds their lending criteria and demand that efforts be taken to remediate the accounts, write down the loans and seize their bank accounts in the most severe situations. More or less business as usual these past five years, only with a desperate sense of urgency on the banks behalf. The debts would then, and in some cases do so today, exceed the value of the reserves that are booked by the producer. Indicating to the bank their exposure exceeds what it is the producer would ever be able to generate and contribute towards the loan. I’m not a banker, but this may be a limit they’ll stop to think twice about crossing. When asked about these issues the bureaucrats will no doubt once again state that these are accounting issues and only represent “history.” Bureaucrats are correct about that however instead of calling it historical, I would suggest they think of it maybe in terms of legacy.

When questioned on the disproportionate valuation of property, plant and equipment the producer can make themselves a candidate for consolidation with another larger producer. This will restore the asset valuation as paper in the form of shares and Junk Bonds are passed about the oil and gas tycoons, much as the kids in the back seat did with the playing cards and checkbook. If they value the transaction for more than what the assets are listed at on the balance sheet, then those values will be what they’re recorded at in the consolidation process. Thankfully no one else in the world is interested in these assets otherwise the premium producers would have to pay would be so much higher. And to take the bureaucrats point of view this is all just accounting jibber jabber. The fact they’re spudding two wells next week in the Permian will be spectasmogorical. 

Performance is the purpose of accounting. The timing and accuracy of all costs incurred is what is sought by accountants. Performance based on falsehoods such as the over capitalization of costs will provide substantial value to an organization in its early years. They will be attractive to investors and appear to be doing well. The reality is that they’re poorly managed and the representations being made are lies and falsehoods, much as the situation we have today in oil and gas. A misrepresentation built upon earlier misrepresentations that are attempted to be concealed by further misrepresentations in the form of consolidations, as the current flavor of the day. Oil and gas overproduction in North America has been with us since at least July 1986. People, Ideas & Objects Preliminary Specification has been available since December 2013. The alternative answer to these is consolidation? Just as our family that’ve been stranded at the side of the road are unaware why they have no help. They’re heading into another day and see their shortages of food and water coming to an end. What will they have to do, abandon their strategy of “muddle along” and get out of the car? Or will someone finally save them? 

We should all thank OPEC. Recently they increased their productive output by 2 million barrels and have 5 - 6 million barrels of oil remaining to provide for our needs in the future. Relying on North American based producers for that deliverability in the long run is not going to be possible. Bureaucrats are unaware of the situation they’ve caused and are causing. They only concern themselves with their personal financial position. We can also thank OPEC for the stern warning in the article of The Calgary Herald of July 26, 1986. The one entitled “OPEC Minister Can See Economic Destruction” and “Return to Glory Days Unlikely.” They knew the results of what was being pursued in 1986 was not going to be productive and were concerned about it. It’s probably a good thing that North American producers were always so much “smarter and better than the OPEC Ministers” were in 1986 isn’t it? Is it that bureaucrats don’t listen, don’t do anything or both?

The issues are evident to most people that have an interest in oil and gas. The investors left in 2015 and I began gripping on this blog a decade before that. What is it that I know now, what is it that the investors are thinking and what do most people have to learn about the level of destruction that has been caused by these bureaucrats? I think one of the key takeaways has to be that shale will eliminate any opportunity for any boom or upside in oil and gas again. When prices begin rising the rapid increase from shale production is the immediate response. This has now become a market signal that soon additional production will be on the market and the price adjusts accordingly. Limiting any upside in the price of the commodities. This is known as an inherent part of the producers business model which is assumed not to be changing. Distractions in the form of bright shiny objects to occupy time, such as consolidation and the pursuit of clean energy will satisfy the media and environmentalists. No one will stand up and say anything to contrast the bureaucrats logic, only to be publicly persecuted, therefore nothing will change in terms of the bureaucrats actions. 

The level of devastation that I see within oil and gas is more than what has been experienced in any other industry that I am aware of. It has been made possible by the large cash flows from being a capital intensive industry. These cash flows have enabled the bureaucrats to continue their methods of “management” and have proven they’re only interested in their own personal financial compensation. Diversion of these cash flows towards clean energy is only the most recent viable scapegoat that draws attention away from their performance. These diversions are not consistent with the oil and gas investors original intent in establishing these producers. I believe they should be stopped and let the bureaucrats pursue their clean energy dreams as startups and feel the rush of having no revenues to rely upon. People, Ideas & Objects will continue to hold them personally accountable for these actions and ensure that it is known that this issue was prevalent since 1986 or earlier, that our solution was available in the marketplace in December 2013 and producers have done everything in their power to avoid addressing either the issue or the solution, but also the continued destruction of the industry under their watch. If it appears as if this is a design feature of their system of self aggrandizement, you’d be 100% correct. 

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

People, Ideas & Objects Tactical and Strategic Changes, Part I

 In a recent eight part series we documented how People, Ideas & Objects, our user community and service providers were structured to achieve success in oil and gas across North America. This may have been mistitled as I was not so much documenting how People, Ideas & Objects et al were planning on being successful, but how it was that we were structured to ensure success in terms of profitable oil and gas exploration and production. This new series is taking that thinking to the next level to discuss how we have amended our strategies and tactics to deliver that success to an industry that is in desperate need of real profitability. That’s currently managed by a handful of self interested and conflicted bureaucrats who have proven they’ll do nothing about anything, except their enhanced executive compensation. Why are we doing this, what’s changed and is today any different than any of the past decades these bureaucrats have been in control? Yes, things have changed dramatically, and this post will document the situation. This series will also document what People, Ideas & Objects are doing as a result of these changes, and we are now making recommendations to others to begin their own personal processes of change and begin the transition to the environment we are building.  

In granting the bureaucrats the honor of proceeding with the development of the Preliminary Specification People, Ideas & Objects were able to provide them with the credibility they needed to move forward with their operations. Many may feel I’m overstating my case here, that I’ve inflated my self worth. I don’t think so and it is not my intention. What I’ve done is patiently waited for them to act and it is through their inaction that the Preliminary Specification as a solution to today’s issues came into clearer focus. The contrast is evident, dramatic and obscene due to their inaction. Bureaucratic resistance to our solution only increased and there was never any consideration otherwise. Their issues have now fallen well outside the domain of anyone’s control. 

Thucydides’s ancient warning that “It is the habit of mankind to entrust to careless hope what they long for, and to use sovereign reason to thrust aside what they do not desire”

Victor Davis Hanson

I am looking at the landscape of the oil and gas industry from the point of view of the destruction that has been caused by the inaction of these self serving bureaucrats. Profitability in an industry is the only worthwhile pursuit in business and anyone associated with oil and gas over the past number of decades will understand that principle intuitively from this point forward. We should thank the bureaucrats for their real life lesson on such an important topic. Without profitability within the producer firms everyone suffers. The shareholders pursuit of earnings is the reason the North American economy is the strongest ever and has the resilience and effectiveness that it does. It may appear selfish and narrowly focused on those with capital however it works out very well for all concerned. And when it is corrupted as it has been in oil and gas it is an ongoing tragedy of unending misery. It is not me who is overstating my case; it’s the bureaucrats that have abused their position to the greatest extent seen in North America. If I speak of granting the honor and credibility to the bureaucrats that they need, I am only representing all of those that have been affected by bureaucratic inaction and their corruption. Every opportunity has been granted to bureaucrats since I published the Preliminary Specification in December 2013. And they have abused them all. This last opportunity was an overt calling to proceed with the Preliminary Specification under the “issue mitigated, nothing litigated” expression. This began on June 2, 2020 and has been a constant theme on this blog. Seeking to provide the bureaucrats with a means in which to avoid their personal risk of being sued for their inaction regarding the July 1986 documentation of overproduction, or unprofitable production, by North American producers that OPEC had sought to resolve. This issue has so destroyed the industry and has been present each and every day since at least July 1986. And the fact that the Preliminary Specification was published in December 2013 as the solution to that issue. Our good friends, the bureaucrats who are the members of the Boards of Directors and Officers of the producer firms, have sworn to uphold their fiduciary duties and are therefore culpable and guilty. 

I still have not spoken of the change that I see causing the revised strategic and tactical changes People, Ideas & Objects are implementing. And it’s not to keep you in suspense but there are many things happening and we will get to the triggering event in this post. However, there will be more posts in this series that reflect the other changes that have been made. First I want to start by stating the conclusion of these changes and then get on to the triggering event. 

The first change People, Ideas & Objects are conducting is that we are cancelling our program of “issue mitigated, nothing litigated.” Bureaucrats are no longer welcome here to proceed with the development of the Preliminary Specification. They have done nothing, and the fact is they will do nothing so there is no loss here on their behalf. Their pursuit of consolidation, drilling, their unauthorized diversion into clean energy and “capital discipline” are evidence of their plans for the future. This was their choice to maintain the status quo. Therefore it will from now on be known as “nothing mitigated, issue litigated.” There are consequences to inaction, all of us who are associated with oil and gas are experiencing that. It’s now time for those who are actively engaged in inaction to feel it too. Our December 4, 2020 blog post asked “Who’s Going to be the Bigger Fool” in the future? Will we be sitting here in five, or ten years with the same set of circumstances and the same viable scapegoats being parotted by these bureaucrats? There is no question in my mind that the question stung and the answer was and is a resounding “not me.” The game is up for the bureaucrats and no one is being taken for a fool anymore. It’s also at this time that I’m reminded of a Winston Churchill quote. 

You can always count on Americans to do the right thing - after they've tried everything else.

Who will proceed with funding the Preliminary Specification? To quote a famous politician “At this point, what difference does it make.” What People, Ideas & Objects, our user community and their service provider organizations need is access to the oil and gas revenues of the industry. Producers need to have some skin in the game. Otherwise we will fail as a result of a lack of their willing and necessary participation in the user community. They can not hand a critical aspect of their business off to someone else and expect it to be done appropriately. We also have no capacity whatsoever to provide any investor of ours with any means of a reasonable return or expectation of a return due to the destruction that has been caused in the oil and gas ERP market space as a result of past malicious actions by bureaucrats. 

In 2015 we saw the beginning of an investors strike that has continued and become a protracted issue for oil and gas. Producers had grown to depend on the annual stock offering as a means to literally pay the light bill throughout the entire calendar year. Dilution of last year's investors, and all their other investors, fell into the memory hole known affectionately as “history” by these bureaucrats, saying “don’t worry about it.” There is nothing more critical than investors abandoning management by walking out on them. The reason People, Ideas & Objects have had to be patient is due to the virus providing a viable scapegoat for the past year. But prior to that, a few years ago private equity and Warren Buffet saw an industry that was in pretty rough shape, in desperate need of some capital and rehabilitation. Warren Buffet made his “ultimate contrarian bet” as he called it into Occidental Petroleum and then promptly saw what obviously scared him to the point of quickly selling out of all his Occidental holdings. Private equity hung in there a little longer and have now exited the industry as well. Banks have extended themselves in the industry to the highest level they can tolerate. Producers working capital continues to evaporate. It is for the lack of a better saying, the end of the road for our good friends the bureaucrats. Maybe the Biden administration will help? From Forbes.

The demand for shale producers to become self-sufficient with less reliance on outside capital is intensifying.

The withdrawal of private equity, long a crucial investor in the shale sector, will take a significant toll on many shale companies, particularly smaller producers that lack strong balance sheets.

Why is it that People, Ideas & Objects, our user community and their service provider organizations are standing there, at the ready, hat in hand, offering our services in hopes that the bureaucrats who caused all this damage, do the right thing and fund the Preliminary Specification to save the bureaucrats personal empires for them? I can’t find a reason why we’re the last ones here in support of these despicable people. By supporting the bureaucrats and offering them the Preliminary Specification we are working at cross purposes to those who are the shareholders of the producers. It is the investors that we have supported and identified as the critical resource that the industry needs to guide it through these difficult times. Their actions, and their ultimate action of leaving the industry is fully supportive of what we needed to happen for our Preliminary Specification to become a reality. Profitability is the only criteria that is going to resurrect the industry and provide the financial resources for all those that have been so betrayed by the despicable self dealing bureaucrats. Why is it now that People, Ideas & Objects, our user community and service providers are actively betraying those that we’ve needed, wanted and indirectly participated with us in removing the bureaucracy. Our olive branch to the bureaucrats would have given them a life line that may have instilled another generation of their franchise with the caveat that they would have been able to “muddle through” more easily, and enjoyed the bounty of a truly profitable industry at the expense of those shareholders. 

What needs to be done is a purge of these people from their lofty positions and away from the producers check books. It’s time to choose sides in America, are you with the shareholders, which after all are John Q. and Jane P. Public, or are you with the bureaucrats? Corporate America who recently came out in favor of political initiatives that have nothing to do with their products or services profitability. Who’s corporate objectives have morphed into the Democratic Parties key issues of race and climate. To suggest they’ve lost the script is undeniable. It’s time for change.

The long and short of all of this is the declaration of total, irredeemable failure of the North American producers at the hands of the bureaucratic mismanagement. People in the industry who want to stay with the status quo are able to do so, and participate in the development of the Preliminary Specification as their long term career transition away from these failed organizations. Please follow the application process defined here and understand that the user community has always been considered to be part-time positions. The source of user community members long term value and day to day compensation is designed to be fulfilled through the service provider organizations you’ll need to develop. Don’t let the bureaucrats' disease of inaction infect you. 

We’re setting out the framework of two different types of producers in the oil and gas industry. The first type will be bureaucrat free and as a result successful and profitable oil and gas producer by using People, Ideas & Objects, our user community and their service provider organizations. The second will be an extension of what exists today in the slow process of chronic destruction. I see the bureaucrats as the chaos and we’re the opportunity. When bureaucrats find themselves alone, and not just alone but wrong on so many fronts, I’m not going to be their last good friend that’ll help them out. 

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

How People, Ideas & Objects Will Achieve Success, Part VIII

 We’ve covered some good ground in this brief series on how we’ll be successful. Profitability is what brought western society to the level that it has and is the only mechanism that can provide for our prosperous future. Diversions from that objective are the constant that has caused us difficulties throughout our history. Once profitability is gone however we generally and quite quickly find our way back. The investors' role in triggering that change in North American oil and gas began in 2015. The difficulties that producers are experiencing are due to the investors lack of financial support that they became wholly dependent upon due to their chronic unprofitability. Six years is an abundant amount of time to proceed without the support of the investment community. It usually doesn’t take that long for an industry to realize its off balance and needs immediate action to remedy their issues. Oil and gas is different due to its capital intensive nature which creates large cash flows from its prior investments. Allowing those in control to conveniently ignore these messages for the short term. We’re now moving into the mid-term and the immunity that was being enjoyed to this point has waned significantly. There is serious financial distress that’s been aggravated by this period of expanded inaction. What the producer firms officers and directors are experiencing at this point is not what they signed up for or pledged their personal assets to. The aggravating factor for them is that too much time has passed for them to have not acted and the damage has become more extensive. Attaching a culpability and guilt to the fact that they didn’t act. It will be of no difficulty for People, Ideas & Objects et al to express the need for profitability everywhere and always in North American oil and gas for at least the next generation. Everyone will now be able to relate to what life was like when profitability was ignored and falsified through specious financial statements.

No one’s going to participate in any upswing from what’s currently happening, thanks to our good friends the bureaucrats. Ignoring the overproduction issue since at least July 1986 and covering it over with any number of excuses, blaming and viable scapegoats has been taken to the level of an art. All with the magic of specious interpretations of SEC regulations that were never intended to state what was alleged and published in the homogenized financial statements of North American producers. These being enthusiastically cheered on by their sycophantic “chesters” as I refer to the audit firms who were supposed to be there to stop such lunacy. Creating the overall culture in the industry that became so obscene as to parrot in absolute harmony that “building balance sheets” and “you have to put cash in the ground” as the organizational objectives. Are these the organizations we want to put our money down on and risk the future with? However, on a more objective basis what do they offer. Deteriorating working capital with most producers reporting chronic negative working capital. Retained earnings that haven’t been seen for decades, replaced by retained losses that exceed at times the total shareholder value and in some cases the liabilities too. But look at those accounts of property, plant and equipment! Every cost that was ever incurred, that is except royalties and operating expenses after the SEC caught onto that charade with PennWest, has been added to that account to blow that up as fast as possible. We recommend a 65% Pro-Forma reduction in property, plant and equipment to be written off to depletion to better reflect the proper performance of the management of these assets. Therefore making the debt outstanding achieve stratospheric proportions in terms of leverage. Alternatively you could line up behind the billions of other shareholders that were signed up during “the good days” in the industry and make out like a bandit with that alleged upside and your 0.0000000001% of the company. There is an abundance of riches for everybody who wants to participate in oil and gas. It’s just I don't know where you can today. 

As we’ve noted in this series. We offer a reconfigured industry, based on new ownership, new business opportunities, in new producer organizations. The way the producers are configured today, their banks readily see the process of bankruptcy has become a critical part of the bureaucrats business model. Where the officers are reinstated each and every time. Where the prior organizations money that was loaned is washed into shares of the new organization which are then consumed in losses that create a subsequent bankruptcy. A bankruptcy based on the new money the banks loaned the new producer. Banks are being offered an alternative to stop this nonsense where they just seize the assets and manage them in the interim while People, Ideas & Objects et al build the Preliminary Specification. After all, how could they manage them any worse than they currently are? Then they can find a ready market of investors who are willing to buy the assets and manage them profitably from a real profit perspective. Something they’ll be able to do with the focus and drive of profits throughout our software and its user community. 

Granted, the sample of producers that we analyze have been able to draw down their bank debt from $150.0 billion in December 2016 to $151.3 billion in the third quarter of 2020. That $1.3 billion increase is nothing to sneeze at. However that was with the risk profile that was present in 2016, what’s that risk profile today? Will the banks ever see any of this money? And what are those assets worth in these bureaucrats' hands? Those debt values quoted are the amounts of the People, Ideas & Objects sample of producers which represent approximately 9 mm boe / day. With the North American production deliverability making the total bank exposure as much as $650 billion dollars, would this be a material issue to the banks? This chronic unprofitability of the producers is an issue that’s putting these banks in jeopardy. Banks should also review our prior series entitled “New Cost Structures'' where we identify four categories of new costs that will swamp the producers in the next decades. None of these trillions of dollars in costs are able to command a return on investment and as such will “need to be absorbed by the producer.” As they say on the street. Without the Preliminary Specification these producers have traditionally stored their costs on the balance sheet in property, plant and equipment and have never passed any of their costs on to the consumers as it is.

Motivating the bureaucrats to act to rectify these issues through the identification of their personal risk and the potential costs to their personal fortunes as a result of their inactions may spur some into action. I doubt it though. How People, Ideas & Objects will have our budget funded is just as difficult a question as it was decades ago. That doesn’t make its pursuit wrong. My pursuit of this has benefited the industry by providing a timely solution to the issues that I believe it faces today. Issues that are terminal to the industry's health. Issues that the bureaucrats have proven time and again, and I’m giving them the benefit of the doubt here when I say this, don’t know of and can’t understand. 

To summarize briefly what it is we’re offering the industry and what it is we’ve pointed out in this series. People, Ideas & Objects competitive advantages are its research, Intellectual Property and our user community. The user community is our primary focus and is the means in which we’ll deliver quality software. There is no possible method of delivering quality software today without the direct and significant involvement of the user community. Our user community will be the ones that expand and fill out the Preliminary Specification in its first commercial release and iteratively build on those developments over the next few decades. We are providing the oil and gas industry a permanent ERP software development capability. Each of these user community members will also be the principal in separate organizations and be licensed as service providers who will provide the People, Ideas & Objects software and services to the industry. Service providers will deliver their tacit knowledge as services to the producers along with the People, Ideas & Objects softwares explicit knowledge. It is the unique competitive advantages of the user community and their service provider organizations that will make a marked difference in the performance of the oil and gas producers. First they are focused on providing oil and gas producers with profitable production everywhere and always. Their competitive advantages are comprehensive and fit in with the manner in which work will be done in the next few decades. The competitive advantages that include their administrative and accounting expertise, analytical tools of conflict and contradiction, continuous application of specialization and the division of labor, leadership, issue identification and resolution, creativity, collaboration, instill quality, automation, research, ideas, design, planning, thinking, negotiating, compromising, innovating, financing, implementation and integration to highlight some of them. Key to these competitive advantages is the unique means in which they have to implement them. Please see the user community vision for how we enable that.

We noted the issues producers face in the marketplace today. We’ve noted the definition of our software solution in the Preliminary Specification and the configuration of the user community and service providers. There are also external forces related to Information Technology, Intellectual Property and disintermediation playing out in the greater marketplace today. As they are or have played out in all industries. The message from these is that there are new business models based on the Internet that are being formulated and built that will wipe out the inefficiencies of the bureaucracies that brought us to this point. Standing in the way of disintermediation has been unsuccessful to this point for any of the industries that have been faced with the power of its bureaucratically destructive force. However, with each victory over the inefficiencies the industries that have not been disintermediated learn and grow smarter in how to resist the forces of disintermediation for longer and more effectively. Opposition to disintermediation is now far more sophisticated than what the record store manager faced with Napster and the recording industry realized from Steve Jobs iTunes. 

Throughout this series I’ve been able to touch on the reasons why the industry we’re building out of the ruins of oil and gas producers will be successful. The processes that we are implementing, the people that we will be needing and what they’ll be doing. And more than anything how the industry can begin the pursuit of profits everywhere and always as its primary responsibility. A responsibility that looks to provide a return to the investors as shareholders of the producers. But as we can all see and now know intuitively that without profits, and without satisfied investors nothing positive comes about anywhere else in the industry. Disaster and destruction are the consequences we’re all faced with whether that is a shareholder, as someone who has selected oil and gas as their career choice to pursue, or have established a business in any of the industries in the greater oil and gas economic structure. Producer profits are what drive the success of it all. The dependence on shareholders and investor money eventually always runs out due to the fact that it is very limited. And that investor money is always open to direct competition from other industries that everyone has to compete to profitably win and succeed against. 

I’ve now spelt out briefly the means and processes of successful change by People, Ideas & Objects, our user community and their service provider organizations. It’s now the bureaucrats' turn to do the same. Or have we already heard it in their litany of excuses, blaming and viable scapegoats of the past decade. In the fake performance they’ve told us in their financial statements. The financial statements that “were in full compliance with the regulations” and that the “auditors signed off on.” Nonetheless, what is the plan and where are the bureaucrats taking us too in this enlightened world of theirs?

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

How Will People, Ideas & Objects Achieve Success, Part VII

 People, Ideas & Objects have frequently identified the competitive advantages of our user community and their service provider organizations. They form a unique advantage that has been unavailable, in my opinion, in the industry up to this point. One in which a dynamic nature of how the oil and gas industry is managed is the method that we proceed for the next few decades. Speed, complexity and the pace of decision making have become critical issues in producer organizations due to the incapacity of those organizations to cope with the needs of these demands. A top down, bureaucratic, unintegrated and siloed throwback to the 1960s, based on systems architectures and developments of the 1980s are not going to cut it in the future, just as they’ve comprehensively failed today. Organizations based on new business models that offer methods that enhance competition, innovation, profitability, accountability and speed are the necessities. Industries throughout the western world are being subject to the forces of disintermediation to remedy these issues and oil and gas is no different nor are they exempt. This industry's performance trajectory, financial destruction and lack of responsiveness to its critical issues makes wholesale changes necessary. Change that must take place quickly, effectively and successfully in order to avoid the greater consequences of additional societal damage. Energy is the life blood of our economies. It will be the most powerful economy that consumes the most energy. Oil and gas’ failure to meet that demand will be seen as catastrophic and unforgivable. 

People, Ideas & Objects Preliminary Specification is based on Oracle technologies. Oracle Fusion Middleware and Oracle Fusion Applications form the base of their financial applications, and the key structure that we’re building the Preliminary Specification from. Oracle Fusion has been rebranded by Oracle as their Oracle ERP Cloud offering. These provide producers with significant value. Recently Oracle founder, Chairman and CTO Larry Ellison participated in a short 9:00 minute presentation on the Oracle Fusion applications and what they mean to organizations that use them. Watching this YouTube video is highly recommended. His commentary regarding speed should be seen as a direct threat to the pace of the bureaucracy and their way of management and its existence. It was only a few years ago that change based models were on five year schedules, whereas three months is now the delivery of changes to Oracle ERP Cloud systems. Having systems that haven’t changed fundamentally since the mid 1980s have to be unique and a challenge in themselves. Would it be possible to draw a straight line from the disaster that is oil and gas to the fact their systems are as archaic as they are? 

Conflict and contradiction are the methods that our user community and service providers will use and exploit their competitive advantages in the environment where they operate. We recently identified their competitive advantages as leadership, issue identification and resolution, creativity, collaboration, research, the generation of ideas, design, planning, thinking, negotiating, compromising, innovating and financing. Conflict and contradiction have always been the two tools that have been the source of how issues are identified and resolved. They form part of the base of the socratic method.

The Socratic Method (named after Socrates 470-399 BC) is a dialectical method of inquiry that uses questions to clarify and unpack one’s beliefs, to understand the assumptions, evidence and reasons used to support them, and to expose any contradictions, inconsistencies and fallacies in one’s thinking.

In addition, today the role of conflict has to be considered as a more prominent aspect of what it is that we are doing, and most particularly where we’re heading for the next 25 years, both within People, Ideas & Objects et al and the greater oil and gas economic structure. The logic underlying the solutions that will be needed are to be determined based on many conflicting ideas and points of view. What’s the right answer? What’s the best direction? It’s here that we need to analyze the solution that has to be pursued in order to ensure that the oil and gas industry is provided with the most profitable means of oil and gas operations everywhere and always. In the hands of the user community and service providers this will be achieved. The area of conflict they’ll be operating within has become quite pronounced. Since Thomas C. Schelling wrote his book, first published in 1963, The Strategy of Conflict which earned him the 2005 Nobel Prize in Economics. It has gone on to form one of the foundations of game theory. What game theory has to do with the business of oil and gas is not a question that should be asked. At this point it has everything to do with where we are heading into this new, complex and dynamic world. Thinking based on these principles will be necessary to extract the value that needs to be built throughout. Alternatively, oil and gas producers will continue to be subject to those, such as People, Ideas & Objects, that will come along and use Intellectual Property to their advantage and suggest that it’s no longer adequate to just own the oil and gas asset. Producers will also have to have access to the software that makes the oil and gas asset profitable. The choice is clear for our user community and service providers. They can choose to participate in this future through the rebuilding of oil and gas, and specifically these administrative, accounting and systems development. Or alternatively continue to fool around with what the bureaucrats might come up with. Assuming they ever admit they have a problem. 

The licensing of the user community and it’s related service provider organization both contain, however this pertains more to the service providers, a clause that provides them with the exclusive right over their process domain in their service provider organization. They won’t have other service providers or other groups from outside our community able to provide a similar service based on People, Ideas & Objects software. The Intellectual Property in this community is operated in a way in which the user community has exclusive use and right to the IP of the Preliminary Specification and its derivative works. This includes their service provider organizations which will be governed through a separate user license. We’ve discussed some of the advantages of this in our prior posts which is detailed in our user community vision. A key objective in the establishment of these criteria is to ensure the community is wholly focused at all times on the iterative development of the producers profitability, everywhere and always. This is the theme in the competitive advantages, our IP, licensing and elsewhere. Service providers have the listed distinct competitive advantages that enable that focus without the need to watch their flank for those organizations that offer nothing to the producers other than the constant attack on the service providers on the price for their service. 

What People, Ideas & Objects are demanding in return is that the user community and service providers will work exclusively in the greater People, Ideas & Objects community and its producer clientele domains. Their primary and only focus must be on the concerns of the industry through the lens of the Preliminary Specification. This will also be necessary to ensure that everything being done for the producers is our only concern, the Preliminary Specification and its derivative works are the only solution we are providing. Therefore user community participants and their service provider organizations are being licensed to preclude all other software vendors products, industries and clients outside of those in the People, Ideas & Objects domain. This is also provided for through a Non-Disclosure Agreement (NDA) as well as the specific user community and service provider license agreements.

Why? One reason is we need to ensure that the Intellectual Property that is sourced and built from the user community is uncontaminated in any way. Working with other software vendors, those within the greater oil and gas industry, and the producers outside of People, Ideas & Objects et al may contaminate the IP of the greater People, Ideas & Objects environment. We must maintain that the IP we are using is pristine at all times and no leakage occurred or was possible. To rectify any contamination if it were to happen, we would need to remove the IP and those that brought it in from the community. All of the software and services provided to the producers must be directly sourced and derivative of the IP of the Preliminary Specification and its user community. We need to protect ourselves from claims that service provider A or user community member B has used the IP they learned about from some other company, industry, software vendor while on contract to them, and therefore People, Ideas & Objects et al are legally precluded from using it as a result of subsequent litigation. 

As we detail elsewhere in this blog and the Preliminary Specification it is now an Intellectual Property world. The world operates on software and software is derived from Intellectual Property. You either own some form of Intellectual Property, have licensed some Intellectual Property or work for someone with their own IP or have a license to. We are at the very beginnings of this new world. The ability to maintain this IP is necessary and we can’t have questions raised as to who owns it and where it came from. This will demand the focus and direction of all those working within the greater People, Ideas & Objects community to respect that and understand it is to their benefit as they are the direct benefactor. The risk of not doing so is the suspension of their licenses. The value that you are building in your service provider organization is nothing outside of its exclusive use of the underlying Intellectual Property which you as a user community member assisted in building. This IP is not something that we can afford to have any leakage or contamination of. The service providers will have collectively built an organization of employees that are able to achieve all that they could ever set out to do. From an outside the community point of view, it would be worthwhile for others to want to have access to and attempt to compromise what we all have built for their benefit. We’ll need to be wiser and ensure that any contamination or leakage is dealt with quickly and appropriately. That is why it is expected that the user community will administer these licensing requirements. They have a vested interest and they’ll have their eyes and ears on the ground at all times. This is where people will be working for the foreseeable future in administration, accounting and ERP systems in oil and gas. Which is a very large domain we’re operating within, one that is the same approximate size that is currently employed in industry within the producers accounting, administrative and systems areas. This will be where the possibilities are endless and there will be no end of what we’ll be able to achieve successfully based on these requirements. 

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

How Will People, Ideas & Objects Achieve Success, Part VI

 Was the horrible crisis in Texas, where over thirty people have died, a reflection of the societal concerns that we should carry with us in oil and gas? The one thing that we should also learn regarding the outcome from this storm is that we’re all alone. The finger pointing by the State government was entertaining, and the Biden administration was eventually shamed on Friday to provide the necessary aid to a critical situation, Jen Psaki says he may also visit this week. Nonetheless without energy we have significant issues. Leaving it in the hands of the producer bureaucrats isn’t working. People working together within their communities is how things were resolved in this crisis. The government has become too involved in our lives and that is becoming more and more obvious each day. How we'll get back to what was even normal at this time last year seems difficult to even imagine. If Texas is at this level of deprecated capacities and capabilities, where else will be safe? 

What we are undertaking in the development of the Preliminary Specification will be difficult for all concerned. People who share a concern for the industry and its future need to work together to resolve what ails the industry today, and for tomorrow. We also need to ensure that we base the industry on a footing that will enable it to be innovative and maximize the value of all of its opportunities. Success can be defined as profitability everywhere and always for now due to the damage that chronic unprofitability has caused oil and gas almost everywhere and always. I say almost as we don’t hear the bureaucrats concerned about their take do we. As tempting and engaging as that sounds we will be learning to crawl before we can walk. We are focusing on building the Preliminary Specification successfully. We are not iterating on that design beyond the filling out of the whole of the Preliminary Specification by the user community. When we talk about the production accounting which is included in the Preliminary Specification, it is the user community that will research the requirements of those many processes throughout the industry. Learn the detailed needs of the producers and all others in order to implement them in an innovative configuration under the Preliminary Specification. We need to recall the competitive advantages of the user community and service providers that include quality, specialization, division of labor, automation, innovation, leadership, integration, issue identification, deciding what’s relevant, solving issues, creativity, collaboration, research, ideas, design, planning, thinking, negotiating, compromising and financing to start with. I am in no way diminishing these competitive advantages being used or asking them to be suspended in this initial phase of the development. They’ll all be critical necessities from the first day of work of the user communities efforts. What I am seeking to do is to limit the scope of the work to that which is contained in the Preliminary Specification. There is much that can be added to it, however, that is a much different process of integration and ensuring that one part does not interfere with the nature of the whole. Something that will be better understood and can be dealt with once the commercial release of the Preliminary Specification is completed and user community and service providers efforts are operational. 

The establishment of the process of Intellectual Property(IP) development used by this community, as defined in the user community vision, will be critical from this point forward. It will be necessary to achieve success through the user community and their service provider organizations. What is important is to have an approach where there is one base of IP that every member of the user community can work from and that base is available at all times, anywhere and always. At hand when it’s needed immediately without the need for authority or permission, just there. This is provided through the user community license. There is no cross licensing necessary or possible and the licensed user community and developers can access the IP freely that no one else can. These people will be licensed to access the entire works, to prepare derivative works with only the user community license necessary to do so. The user community member is directly compensated for their efforts for their part time work on the development and enhancement of the Preliminary Specification and all of the derivative work that’s completed. Whether that work ultimately makes it past the cutting room floor or not. Innovation is not just about the successes. It is about the failures and the many, many attempts that lead to the success. We will be compensating for these failures and attempts just as much for the works that make it into the software. I am using the IP that I own and have licensed to generate the revenue needed from the producer firms to establish the developers and user communities budget. These resources are then spent on supporting the user community and developers by paying for their Intellectual Property contributions. It is in the process of paying for the user community participants time that I am purchasing their IP from them, consolidating it under one license. This IP is therefore held in its entirety as one, and as a result, available to everyone in the licensed user community to freely prepare derivative works. No one would be able to generate any feature set separate from the Preliminary Specification that would require cross licensing from user community members, or importantly producer firms. One established set of IP always. 

How do the producers achieve the systems capabilities and capacities necessary to deal with today’s environment and accommodate the future? Is this an important question in today’s working environment? Will it be an important question in tomorrow's working environment? How will any industry be provided with any solution without addressing the management of Intellectual Property? Let’s assume for purposes of this example that a producer finds a bug in an area of today’s system that occurs at times on one of their properties. This error affects the cost distribution of charges to other working interest owners in Joint Operating Committees where they are conducting some unique activities. A consideration that was not included in the system to date, as it is a result of a unique and accepted interpretation of new regulations. Who do they call? In the systems world of today, in my opinion, no one is going to volunteer to take on this task of correcting the system. You would need authorization of the CFO, in all probability, and the people who were responsible for the Joint Operating Committees within operations. If ultimately approved, the software vendor would want to know how many people needed the changes and approval from them too. They would also need, and here is the killer feature of this process, who will be paying for this upgrade? Which none of the prior bureaucrats considered and certainly did not include in their initial request. At this point, the slightly disheartened volunteer enters the second iteration of chasing their tail. And this is why bureaucrats call their systems development iterative too.

To provide a contrast to the bureaucrats' change disabled process of today. The user community that we’re creating will be lightning fast and blindingly simple! Some poetic license. Out of the 3,000 service providers it would be relatively easy to contact the associated people that are listed on the Processes Contact Sheet. There, just innovated that feature into the vaporware world! The service provider who is established by the user community has established a billing process where the work of the users staff can be charged back to People, Ideas & Objects. Therefore the subsequent research and process amendments, if any, will all be captured and paid for through the annual levy that People, Ideas & Objects assess the producer firms. It turns out that the regulation did change and it was missed by the service provider as the characteristic was unique and not known to occur. It was resolved simply by writing additional code at the database level that watched for a certain type of data element, if it occurred then it would be processed by a different subclass within that service provider's process management. All of this would be done in this lightning fast and blindingly simple vaporware world where things always turn out just as I suggest they do, and before the next month-end. 

Humor aside my point is it doesn’t need to be so complicated, slow and cumbersome. My analysis in the process of researching the Preliminary Specification and seeking to resolve why this became so difficult. Was that software vendors were constrained, ultimately, by their code and customers. The more customers they acquired, the greater volume of support related issues were needed to be dealt with. Annual contracts based on the price of the software were not creating a large enough pool of financial resources to cover both support and feature enhancements. The larger the code became, the more difficult changes for many of the vendors who were not object based, and properly architected for today’s demands. How we constructed People, Ideas & Objects Preliminary Specification, user community and service providers was to create a change based organization and community. Our revenues are based on the changes that are made by the user community. Each year People, Ideas & Objects budgets what the next year's costs will be based on past behavior and the anticipated level of future changes. We then assess the producers on the basis of their share of these costs on a $ / boe. An equalization payment / credit for prior years would be included in that assessment. These costs would also include the licensing of Oracle products, support and operating costs of hosting People, Ideas & Objects software. Please note the individual service providers are responsible for their revenues and the generation of those from the producer firms. People, Ideas & Objects only pay for the IP generated by the user community. It is in this way that these communities will be able to respond to the needs and changes of the producer and industry. Ensuring that all production is produced profitably everywhere and always. 

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

How People, Ideas & Objects Will Achieve Success, Part V

 People can intuitively understand and appreciate the need for profitability in oil and gas. The lack of profits has had a devastating effect on producers, the quality of life of all of the people who work there and each of the many industries that are directly employed in the service of oil and gas. This difficulty may be somewhat hidden as a result of the initial and current virus related lockdowns. The need for profit is well understood through its absence. Therefore adopting profits as our purpose, which has been our focus from the beginning, by industry, its people, the producer firms, service industry, its investors and bankers is something that everyone can resonate with. We’re unable to survive without the profitability that we seek. The role of the investors is not to fund the bureaucrats insatiable addiction to spend money. Investors will never have that much money. Investors play a critical role in making decisions as to what happens, where, when and why. They’ve decided that the lack of profitability is unacceptable. The capital needs of producers is beyond what they’re capable and willing to provide. Particularly those trillions of dollars we’ve identified in the categories of rebuilding, refurbishing and reclamation costs. Costs that have no capacity to provide a return on investment. Investor action of withholding their financial support should have triggered the remedial actions necessary to avoid the protracted depression we’ve found ourselves in. However, bureaucrats are obstinate. And it would appear that the potential increases in oil and natural gas prices could lead to the success that bureaucrats have always found in the industry. It's just that no one else ever gets to share in their success. If we continue on in this destructive, bureaucratic direction for the next decade, who’ll be the biggest fool of them all?

An easily expressed purpose of profitability is relatively easy to define. You know when you see a profitable activity and what is not. Wholesale changes to the organization to pursue objectives in other industries such as clean energy with zero emissions targets will never create profitable operations in oil and gas. Why are bureaucrats doing it? Is it the opportunity to fleece an entire new class of “willing and enthusiastic” investors? If People, Ideas & Objects, the user community and service providers accounting are reporting that an oil and gas property is unprofitable that’s a drain on the organizations profitability. The need to cease the drainage of value should be seen as an immediate necessity with actions taken to figure out what to do with the specific unprofitable investment. What opportunities are available?  The Preliminary Specifications price maker strategy ensures that all production is produced profitably. It also establishes the necessary organizational infrastructure throughout the industry to enable and encourage innovation. Can costs be innovatively reduced or reserves expanded, deliverability may be enhanced or should the property be sold to a partner or adjoining facility? Innovation is used to ensure that the consumers are provided with the lowest costs. Sitting idly by while value is flushed from everywhere in oil and gas, stating that you're profitable, you just need more cash, isn’t working. Will the move to “clean energy and zero emissions” be 2021s viable scapegoat just as “waiting for a cold winter” was in 2010? Implying a new sophistication in the creation of excuses, blaming and viable scapegoats, after all it has been a decade, and bureaucrats must have developed and evolved in some aspect of their lives. Recently Shell announced (additional?) 9,000 layoffs for the next 2 years with no salary increases or bonuses for anyone. Their transition to clean energy is their focus and to be honest I never thought Shell would be one of the first to just give up. Another alternative route being offered is Chesapeakes who gloat they now have 85% less engineers and geologists post bankruptcy. Exciting times in oil and gas! 

Our White Paper was entitled “Profitable, North American Energy Independence -- Through the Commercialization of Shale” for a reason. The bureaucrats have lost the script and don’t know what business they're in. Shale has disrupted the oil and gas business model. Changed the industry from scarcity to abundance and there has been no change in how the industry approaches the business. Investors believe that shale is not commercial and have seen no response or reaction from industry otherwise. Claiming profitability and earning profitability are two fundamentally different approaches and demands. Spelling out the future of the industry in the Shell or Chesapeake world only demands a high tolerance to pain. People, Ideas & Objects, our user community and service providers invoke a vision throughout the industry where the future is established in a way that is secure for those that choose to pursue oil and gas. Those interested in clean energy can choose that field to move to. Our vision has a demand where everyone needs to concern themselves with the justification of what they’re doing is profitable. And if not, how to constructively remedy that. A dynamic world of thinking constantly about what you're doing and interacting with your environment to ensure that everyone remains moving forward, dare I say profitably building value. As we know with this objective and purpose in mind, if that isn’t evident to the individual today, it can be easily learned with the appropriate feedback that some call accounting, and a sense of profitably building value can replace the daily grind of daily attendance and participation in the bureaucratic malaise of “muddle through.” 

Speaking of accounting and real profitability. We need to separate the reporting of property, plant and equipment from its determination of the value of the firm. This has become the cultural means of what is done in oil and gas. Any cost that is incurred, except for royalties and operating expenses are capitalized to property, plant and equipment at high percentage values in order to attempt to replicate the value of the reserves on the balance sheet. The reserves can be detailed in the Management Discussion & Analysis of the Annual and Quarterly reports. They are a clear reflection of the value of the firm based on how the producer has conducted their operations and the success they’ve achieved, or not, in the form of oil and gas exploration and development. These are a subjective science and the methods used to report these numbers are by independent third parties who use the same criteria somewhat consistently across the industry. They are reconciled and updated on a biennial basis and provide worthwhile and valuable information. When the value of the firm is thousands of feet below the surface it’s the reasonable method of reflecting what the organization is worth. 

Accounting is no such animal. It has nothing to do with value or what the outcome of the management has been. That value is to be determined based on the reserves and the equity markets based on the investors perception of that value. Accounting doesn’t come into that part of the equation. Oil and gas needs to move away from the perception that accounting must reflect value. What accounting does is evaluate the management on the basis of how they performed from a financial perspective. Did they perform financially, were they profitable in a financial sense. Have they been accountable for the money they’ve spent etc. It is quite possible that the situation occurs on some basis of reasonableness that the producer built significant value in terms of the exploration and development of oil and gas reserves, but could never report a profit. What is the purpose or value of those reserves if they can’t be produced profitably? Conversely, a producer may be abysmal at exploration and development of their reserves base, yet are a wildly profitable producer, in the real sense of the word profit. What is the value of these two producers? How do any of the producers fall within the scale of both reserves value and financial performance? We don’t know and will never know due to the culture seeking to have the property, plant and equipment account achieve what their reserves value is. CEO’s running around town flashing their balance sheets off as to who “built” theirs bigger and better than the others and how much “cash they put in the ground” that year. These are what the industries objectives and culture have developed into and become. The industry does not have a commercial basis of its measurement in today’s environment. The homogenization of the producers financial statements shows they’re all in serious financial jeopardy, yet they all have spectacular property, plant and equipment balances. 

This discussion essentially seeks to balance the science reflected in the reserves value with the commercial environment that the industry must operate within. What the investors have been telling the producers for five years now. When accounting is seeking to replicate the same scientific outcome, increasing property, plant and equipment as quickly and as high as the reserves value, the commercial objective is lost. “Build balance sheets,” “put cash in the ground” become the guiding objectives that are pursued by the bureaucrats. The Preliminary Specification seeks to make the commercial assessment of the industry based upon each of the Joint Operating Committees. Where their accounting assessments will be done on an independent, standard, objective, variable cost and industry based capability delivered to the Joint Operating Committees by the service providers. Where producers will know and trust the outcome of those assessments and where their costs of capital, in a capital intensive industry, will be reflected in the cost of the commodity sold to the consumer. So the invested capital of the investors can be retrieved by the consumers' use of the commodity and that capital is used again repeatedly to maintain and expand the assets, pay down debt and send dividends back to the investors. What can we say about stuffing the ground with cash? I have to say producer bureaucrats were effective in deferring any early interest in the Preliminary Specification by claiming it was crazy. Turn around is fair play.

Recording of capital assets in oil and gas has been an issue since the SEC passed their regulations in 1978. The cultural distortions that have been generated as a result of those had become obscene, in my opinion, in the 1980s. Today they’ve destroyed the industry. It is not as a result of what the SEC published in 1978 that I would place the blame, it was how they were immediately interpreted throughout the industry. The difficulties grew from what I feel is a misinterpretation of these regulations and how they’ve formed the culture of the industry today. The quote that I find the most clarifying as to what is and should be, is the following from Investopedia.

According to the Securities Exchange and Commission (SEC), oil companies are required to report these reserves to investors through supplemental information to the financial statements.2 It is important to note oil still in the ground is not considered an asset until it is extracted and produced. Once the oil is produced, oil companies generally list what isn't sold as products and merchandise inventory.

I would suggest that bureaucrats may have also misinterpreted this statement when they say in absolute harmony. “We are in compliance with all the regulations.” And they’ll state this unequivocally due to the fact that they’re not claiming the “oil is still in the ground” it’s that “you have to put cash in the ground.” See they’re in compliance when they refer only to the cash! It’s not just the oil that’s slick. Here are the governing SEC regulations for your reading and sleeping enjoyment. 

Prior to the earnings season I suggested that the haunting message that may be coming from the producers audit firm may be the going concern opinion. This may have been some overreach or just prescience on my behalf. Of the few producers of our sample that have reported only two have reported their audited financial statements. The remainder will be issuing their audited statements in April and May as part of their Annual Reports. Of these two, both are Canadian companies, do not file 10Q or 10K reports and I can’t tell if it is exclusively a Canadian issue at this time. But in both audit instances, as with most of the companies in the industry, 2020 realized significant impairments to the property, plant and equipment account. And as a result one of the firms produced a Critical Audit Matter (CAM) and the other a Key Audit Matter (KAM) regarding these writedowns. In both instances the CAM and KAM did not render an audit opinion on the specifics of the issue, but were part of the overall audit opinion that the financial statements represented fairly the financial situation within the producer firms. KAM’s and CAM’s are assessed based on Cash Generating Units (CGU’s) ability to generate cash returns. How do these audit firms account for the change when prior years audits accepted these results? It is uncertain and unclear who triggered the CAM and KAM in these instances. Justifications that these writedowns were triggered due to the effects on the business by the virus or climate change are viable scapegoats as far as I’m concerned. If the cash generating units no longer support the assets recorded value in property, plant and equipment that is more than a virus. As I was apparently premature in raising the issue of over capitalization and its implied, inverse over reporting of profits, which is obviously not a CAM or KAM as reported by the auditors in prior years, maybe I’m just premature in my comment regarding the audit opinion including the dreaded going concern kiss of death. I always asserted that overreporting of assets and profits are what ultimately led to the demise of Bernie Madoff, Bernie Ebbers and Jeffrey Skilling. That is because it’s outright fraud and each was sentenced in excess of 20 years of prison, 150 years for Bernie Madoff. Let’s see how 2021 play’s out.

Understanding that during the summer of 2020 we documented that the overproduction issue has been present in the industry since at least July 1986. The Preliminary Specification has been available since December 2013. The identification of these points in time motivated the only known action from the oil and gas bureaucrats in the past ten years. That action consisted of having the producer firms increasing the coverage of officers and directors insurance. I asserted at that time the actions of these bureaucrats in increasing the insurance coverage implied guilt and culpability. However as we sit here in early 2021 with no resolution, we still see no evident conscience. Could I apply the same logic and assert a guilt and culpability to the audit firms in documenting their Critical Audit Matter and Key Audit Matter of 2020? Especially when they know the timing and accuracy of recording capital assets is a key issue and primary purpose in Accounting? 

What we should all be asking the bureaucrats when they stand up in their Annual General Meetings this spring are the following questions. Why is it that only the personal compensation and risk to the officers and directors motivate any action? Explain to your shareholders why it is that you're not concerned with producers' real profitability for these past 35 years? Why is reorganizing to ensure profitability everywhere and always considered crazy and too radical, yet transitioning to clean energy and zero emissions is not? Why is it that just punching a clock day after day is acceptable? Where is the requisite focus necessary for success within the producer firms beyond “building balance sheets,” “putting cash in the ground” and why has the industry become such a drain on society during their watch? Will this continuous display of weakness by these bureaucrats continue the decades long losing streak that the industry is experiencing? I’d ask what the plan is, but I think any direct admission of guilt by them in a public forum would be contrary to the bureaucrats best interest. The last question would have to go along the lines of; if now is not the time for change and action, when would be?

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.