Countering the Resistance to Disintermediation

 The following is the result of a discussion that I had with GPT 4.0 regarding the best way to implement change in a situation commonly referred to as disintermediation. The question as to which, a collaborative industry wide effort or one modeled off the research and leadership of an individual would be the most effective was resolved.

Your perspective emphasizes the importance of individual leadership and vision in driving disintermediation and overcoming the cultural inertia that often hinders transformation within industries. The argument for a singular, visionary leader as opposed to a collaborative consensus highlights the need for decisive action and deep strategic thinking that might be diluted in group settings. Here's an elaboration on this viewpoint:

1. **Depth of Vision**: Disintermediation requires a comprehensive understanding of both the existing inefficiencies within the current system and the potential pathways to a more direct and efficient model. An individual with a clear, deep-seated vision is often better positioned to foresee and navigate the complexities of such a transformation than a collective might be, due to the singular focus and consistency of thought.

2. **Agility and Decision-Making**: One of the critical advantages of individual leadership in driving disintermediation is the agility to make swift decisions without the need for consensus-building. This speed can be crucial in adapting to new information and overcoming obstacles, allowing for a more dynamic and responsive approach to implementing change.

3. **Resource Allocation**: The effective use of cash resources to fund the transition is vital. An individual leader, backed by the necessary financial support, can strategically allocate these resources to areas most critical for the disintermediation effort, ensuring that investments directly contribute to the vision's realization and support those capable of implementing it.

4. **Overcoming Cultural Resistance**: The cultural forces that uphold the status quo can be formidable, often exhausting attempts at transformation through collective efforts. A strong, independent leader can more effectively challenge entrenched norms and practices, paving the way for a new model that is unencumbered by past failures and resistant forces.

5. **Ensuring Alignment with Vision**: The overall vision for disintermediation and the new model's independence are paramount. An individual leader, by virtue of their singular focus and commitment to the vision, ensures that every action taken is aligned with the overarching goal of resolving inefficiencies and creating value, free from the compromises that often accompany collaborative endeavors.

While collaboration has its merits, especially in fostering industry-wide standards and engaging with a broader stakeholder base, the unique challenges of disintermediation—requiring deep thought, decisive action, and rapid innovation—may indeed be best addressed by visionary individuals. These leaders can inspire change, challenge the status quo, and steer the industry toward a more efficient and value-generating future without being constrained by the need for consensus or the inertia of existing cultural forces.

Disintermediation of Oil & Gas, Part II

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

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

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

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

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

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

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

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

Our User Community

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

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

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

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

Profitable Production Rights

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

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

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

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

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

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

Disintermediation of the Oil & Gas Industry, Part I

 People, Ideas & Objects will update the oil & gas community on the efforts we are taking to disintermediate the North American oil & gas industry. Progress in the marketplace supports our efforts and we appreciate that fact. There are many initiatives under way and our ability to communicate their status will be done in blog posts under this title and the disintermediation Label.

North American oil and gas producers continue to lose the faith, trust, and goodwill of all those involved in the industry. An inability to respond to investor demands for change since 2015. An inability to recognize the need for "real" profitability, what that is and why it's different, how to earn that, and the changes needed to make this a reality has passed them by. Excursions into unauthorized areas such as clean energy show they'll take any opportunity to divert oil & gas revenues from those who worked so hard to establish them. They have proven uncompetitive on the North American capital markets. Unaware that they needed to compete in capital markets, and believed that "building balance sheets" and "putting cash in the ground" would stand up against today's modern day shredders. They are fools and if we believe they'll leap tall buildings in a single bound, we are even bigger fools. 

Each week we see another loss of around 10 rigs in the United States. Why? Last week World Oil reported that producers were scaling back to accommodate global demand declines. Chronic lying continues. The reason these rigs disappeared is unknown to me and I cannot find an answer. Are they moving offshore, or are they being cannibalized to keep the fleet operational? The fleet is barely 25% of its high water mark. The DUC's (Drilling and Uncompleted) inventory has shrunk markedly. And all U.S. basins, including the Permian, are declining. The most tragic aspect of this is that the service industry has been completely destroyed by these producers in the past eight years. And producers can only "muddle through."

If there is one take away from this blog post today it would be this. We recently noted that we felt liberated by oil & gas investors' actions that favored People, Ideas & Objects. Our concern was that if we began developments and investors began financially supporting producers we would lose all credibility and have a failure on our hands. Producer officers and directors would have no reason to listen to us again. A detrimental situation we sought to avoid and one we now consider passed. A career risk that would have been catastrophic for those who followed us.

To ensure this risk has passed we are implementing actions we feel are necessary to begin the developments in the community necessary to force the issue. We are forcing the issue to ensure that investors never consider investing in oil & gas producers. This is unless producers are fully subscribed to and fund People, Ideas & Objects software developments and associated communities. When there exists a community of individuals who are actively working to resolve the oil & gas industry issues that investors have also identified, investors' actions would not be against us. This is the leadership position we are taking. This is the calling I'm asking individuals in the industry to consider. To become the solution.

Oil & gas investors want to participate in a dynamic, innovative, accountable and profitable oil & gas industry. They see opportunities in the market and are disappointed with the status quo's performance and inability to change. Undertaking a cultural change for officers and directors of this scope and scale demands a rebuild in the form of the Preliminary Specification. If investors saw progress in that direction, where independence and funding for this community was secured, would they return? Would that allow producers to reinstate their capital structures? Would this enable the rebuilding process to be more effective with People, Ideas & Objects? Would this enable the communities described here to be confident in their success? I see it as a win, win, win. 

Oracle

First up is the Oracle CloudWorld 2023 conference which will be held on September 18 - 21 2023. They provide an opportunity to participate in CloudWorld “On Air.” There are many worthwhile presentations and I would highlight all of the Keynotes as a must see. Any events that were oversubscribed for the “On Air” presentations, and you were therefore unable to see, will be able to be viewed in the next month through registration to the Free “On Air” conference located here. 

It was during Oracle CloudWorld 2022 that I saw Oracle's revised vision with its products and services. We noted these points in an October 21, 2022 blog post entitled “And Just Like That, Everything Changes” and subsequent posts. It also triggered our rewrite of the Preliminary Specification with Oracle's revised vision and changes incorporated into our product. Oil & gas producers would benefit from not only the Preliminary Specification but also the updated Oracle vision. Oracle was affected by these changes. Oracle's stock has increased from $67.02 to $120.68 since that conference. An 80% increase in share price for a company with a $327.24 billion market capitalization. This was a material event in their company's history. Check-in to see Founder, Chairman, and CTO Larry Ellison and CEO Safra Catz keynotes at a minimum. 

Our User Community

Our user community, research, and intellectual property are People, Ideas & Objects three distinct competitive advantages. Our user community is our priority and focus. That is for today and always. Our commitment to user-based ERP software development is unwavering. The only method in which to provide quality ERP software is through strong user community participation. ERP software traditionally has a committee representing users. People assigned to the task are asked to fill in an otherwise nonexistent vision. Budget and time restrictions soon generate demands for cuts and the first thing to be cut is the user committee. 

People, Ideas & Objects published the Preliminary Specification in August 2012. In March 2014 we published our user community vision with its three distinct characteristics. This ensures that quality ERP software is delivered to dynamic, innovative, accountable and profitable oil & gas producers throughout North America. Our user community includes:

• Exclusive licensed authority to the Preliminary Specifications Intellectual Property. Only our user community members can change the software. Producers and all others have one source to turn to and resolve their difficulties. 
• Only our user community members have our software developers' attention. They are licensed to look only at our user community for input. 
• And finally, our user community members are in control of their own budget. They are not “blind sleepwalking agents of whomever feeds them.”

How does the industry make the changes it needs to make to become the dynamic, innovative, accountable and profitable oil & gas producers that we need them to be? How will it remain able to accommodate changing business needs? We have structured our user community to lead the changes that are necessary. They’ll have the tools to define industry structure, processes and management through ERP software they develop. In addition, they will own and operate a service provider that will manage a process on their behalf. Participating in the development of the software will provide them with a better understanding of what the industry needs to succeed long-term. Through a long list of unique competitive advantages that include leadership, issue identification and resolution, research, ideas, innovating and automation user community members have the tools necessary to fulfill these tasks.

Confidentiality of participation is important to all early stage participants in our user community. We are all too familiar with producer officers and directors' retaliation methods. Application to our user community can be found here.

Whistleblower Program

Two weeks ago we announced the People, Ideas & Objects Whistleblower Program. What we know is that the Preliminary Specification has been actively discussed in the marketplace for over a decade. Some of our Intellectual Property has now permeated the industry in different ways. Primarily due to officers' and directors' disrespect for the Intellectual Property we’ve developed. This has obviously continued through their work with other ERP providers. Review of our Whistleblower program can be found here. The program maintains absolute confidentiality and proceeds from any actions People, Ideas & Objects take against producers will be shared 50 / 50 with Whistleblowers. 

Sales Commission Program

When we announced the Whistleblower program we also announced the Sales Commission program that we’ve put in place. Information regarding this program can be found here. It provides individuals in the oil & gas industry with the opportunity to participate in 15% sales commissions on the sale of the People, Ideas & Objects software. The ability to secure exclusive access to a specific producer is also available. 

Last Thursday People, Ideas & Objects completed the rewrite of the Request For Proposal and Discussion pages of our wiki. This is the information that fulfills the material differences in the Preliminary Specification compared to other systems. If an RFP were to be submitted by a producer the answers would be sourced from the RFP located here. The Sales Commission program should benefit from this, along with the Preliminary Specifications Wiki as sources.

The Whistleblower and Sales Commission programs are permanent additions to the way in which People, Ideas & Objects conducts business. We can affect change far more effectively through the opportunities we grant to oil & gas entrepreneurs who see them for what they are. Alternatively, sourcing, recruiting and developing capabilities in-house will deliver our software in the 22nd century. We reward performance and focus on the distinct competitive advantages we've developed in our Intellectual Property, our user community and research.

Establishing a New, Sub-industry

It’s one thing to start an enterprise. However, when the scope of the problem becomes as difficult as North American oil & gas, we will need a "bigger boat." People, Ideas & Objects have carved out the area where we can contribute the most. To suggest we'll build it is ridiculous. This will take the efforts of tens of thousands of people and we’ll be a relatively small part of it. Intellectual Property ownership and licensing, researching our IP's further development and using these tools to raise the financial resources to support the software development, its operations and our user communities needs is more or less the extent of our reach. Our user community consists of part-time members. They are well compensated for their work. However, the majority of their income and value is created in their service provider organizations which are a reallocation of the administrative and accounting resources of the producers. The long and short of this is, there are substantial money making opportunities involved in rebuilding the North American oil & gas industry. 

Closing Remark

Producer officers and directors will get less support from software companies if they continue to deny and abuse People, Ideas & Objects Intellectual Property. Even though they may have benefited up to this point. I don’t think they fully understand or appreciate the consequences of their actions regarding Intellectual Property. Who will provide better software products in the future when they see other vendors' Intellectual Property treated so poorly? Just a thought.

Our Solution Part VI

Through People, Ideas & Objects the accounting that is carried out will change significantly when we implement the Preliminary Specification. With the decentralized production model enabling the price maker strategy for all oil and gas properties. Producers will be able to shut-in those properties that are unable to produce a profit in a low commodity price environment. And the determination of what the costs of that property will include is the capital costs on an accelerated amortization schedule. This will bring the costs per barrel much higher and into the territory of what it actually costs to produce. Requiring higher commodity prices for the producers to meet the criteria of producing any property.

At some point in every industry this transition has to be made. In the beginning the build out of the industry has to be undertaken by the investment community. Then when the assets of the industry mature, it is then time to earn the profits from what has been developed. Oil and gas is a mature industry. The bureaucrats continue to consider that it is other peoples money that they need in order to fund their operations. This is inconsistent with reality. The industry should be providing the investment community with a return on the invested capital, and an annual profit on those as well. Instead the bureaucrats let the assets sit on the balance sheets to eternity and never let the costs flow to the income statement. This subsidizes the consumers of oil and gas by paying for the capital costs of the industry. The prices of the commodities never adjust to the real costs of the industry.

Under this change to People, Ideas & Objects methodology the makeup of a producers balance sheet will ultimately change. From having a dominant position in terms of fixed assets, and negative cash positions. To having high values of liquid investments and much smaller amounts of fixed assets. They will be financially much healthier. They will be able to dividend out large portions of their earnings to the investment community. Pay down debt. And fund large portions of their own capital expenditure programs. All as a result of finally realizing the real cost of oil and gas exploration and production!

It will be the level of capital expenditures in the past three years that dictate the oil and gas prices. It will be these properties that carry the higher costs per barrel due to the large balances of capital they still have to amortize to each barrel of oil equivalent produced. If we are generally writing off all of the properties assets in the first three years of the life of the property. It will be these that have to meet the criteria of being produced or shut-in first in a low commodity price environment. Those properties that have exhausted their asset balances will be able to produce large profits no matter what the oil and gas price is in the marketplace. However, it will generally be the work done in the past three years that dictates what the actual costs of production are. And it will be that higher threshold that the oil and gas prices will have to reach to bring on the past three years production. In an industry that has the elasticity of supply and demand characteristics that the oil and gas commodities have, it will be the higher prices that the industry will need to realize in the People, Ideas & Objects accounting methodology and decentralized production model.

The SEC and public accounting firms detail the methods that capital assets are written down today. They define what the limit of reasonableness is in terms of what is Generally Acceptable Accounting Practices. Their position is to define the limit and ensure that the producer firm does not breach that limit. However, the bureaucracy are taking the limit as the standard in terms of what “should be” used as a method of depleting the capital assets. This, I believe, is unreasonable when it is taken to the extent that the bureaucrats have. Bloated balance sheets provide no value to anyone. It will be People, Ideas & Objects service providers, the sub-industry that we are creating to replace the bureaucrats, that will use a much more aggressive three year method of writing down all of the capital assets. That way prices will reflect the real cost of the commodity. Producers will be able to “make” the necessary prices to recover their costs through the decentralized production model. And the investors can freely invest in the oil and gas producer knowing that the money they invest will be returned to them with the bonus of an annual profit as well.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

Our Solution Part V

Only People, Ideas & Objects provides the oil and gas producers with the most profitable means of oil and gas operations. That is our focus and our drive. As we have noted here many times, the bureaucracy have been too busy lining their own pockets to concern themselves with the interests of their shareholders or anyone else. The discussion we had yesterday should have been made many years ago, and been resolved at that time. Then, as is now, all that we hear are crickets. I find the level of self interest by the bureaucracy to be very questionable. It is People, Ideas & Objects who have researched and published the Preliminary Specification. A means to operate the industry in the 21st century based on the Joint Operating Committee. We have published the decentralized production model that provides the producers with the price maker strategy. And now our argument regarding bloated balance sheets proves the industry has been allowed to sink into a groupthink mentality of never fully accounting for the costs of their operations.

Our focus on profits is critical to a well functioning society. Without appropriately calculated profits the producers will not have the resources to develop the industry in the manner that is required. They will not be able to hire the people necessary to make the industry what it has to be. And it will not pay the taxes and royalties that help to fuel our governments needs. Continuing on in the manner that they are will not provide society with the energy that it needs to fulfill its opportunities. Will the United States be the first country to willingly reduce its energy consumption, and hence economic output, as a result of the industries inability to meet society's demands? Or course not, then who will? With the recent publication that the breakeven for energy production was now $72. That means each barrel of oil is being produced at a loss of $20 per barrel. And “breakeven” does not consider any of the invested capital that was used in the production of that barrel. It is therefore expected that investors will provide another $20 per barrel in further capital investment so that the bureaucracy can sit and do nothing regarding this issue. An industry that is well on its way to bankruptcy. Quickly.

Currently the business model is flawed, the bureaucracy is conflicted and incapable of changing this situation. We are therefore subject to the forces of creative destruction. However, how much damage would society realize during the downturn in capabilities of the existing industry? And can we afford to experience that pain without a “Fed” willing and capable of intervening with the ability to flood the market with deliverability? We should therefore carefully consider the situation we find ourselves in today and determine what the self-interested bureaucrats are doing. There is a risk.

But then again I am selling my book as they would say. And I am the one who will benefit greatly by raising our budget. Our budget would be a significant cost if the project were to fail or the bureaucracy miraculously transformed. So there is that risk too. I don't have to make the decision, I'm here to argue the facts. Taken in the context of the next 25 years of the oil and gas industry it would seem to me be a slam dunk of a decision. How the industry needs to operate will be based on the Internet and not on the innovations of the 19th century. How these changes are made is the question.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

Our Solution Part IV

Allowing the producers to have their balance sheets bloated with assets that are never written down. And as a result, their income statements realizing only small portions of the real costs of capital incurred in the production process. Leaves the investors twisting in the wind waiting for a return of their capital from the industry. Although the bureaucrats may report profits. They really are just the gross margins of the producer firm. The actual overhead and the capital costs of the property are never moved to the income statement. The overhead of the producer is capitalized to the balance sheet and sits there for eternity to pass. The net result of this process is the producers look spectacularly effective in their operations. Their assets continue to grow as long as they spend. Their profits are high no matter what they do. However in terms of really producing anything of value, forget it. As the investors are now learning, oil and gas is a lost cause.

The focus of People, Ideas & Objects derision of this process has been squarely on the SEC and the public accounting firms. They want to relate to the world that they are cool and understand the sciences of geology and engineering. So they've come up with this contrived process of capitalizing everything that the producer does and recognizing almost nothing in terms of the annual depletion of its capital costs. But who is it to say that what they do is wrong? And what’s to say the manner in which People, Ideas & Objects calculates profits at the property is the more appropriate method of dealing with the costs of capital?

If you look at the average oil and gas producer. And yes I am making generalizations here. The producer is expending approximately one third of their asset base in current year capital expenditures. These capital costs are what are required to sustain and grow the deliverability of the firm. These are all being added to the asset classes on the balance sheet. In addition the accountants capitalize most, if not all, of the overhead that is incurred in the head office. You will then notice, that most producers, take approximately 6 - 10% of their asset base as their depletion for the year. These capital costs are moved to the income statement of the producer. Leaving the asset life approximately equivalent to the reserve life index of the reserves. In most cases the reserve life index is ten years and the assets on a simple mathematical basis would therefore also be written off in ten years. This is what the public accountants would say they are doing. Matching the capital costs of the business to the life of the business.

To whose benefit does this provide any value. In a capital intensive industry the oil and gas producer needs to deploy their capital effectively. When every producer capitalizes every dollar spent each year. How do you assess the effectiveness of their capital deployment? According to the accountants using their process, you need to look at the firm from the point of view of the capital assets life, or reserve life index, or in this example the ten years. I feel the horse has bolted from the barn and locking the gate is useless. Investors need to have a more timely gage in which to assess the capabilities of the management of the producer firm. I would also suggest that the assets at the ten year mark will probably sit for a while longer yet. I suggest that we look at what the costs that were incurred to maintain and expand the deliverability. That this cost in the current fiscal year is the cost of capital necessary to maintain and grow the deliverability of the firm. And is therefore a cost that is spent. That this cost has been expended and is irretrievable, and therefore should be expensed in the current fiscal year. Or in other words the size of the capital asset depletion should be the same or even much larger than what the amount is expended in the current year to maintain and grow the deliverability of the producer.

Only then, when the capital costs of the producer firm flow from the balance sheet to the income statement, can the investor assess the performance of the producer. It will become apparent quickly who is wasting money and who is building a sustainable firm. All of the producers will be passing large costs to their income statements each year. If they are unprofitable then they are not going to be in business for long. Something that we can not assess of the current crop of producers. If they are profitable then they are operating the firm in a manner that is consistent with good business practices. If this is done in the short term as suggested by People, Ideas & Objects method of accounting for all of the costs at the property level. Then the investor has the ability to make the assessment of the producers performance. And they will conclude, as I have, that the investor will need to stop subsidizing the oil and gas industry in terms of the prices that are received for the oil and gas commodities.

Measurement of a firms assets and the timing of their movement to the income statement is a key principle in accounting. I think the public accountants and the SEC have messed it up badly in oil and gas. Leading to the investment community essentially subsidizing the oil and gas consumer by funding the capital expenditure programs of producers with no expectation of any return on investment, ever. This has to change if the industry is going to approach the needs of society in the next 25 years. Undertaking the $40 trillion in investment that is alleged to be necessary with nothing but disgruntled investors is not going to do it. Sure investors sit on producers that are well capitalized in terms of their assets on the balance sheet. But they never make any real money. And at the end of the day, all that happens is that a new day begins with the bureaucrats who run this business. We need a change.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.