President Trump's Energy Secretary

 I wanted to take a moment to break the silence on our blog and share an update on our ongoing work, which feels like we're writing an ever growing number of research papers. I anticipate being able to release our first paper in early January. Keeping up with the Trump-induced surge in animal spirits—is going to be quite challenging.

In the meantime, I'd like to offer my thoughts on the current state of political progress in oil & gas during the Trump transition.

Chris Wright, nominee for Energy Secretary 

I believe there is more behind the policy of "drill baby drill" than President Trump may realize. He needs to ask how oil & gas drilling and expanded deliverability will develop under his administration. Will the industry be able to rally and return to abundant deliverability with this change in leadership? I find this doubtful. I have often stated that the Biden administration's obstructions have had little effect on the industry's performance, other than providing officers and directors with a convenient scapegoat over the past four years. "Muddling through" and doing nothing have been the producers' hallmark, and that has and will continue.

President Trump benefited from the surge in shale production during his first term, and we can agree that governments perform best when they step aside. Blaming the government disrespects the industry's pioneers who overcame impossible odds, dedicating their efforts to build what was once a robust oil & gas sector before these excuse-makers took over.

Today, I believe the president is being misled, perhaps naively, by those advising him on the industry's current state. The core issue is profits. Investors signaled this starting in 2015, but officers and directors of producer firms have chosen to ignore them. One of the most vocal in resisting investor demands was Harold Hamm of Continental Resources, who proudly claimed for many years before 2015 that he doesn't pay dividends. Finding investor demands too burdensome, Mr. Hamm took Continental private in the fourth quarter of 2022. With a personal wealth of $18.6 billion, this was an option for him. It is reported that Harold Hamm is President Trump's most influential oil & gas representative and that he recommended Chris Wright of Liberty Energy for Energy Secretary in the Trump Cabinet.

People, Ideas & Objects believe that past leadership holds responsibility for the industry's current predicament. They have betrayed every interest connected to the oil & gas sector, affecting everyone down to local businesses in rural areas where producers operate. Confidence in profitability will not return until it is permanently restored within producer businesses. Many stakeholders are unwilling to reinvest in what was previously destroyed by producers' indifferent approach to costs and the downstream implications of their actions in the broader oil & gas economy. Rigs dismantled for scrap metal and equipment sold to other industries were observed by producers' officers and directors without concern. These are the consequences, as illustrated by Liberty Energy's 9/30/2024 quarterly report, which purchased Schlumberger's fracing division in 2020. Note that Chris Wright, at the time of this writing, was nominated for Energy Secretary in President Trump's cabinet.

Focused investments have allowed us to develop new markets and lead technology innovation and operational efficiency in the industry. Over the past year, Liberty entered partnerships to develop the new gas-rich Beetaloo Basin in Australia. We have taken a significant step forward with the arrival of a Liberty fleet in country,” continued Mr. Wright. “During the third quarter, the Liberty Advanced Equipment Technologies (LAET) manufacturing and assembly division delivered its first digiPrime pumps. Additionally, Liberty Power Innovations’ (LPI) expanded operations in the DJ Basin are off to a strong start, helping bring our frac fleet CNG fueling services to critical mass.” p. 1

And

Today, the rising demand for power in commercial and industrial applications offers compelling opportunities for LPI. We are excited to leverage the expertise that we have built constructing and managing power plants for frac fleets to additional opportunities both inside and outside the oilfield. p.1

Outlook

Frac markets are navigating the slowing of E&P operators' 2024 development programs in response to the strong first half 2024 efficiency gains from factors including consolidation, longer laterals, and concentration in high-graded acreage. Elevated uncertainty in energy markets has further left operators reluctant to accelerate completions activity in advance of the new year. We now expect a low double-digit percentage reduction in Q4 activity, a bit more than the typical Q4 softening. Completions activity likely increases in early 2025 to support flattish E&P oil & gas production targets. Since late 2023, U.S. crude oil production has been relatively flat and would likely decline if current completions activity levels persist. 

Expressions of faith, trust, and confidence that producers have matters under control have all but vanished. Liberty Energy is seeking future fracing business opportunities outside North America and looking to apply their power systems expertise to industries beyond oil & gas. They state there is little doubt that production volumes will decline. People, Ideas & Objects assert this is the case as there is no money. Due to decades of mismanagement and leadership failures in the boardrooms of oil & gas producers they don’t earn profitability, have no support for their capital structures and destroyed the field service providers comprehensively. Again, this is from Liberty Energy's quarterly report. While I have no doubt that Mr. Wright will be able to provide the appropriate perspective to President Trump; it appears that oil & gas officers and directors have learned little since their investors began sending clear messages.

Few outside the boardrooms of oil & gas producers trust the statements made by their officers and directors. Most damaging is they have lost credibility in the eyes of their investors. For nearly a decade, these leaders have declined to act on the significant messages sent by investors. Despite possessing the authority, responsibility, and resources to address industry challenges, they have often attributed issues to external factors or made various excuses such as "praying for a cold winter," "market rebalancing," or asserting that "profits don't matter; it's cash flow." As oil prices declined from $100 to $35, they publicly claimed profitability at ever-lower price points—$70, $60, $50, then $40—through creative accounting practices. Other justifications included declarations of innovation, blaming the service industry as "greedy and lazy," professing newfound commitments to production discipline, and fluctuating stances on shale and clean energy.

These are just a few of the excuses offered over the years, consistently deflecting responsibility. The events of 2023 demonstrated that the core issue is one of leadership, not just profitability. Until there is a change in leadership among officers and directors, meaningful progress in the North American oil & gas industry is unlikely, regardless of who is blamed.

In 2023, People, Ideas & Objects published findings on the consequences of producers' actions in managing shale gas in the 21st century. The decline in traditional heating value pricing from 6:1 to as low as 50:1 to oil in early 2024 highlighted a lax approach to business, resulting in a loss of $4.1 trillion in revenues from shale gas in North America this century. This issue was exacerbated by the failure to capitalize on the development of the LNG marketplace, with producers selling gas domestically at an average of $3.22 since LNG exports began in 2015, while others purchased, liquefied, and exported it realizing prices as high as $50.00.

Officers and directors did nothing until we raised this point. They then began contracting to do so as quickly as they could to rectify their mistake. Unfortunately, they’re too late and were forced to sign agreements with LNG facilities that have not been approved by the regulators and in some instances not even approved by the LNG facility owners to build. Precipitating President Biden to shut down the approval of any more LNG facilities during his administration. So yes the Biden administration has been the roadblock to progress in North American oil & gas, not sheer incompetence by those who have the authority, responsibility and resources to act to avoid basic business mistakes.

Initiating meaningful activity in the industry is difficult while current officers and directors remain in place. Lacking any imagination, vision, understanding or concern they'll "muddle through" for another decade or two. President Trump has a good pick in Mr. Chris Wright as he has experienced the consequences of the producer's incompetence first hand. However, Mr. Hamm doesn’t think investors are worthy of any say in the industry and he is of like mind with his cohorts. They blamed President Biden for shutting them down in their attempt to correct their failures on LNG contracting. The issue here is they didn’t understand free-on-board. Blaming external factors may continue unless there is a fundamental shift in oil & gas industry leadership.

Since 2015, little has been done to mitigate ongoing issues affecting the broader North American oil & gas economy. Changes in government policy alone are unlikely to alter perceptions of how the industry has been managed. Without significant organizational changes and a commitment to addressing these challenges, progress may remain elusive. They have not renounced their prior methods and continue to belittle People, Ideas & Objects for having a plan on how to generate “real” profitability. They have no organizational approach to deal with these issues and wish only to lay the blame on the next convenient, viable scapegoat. Don’t fall for it, President Trump. 

Why Are These People Here?

 Our previous post clearly illustrated how officers and directors have painted themselves into a corner. They now face a situation with no resources, support, or goodwill available to them. They must find a way to address their organization's declining productivity, lack of capital, eroded goodwill, and most critically, the capabilities needed to navigate the difficulties they have created. In early 2024, People, Ideas & Objects quantified the material nature of their natural gas revenue losses this century. By comparing the pricing structure of natural gas at a heating value equivalent of 6 to 1 of the price of oil vs. what was realized, which was as high as 50 to 1 in early 2024, we found that producers had lost $4.1 trillion U.S. in cumulative revenues.

Last year, we offered officers and directors a chance to address these issues. “Our response to an RFP” was one of the many offers we made, attempting to provide a solution. As with all our other offers, it was vehemently declined. Seeking an alternative, we formulated our new approach with the Profitable Production Rights and Flexible Profitable Production Rights. These involve selling access rights to process a producer's production through our Cloud Administration & Accounting for Oil & Gas software and service facility. This provides Profitable Production Rights holders with the opportunity to participate in a hybrid oil & gas and technology solution derived from the Preliminary Specifications Intellectual Property. Profitable Production Rights owners can then license their exclusive access rights to producers, generating a royalty stream for processing their production.

The extent of the damage caused to the industry has been significantly increased due to the “muddle through” culture of officers and directors, the opaque nature of their specious financial accounting, and the substantial cash flow generated in oil & gas, which has been just enough to sustain minimal operations. This has enabled producers to continue far longer than most industries would in similar circumstances. The length of time that People, Ideas & Objects has been involved in bringing this solution to the market has been excessive, and the damage and destruction the industry faces are absolute. This is why a rebuild from the ground up is necessary.

People, Ideas & Objects Revenues

We are confident that the significant damages experienced by the North American oil & gas industry will persist and remain as substantial as we have consistently reported. Consequently, we are moving forward to generate a revenue stream derived from the sale of Profitable Production Rights. These funds will be used to build the proposed Cloud Administration & Accounting for Oil & Gas facility, including the software development of the Preliminary Specification and our user community.

As issues within the industry become more apparent and are met with the typical non-response, people will begin to see the urgent need for a solution. This growing awareness will drive interest and participation in the Profitable Production Rights, fueling the completion of the People, Ideas & Objects Preliminary Specifications.

We believe oil & gas producers have one viable alternative to fund their future: generating the “real” profitability enabled by the Preliminary Specification. Producer officers and directors seem to believe that investors will eventually return to recapitalize the industry. However, investors, who still hold residual share interests in these producers, have expressed their disinterest in further investment since 2015. This stance will not change until there is a demonstrable improvement in producer performance, as they are also not interested in any further dilution.

Achieving the level of performance demanded by investors necessitates rebuilding based on the Preliminary Specification. We believe that successful ERP software solutions should focus on user community developments and be funded from oil & gas revenues. Our Profitable Production Rights are licensed rights purchased to process one barrel of oil equivalent per day through the Cloud Administration & Accounting for Oil & Gas software and service facility. No oil & gas production will be processed through this facility without securing a Profitable Production Right.

Access rights are managed through the smart contract of the blockchain technology on which the Profitable Production Right is built. These rights are granted for the life of the facility, are assignable and transferable to any North American production. Their value derives from their access licenses, which the rights owners will license to producers for processing their production. Rights holders can negotiate contracts with property producers and use the smart contract of the blockchain to manage access and collect net revenues.

First Years Budget

Recently, I proposed raising our first year's budget through the sale of Profitable Production Rights at 10% of their purchase price. Initially, I set a deadline for this, which was more aligned with project-based thinking rather than that of a going concern. These are our revenues and should be viewed as a future income stream, something that should not have a deadline. As we move forward with commercializing People, Ideas & Objects, we should expect a few bumps along the way.

The purpose of offering a heavy discount of 90% on the Profitable Production Rights is to address the immediate funding needs for our first year. One of the initial deliverables will be the establishment of the blockchain and associated systems to enable the trading of these rights. However, these systems will not be available until we achieve the necessary level of revenue to proceed as a going concern.

Profitable Production Rights Opportunity

In discussing the Profitable Production Rights, we have identified several key markets for individuals and organizations interested in purchasing our product. These include:

• Investors: 
• Engagement Strategy: Highlight the disillusionment investors have with past industry practices. Our strategy aims to re-engage them by offering a license in a dynamic, innovative, accountable, and profitable oil & gas producer.
• Value Proposition: Provide a direct, persistent royalty share in oil & gas production, showcasing a shift towards transparency and profitability.
• Oil & Gas Employees: 
• Risk Mitigation: Acknowledge the risks faced by individuals supporting industry transformation.
• Future Promise: Emphasize confidentiality and the potential for a safer, more rewarding future in a transformed industry.
• Service Industry Representatives: 
• Stability Advocacy: Address the boom/bust cycle and advocate for a more stable and trustworthy relationship between producers and the service industry.
• Trust Rebuilding: Focus on rebuilding trust and ensuring mutual profitability, emphasizing long-term partnerships.
• Producers (North American and Worldwide): 
• Direct Purchase Incentive: Encourage direct purchase of North American Profitable Production Rights Licenses.
• Cultural Shift: Promote a culture of preservation, performance, and profitability across the industry through our approach.
• Our user community and their service provider organizations:
• Participation and Motivation: Reflect their motivation for profitability everywhere and always by participating in these software developments.
• Incremental Value-Add: Offer a Profitable Production Rights License that provides incremental value-add, enhancing their role in the industry.
• Direct Participation: Highlight the attractiveness of direct participation in the production process as an incremental form of value for those within the oil & gas community.

By targeting these markets, People, Ideas & Objects aim to secure a broad base of support for the Profitable Production Rights, ensuring a more dynamic, innovative, accountable and profitable future for the oil & gas industry.

Shale

Shale formations, with their vast potential, represent one of the greatest endowments of value bestowed upon mankind. The development of methods to access these formations, particularly in North America's dynamic and entrepreneurial economy, is largely thanks to the service industry. These formations have been known since the first U.S. Geological Survey in the late 1800s. With ample shale resources available for the remainder of this century, extracting this resource will certainly be among the most expensive endeavors in oil & gas. Therefore, escalating costs must be accounted for appropriately to ensure the industry's profitability.

The value proposition of oil & gas for consumers is immense, equating to 10,000 to 25,000 man-hours per barrel of oil equivalent. However, wasting these resources by producing them unprofitably is unacceptable. Unprofitable production equates to overproduction, causing commodity prices to collapse. We owe it to future generations to manage the resource properly, ensuring that all production is profitable and that a prosperous and healthy industry is handed over to them.

Never before in the history of mankind has something of such value and significance been so fundamentally destroyed. Based on the first two decades of performance, shale has proven useless in the hands of the current generation of officers and directors. They have failed to make any money, a fact they admitted only three years ago. They have hollowed out producer firms of all value, leaving reserves that, if unprofitable, are worth nothing and merely consume cash to produce. Disappointed investors have been ignored for a decade, leading to the shutdown of university programs dedicated to oil & gas engineering and geology. The devastation in the service industry is profound, and the lack of trust, faith, goodwill, and belief in any positive change while the current officers and directors are involved is a significant issue.

The industry must undergo a comprehensive rebuild to address its many difficulties. People, Ideas & Objects' Preliminary Specification addresses the ERP software needs, but there are countless other challenges that must be tackled simultaneously. The business model used during the era of scarcity fails in the era of shale abundance.

Producers believe they have transitioned to a new environment with fresh opportunities ahead. This optimism overlooks their inability to solve fundamental issues or address investor concerns, reflecting poorly on their understanding of the current situation. The past twenty years of shale’s dominance have been nothing short of a financial catastrophe. To believe that everyone is ready to move forward is misguided. By the end of 2023, 764 TCF of natural gas had been produced from shale, with gas prices ranging between 35 and 50 to 1 of oil in 2024— a tragic outcome that can not be repeated. An outcome that we are destined to repeat with today’s leadership.

Conclusion

Officers and directors have consistently made excuses, blamed others, and created scapegoats for their failures. They control the primary industry revenues, which are the only remaining source of value to address the issues within the greater oil & gas economy. The rest is devastation and destruction, with no one willing to contribute more after losing nearly everything. So, blame away!

On the other hand, we have a leadership in the producers' officers and directors that lacks even a basic understanding of business. Since the 1986 oil price crash, they have defaulted to a "muddle through" culture, the only approach they know. This mentality of doing nothing, saying nothing, surviving, and cashing the check has permeated generations in the industry.

Consider the nonsensical statements made by officers and directors over the past decades: “Waiting for a cold winter,” “Building balance sheets,” “Putting cash in the ground,” “Shale will never be commercial,” “Clean energy is our frontier.” The LNG fiasco of last year saw “others” taking hundreds of billions, and probably trillions of future dollars from producers due to a lack of understanding of “free on board” or “net back pricing.” Remember the absurd claims of continued profitability as oil prices declined from $80 to $30? How did this miracle of historical accounting happen? It didn’t, the mythical “recycle costs" drawn from what beaten-down service industry prices were in the current market, was applied to producers' entire well inventory.

I’m only highlighting the most ridiculous and devastating examples. The worst may be the natural gas price destruction itself. Who would allow their product pricing structure to erode from 6 to 1 down to 50 to 1 over 17 years? With fully disenchanted investors and a solution to these exact issues available since August 2012, one must ask:

“Why are these people still in charge?”

People, Ideas & Objects Campaign Report, Part II

 We've been discussing the insurance policy that People, Ideas & Objects offer to those responsible in the industry—a contingency plan to establish an alternative means of organization and operation in case the current administration fails further. This failure has been ongoing for at least a decade. Progress is not linear, and unfortunately, neither is failure. While we stand on the shoulders of giants, we've neglected to advance further, leaving issues unresolved for too long. Future opportunities are now beyond our reach, necessitating a rebuilding of infrastructure capacities and capabilities as a priority.

People, Ideas & Objects have campaigned to persuade industry officers and directors to adopt the Preliminary Specification, aiming to reconfigure the oil & gas industry around a culture of preservation, performance, and profitability. However, producer officers and directors denied any need for such changes and proceeded with their own consolidation plans. We wish them well, understanding that they likely feel the same about People, Ideas & Objects. If nothing else, our Campaign Report Part I identified the issues, highlighted the inadequate approaches taken to resolve them, and exposed the fundamental lack of business understanding that caused these problems in the first place. This has been quite revealing regarding the quality of the current leadership in the oil & gas industry.

The Other Insurance

Our campaign has now firmly placed officers and directors on record regarding the industry's issues, their severity, the resolution we offer, and the time frame within which these problems must be addressed. The potential loss of revenues and assets, amounting to $40 billion per month or more, should be a significant motivator for them to act. Failure to act promptly exposes them to personal jeopardy, as their mismanagement could lead to shareholder litigation, putting their personal assets at risk to cover the shortfall investors should have realized. Regardless of whether officers and directors were previously aware of this risk, they are now legally held to the standard of awareness and should be fully aware of the situation following our campaign.

Consolidation, like most industry initiatives this century, is already showing signs of failure. One major issue that People, Ideas & Objects have highlighted is the extinguishing of motivation and initiative due to the current leadership. From producer investors to the service industry, nothing will happen while the current leadership continues. The failures of consolidation are evident in layoffs at Chesapeake, where people now recognize that the boom/bust cycle offers no stability for a future career. Nitro, a startup in the service industry, declared bankruptcy because it relied heavily on revenue from one producer that was consolidated and no longer available. Knowing of the prior treatment the service industry received from an unconsolidated industry, who will venture into a consolidated industry where each producer wields more power over the future of each field organization's prospects. This will further stunt the future industry development in terms of technical advancements and innovation.

Producers’ assertion that consolidation will solve the issues they created is invalid in the long run. The shift to declare shale uncommercial and move to clean energy lasted almost two years before they realized oil & gas revenues were essential. If they truly believed in clean energy, they should have quit their positions, started a new venture, and taken the necessary risks. Consolidation is reminiscent of the old Soviet Union, where motivation was driven by fear and intimidation. However, today's officers and directors lack the military or other means to instill the necessary fear to drive a productive oil & gas industry. Their alleged collusion has been discovered, tarnishing the industry's reputation for another generation.

Efforts to mitigate the damages caused by consolidation will fail, as everyone intuitively understands. Attempts to convince their Officers and Directors Liabilities Insurance providers will also fail, as these providers have no reason to cover them when they are likely to be found liable of willful misconduct. This liability is a result of their inactions, despite shareholder concerns since 2015. They never entertained People, Ideas & Objects as a solution, available since August 2012. This indicates they will ride the situation to its lowest point, extracting what they can before the collapse becomes too obvious. 

And 

These two graphs from the May 23, 2024, EIA Natural Gas Weekly Report raise the question of how correlated they are. We are definitely behind the curve in terms of the industry's deliverability, capacities and capabilities. Is the flattening of shale production suggesting producers are finally learning that shutting in production when prices are desperately low is the right action? I can assure you that any production that may have been recently shut-in was purely routine maintenance and has returned. Natural gas prices are not profitable in any sense of the term. Unprofitable production is the same as overproduction. Sustained oil & gas overproduction has gutted all the value from the industry, and it’s now incapable of maintaining its productive capacity.

Artificial Intelligence

The value of Artificial Intelligence (AI) is continually evolving. AI excels in performing specific tasks and assisting people with their work, and its potential will keep expanding. However, the oil and gas industry requires more than just personal task management and productivity enhancements typically associated with AI. In terms of productivity and scientific advancements, AI could become as revolutionary as the Internet. These are indeed transformative times.

People, Ideas & Objects hold distinct competitive advantages in Intellectual Property (IP), research, and our user community. We are discovering that AI significantly enhances the value of our IP. We've documented that IP will be crucial for individuals to remain employed in the near future. While skills and education are essential, they often fall under the category of tacit knowledge. IP of explicit knowledge, on the other hand, can be directly owned, licensed (as our user community members do), or through working for those who own or are licensed in some form of IP. Any of these three methods enable the leverage of IP through AI, making AI the ultimate "killer app."

Another perspective we hold is that AI is now the "app killer." Since the release of ChatGPT 4.0 last year, the number of apps I use has diminished significantly. When tasks can be accomplished more easily and effectively than the best app could previously manage, the need for those apps diminishes. Moreover, why subscribe to an app when AI does it better? With the release of ChatGPT 4.o, I've pleasantly retired Siri to history.

At this point, People, Ideas & Objects can assert that the most valuable asset is the underlying Intellectual Property (IP) of a solution. Unlike other assets, IP cannot be easily replaced by Artificial Intelligence providing a superior alternative. Software will continue to drive progress in every industry, whether dealing with tangible or intangible products. For People, Ideas & Objects, it's not the oil & gas asset itself that holds value today; it's the software that makes these assets profitable. Without robust IP to protect our applications from AI encroachment, we risk becoming obsolete, much like Siri has become.

People, Ideas & Objects focus on addressing business issues in oil and gas. We utilize Information Technology to resolve these issues by automating business processes and reorganizing both producer firms and the industry itself. While our efforts extend beyond AI, AI will have a significant impact within our Preliminary Specification, especially through our Artificial Intelligence module. This module consolidates the industry's AI efforts into developing business algorithms and creating a generic AI base across the industry. Producers can then leverage this AI base to advance their applications for their Joint Operating Committees or producer data within the Preliminary Specification. By using Professor Paul Romer's concept of non-rival goods, we can defer the heavy costs of each producer developing the AI infrastructure, competing for scarce resources, and failing to collaborate on a broad enough scale to maintain appropriate focus.

Currently, the business data within the industry is inconsistent and aggregated with workarounds like overhead allowances that estimate what might be correct. Comprehensive analysis and systems engineering are necessary to establish the industry's needs and build processes based on actual data elements. This foundational step is essential for the industry to make the data usable in the future. Our user community's role is to analyze, input, and maintain these requirements, providing producers with the tools they need. This establishes a permanent software development capability, starting with properly organizing and managing enterprise data. When data is conflicted, unstructured, and unreachable due to being recorded in multiple locations, AI will never help the producer organization derive any value from it.

Managing resources and processes to focus organizations on profitability and value is crucial. This involves stripping the producer firm down to its key competitive advantages—land & asset base, and earth science & engineering capacities and capabilities. Administrative and accounting resources are removed from the producer firms and reorganized into our user community-owned and operated service providers, who hyper-specialize in one process and apply it across the industry. Using hyper-specialization, division of labor, and automation in a shared infrastructure brings enhanced productivity, speed, standardized and objective accounting, turns all producer costs variable (including overhead costs), and focuses these on producer profitability. Only through a fundamental reorganization of the industry and producer firms can the current business issues be effectively addressed.

Conclusion to these Consequences

We often hear producers emphasize their reserves and their ambition to expand and "grow" them through consolidation. This reflects a myopic focus on reserves as the industry's holy grail. By now, it may seem redundant to state that these reserves are useless in their hands. If producers cannot extract them profitably—in the true sense of profitability—then those reserves are better left untouched. Extracting them at a financial loss is a misguided venture. For decades, these producers have persisted in their flawed methods, causing immeasurable losses and damage to the industry.

Their Officers and Directors Liability Insurance risks are substantial. They have not taken necessary steps to mitigate obvious issues, and the industry's landscape increasingly reflects the desolate nature of current administration by officers and directors. It appears they are willing to take this risk, and their chosen method of consolidation is beginning to show its fallout.

In contrast, while we do not solely rely on Information Technology to provide value, People, Ideas & Objects focus on business and organizational issues that can generate real value for producers and the industry. The IT infrastructure, possibly mirrored in the AI infrastructure, is mature. As the rest of the world accelerates in performance and quality, the oil and gas industry clings to its outdated practices. They insist on giving failed methods one more try, despite over four decades of evidence showing they do not work. People, Ideas & Objects provide for the most profitable means of oil & gas operations, everywhere and always. What does their lack of concern for profitability reflect?

Our Value Proposition: Joint Operating Committee

 Once People, Ideas & Objects' Preliminary Specification aligns the seven frameworks of the Joint Operating Committee with the corporation's compliance and governance frameworks, it creates synergy and alignment across all industry and producer processes. Partnerships have been essential since the industry's inception and will continue to be so until its end. The Joint Operating Committee is the industry's standard for organizing partnerships, with a comprehensive understanding reflected in Operating Procedures and Accounting Procedures. These procedures are maintained by independent industry associations that publish and study the methods necessary for operating a partnership in oil and gas.

In our Preliminary Research Report, People, Ideas & Objects hypothesized that the introduction of computers in the 1960s caused a divergence between the accounting and administration perspectives and the operations perspectives of firms. Accounting and administration became focused on the information capabilities of computers, while operations remained centered on partnerships as represented by the Joint Operating Committees. This divergence was exacerbated by tax regimes, regulations, and SEC requirements, which directed the attention of accounting and administration towards the corporation rather than the business operations within the Joint Operating Committees. As a result, the operational information captured at the property level by accounting is now often inadequate for decision-making, which instead relies primarily on independent reserves reports.

Value or Construct?

Does making the Joint Operating Committee the key Organizational Construct of the Preliminary Specification qualify as part of our value proposition? If so, how?

We believe it does. A producer firm has to balance two different organizational focuses and objectives. The technical side is centered on the business of the business, while the rest of the firm is focused on regulatory requirements, reporting, corporate compliance and governance demands.

The first issue involves data inconsistency. Producers often see the same or similar data captured across different parts of the organization, but the data is inconsistent. The needs and requirements for data vary, particularly when it comes to production-related data. For instance, is the data monthly or daily, gross or net, spec or raw, natural gas or oil, actual or accrual, nominated or produced, sold or inventoried? What’s the chromatograph on that stream? These complexities often lead to confusion and inefficiency, as highlighted by the common response, “I just want the number we get off that monthly fax from such and such. I don’t know what number it means. I was told to use it when I started this job.” This situation is unfortunate and needs to be remedied. Production-related data is complex, difficult to manage, labor-intensive, and subject to numerous amendments and accruals, typically finalized within 60 to 90 days after the production month closes. People, Ideas & Objects believe there has to be a better way.

Therefore, we developed the Material Balance Report, part of both our Partnership Accounting and Accounting Voucher modules. The Material Balance Report standardizes the reporting of production to establish certain objectives. First, the volumetric balance is subject to the same rigor as debits and credits in the financial system. Second, it ensures volumetric balance within the partnership itself. All aspects of every production transaction are contractually defined and secured through agreements. Third, the report will be system-balanced and reconciled in terms of the larger system of industry production.

Different users need different perspectives and uses of the data. This is achieved through the Preliminary Specification Material Balance Report. E.F. Codd’s Relational Theory shows that different uses of the same data are one of the attributes of relational databases. Engineering the Material Balance Report as People, Ideas & Objects suggest provides the means to identify and accommodate these different uses. When we consider technologies, such as the Internet of Things, that are just beyond the grasp of what’s available today, and understand that the purpose of the Material Balance Report is to automate follow-on processes from the production data being generated, we can see how oil & gas employees can alleviate themselves from the tedium of manual processes. They can then invest time in capturing their tacit and explicit knowledge in the software and services of Cloud Administration & Accounting for Oil & Gas, focusing on the difficult, time-consuming, and critical work needed to make the industry dynamic, innovative, accountable, and profitable. This approach keeps the industry moving forward and achieves what we know must be done.

But a Rebuilding?

Why discard everything when some aspects are still functional? People, Ideas & Objects believe that North American oil & gas producers are currently operating at about 25% of what would be considered competitive. The industry has spent decades considering spending as inherently profitable, leading to homogeneous and indistinguishable financial statements across producers. These statements typically feature large property, plant, and equipment, minimal working capital, high debt levels, overstated assets, and shareholders who face diluted interests and fake profitability.

If the industry believes it is prepared to tackle the next 25 years with the current structure and leadership, this perception is misguided. The endowment of shale resources is beneficial, but rebuilding the service industry is crucial. The service industry, mistreated for decades, will require long-term proof and free industry cash to support their rebuilding efforts.

Our research taught us that when compliance and governance are aligned with operational decision-making, accountability results. This is intuitively understood. We believe this to be a source of conflict throughout the oil & gas industry, creating an atmosphere and culture of unaccountable decision-making. The contradiction occurs when operators assume the responsibility of managing the Joint Operating Committee. This is based on the need to have the requisite capabilities available to conduct necessary field operations. The Joint Operating Committee holds operational decision-making authority, which is then delegated in the Operating Procedure to an operator based on voting by its producer participants. A threshold percentage is established for any decision to pass. Let's assume 60% is required for approval, and the operator has a 33% working interest. Decisions are then made on this basis, AFE’s are issued, funds are spent, and the initiative fails. Who’s responsible and accountable for the difficulties—the operator or the Joint Operating Committee? 

We believe this to be the root cause of a related issue we identified in our discussion regarding Specialization and the Division of Labor. When producers have never been held accountable for day-to-day individual field decisions during their tenure, why would they be held accountable for decisions when they’ve assumed officer or director roles in the firm? Just “muddle through.” The industry culture developed over the past six decades underpins this unaccountability. In its place, a culture of excuses, blaming, and the generation of what we call viable scapegoats has emerged. To resolve this, the Preliminary Specification aligns and implements the Compliance & Governance module to the operational decision-making framework of the Joint Operating Committee, establishing an organizational culture of accountability for decisions.

The next point is related to the accountability issue and to other issues around resource restrictions in the earth science & engineering technical resource supply. Professor Richard N. Langlois was an extensive source of primary research we used throughout the Preliminary Specification. His research in industrial and innovation economics raises what he calls the agency issue or rights assignment problem in his working paper “Modularity in Technology and Organization.”

The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? 

Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) who point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). p. 27.

Moving the decision rights to where the knowledge exists was the appropriate decision to be made in the 1950s. However, this is inadequate today due to the difficulty for the producer as operator to maintain the full suite of just-in-time engineering and geological capacities and capabilities in the ever-expanding sciences. The solution therefore is specialization and the division of labor, which only exacerbates the difficulties and demands more from the operator. People, Ideas & Objects suggest we’ll soon reach the point where these capacities and capabilities will grow beyond what the commercial producer can support. Our solution to replace the operator definition is called Pooling.

Therefore, what rebuilding will be done? The current administration doesn’t understand there are issues. They wouldn’t know how to correct them, nor how to fix them. Consolidation is the principle they’ve hitched their wagon to, and already it's having severe consequences for both the service industry and the people who work there and in oil & gas. The only other alternative is the Preliminary Specification, designed specifically to rebuild the industry on these issues, as detailed in May 2004's Preliminary Research Report. The Preliminary Specification, published in August 2012, offers our solution: rebuilding the industry on the basis of a new culture of preservation, performance, and profitability.

The Joint Operating Committee 

Identifying, supporting, and aligning producers' processes within the Joint Operating Committee provides real value to producer firms, enhancing their performance and enabling progress in an industry that has at best stalled at a critical point in its history. People, Ideas & Objects don't believe consolidation is the answer and offer the Preliminary Specification as an insurance policy in case of its failure. Today, half of the producer firm utilizes the Joint Operating Committee. The engineering and earth sciences are deeply rooted in the traditions and culture of the industry's partnerships. However, they operate without the support of accounting information tailored to the oil & gas business, which instead caters to external interests like tax authorities, the SEC, and regulators. These external entities understand the communicated corporate related data because they define it, but engineering and earth science professionals are unaware of the flexibility and value of performance reporting that can help them determine what works and what doesn't. For four decades, they've been told that spending money is profitable—”just look at the balance sheet and income statement!”

Unaware of which property is profitable and which is not, they cannot determine where and why they may be losing money. They don't understand the financial impact of any actions taken or what measures can mitigate issues. They live by two truths: spending is profitable, and field costs need to be pared down.

Aligning the corporation’s compliance and governance frameworks with the Joint Operating Committees legal, financial, operational decision-making, cultural, communication, innovation, and strategic frameworks resolves the issue of “two separate organizations” operating within the producer firms. Although the value in doing so is inherent in the alignment, the quantifiable benefits are incalculable. Starting with the same actual, factual, balanced, and reconciled data used throughout the organization, the People, Ideas & Objects user community can make changes to the software to accommodate innovation. This reduces the redundant, costly, and non-competitive tasks of each producer building and maintaining accounting, administrative, and systems capacities and capabilities.

Focusing the culture of the rebuilt oil & gas producer around the Joint Operating Committee centers the focus on individual assets and their performance. There will be no ambiguity about the financial consequences of any action taken when actual, factual, standard, and objective accounting is conducted through the Cloud Administration & Accounting for Oil & Gas. This provides an understanding of these changes. All modules of the Preliminary Specification focus on the Joint Operating Committee. Engineers will be able to prepare pro forma financial statements based on their planned changes. They'll have access to the Artificial Intelligence, Performance Management, Resource Marketplace, Research & Capabilities, and Knowledge & Learning modules focused on the same Joint Operating Committee or whatever domain they define. The alignment of the financial and operational domains of oil & gas producers should have occurred long ago. We’ll soon discuss why this hasn’t happened and how it has contributed to the industry's downfall.

Conclusion

The concept of alignment may have been popular among technology enthusiasts a decade ago, but many such initiatives failed to deliver the promised business value. At People, Ideas & Objects, we address business issues by enhancing productivity and performance through specialization and the division of labor, supported by automation. This approach can significantly impact the industry's performance if the internal conflicts within organizations are eliminated. The current structure of having two distinct organizations within one firm creates independent silos working against each other, and consolidation only entrenches and prolongs these issues.

NVIDIA will soon breach a $3 trillion valuation. Tesla doesn’t appear too far behind if I’m reading what their future may look like. What we can say today is that Information Technology is mature in terms of its offering. As an investment it’s behavior is similarly mature. There are more exciting and dynamic industries to be involved in. The value that is being generated remains spectacular and will continue to the foreseeable future. What we have in North American oil & gas is analogous to an individual who’s been living in a homeless shelter for a few decades. Scratching out a living between the free food and currency they can get their hands on. On the periphery there are a group of people who are doing quite well through their schemes and manipulations of those less fortunate. But outside of this dystopian landscape the industry has been there so long that no one expects anything of it. Clean energy, yeah sure why not. Consolidation, yeah why not. Name me one initiative in the industry that has worked in the 21st century. And don’t mention shale, a resource known to always be there, a resource that is only produced as a result of the innovations that the service industry developed in order to access those reserves. Innovations the producers fought the service industry for years before they even tried them. Just as People, Ideas & Objects fight them daily for the past decades to enhance their profitability. What galaxy are these officers and directors from?

The future we envision is a highly competitive oil & gas industry thriving in North American capital markets. Consolidation, as a strategy, merely seeks to manage inefficiencies on a larger scale. In contrast, People, Ideas & Objects see immense potential in this industry. The path forward lies in embracing our Preliminary Specification, fostering a culture where the industry is dynamic, innovative, accountable and profitable. Leveraging specialization and automation to unlock the true value and competitiveness of North American oil & gas.

People, Ideas & Objects Campaign Report, Part I

 People, Ideas & Objects have acknowledged that our campaign from October 2023 to May 2024 was misguided. We now realize that our approach was unreasonable from the start. Expecting a decision to replace the established oil & gas organization with the Preliminary Specifications vaporware, despite its quality, was unrealistic. This insight is the main takeaway from our campaign. We have always known that officers and directors are unlikely to change. What we perceived as their obstinance was actually our own unreasonable belief that such a switch to the Preliminary Specification would be considered in a reasonable world.

The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.

George Bernard Shaw

Moving forward, our approach will evolve. We will highlight the deficiencies and failures of the current system to contrast and promote our solution. By offering the Preliminary Specification as an alternative in the marketplace of ideas, we aim to secure the need for change. The need in the marketplace is becoming apparent to others, suggesting that our strategy might be appropriate. However, while this might address some timing challenges in our product development and delivery, it does not fully resolve them. The industry's needs are evolving rapidly and will remain pressing in the near future. Offering an insurance policy in the form of an alternative at hand is our objective.

Highlights of Our Campaign

The issues we raised during our campaign turned out to be the key deliverable. There are many serious, and what People, Ideas & Objects suggest existential, issues facing the industry. These issues have been systemic for decades, arising from a myriad of reasons. None of these have begun to be addressed since our Preliminary Specification entered the marketplace in August 2012. Over time, these issues have become material, with significant financial consequences for all producers in the North American oil & gas industry.

Pricing of Oil & Natural Gas

People, Ideas & Objects have documented that both oil and gas have been overproduced since the late 1970s. The first significant evidence of this was the oil price collapse in 1986. After the 2009 financial crisis, producers began overproducing natural gas at volumes exceeding previous levels. This overproduction was driven by the prolific nature of shale and the industry's outdated view that natural gas is merely a byproduct of oil. People, Ideas & Objects challenges this perspective, arguing that the severe financial consequences of overproduction demonstrate that natural gas is not a mere byproduct.

Following the 2009 financial crisis, overproduction of natural gas intensified, causing its price to collapse far beyond the traditional 6 to 1 heating value ratio compared to oil. By 2024, this ratio had soared to as high as 50 to 1, reflecting the extent of overproduction from shale development. People, Ideas & Objects calculated the difference between the natural gas revenue the industry should have realized at the 6 to 1 ratio and the actual discounted revenue. The total loss amounts to $4.1 trillion, with realized revenues during the shale gas production period totaling approximately $3.253 trillion. This represents the loss of the commercial value of 764.8 TCF of natural gas, reinforcing that natural gas is not a byproduct.

The waste of assets in North American natural gas is unparalleled. Trillions of dollars and trillion of cubic feet of gas have been squandered, while industry leaders maintained that only they could understand and manage oil and gas operations. These executives, enjoying what People, Ideas & Objects describes as “creative executive compensation,” perpetuated their mythology with a lavish lifestyle, ignoring external advice.

Investors, frustrated with poor returns and performance, began withholding financial support from producers in 2015. This drastic measure, typically the last resort for shareholders, should have prompted firms to address shareholder concerns. However, nine years later, no substantial action has been taken, suggesting the message from investors has been ignored.

People, Ideas & Objects have proposed a solution through our Cloud Administration & Accounting for Oil & Gas software and service, which introduces a process of disintermediation to focus on a culture of preservation, performance and profitability. Despite the clear need for change, this solution has been overlooked since 2012, during which the majority of the $4.1 trillion in waste occurred. Similar waste likely exists in the oil sector, though it is harder to quantify the true value of a barrel of oil. Given that oil & gas provide significant mechanical leverage, it remains one of the world's most valuable resources, essential to our advanced economy, political influence and way of life.

LNG

The revelation that North American producers failed to benefit from the development of LNG export markets is shocking. Since 2016, U.S. LNG exports have grown to 12-14 BCF/day, representing approximately 12-14 percent of U.S. natural gas production. This growth allowed entities outside the industry to purchase inexpensive onshore natural gas, ship it free on board to Europe and Asia, and sell it for up to five times its cost.

Producers were initially unaware of this opportunity and the associated business terminology until we highlighted the issue. This prompted a rush among many producers to secure long-term LNG facility contracts, aiming to sell their natural gas at North American export prices and capture the “global” natural gas prices in Asia and Europe. These contracts also presented a chance to establish commercial natural gas prices in North America. By late 2023, numerous LNG facility contracts were announced. However, existing long-term contracts held by external parties locked producers out of operational LNG facilities, including those under construction and some awaiting regulatory approval. As a result, producers ended up signing contracts for non-existent LNG facilities, ones not under construction, not approved by regulators, and merely conceptualized on entrepreneurs' desks.

We began discussing this issue in early October 2023. The market’s rapid action stemmed from significant monetary deficiencies and the previous recklessness of officers and directors. By late December, the Biden administration recognized that this situation conflicted with their policies, leading the president to declare a halt on further LNG facility approvals by regulators, thereby closing off the opportunities that officers and directors sought to secure.

How was the opportunity to establish North American natural gas pricing based on global prices actively avoided? For years, producers touted the value of LNG exports but did not realize any incremental value. They essentially gave away their gas at substantial discounts compared to the sales prices realized by others soon after purchase. This promotion of LNG was hollow, resembling little more than a parade of officers and directors lining up behind CEOs, who, as parade marshals, boasted their accomplishments with “big, beautiful balance sheets.”

There is only one method left for the producers to eliminate the value being siphoned off by others. To implement the Preliminary Specification across North America and assure that all natural gas is produced profitably everywhere and always. That way the margins being realized by those with the existing LNG contracts will find that what was once a profitable business will become risky and marginal. 

Chronic Lack Of Profitability

Chronically low oil and gas prices, punctuated by occasional collapses and even negative prices, have led to repeated boom-and-bust cycles in the oil and gas industry. People, Ideas & Objects view these cycles as unnecessary, especially considering that oil and gas are scarce resources that must be managed responsibly for future generations. This requires ensuring that these resources are produced profitably, always and everywhere, based on an accurate and timely accounting. An accounting that understands that a capital intensive industry's products will generally pass their costs, which are predominantly in the form of capital, to the consumer. Furthermore, the consumer value proposition from oil and gas is critical, as it underpins a prosperous economy at low costs, with significant economic and political consequences if disrupted. 

Low oil and gas prices can be attributed to overproduction by North American producers. In essence, overproduction equates to unprofitable production. Producers may claim profitability, but this is often due to accounting methods that fail to accurately account for the substantial capital costs involved in exploration and production. The dependency on external investor cash for annual spending has led to a cycle of overcapitalization, overreported profitability, and subsequent overinvestment, ultimately increasing the industry's productive capacity beyond the actual profitability threshold of oil and gas production. For commodities like oil and gas, which follow the principles of price makers, this overproduction leads to precipitous price declines from these incremental barrels.

Additional difficulties for the oil and gas sector are imminent. When natural gas was trading around $1.60 (or 50 to 1) in early 2024, we projected that achieving a 10% profit would require a price of 6 to 1 compared to oil. Producers fail to realize the economics that producing at $1.60 necessitates the profits of nine volumes of profitable gas, if that should ever occur, to offset the losses incurred on each volume produced today. This lack of basic business understanding highlights decades of poor business management, marked by slogans like “building balance sheets,” “putting cash in the ground,” and “muddling through.” Basic business concepts such as free-on-board and netback pricing are often unfamiliar. If not for the convoluted methods of accounting produced by officers and directors they would have seen the waste of assets and chronic deterioration of cash. Business can not afford to produce at such losses for long, yet oil & gas has been at this for over four decades. Aided by specious accounting that deceived investors of their cash. Spending is not a business model. 

Producers have a solution in the form of the Preliminary Specification, which addresses this issue and ensures profitable production everywhere and always. Profitable production should reflect the replacement cost value of the produced barrel of oil, which People, Ideas & Objects believes to be the true cost of oil and gas. The financial resources needed to drive the industry forward over the next 25 years are significant. Investors lack both the vast resources necessary and the desire to provide further capital. Therefore, profitability is the only long-term sustainable and substantial financial resource capable of meeting the industry's needs.

Capital Costs

A significant portion of our $25.7 to $45.7 trillion value proposition is derived from the more effective use of capital within the industry. In capital-intensive industries like oil and gas, the largest portion of the consumers product costs comes from capital. Accurate and timely reporting of these capital costs, and passing them on to consumers through the income statement, is essential. The Preliminary Specifications enhanced performance reporting can achieve this, a capability that current producer systems lack.

Since at least 2006, People, Ideas & Objects have highlighted issues in recording and recognizing capital costs. Despite discussions and proposed benefits, no substantial changes have been made industry-wide. The current methods have become culturally entrenched, showing no signs of change. We advocate for the rapid recycling of capital costs on a 30-month basis to meet the industry's capital needs for the next 25 years.

Profits are the only substantial source of capital capable of funding the industry's future requirements. Current officers and directors have mismanaged capital, betraying investors, bankers, and service industry representatives. Producers face rapid monthly cash drainage, an issue we have repeatedly pointed out. Without annual capital injections from investors to stabilize cash reserves, producers have encountered cash crises, exacerbating their problems.

We estimate $20 to $40 trillion of our value proposition is attributed to capital recycling. Rather than relying on investors for these resources, People, Ideas & Objects believes that the approximate $2 - 3 trillion levels of property, plant, and equipment recorded on producers’ balance sheets, when recycled repeatedly, are sufficient. If these capital assets were profitably recycled every 30 months, they would generate enough cash from oil and gas sales to fund future capital expenditures, bank loan repayments, and investor dividends. However, this logic seems lost on current officers and directors of producer firms.

Absent and Unmotivated Leadership

In 2021, during the COVID crisis, producer officers and directors declared that shale would never be commercial. This declaration set the stage for their pivot away from the oil and gas industry toward the unaccountable clean energy sector. They anticipated that they would only need to report to environmental activists like Greta Thunberg and could attribute any lack of financial performance to their efforts to save the planet. This charade unfolded in board meetings across the industry, with purported investor pressure driving the demand for change. This theatrical performance was documented at the Exxon annual meeting.

Read more in the original documentation:

[Shakespearean performance at the Exxon annual meeting].

They were correct in stating that shale would never be commercial—under their administration and management. One might wonder if this declaration was a response to the wide distribution of our white paper, “Profitable North American Energy Independence — Through the Commercialization of Shale,” published by People, Ideas & Objects on July 4, 2019. Alternatively, perhaps our paper did not resonate well in their circles.

Skydiving Without a Parachute

People, Ideas & Objects initially adopted an all-or-nothing strategy, urging the industry to choose between our vaporware ERP system and their outdated systems. We now recognize this approach was unreasonable. Instead, we should have offered a competitive solution to address the industry’s issues. The Preliminary Specification focuses on the business challenges of oil and gas producers, and we believe these issues have now reached a critical point where choices need to be made. We are now offering the industry an insurance policy to support it in the event that the current administration continues to fail. To illustrate, I reference a quotation from Henry Kissinger’s last book, “Leadership: Six Studies in World Strategy.”

The strategy of forcing a choice between us and the existing systems was likely inappropriate. The desire to impose such a stark choice did not justify the associated risks. However, is it now prudent to proceed without an alternative in hand?

People, Ideas & Objects offer a compelling value proposition based on the business model defined in the Preliminary Specification. We have mentioned the trillions of dollars our value proposition provides and assert that we will focus on dynamic, innovative, accountable, and profitable oil and gas operations for producers, positioning ourselves as the primary, quality choice of ERP system. 

As Margaret Thatcher noted regarding government administrations, democratic societies have options, while dictatorships ensure they are the only choice, often securing over 90% support in elections. People, Ideas & Objects are not dictators. Regrettably, we were drawn into emulating the same type of dictatorship that officers and directors have imposed on the industry for the past four decades.

Consolidation

The chronic lack of profitability in the oil and gas industry, along with its root causes and resolutions, has been detailed in the Preliminary Specification. Despite these insights, producers are turning to consolidation as their solution. This approach contrasts sharply with the global trend towards decentralized organizational structures. The consolidation of North American oil and gas producers seems out of sync with the broader business world. 

These issues are cultural and systemic, originating in the late 1970s and becoming evident with the first oil price decline in 1986. The industry seems lost, unsure of how, where, or what to do to achieve profitability. Are they truly committed to oil and gas? What is the plan for these consolidated producers? We have seen no clear strategy. How will they organize without infringing on People, Ideas & Objects' Intellectual Property? Consolidation might have been effective in the 1950s, but in today’s fast-paced, AI and Internet-driven world, these producers are likely to fail as they have been, evidenced by their need or desire to consolidate. Two days ago Chesapeake announced another round of layoffs. Inspiring another generation to stay as far away from oil & gas as possible. You can't raise a family or pay a mortgage on the fickle prospects of officers and directors who are incapable of comprehending anything beyond boom / bust. 

Given these circumstances, it would be prudent to have an alternative organizational method in hand. People, Ideas & Objects’ Preliminary Specification offers a viable insurance policy against the industry's current trajectory.

Conclusion on the Issues

People, Ideas & Objects' concern is that none of the issues and opportunities identified and addressed in the Preliminary Specification have been acted upon by the industry. Efforts to enhance profitability and introduce innovation have been resisted by officers and directors since its publication in August 2012. Will consolidation fix this? We are concerned that the industry's productive capacity is beginning to decline.

We have seen significant deterioration in all aspects of the greater oil & gas economic infrastructure. The service industry has been seriously damaged and has little faith, trust or goodwill in the producer firms. Its capacities operate at around 30% of prior levels and continue to diminish. An active rebuilding is necessary. Where does the capital come from to undertake that rebuilding? In the past investments were made in good faith and they saw producers abuse accounts payable in order to finance their capital expenditures for another year. "No one else would give us any money." Not paying their suppliers for 18 months is not what a primary industry does. During covid producers sat and watched as the suppliers sold off horsepower to other industries and cut up equipment for scrap metal to survive. And now consolidation is adding additional difficulties in the form of fewer producers / dictators telling them what the service industries prices will be. Which brings them even more impediments to not invest. In a case of “fool me once shame on you, fool me twice shame on me” the service industry won’t get fooled again. The service industry believes if producers had some skin in the game, by way of philanthropic contributions, then they’ll have an understanding of their behavior's inappropriateness. 

The Preliminary Specification offers an organizational performance framework with a vision for the next 25 years, aiming to rebuild the industry on a culture of preservation, performance and profitability. We fear that without change, the oil and gas industry will continue on its failed trajectory, exacerbated by consolidation. This would lead to greater distraction, lack of focus, and incapability in what is called the leadership today. The jeopardy this places society in is particularly dire, considering the economic and political consequences of allowing this industry to continue its degradation over the past decade. Producer firms have picked their solution in the form of consolidation. Having an alternative organizational and operating method as an insurance policy would be wise counsel. People, Ideas & Objects offer the Preliminary Specification. 

These Are Not the Leaders We're Looking For, Part XXIV

 The fact of the matter is today’s oil & gas producer is tomorrow's log rolling down the hill. There is nothing being done to keep it in place, stopping it from rolling down the hill or caring if it does or doesn’t. Officers and directors are incapable of being motivated to act. What I saw as a situation that was untenable for the officers and directors is now in my opinion, terminal for the method of organization that we know of today. Consolidation of producers will be everything it’s planned and expected to be. Officers and directors can’t, won’t and will not do anything regarding the issues and opportunities they face.

People, Ideas & Objects basic assumption that shareholders need to turf the old team and its culture. Only to be replaced by the Preliminary Specifications may be the issue? Should we pursue our own direction and forget about the status quo? Offering oil & gas producer shareholders two options to choose whichever is the most viable and successful method of organization to proceed with. Providing the market with choices is the preferred route in everything we do in the Preliminary Specification. Why are we not doing so in terms of offering the choice to oil & gas investors and shareholders of the producer firms. Allowing them to mitigate their risks in terms of “what if” there is trouble down the road.

People, Ideas & Objects Have a Revelation!

We are therefore dropping the inherent assumption of ours that it is an either / or method of management and instead compete to provide the best alternative for the investors / shareholders. Allowing a choice to be made when the appropriate information is available to those that need to make the decision. I’ve certainly made the compelling argument for change and the means of the Preliminary Specification is sound and comprehensive. This past six month campaign has shown the viable nature of our value proposition and proves the overall concept. However, offering vaporware in the form of the Preliminary Specification is not enough to “throw the bums out.” 

We’re aware that overproduction of both commodities will continue as it has for over four decades. Other material issues are present and maturing where officers and directors inaction will be the result. On the other hand, the continuous demand for energy, coupled with a properly managed abundance of shale, presents an opportunity for North America's energy industry to truly realize its potential and fulfill its promise.

What Do We Have?

Everything and nothing. That would be the best way to summarize what People, Ideas & Objects have in the form of the Preliminary Specification, our user community and service provider organizations. It’s not an idea, it's a fully researched and comprehensive business model that consists of 14 modules built with Oracle Cloud ERP. Defining and supporting a dynamic, innovative, accountable and profitable oil & gas operation and greater economic infrastructure. Replacing the industry culture to one of preservation, performance and profitability.

People, Ideas & Objects have become better known for our extracurricular activities than we have been for our organization or product. We need to change this. Producers may now understand that shutting-in production is the common sense approach to the issues they’re presented with. This is only after decades of lying about it and vilifying People, Ideas & Objects that it wasn’t possible. Just as it had been for decades before that “profits didn’t matter, it was cash flow.” In 2015 they’ve caught the religion regarding profitability from their investors' demands, finally. Yet the implementation of those strategies and plans are yet to be even spoken. As we may find in a decade from now when officers and directors are mouthing the chant of “profitability, shutting-in production” and other invisible solutions they’re working on. 

The one takeaway should be the timeliness and accuracy of the Preliminary Specification in terms of meeting the industry's needs. Decades ago we’ve been able to accurately determine the results of where the industry culture was taking us. Its implications were accurately predicted in our trillion dollar Value Proposition as detailed as early as October 31, 2014. We understand the source of the issues and their resolution, the magnitude of the damage and destruction that it has done and will continue to do.

Changes 

In terms of the Preliminary Specification, the configuration and structure of our organization, with our user community and their service providers we see no changes at this time. It’s possible that I’m unable to fully consider the implications from this change as to how we operate in the oil & gas marketplace. I’m sure we’ll have to make changes here and there. We’ll take a closer look at any if we come across them and ensure that they do not disrupt the model’s implementation or performance. 

Conclusion

It was People, Ideas & Objects pursuit to provide a solution to the issues in the North American oil & gas marketplace with the Preliminary Specification. What we believed to be a material and consequential benefit to the health and prosperity of all those involved in the greater oil & gas economy. It was with that assumption that we began with our either / or choice of defining the alternatives to oil & gas investors. This was not an “our way or the highway” proposition other than a means to stop the hemorrhaging as quickly as possible. We understand now the unreasonable perspective of that position and now offer a competitive offering to determine which level of performance is the desired choice of the investors to proceed with. 

The Preliminary Specifications value proposition has been verified through our 2023 - 2024 campaign. The trillions of dollars in unrealized revenues from overproduction of commodities subject to price maker economic principles has more or less destroyed the entire commercial operations of the industry and its associated tertiary industries. The inherent value of the collective oil & gas producers is negative as it takes cash to continue operations. Performance levels have atrophied to the bottom quartile. The faith, trust and goodwill in the oil & gas producers themselves is also negative from all corners of their domain of operations. Innovation, initiative and caring about anything is comatose and on life support. The ability to make any change will be met with irresistible force that will consume the individual who tries. The latter fact proven through People, Ideas & Objects 34 years of persistence to increase profitability and performance. 

The ridiculous nature of People, Ideas & Objects budget expectations for development of the Preliminary Specification will remain the ridiculous nature of our budget expectations for development of the Preliminary Specification. The block chain method with our Profitable Production Rights also remains. It’s my opinion that proven trillion dollar value propositions will generate billion dollar operations for those who solve them. What is common sense today will be unable to be implemented in the oil & gas industry on a status quo basis. Secondly the issue of Intellectual Property is now on the table. Therefore, the $45 billion revenue losses on natural gas alone will continue for each month. If there is no sense of urgency regarding that loss, and possibly the same on oil, then there is no need to approach the Preliminary Specifications development. 

Postscript

People, Ideas & Objects are pleased to toss another "cat among the pigeons" for everyone's entertainment pleasure.

Critical Audit Matters

For many years the standard audit opinion has included a clarification of the Critical Audit Matters regarding the recording of producer petroleum reserves as property, plant and equipment. I personally believed this was inadequate to fully capture the scale of the issue and the materiality to each and every producer in the industry.  While audit firms correctly identify these matters, their repetitive nature over the years has turned them into boilerplate content that allows audit firms to bypass a thorough evaluation of the "Consolidated Balance Sheets."

In light of recent discussions initiated by People, Ideas & Objects during our six-month campaign on natural gas prices in North America and the misunderstood dynamics of the LNG market, these matters have transcended their traditional audit boundaries. They now demand scrutiny of governance practices and the management of firm assets in ways that genuinely serve shareholder interests. When we consider the staggering $4.1 trillion revenue gap we've identified—an issue far beyond mere procedural audit checks—natural gas clearly transcends its previous label as a mere by-product, elevating its status to more than just a Critical Audit Matter. (Whereas natural gas revenues realized for the period were $3.253 trillion.) I would question whether the audit firms are aware of the ongoing conflict between producers and their investors, particularly how this has left producers capital structures unsupported since 2015.

Given the drastic collapse in natural gas pricing since July 2007, where the historical heating value ratio of six to one against oil has disastrously widened to fifty to one in 2024, the collective inaction of producer officers and directors is alarming. $4.1 trillion for the period in question should not be overlooked by audit firms concerned with reserve valuation methods. Particularly when our calculations show the differential is producing over $45 billion per month. People, Ideas & Objects have argued that producers have ceased to use accounting as a measurement of performance. And are using reserves valuation as a means for accounting to value the company. Wholly inconsistent with the principles of basic accounting. This misuse of basic accounting principles is catastrophic when those reserves are subsequently destroyed as we’ve detailed here. Where it will take over 7 volumes of actual profitable natural gas production, unknown if that would ever occur under these administrations, to make up for the loss incurred by one volume of natural gas sold today at fifty to one… This is how I classify wasteful administration of assets.

Since investors halted further funding in 2015, LNG initiatives began in 2016, viable alternative solutions in the form of the Preliminary Specification have been available since 2012, yet all we seem to encounter is a pervasive "muddle through" approach. The assurance provided by audit firms that their procedures assess risks of material misstatement of the consolidated financial statements, whether due to error or fraud, appears narrowly focused. These firms successfully pinpoint minor discrepancies while overlooking systemic mis valuations that lead to annual, industry wide, multi-billion dollar losses.

These Are Not the Leaders We're Looking For, Part XXIII

 People, Ideas & Objects are wrapping up our six-month campaign aimed at instigating leadership changes within the oil & gas industry. As we summarize the key developments and discussions from this period, last week we addressed significant financial challenges in the LNG export market and the persistent decline in natural gas prices over the past 17 years leading to the $4.1 trillion revenue hole. We highlighted the missed opportunities and the ongoing issue of overproduction affecting both oil and gas commodities. Today, we shift focus to qualitative aspects, pinpointing the inaction and adherence to the status quo by officers and directors. 

The prevalent "muddle through" approach has crippled their ability to take initiative, resulting in a passive stance where value decays under their watch—a responsibility they have failed to uphold despite the clear mandate to secure and enhance it. This passivity has become a defining element of their culture, especially evident since investors withdrew funding nine years ago.

Campaign topics we’ll discuss:

• Rube Goldberg ERP systems.
• Comparing and Contrasting Cultures. 
• Rethinking Production Strategies.
• Which industry looks interesting in 2025?
• People, Ideas & Objects “Ambitious Deadlines.”

Rube Goldberg ERP Systems

Over the past 34 years, People, Ideas & Objects faced challenges, as have our competitors in the ERP system market. Producer officers and directors have historically viewed investment in ERP systems as detrimental to their preferred level of non-accountability. It’s not my intention to diminish my competitors or their products; they themselves would likely admit that with adequate funding, much more could be achieved.

The core issue I want to address here is efficiency. The Preliminary Specification incorporates Professor Paul Romer’s theory of non-rival costs, advocating for the sharing of redundant administrative and accounting costs that each producer incurs by maintaining their unique ERP systems in-house. Instead, we propose replacing these with our Cloud Administration & Accounting for Oil & Gas software and service, managed by People, Ideas & Objects along with our user community and their service provider organizations, on an industry-wide scope and scale.

If the current directors maintain their "muddle through" approach, Rube Goldberg's legacy will endure, constraining the industry’s vision and capability to just the immediate problems of tomorrow morning. Therefore, these systems suffice to sustain the performance level officers and directors have come to expect. Yet, as we questioned back in August 2003, isn't there a better way?

I want to reference a video featuring Oracle founder Larry Ellison discussing his healthcare initiatives, where he touches upon "Musk’s Law"—the necessity of addressing the entire ecosystem to effectively solve complex problems. In the video, Ellison explains that unlike competitors who may focus on automating just one part of the system, Oracle aims to automate the entire healthcare spectrum.

Starting at 52:15

Ellison states “Musks Law is that you have to do the whole ecosystem.”

Starting at 53:45 to 56:25

Asked how much of the application scope (health care) Oracle was going to approach, Ellison responded “All of it, if you don’t do all of it… (competitors) they didn’t apply “Musks Law” I don’t think they understood that the scope of the problem, that all these things to make this work you have to automate all these pieces. They never looked at it that way, instead they looked at it as they would automate this part of it. Epic’s a great company but they automate hospitals… The systems you build have to have the scope but they (Epic) don’t work with the payer side, not the public health side, not the clinical trial side, none of that. All those things are interconnected and we have to connect the dots.

Similarly, the Preliminary Specification is designed to comprehensively address the needs of the greater North American oil & gas economy, following the principles of "Musk’s Law." Without this holistic approach, individual producer firms end up spending excessive time and resources on piecemeal solutions. Musk, Ellison, and People, Ideas & Objects all advocate for this integrative perspective, though it seems we’ve yet to convince producers of the merit in focusing on profitability—the only real source of sustainable financial resources.

Comparing and Contrasting Cultures

Last week, EQT Corp. made headlines by announcing additional production curtailments for May 2024, which notably boosted their stock price in a market where natural gas prices had fallen by as much as 10% that day. This move by EQT was generally perceived positively by the oil & gas investment community, suggesting a shift towards more prudent business practices in the natural gas sector.

However, what we at People, Ideas & Objects have observed is that these shifts in position are typically short-lived. The industry culture quickly reverts to the status quo, and any new lessons or positive changes, like those demonstrated by EQT, are soon forgotten. This pattern has been a consistent theme throughout our 34-year engagement with the industry—a journey better described as an existence rather than progress.

This recurring scenario underscores why we staunchly advocate for replacing the prevailing industry culture with the seven Organizational Constructs of the Preliminary Specification. Only an ERP system that can fundamentally transform and then continuously define and support this new culture will ensure the lasting organizational change necessary for sustained profitability. The fleeting nature of EQT’s positive actions, particularly so close to their Annual General Meeting, starkly highlights the broader industry's resistance to genuine change and underscores the minimal impact of People, Ideas & Objects efforts thus far. 

Rethinking Production Strategies

We’ve learned that most of the natural gas produced in the Permian for the past few months has had negative prices. A result of the cultural impact of thinking that associated gas is a byproduct. Byproducts don’t create $4.1 trillion revenue holes. I’m not aware of the solution to the problem and offer the Preliminary Specification to identify where producers are losing money and ensuring that by effective and active management they will realize the most profitable means of oil & gas operations. Producers producing everything they have all the time is not a strategy that appears to be working. To do otherwise is resisted by a cultural persistence that must be uprooted. 

Our campaign highlighted the extensive financial damage wrought by natural gas prices as low as $1.70. If we accept that a 10% profitable price for natural gas should be priced at 6 to 1 relative to oil, this would imply a just natural gas price of $13.94 today, considering a cost structure of $12.54 and a profit margin of $1.40. To recover from losses incurred by selling at $1.70, future profitable production would need to compensate for the revenue shortfall of $10.84 per unit—equivalent to 7.74 times the current volume to make up the difference. Is that why petroleum reserves are pursued?

A price of $13.94 for natural gas is justifiable based on historical pricing models and the predominantly capital-intensive nature of the industry. The capital that has been accumulated by “putting cash in the ground” and “building balance sheets.” Unrealized capital costs of past production is what we’ve described them as. This realization has sparked both shock and dismay at the sheer waste of 764 TCF of natural gas reserves and $4.1 trillion in revenue. Now managed by an industry that can’t source any of the resources necessary to approach the most challenging future in its history. While its officers and directors blame Biden, the weather or restate (again) their commitment to capital discipline. My favorite excuse is the “We’re profitable at” series of $70, $60, $50 no $30 during oil price declines. Invoking their greatest innovation, the remake of historical accounting by collapsing their capital costs of production.

Which Industry Looks Interesting in 2025?

Declarations that shale would never be commercial. Preceded the shift in focus to other industries such as clean energy. All under the pretext of shareholder demands. Demands that arose overnight and were approached by officers and directors instantly. Yet nine years later not a word has been spoken about shareholders demands for greater profitability and accountability. 

This precedent has been established, it's been accepted, no one lost their job for recommending oil & gas revenues be diverted to clean energy. What industry will capture the interests of the officers and directors in 2025? What has to be the greatest betrayal of good governance is now acceptable?

People, Ideas & Objects “Ambitious Deadlines” 

No one is under any illusion about our ability to enforce deadlines or drive action in the oil & gas industry today. Each day, we encounter resistance from industry figures who should have taken action long ago. Setting these deadlines is not about expecting change but demonstrating the ongoing inaction. It's become a method to underscore their inertia, reminding us that none of the North American producers have reached out during this or any other campaign. This stance might seem like rubbing salt in our own wounds, but it serves a purpose. In the future, when these officers and directors finally recognize the urgency of these issues and start to panic, we'll be ready to point out our longstanding preparedness. 

Conclusion

My analysis has outlined a stark portrayal of the prevailing status quo within the oil and gas industry—an industry seemingly devoid of any residual value that could serve as leverage in confronting its most daunting challenges ahead. The leadership's governance raises serious questions about their integrity, with dwindling faith, trust, and goodwill from all quarters. Investors, service industries, and stakeholders alike feel profoundly betrayed by the leadership's pervasive and well-compensated approach of merely "muddling through."

The extent of the damage and destruction is both comprehensive and complete, necessitating a fundamental rebuild of the industry from the ground up. This necessity echoes the sentiment I first expressed in an October 17, 2008, blog post titled "British PM Gordon Brown, Gets It." The adoption of the Preliminary Specification isn’t about promoting it as the superior technology for its own sake. Rather, it’s clear that the persistent business issues we face today are the same as those identified back then, and they can only be addressed through a significant cultural transformation. This transformation is essential not only to alter the industry's trajectory but also to repair the extensive damage inflicted by its current leaders. The need for such a profound overhaul is undeniable.