Willful Misconduct or Negligence?

 The jeopardy that officers and directors of the producer firms find themselves in today is maybe unique in the history of business. Over the past twenty years they’ve had to tolerate many difficulties such as the financial crisis, Covid and Shale disrupting their business model to name just the highlights. Meanwhile there has been a lingering issue of production discipline continuing in the background. Production discipline challenges the practice of placing 100% of production on the market at all times, regardless of market capacity to absorb the volume or control commodity prices. People, Ideas & Objects detailed in our January 15, 2024, blog post the consequences of overproduction, or unprofitable production due to lack of production discipline, including repeated price collapses since July 1986.

A Summary of the Issue

Producers' assumption that the market can clear any level of production is incorrect. There are consequences and the primary one is that oil & gas commodity prices are determined under the economic principles of price makers. Any surplus production reduces the price below the marginal cost of all oil & gas, creating unprofitability. Creating a situation where today we can quantify the difficulty in the natural gas side of the business due to its breakdown from the standard heating value of 6 to 1 to as low a pricing as 40 to 1 per barrel of oil. As for oil prices, we can only assume they were sold at a discount, though the exact amount is difficult to determine.

• Overproduction is best considered to be production that is unprofitable. 
• Based on the financial status of the producers, the service industry and the greater oil & gas economy, nothing has been produced profitably for decades. 
• If not for the incremental investments made by investors throughout the 1990s, 2000 - 2015 period the industry would have failed long ago. 
• The destruction and incineration by unprofitably producing 780 TCF of natural gas over the course of this century. Why has so much damage been allowed to develop? 
• Involving the deliberate avoidance of recognizing, understanding and remedying what has become a $4 trillion dollar natural gas revenue hole in their operations. 
• Unquantified and much larger financial issues with oil. 
• An issue that was recognized, understood and a solution provided to them by People, Ideas & Objects in the form of the Preliminary Specification in 2012.
• Where producers investors abandoned their further support of producers capital needs in 2015. An act that should obtain 100% of the officers and directors focus to resolve, yet nothing was done.
• Where a 2016 opportunity began with the development of LNG export markets to realize a global price, and rehabilitate the domestic natural gas price, was lost and is irretrievable without People, Ideas & Objects.
• 2024 shows minimal opportunity now exists to enter the global market through LNG contracts until later this decade.
• Leaving only the Preliminary Specification available for producer officers and directors to institute the production discipline necessary to rehabilitate their domestic natural gas price. 
• And establish a marginal global oil price. 
• Attaining People, Ideas & Objects objectives of preservation, performance and profitability.

At this point what we’ve documented is that the decisions and understanding of the officers and directors, since at least 2007, have been incorrect and flawed. Overproduction due to a lack of production discipline is an existential issue to the industry. Assuming oil & gas commodities follow the price taker principles was absolutely incorrect. Therefore assets in the form of petroleum reserves, in this instance at least 780 TCF, were not managed appropriately for their shareholders. Secondly, the value of those reserves was not maximized. Revenues realized for 2023 averaged 26.4% of what the 6 to 1 oil price would have achieved. Our analysis shows approximately $4.03 trillion in revenues have been unrealized due to officers and directors inactions since July 2007. Reuters recently published industry could realize an incremental $2.6 trillion in revenues as a result of digitalization. ERP systems will be a foundation of that effort. Would these revenues have assisted industry in:

• Deferring the excessive investments being made by investors from 2007 to 2015?
• Maintain a profitable and prosperous North American oil & gas industry?
• Ensured a competitive, robust, capable service industry was healthy and prosperous?
• Maintained market participation in LNG.
• Investors participate in an undiluted share of the financial benefits of a well managed oil & gas and service industries?

Legal jeopardy in the form of willful misconduct has been attached to the officers and directors and they stand to lose their Officers and Directors Insurance coverage if they are found to have not responded to a threat in their producer firm. The threat has become a reality and as such there were material losses. People, Ideas & Objects warned them extensively and provided a solution, however it was counter to their best interests personally in the form of disintermediation. Additionally investors had suspended support for the past eight years due to their dissatisfaction with the performance of the producer firms. People, Ideas & Objects understood their actions to be significant. Damages have been and will continue to be realized until officers and directors decide to act to develop the Preliminary Specification. Therefore, is this willful misconduct or negligence?

It will be nine years ago that investors began the process of removing their support. Causing a variety of actions by the producers management to make up for the short fall in investor activity. Not in any specific order, the process involved seeking funding from the following. 

• Producer banks continued to fund them, however as investors did, banks have curtailed their exposure to oil & gas.
• Sales of properties to other producers was able to raise capital budgets.
• Reductions in field activity levels and offering only discounted prices on any field work reduced producers' capital costs substantially.
• Retroactively changing the terms of payment schedules with the service industry to 18 months.

Based on the financial status of the producers, the service industry, and the greater oil & gas economy, it appears that nothing has been produced profitably for decades. Without the incremental investments from investors between the 1990s and 2015, the industry would have likely failed. Petroleum reserves are only valuable assets if they can be produced profitably. Industry consumes cash, therefore it carries a net negative present value. 

With only 30% of the drilling capacity that was available to them in 2015. Producers announced in the first week of January 2024 that record production of both oil & gas was achieved. This occurs while others such as OPEC are removing several million barrels per day from the market. Production discipline is a business issue and not an engineering or geological issue. Officers and directors hold to their opinion that spending money is profitable. Therefore and in consequence, business issues can be "muddled through."

It's important for officers and directors to understand their legal obligations and the potential consequences of their actions. Decisions that significantly impact a corporation should always be made in good faith, with due diligence, and in the best interests of the company and its stakeholders.

Global LNG Markets Open

2016 saw the beginning of a substantial buildout in LNG facilities in the Gulf of Mexico and elsewhere in the U.S. As they stand today the export capacity of these facilities is 14.6 BCF / day. There are 10.8 BCF in incremental capacity under construction. 19.26 BCF / Day approved however not under construction. The existing capacity increase would have been a major benefit to the oil & gas producers over the past seven years. Except it was not realized. The value of taking the highly depressed North American natural gas prices from the Gulf of Mexico to the lucrative ports of Japan and the Netherlands does not appear to have occurred. Since we raised this point in a series of posts entitled “This One’s Nuclear, Part I,II,III & IV we have learned of Chesapeake and ARC Resources getting involved in the business of shipping gas overseas. Not to be outdone, on January 8, 2024 Shell announced they had signed an agreement with Ksi Lisims LNG for 2 million tonnes per annum. An LNG facility that doesn’t exist, isn’t under construction, hasn’t been approved by regulators or decided to be built. And now, Exxon and EQT have joined the party. 

Even they don’t have gravitas to secure space on anything but vaporware contract access to prospective LNG facilities. Confirming our analysis and proving that there are a multitude of business issues that prove willful misconduct. I’ll reiterate, the only method for producers to eliminate others from continuing to poach the value from natural gas production is to implement the Preliminary Specification.

Profitable, North American Energy Independence -- Through the Commercialization of Shale

July 4, 2019 People, Ideas & Object publish a White Paper with the above title. Detailing how North American based oil & gas producers could deal with their overproduction or unprofitable production and deal with the high cost of Shale based production. We received a wide distribution of this .pdf and engaged in a specific discussion around the application of the Preliminary Specification to the issue of overproduction or unprofitable production. No response was received from any of the producer firms in terms of participating in development. 

We’re aware of a group of oil & gas investors who had expressed dissatisfaction with the performance of the producers. Who had specifically asked some officers and directors about the Preliminary Specification, to which they received the following response.

Officers and directors responded with two specific comments. 

• The solution was crazy and would never work.
• They couldn’t shut-in production without seriously damaging the formations and its reserves. Making the comment that “the formation would fold over on itself.” 

April 2020 proved this was untrue when 25% of world’s oil production was taken offline. Upon resumption not one producer announced they had incurred any damage to their formations. Production eventually resumed as it was prior to the lockdowns. Why this reasoning was used is unknown. Producers frequently shut-in production for a variety of reasons.

• Production is shut-in during hurricanes in the Gulf of Mexico.
• During annual plant turnaround operations.
• Workovers and service rig operations. 

I'll reiterate that producers disregarded this solution without any direct conduct with People, Ideas & Objects.

Clean Energy

As odd as the 2019 declaration that the Preliminary Specification was crazy and unworkable. In late 2021 producer officers and directors declared Shale would never be commercial. Two years after the publication of our White Paper and not one response from a producer firm. Yet declared the frontier of oil & gas not viable? The movement of producer firms' financial resources would then be dedicated to clean energy?

• An industry of which producers have no strategic competitive advantage. 
• No firm in the world has commercialized any clean energy projects. 
• All firms are heavily dependent upon government subsidies. 
• Is lead by European wanna-be teenage dictators. 

Those people involved in pushing the technologies of Shale in the producers and service industry learned that producers were no longer committed to oil & gas. Why would rig operators invest in new rigs to watch them be cut up for scrap metal and producers chase solar farms? We were led to believe that this “investor demanded” initiative into clean energy was the direction expected. 

• Except no investor in their right mind would authorize or volunteer to invest their revenues and cash in unrelated industries of which no competitive advantage exists. 
• Especially after watching the producer argue with investors and refuse to earn a profit for decades. 
• Have consistently refused to listen to any discussion of the issue or alternative solution to deal with the lack of their commercial oil & gas operations. 
• Yet, overnight, and without shareholder approval, changed the direction of the firm into unrelated fields in which they held no competitive advantages. 
• Explicitly taking, in an unauthorized manner, the investors revenues that investors had built and would need to rebuild the oil & gas industry with. 
• To allow officers and directors to invest in some industry where we know accountability is substandard of the governments. 

This is best represented in this Forbes article that argues the Exxon Annual Meeting was a pretentious play worthy of Shakespeare.

‘The Vote’ (A Play In Three Acts By ExxonMobil Productions) 

Realizing clean energies evident folly producers return to “Shale” in the Permian and undertake a campaign of “consolidation” to “remediate” the industry. Is this a permanent commitment or until the Annual Meeting is over? At the beginning of 2024 we can’t be too quick to criticize their lack of action. Just as the switch to the clean energy industries opaque accountability, consolidation solves which mythical issue? 

Conclusion

This is un-qualifying on every level and in so many different perspectives for the officers and directors. There is a unique personal situation they’ve created for themselves. Where their personal financial jeopardy is at risk from officers and directors willful misconduct.

• Officers and directors are personally responsible for any judgments from lawsuits they may incur as a result of being an officer or director of a firm. 
• They pledged their personal assets before they became officers and directors.
• They carry Officers and Directors Insurance to cover the risk they are liable to their shareholders and others for judgments. 
• Insurance premiums are paid by the firm. In normal cases, insurance is maintained by the firm for a period of time (statute of limitations) after the officers and directors have left. 
• Insurance coverage does not apply to a situation where officers and directors knew, or should have known, of a situation that caused or will cause damage to the firm and its investors. It would be difficult to assert they were unaware of these damages considering the following:
• Would insurance coverage be maintained for an undetermined willful misconduct / negligence question that potentially leads to $4 trillion in damages?
• People, Ideas & Objects have been dedicated to resolving this issue since:
• The Preliminary Research Report was published in May 2004.
• This blog began in December 2005.
• The Preliminary Specification was published in August 2012.
• However, having a solution available only proves negligence.
• I have failed on two previous occasions to bring advanced ERP systems to oil & gas. Oracle and IBM made similar attempts. Prompting their exit from the industry.
• Our conclusion regarding these failures is that producers maintain old and inadequate ERP systems and accounting procedures to facilitate continued opaque accountability. 
• We were and are offering enhanced accountability, which was not what the market asked for.
• People, Ideas & Objects have repeatedly warned producers of the detrimental nature of overproduction and its consequences with our value proposition at $25.7 to $45.7 trillion over the next 25 years. We’ve calculated $4 trillion dollars for natural gas deficient revenues in North America since 2007.
• Reuters has published that there is an incremental value of $2.6 trillion dollars to be captured in the next few years through digitalization of the industry. We include ERP software in that digitalization as it would be the foundation. 
• If others are aware of trillion dollar issues in oil & gas why are officers and directors not. Therefore are they liable to their investors if they take no actions?
• Oil & gas investors have expressed dissatisfaction over the past nine years. With no action taken by officers and directors.
• Investors asked specifically about a solution, the Preliminary Specification, and were told untruths as to why it was not appropriate.
• When People, Ideas & Objects asserted oil & gas was never profitable. 
• Officers and directors made specious claims that are not supported by basic, common logic or understanding.
• During 2011 - September 2014 oil prices averaged approximately $95.
• In September 2014 oil dropped to $86.07. Producers announced they would be profitable at $70.
• In December 2014 oil dropped to $68.62 producers announced they would be profitable at $55.
• In February 2014 oil dropped to $43.85 producers announced they would be profitable at $35.
• In August 2015 oil dropped to $36.17 producers announced they would be profitable at $30. And so on.
• Innovation claims were the reason. What People, Ideas & Objects assert is this is nothing more than innovative historical accounting.
• However, innovations in historical accounting put Bernie Madoff in prison, even though he never reported a loss, either. 
• When a producer is able to drill at best 5% of their total producing well inventory in a year. How could that 5% reduce the capital costs of all their prior exploration and production costs in such a material way?
• Is there more to what has occurred in this willful misconduct by the producer officers and directors?
• Insurance coverage will be null and void as a result of willful misconduct for any lawsuits stemming from the trillions of dollars in waste they’ve caused. 
• They were warned, and didn't act. 
• Investors raised concerns, yet officers and directors did nothing.
• Opportunities to rehabilitate markets were not realized.
• Untruths, blaming and viable scapegoats were used to deflect any fault. 
• “Muddle through” is standard operating procedure.
• The lack of production discipline continues. 
• Today officers and directors may be able to ensure their insurance will not be canceled by acting to resolve the issue.
• If steps are taken today to mitigate the issue and correct the error by moving forward with funding and the development of the Preliminary Specification. 

To summarize, in my opinion legal jeopardy has been attached to the producers officers and directors on the issue of willful misconduct. It is material and will need to be addressed within the following deadlines. This is an industry wide initiative and I will not be participating in the messaging or promotion of the following deadlines outside of this blog and X. The producers are able to encourage their working interest partners to participate in these developments and organize themselves. For People, Ideas & Objects to cold call after we’ve been ostracized for two decades from the industry, would demand another century or two of effort to complete.

Deadlines

People, Ideas & Objects have set February 16, 2024 as the deadline for producers to exercise their $30 million U.S. option of keeping the Preliminary Specification available to them for the purposes mentioned today. 

April 12, 2024 is the deadline for their participation in the development of the Preliminary Specification. This will provide the producers with the opportunity to go before their investors during their Annual General Meeting and ensure they have sought to correct the problem. 

People, Ideas & Objects will not commence any developments until such time as all the proceeds are secured by the April 12, 2024 deadline. If either deadline is missed we will defer back to our Profitable Production Rights method of financing. Budget information and a producer's individual share can be determined there.

There is a sense of urgency and enough time has been wasted. The consequences of what has occurred we feel are tragic and few options exist. Action is required. Expectations upon us will be difficult to manage and we’re beginning to meet those expectations with these deadlines. Effective February 19, 2024, or potentially April 15, 2024, assuming producer officers and directors pass on People, Ideas & Objects deadlines. If officers and directors do not fulfill their fiduciary duty in meeting these deadlines. Would that bring about a different set of legal consequences they would have chosen to pursue.

Potential members of our user community may want to take note of the progression of these activities.

OCI Blockchain, Part I

 People, Ideas & Objects are implementing a Blockchain module within the Preliminary Specification. There are several unique and valuable applications of the technology in other modules and they'll be discussed here. Blockchain technologies can also be considered the next revolutionary technology that changes the world we live in. This is not our approach at any point in our solution. We are resolving business issues in North American oil & gas producers. Not selling the latest technologies.

The first quote from Mr. Don Tapscott is “so what that means is the nature of a corporation and the nature of competitiveness is going to change. This is a time of great transformation. First of all, every industry will go through huge convulsions, not just financial services, resources, … Secondly, it means that every business function will change.”

The phrase that resonated the most with the Preliminary Specification is around 3:35 in the video. Mr. Tapscott said “everyone has a “shared network state” where they can “look real time at everything that’s happening.” Once we’ve moved to the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil & gas producers. We discuss what is “a shared network state” within the industry. The Joint Operating Committees are / could be standalone investments or held together as a network of assets within an oil & gas producer as a firm or corporation. Joint Operating Committees are independent due to this “shared network state” and the manner in which they are managed in the Preliminary Specification. The concept of operator is replaced by our Pooling concept and each working interest owner is an active participant at all times.

Recall we are moving the compliance and governance frameworks of the hierarchy to the Joint Operating Committees legal, financial, operational decision making, cultural, communications, innovation and strategic frameworks. Transactions between the owners of the Joint Operating Committee either in terms of the land that they lease, both mineral and surface, the capital assets deployed, the production and sales of commodities, the service industry representatives they engage, the producers' earth science and engineering capabilities, our user community and service providers will be able to operate within this “shared network state” we understand to be the oil & gas industry and service industry. 

Oil & gas transactions are always the subject of heavy documentation and verification. As we move to a software driven era, integrity, documentation and verification can’t be ignored. With blockchain we gain highly secure systems by implementing blockchain as our 12th module in the Preliminary Specification. Where it will interact with other modules and provide the transaction security necessary. Oracle Autonomous Database has introduced a Blockchain table which for our purposes is highly effective. We'll discuss this implementation later in this module. What is known is that it will be used in at least 50 different ways that I can think of. This will provide integrity and security necessary in today’s systems. Anywhere there are interactions or transactions between producers and Joint Operating Committees there will be the opportunity to implement blockchain for securing the transaction. 

We now describe blockchain technology and its integration into oil & gas. Within the Preliminary Specification we’ll have many interactions and transactions that currently do not exist in the industry. The volume of transactions processed through our system will be substantially higher than currently experienced in the industry. This would be the case with the same producers and with the same production volumes. When using the Joint Operating Committee as the key organizational construct we take the data at its lowest possible value obtainable. Today many ERP systems capture aggregated data from spreadsheets. In addition there is an increase in transaction throughput as a result of each participant within the Joint Operating Committee being active on the property as opposed to receiving one set of accounting reports from the operator each month. This volume of increased data and transaction throughput is then extended by the 3,000 administrative and accounting service providers each processing their billings for their services for each Joint Operating Committee. These increase the volume of transactions, and hence the quality of the data, by substantial numbers. 

Blockchain is a pure Information Technology solution within the Preliminary Specification. The other twelve modules are designed around business issues and opportunities currently being experienced by producer firms and industry. Those primarily being the chronic lack of profitability and the cultural capacity to accept they have a profitability problem. With the business models contained within the Preliminary Specification, producers will gain our value proposition valued at $25.7 to $45.7 trillion over the next 25 years. Our Preliminary Specifications decentralized production model's price maker strategy ensures that producers produce only profitable products. Enabling them to pursue the oil & gas business with the appropriate cash flow to fund their capital expenditures, pay down their bank debts and return capital to their shareholders. Currently producers expect shareholders to fund their capital spending as a subsidy to the energy consumer. This leaves them with disgruntled shareholders and high bank debt due to lack of real profitability and cash flow. Producers should be able to cover all three cash requirements adequately at all times. The blockchain is a pure technological application that provides the industry and producers with enhanced security and integrity. Added to the dynamic nature of our software development capability, user community and the Oracle Cloud ERP offerings we use as the base of our system. 

What is blockchain and how does it work? A brief description of Distributed Ledger Technology (DLT) is as follows. White Hat Security provides this summary.

Every time a transaction is initiated, a block is created with the transaction details and broadcast to all nodes. Every block carries a timestamp, and a reference to the previous block in the chain, to establish a sequence of events. Once the transaction authenticity is established, that block is linked to the previous block, which is linked to the previous block. This creates a chain called a blockchain. This chain of blocks is replicated across the entire network, and is cryptographically secured. This makes it challenging, but almost impossible to hack. I say almost impossible because it would take significant computational power to attempt.

In the context of security, both system transparency and immutability of blockchain data comes into play. Immutability in computer science refers to something that cannot be altered. Once data is written to a blockchain, it becomes virtually immutable. This doesn’t mean that the data cannot be changed – it just means that it would require extreme computational effort and collaboration to change it. In addition, it would be very difficult to cloak it.

There is a TED talk from June 2016 with Don Tapscott. In this video he gets into the details a bit more than the prior video. He calls blockchain an "Internet of Value" that supplements the current Internet of Information. A suitable description in my opinion.

Our next step in defining our 12th module, The Blockchain, is the implementation of the technology by Oracle Corporation. Oracle Fusion Middleware and Applications are the base financial ERP applications in the Preliminary Specification. These are now called Oracle ERP Cloud. Soon after the publication of the Preliminary Specification, we amended our budget to move to the cloud for both development and deployment purposes. Oracle's cloud offerings no longer require us to build and maintain physical hardware for our needs. It has been through decisions such as these that we reviewed the entire process of oil & gas. The question we seek to answer is how can we deliver our product to market at a faster pace than expected. By moving to the cloud we can shift budget dollars from physical hardware to Oracle services and speed up our implementation substantially. Speed is a critical competitive factor for all businesses today. We see the implementation of blockchain as a critical element in the reduction of the time we need to develop our solution. Although conceptually our offering does not change, the ability to acquire the security and integrity that blockchain provides will mitigate much of the software development work that needs to be done to build those features ourselves on behalf of producers and industry. That our technology provider is taking a leadership role in implementing blockchain within their ERP solution is also of significant benefit to People, Ideas & Objects, our user community, service providers, producers and subsidiary industries. 

In Oracle's involvement with blockchain we have an Oracle sponsored IDC white paper. I highly recommend registering for the download and reviewing this document. Oracle is looking to blockchain to differentiate their product in the marketplace and producers benefit. It is with that in mind that we now shift our attention to our next concern. Now that blockchain has resolved much of the industry's security and integrity, much work is left to be done. Our concern is the Access Control capabilities of the People, Ideas & Objects Preliminary Specification. The fact that we offer a unique scenario would be an understatement. Having a cloud-based, industry-wide solution that meets the needs of a proprietary access control system such as ERP. When we introduce the Joint Operating Committee where multiple producers need access to the same data we have our work cut out for us. The following paragraph from this IDC white paper leaves me perplexed. 

Our research suggests that most enterprise customers are looking to build permissioned or private ledgers that only allow those with specific permissions to access distributed ledgers.

I am unaware of if or how blockchain would provide this capability. However we are not providing a solution available today. We are taking today’s Information Technologies and applying them to oil & gas business issues and opportunities. A software development company focused on the needs of our users based on Oracle Cloud ERP. This focus on our user community has been our priority since the Preliminary Specification publication. User community-based developments are the only quality and usable systems today. Therefore with that in context, IDC notes the nature of the blockchain is in a similar state. The adoption of technology by providers like Oracle is at the beginning and will continue to grow over the next few years. Which is consistent with our plans and needs. 

Connectivity to existing systems is often a challenge because many blockchain and distributed ledger technology platforms available today are early-generation solutions. For example, capabilities for enterprise plug-and-play with enterprise resource planning (ERP) solutions and integration with enterprise-class system of record (SOR) are not available in most blockchain offerings. Because many solutions are early versions, multiple features that are required for enterprise deployments such as systems availability; business continuity/disaster recovery (BC/DR); and platform security are still under development.

And 

The interconnectedness of enterprises with their customers, suppliers, and intermediaries is another challenge faced by business and technology teams looking to develop blockchain solutions. As a result, the distributed nature of blockchain ledgers can make it hard to provide the privacy that some customers and counterparties expect. For example, transaction records contained in buy and sell transactions and details contained in shipping instructions in the supply chain may need to be segregated into different domains to provide privacy and confidentiality. Great care must be taken to provide advanced levels of security to prevent employees or bad actors from committing fraud by posting misleading information or gaining inappropriate access to customer transaction information.

People, Ideas & Objects is a research and software development firm driven by our user communities' needs. We are beginning our developments based on the Preliminary Specification. It is a specialization and division of labor that fills the gap between the oil and gas industry and the Information Technology industry. For each producer to have the requisite capabilities to build and deliver software of the Preliminary Specifications scope and scale is untenable based on their budget and limited resources. Aggregating the industry's efforts within this new sub-industry is the only solution to the business and technical difficulties producers face today. The idea of 150 producers researching and developing blockchain technologies and integrating them into their ERP systems independently is absurd. As would any aspect of our offering, which does not fall within the producers competitive advantages of its land & asset base, or earth science & engineering capabilities.

Oracle's blockchain implementation is the general topic of discussion. We continue to quote from the Oracle sponsored IDC whitepaper. Within that paper there is a summary that captures Oracle’s product and service offerings, and to some extent their commitment to blockchain.

Oracle Blockchain Cloud Service (BCS) is an enterprise-grade, distributed ledger platform designed to support new DLT applications and extend ERP, supply chain management (SCM), and other enterprise software-as-a-service (SaaS) and on-premise applications by enabling enterprises to conduct business-to-business transactions securely and at scale across a trusted network with tamper-proof digital records (see Figure 2). Oracle SaaS and on-premise application suites are used in many industries as the backbone of an enterprise's information system. Extending these systems with blockchain capabilities through BCS provides significant value to Oracle's customers and lowers many risks inherent in adopting new technology.

Oracle is our technology partner as we believe they have the most advanced technologies in the marketplace. And that is not by a slim margin. Oracle’s Database 23c is well beyond what the competition offers. It seems that IBM, Microsoft and others cannot keep pace with Oracle's database developments. Java is no exception. Since their purchase of Sun Microsystems, Java has become ever more popular as a programming language for business. Particularly from a database developer's point of view. And no one can match Oracle's commitments in the ERP marketspace. With the purchase of PeopleSoft, Siebel and JD Edwards, Oracle spent $18 billion in market acquisitions for these companies. Still not satisfied they undertook $4 billion, from the ground up, development of an ERP system based on the Java Programming Language. This was to produce their Fusion Middleware and Fusion Applications. I’m seeing the same level of commitment in their blockchain offering. I feel that Oracle will use their services in this area to further differentiate themselves in ERP and other market spaces. All of these investments total over $56 billion as of 2022. 

Pushing the concept of fair use to its extreme, I now want to quote from the IDC paper extensively. The following are their recommendations on how to proceed with Oracle blockchain technology within organizations that adopt it.

Oracle's Blockchain Offering Provides Several Benefits to Enterprise Customers

▪ Faster transactions with greater resilience: Enterprise customers need distributed ledger platforms that can scale to handle increasingly large volumes of transactions. They also need resilient, highly available, and high-performance platforms to reduce transaction latency and ensure stable and secure connections.

▪Enhanced data privacy: Enterprises are concerned about the privacy and confidentiality of ledgers and limiting access to transaction details, especially in regulated industries. For example, in financial services, keeping the terms and conditions of contract details such as counterparty identities, pricing, and quantity data confidential is always a concern. In healthcare, the privacy of patient health records, patient identification, and health insurance details is paramount. Oracle's cloud services help firms build and maintain secure ledgers and smart contracts with features such as identity management with secure defense, in-depth data-in-transit and data-at-rest encryption, and multiple confidentiality domains within a single blockchain network.

▪ Simplified operations through managed services: Managed services are gaining momentum as enterprises look to get up and running faster with new leaders and upcoming blockchain smart contract projects. Enterprises can launch pilots, run experiments, and work with production-ready ledgers on production-ready Oracle-managed servers, storage, and network infrastructure, leaving backups, upgrades, and other infrastructure management considerations to Oracle software and operations. Oracle's cloud services also support rapid onboarding of new members and governance frameworks that help enterprises maintain control and security of the ledgers.

▪ Integration with Oracle SaaS and on-premise application suites: Oracle provides integration accelerators through the adapters in its Integration Cloud Service and Java Cloud Service for SaaS. These solutions enable enterprise processes in ERP, SCM, and other application suites to rapidly integrate and connect with blockchain transactions and access distributed ledger information. The application integration toolkits will provide samples, design patterns, and templates for specific business processes.

▪ New business models and revenue streams: BCS provides application development accelerators that help enterprise customers integrate their blockchain transactions and ledger records with new and existing applications. Oracle wrapped blockchain transactions with REST APIs, which can accelerate application development and integration and make transactions accessible both inside and outside the cloud. Oracle Cloud also offers sandbox capabilities that can support corporate IT developers and independent software vendors (ISVs) with application development environments, integrated CI/CD tooling, and prebuilt integration adapters for Oracle and third-party applications. These resources enable firms to quickly build and run experiments and proof of concepts to address specific use cases. These experiments enable enterprises to develop, test, and engage in new business models and revenue streams from deploying DLT and smart contracts. Oracle has also announced integration of blockchain APIs in Oracle NetSuite Suite Cloud Platform and Digital Innovation Platform for Open Banking. This can provide blockchain on-ramps to NetSuite customers and partners and to financial institutions looking to innovate with blockchain and fintech APIs orchestrated by Oracle API management services.

▪ Deployment flexibility and choice: Oracle's Cloud Machine can deliver enterprise-grade PaaS to enterprise customers' datacenters with deployment options behind the firewall. This can enable enterprises to develop cloud-native blockchain applications on-premise with modern platform services. On-premise options are especially important in regulated industries such as healthcare and financial services. The Oracle blockchain solution enables firms to use the private cloud option to retain complete control over their data and applications and fully manage application services behind their firewall, or deploy in the Oracle Public Cloud, or mix and match private and public cloud options in a hybrid deployment. In the future, Oracle plans to allow its BCS-based blockchain networks to accommodate members joining from outside of Oracle Cloud, as long as they are using a compatible version of Hyperledger Fabric, enabling more open network models across the broader Hyperledger community.

Here we see what I would call an explosion of capabilities necessary to integrate blockchain into Oracle’s technology. Oracle provides these services on behalf of their customers, including People, Ideas & Objects, our user community and service providers. There’s also an offer here that no producer can refuse. Imagine each producer spending the time and energy developing these IT capabilities. The value that will contribute to each bottom line. Or, alternatively, they could use the software development capabilities People, Ideas & Objects provide in the Preliminary Specification. Specialization and labor division dictate what businesses choose to do for tasks that generate value. And only those tasks provide us with the most profitable means of operations. Is administrative and accounting IT something that producers can differentiate themselves on? Is this where oil & gas producers build their value? With the scope and scale of Information Technologies available today, the pace of change, and these capabilities offer no competitive advantage other than to function in an advanced economy. Why would each producer continue down this road? 

To ensure compliance to the regulations is established and maintained during development of People, Ideas & Objects, our budget allocates financial resources to CPA firms. This provides an independent third party review of the activities undertaken during development. It also provides a baseline for each accounting firm to begin their oil & gas producers' annual audits. These are a check and balance on software developments from a compliance and governance point of view. They are designed to ensure that the software is consistent with the regulatory and accounting needs of the producers. It contains no inconsistent anomalies. As our user community determines, blockchain will also provide these assurances to producers. I am unable to see any alternative to providing the oil & gas producer with the most profitable means of oil & gas operations. This is on an ongoing basis for the next 25 years, in this complex technical environment.

Implementing blockchain technologies within the Preliminary Specification is mandatory for the oil & gas industry and producers. With the predicted volume of transactions managed through the People, Ideas & Objects system as a means to provide the safety, security and documentary evidence that the blockchain offers is the only reasonable way for the industry to proceed. We are not providing a solution that is available tomorrow but one that will build value for the industry in the mid to long term. Therefore the adoption of Oracle's technologies including their Oracle Blockchain Cloud Service (BCS) and Oracle ERP Cloud in combination with People, Ideas & Objects Preliminary Specification, our software development capabilities, our user community driven development and service providers fits well with the needs, opportunities and issues that the industry and producers face today and in this time frame. 

It is clear from evaluating the producers' financial statements that accounting is still conducted as it has for four decades. In addition, the industry lacks cash. No cash is generated from operations. Nothing is being provided by the investment community and no banks are jumping back on the bandwagon. Consequently, no one’s buying the industry's story. Producers continue to manage as if the status quo is the only operational choice they have. I would therefore ask, what would happen if the industry proceeded with the development of the Preliminary Specification by providing funding for our budget? The future that is defined by People, Ideas & Objects Preliminary Specification will prove to investors and bankers that the industry is a viable investment option?

One of the areas benefiting most from blockchain technologies is our Material Balance Report. It resolves the processes involved in the measurement and reporting of oil and gas production on a monthly basis. Capturing production data in the field through field data capture and automating the subsequent processes all the way to financial statements. Within this broad definition we have introduced the Material Balance Report as the means in which producers within a Joint Operating Committee can balance the reporting of the various disparate groups involved in these processes between field data capture and financial statements. Introducing the ability through the report to material, system and partnership balance production. Our user community through their work will need to determine at what point and where the production volumes within the Joint Operating Committee for a property, plant or gathering system can then be recorded within the blockchain that supports these transactions. Once production data has been captured, verified and protected, the processes and automation in the Accounting Voucher and Partnership Accounting modules commence. 

Within those modules we address the never ending amendment process that plagues this area of reporting. This is a natural part of the oil & gas business and will continue for some time. What needs to be done in the case of volumetric amendments is that they are written in a similar fashion to the blockchain. Accordingly, there is a specific blockchain for the industries production volumes. Which would aid significantly in the global reconciliation processes that are instituted within the Preliminary Specification through the material, system and partnership balance reconciliation process to ensure the integrity of the reporting is either consistent with the facts of production, or the agreements that govern the Joint Operating Committee. Whichever of those two is in effect. As I noted before it will be our user community that determines how, why and for what purpose the Preliminary Specification will implement the blockchain. 

In traditional server architectures, every application has to set up its own servers that run their own code in isolated silos, making data sharing hard. If a single app is compromised or taken offline, many users and other apps are affected.

On a blockchain, anyone can set up a node that replicates the necessary data for all nodes to reach an agreement. This node can be compensated by users and app developers. This allows user data to remain private and apps to be decentralized like the Internet is supposed to work.

I want to clarify a seeming contradiction. Producers focus on “where the money is" finding and producing reserves. This is consistent with their competitive advantages of their land & asset base, and their earth science & engineering capabilities. Therefore their current focus is appropriate. My criticism is that they don’t understand that they’re a primary industry and the secondary industries that support oil & gas, the service industry, pipelines and software etc. need to be a part of the business and producers' concerns. Producers can’t just leave these activities to fate. They have to be involved in making them happen and ensuring these businesses are compensated appropriately. If investors see that the service industry, pipelines and software businesses are treated disrespectfully and financially abused, they will hesitate to invest in those businesses. This is the case today. Leaving producers unable to get the job done. Which is the case today. They need to focus on the things they can compete in. And they need to understand that as a primary industry it’s not just the producers who’ve earned, need or are entitled to those oil & gas revenues.

Ode to the Demise of the Commodity Price Proxy

 Last year I took the opportunity to lay out the difficulties and detail the outright crisis the producer bureaucrats were facing in the near future as a result of their “management.” I know they appreciate the work I do so I thought that I’d update them to accommodate the changes in the market and the status of each of these crises. It’s a difficult job, some say I do it well but the important thing is I enjoy it. Anyway, the “muddle through” and “putting cash in the ground” business model has the feature of cost control as the sole means to provide evidence of bureaucrats' hard work and value being (de)generated in the industry. As we’ve seen. Underlying all of these crises was our documentation of their cost control efforts weren’t as much cost control, as they were cost deferrals. We identified a variety of costs, instead let's call them a mountain of costs that were going to be incremental to the standard costs that producers had come to know and love. Maybe we’ll need the bureaucrats more, they may think. These costs need to be added to the difficulties of the role of the producer of “drilling wells” and I assert that they had a secondary role of paying off the environmental lobbyists from picketing their facilities and head offices. Where do you think all that money comes from to sustain the environmentalists' attacks on the pipeline companies? My point is that the producers were concerned with drilling their precious reserves and expected “others” to do everything else and deliver it to them on a silver platter. While they collected the revenues of a primary industry for distribution amongst their elite group. I’m not suggesting that this is not going to continue to work in the future but it certainly has stopped working now hasn’t it. 

Oil and gas has been around since 1859. With many facilities having been built and substantial oil and gas being discovered and produced since that time. Many of these properties are no longer material or marginal for the initiating producer and their prospects are dim. Abandoning the property is the recommended approach based on the policies of the more senior producers. Producers therefore have been able to sell the property to new producers who generally have been able to create value from them and at the same time the original producers were able to absolve themselves of the reclamation cost obligations. Recently the Alberta government intervened in a proposed sale of Shell’s three sour gas facilities to what was then a start-up oil and gas producer. Stating there was difficulty in seeing how the startup could pay for the reclamation cost obligations. What the Alberta government didn’t understand at the time was there's little they could do when the cleanest of clean energy producers is trying to renounce themselves from their “dirty” oil and gas assets. Pieridae Energy Limited’s acquisition of the facilities was completed in October 2021. Industry wide reclamation costs are the looming, accelerating and unknown amount of new costs that producers are needing to face as the retirement of conventional oil and gas assets accelerate.

The next category of costs that need to be considered are the rebuilding costs of the infrastructure that has been built over the past decades. Much of it is operational beyond its usable life and with either additional investment to bring these facilities up to today’s requirements or to rebuild their replacements. These rebuilding and refurbishing costs will need to be added to the list of new and escalating costs that are incremental to those that were previously realized. 

The question that needs to be asked therefore is: are today's oil and gas infrastructure the infrastructure that we should expect will take the industry to the level of enduring, profitable energy independence? Estimates that the industry will demand $20 - $40 trillion in incremental capital costs in the next 25 years are what are generally agreed upon. These include the categories of capital costs for reclamation, refurbishing and rebuilding in those estimates. In today’s bureaucratic business model it will be the investor that fronts this money to the producer in exchange for the promises of roses and champagne. And let's not forget the paper they’ll receive in the form of “balance sheets.” Banks will want to be getting in on that value generating action too. Alternatively, People, Ideas & Objects, our user community and their service providers propose the Preliminary Specification. Which will cycle the capital costs through the producers on a frequent basis and pass these capital costs, in a capital intensive industry, on to the consumer in the price of the commodities. That way the cash will come back quickly to the producer and the reuse of that capital, cycled through repeatedly on a frequent basis will provide the means to fund these demands. The need for $20 to $40 trillion is unnecessary when $1 trillion turned over 20 to 40 times is just as good. The alternative is investors can sit back with today’s bureaucrats and cherish their paper empire of a well built $40 trillion balance sheet account of property, plant and equipment for a few decades before that cash is ever seen again. I’ve been highlighting this ridiculous business practice for well over a decade and the bureaucrats have done nothing to deal with this, therefore they’re unable to read or don’t like the sarcasm, it could be that it's a difficult concept for them or that it interferes with their personal cash flow. We should ask the investors and bankers. 

We also itemized the major crisis the producers were facing in the looming short to long term. Anyone of these crises would individually have focused the energy of the producer bureaucrats in a concerted effort to resolve their impact. However, that is not the objective of “muddle through,” and its approach continues to ignore these. I’ll highlight them here to see how we’ve done and determine if there are new crises that need to be added.

Crisis # 1

Chronic Overproduction

This is the issue that has caused the producers all the difficulties these past four decades. It is the primary issue that the Preliminary Specification resolves. The second among many issues it resolves is the development of a culture of innovation throughout North American oil and gas producers. One that will work with the speed of the innovation that occurs in the service industry. Recently we noted that overproduction was listed as the third reason for the great depression. Businesses and industries learned not to overproduce and create the difficulties of the great depression again, or what we’ve seen in the chronic liquidation of value in North American oil and gas. The accounting that hides the overproduction via the industry principles of “building balance sheets” and “putting cash in the ground.” It is the misinterpretation of the SEC’s late 1970’s requirement to use full cost accounting that has created this and bureaucrats continue to feign ignorance of the issue, history and facts. In summary, what the SEC states is the producer must not exceed the present value of their independently evaluated petroleum reserves in the assets listed in property, plant and equipment on the balance sheet. Replacing the financial statements purpose of reporting performance to assessing value. Nowhere does it state what the minimum asset balance must be. Tell me of any other business in the world who’s primary objective is to “build their balance sheets?” Simply, overreported asset values create commensurate over reported profits. Excess profitability will attract investors to capture those profits. Excess investment leads to overbuilding of capacities leading to overproduction of the oil and gas commodities. Overproduction is best represented as unprofitable production however this accounting hides the fact that none of the production is or has been profitable. It is designed to “build balance sheets,” not assess performance. 

Crisis # 2

Virus

Implications from Covid are self-evident at this point. Although personally I find the whole situation frustrating. Professionally I don’t think I could have asked for more. 

Crisis # 3

Debt and rising interest rates.

When the asset balances of the producer firm are bloated beyond reason we see two implications that are clearly evident in North American producers. No cash or working capital. A capital structure that is as large as the bloated asset value. Most of the capital structure, due to the losses realized in the past seven years, has eliminated the shareholders interest. Leaving producers with a disproportionate asset value supporting highly leveraged debts. The past two decades of low interest rates have allowed easy access to banks providing excess debt leverage to individuals and businesses of all types. None more so than North American producers based on the independent shale reserve evaluations. What is potentially seen as a global debt crisis may be playing out in the next few years and the immediate implication will be higher interest rates on these unmanageable producer debt loads. 

Crisis # 4 

OPEC+ surplus capacity. 

Suggesting at the time of initially writing this scenario that OPEC+ would once again drop the price. However it now appears that the scale of damage realized in North American oil and gas is far greater than expected. OPEC+ is realizing real value through the higher oil prices when North American producers are locked into hedging contracts that deplete their cash when commodity prices climb. This being one of the many bureaucratic costs of losing the financial, operational and political frameworks of the industry. 

Crisis # 5

Capacities and capabilities.

Once the financial difficulties are realized the natural follow on consequences of what a business experiences are it’s diminished capacity and capabilities. That shale is falling into this class of difficulties is something that I had not considered at the time of initially writing these. Recall the summary declaration by the producers that shale was not commercial and they were hence moving to clean energy. Here again I feel the bureaucrats are 100% wrong. We can easily accuse them of never doing the hard work, and certainly never trying. My focus on raising this before was the financial devastation in the service industry at the hands of these bureaucrats. This would lead to the inability of the service industry to meet the high water marks of what they were able to achieve in prior years. The evidence of this is clear and it is a serious demarcation of what the producers could previously rely on. We noted recently that at today’s 25% level of prior activity levels the service industry is already demanding record prices for their services. The rebuilding of the service industry to its appropriate level will need to be done by the producers themselves and done as a result of their gracious benevolence. The cardinal rule being invoked is, you broke it, you fix it. 

Crisis # 6

Insurance

This is an interesting issue. I thought I had an area of concern that appealed directly to the officers and directors of the oil and gas producers personal pocket books. What we affectionately call bureaucrats. It hasn’t worked out that way and I have to say they dodged what I thought was a bullet headed straight for them. The admission I’m not always right may be surprising to some, however. The point was with the desperate condition of the share values of the producers at the time. Shareholder litigation may begin on the basis of their ignoring the obvious refusal to do anything. Their refusal in light of the warnings emanating from this blog and the exit of their investors. Insurance companies seeing the culpability of the bureaucrats would suspend their coverage if the bureaucrat continued to work at that firm. Triggering an exit from these firms. The past issue is past and did not materialize due to the fact that most of the shares of the producers have rallied as they’re seen as a proxy on the prices of the commodities. 

Sitting in the catbird seat these bureaucrats are reveling in their victory. I suggest their new issue is that shares are high with the potential of decline. I believe there's a risk of this insurance issue coming back into play again. What if the producers are experiencing the financial difficulties that I describe. The concept of the producer share price is a proxy on the price of the commodities implies that it can generate value based on the price increase. If management, who are unresponsive to business realities such as these issues and their investors, yet are willing to hedge their risk so that prior disasters aren’t manifesting again (negative $40 oil) are willing to lock-in what are marginal outcomes which do nothing but sustain bureaucrats in their standard of living, being the lifestyle of the rich and famous. Would this continue to maintain the theory of the commodity price proxy?

Crisis # 7 

Joe Biden. 

Who would have thought sleepy Joe would make Justin Trudeau look lucid and off the recreational drugs. 

Do we see the requisite capacity and capabilities inherent in these producer firms to make the necessary changes to achieve enduring, profitable, energy independence for the long term? Or was the classic management excuse of not all the data was available to them? Will the data be available soon? What excuse is there for this inaction? Particularly when 1929 was almost a century ago and all other industries were able to see and read the causes and implications of overproduction then. I highlighted an article in the Calgary Herald from July 26, 1986 entitled “OPEC minister can see economic destruction.” This article dealt with the 1986 oil price collapse and overproduction of North American producers. That a solution in the form of the Preliminary Specification, our user community and their service provider organizations was prepared in August 2012 that wasn’t to the bureaucrats advantage or liking, but what alternatives have been prepared and what's available now? That is other than the bureaucrats $5.00 solution. Their investors and bankers began exiting the industry in disgust in 2015, actions that are considered the most critical and terminal decisions made towards a firm. Most would agree with the crisis and costs on this list and there would be many more that could be added. If we look at the speed at which the bureaucrats have approached the fact of their investors exit in 2015 and the list of things they’d like to see management undertake. We’ll no doubt see the effectiveness of “muddle through” once again. Yet with all of this, they’ll be trying to figure out where exactly they dug those holes to put the coffee cans full of cash in. 

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined TBD and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

Everyone in the Pool!

 A few issues have come about in the user community that need to be discussed in the broader community of the oil and gas industry. For those people who may be considering joining the user community and have questions of their own. These issues involve two areas of concern and their impact on the dynamic nature of the user community and hence the overall oil and gas industry. The user community in the Preliminary Specification is being seen as the leader in how the industry will evolve and manage change on a day to day, and long term basis. It is also seen as the leader of how the big issues such as overproduction can be resolved through solutions such as the Preliminary Specifications decentralized production models price maker strategy. The user community members are the ones that have the sole ability to make changes to the Intellectual Property making up the software specifications. They’re the ones who’ll have the hands on knowledge and experience of managing their process across the industry in their service provider organization. They’re the only people who our software developers will and can take their input from. Therefore in a dynamic and changing environment such as our user community and the software we are delivering to industry. Where specialization and the division of labor, innovation, change, automation of the business process, issue identification and resolution are part of their day to day activities. It’s not difficult to see that the scope and scale of their work might decrease over time as a result of their own efforts to ensure producers maintain their optimal profitability. 

Efficiency and effectiveness to increase the productivity of the administrative and accounting of oil and gas, to ensure the oil and gas industries short, mid and long term profitability is the objective we’re all working towards in this People, Ideas & Objects initiative. The results mentioned are somewhat counterproductive and counterintuitive to the best interests of the user community and those they employ in their service provider organizations. Which is true, so how is this resolved? I’m not suggesting the resolution here. That will be for the user community to determine themselves and in their own way. They’ll be far better equipped to understand and resolve their issues than any other individual. I am only raising the issue for discussion as I would find that a recreation of the bureaucracy in a milder form would not be acceptable. It is the purpose of a high performing community and its organizations to ensure that their overall objectives are maintained and continue to be their primary focus. 

These are classic issues that we’ve been faced with throughout the last number of generations. The speed in which society has changed has raised questions of how many jobs will be lost to computers or robots. Or worse we’ll become drones at their beck and call. We can look back in retrospect and see that the issue isn’t the quantity of jobs or quality of them. We’ve populated the earth substantially in the past few generations where poverty and hunger have declined precipitously. The quantity of jobs in the western world is abundant however it is also the increase in the quality of those jobs. These innovations have generally freed us from the menial work that need not occupy our day to day. And although today’s producer bureaucrats seek to continue to have us print out the single data element of interest and ceremonially walk it across the building so that others can key that information into their system. There is a lot of redundancy in oil and gas administration and accounting. And the issue is more prevalent today as the change dynamics being introduced by software are beginning to push the envelope of possibilities and increase the concern of how it will affect people's lives. 

There is an investment being made by those in our user community that began many years ago with their commitments to their chosen profession, their education and then the oil and gas industry. To now commit the required level to the user community is being seen as a serious mid-career change. First I’m glad that people are seeing it this way, second they are expressing the risk associated with the building of this business opportunity, particularly in the service provider operation that will be the substantial part of their future revenue of each of the user community members. There are no guarantees in life and even fewer that exist in the People, Ideas & Objects user community. I would be dishonest to suggest otherwise. If living by your wits is not part of your DNA then it will be difficult for you to prosper here. A dynamic change oriented environment doesn’t come about through the implementation of bureaucrats. 

The process of specialization and division of labor is a particularly valuable Organizational Construct that has been adopted in the Preliminary Specification. The simplicity of the theory's implementation is the means in which we achieve the dynamic nature of the user community. The simple filling of gaps is that process. As time passes society evolves in the way that it determines is best. Over time gaps between the offerings of two firms begin to be seen by entrepreneurs and are then filled through some innovative new product or service offering. (People, Ideas & Objects see a gap between the oil and gas industry and the tier 1 ERP providers such as Oracle. The inability to communicate creates this gap and it has only broadened.) Those that fill the gaps are establishing themselves a new business that they’re able to make viable as a result of the wits they’re endowed with. This is the process that we’ll be relying upon to maintain the user community and the overall objective of ensuring we provide the most profitable means of oil and gas operations. Gap filling will be part of the day to day process management of the user community member as the principles involved in their service provider organizations. Producers have to only look to the user community to interact with in terms of having their software and services provided, enhanced and issues resolved. Who is it that they talk to today to have these taken care of? As time passes anyone in the industry may see new gaps forming and filling the gap is part of the role that we are depending upon our user community members to undertake. They, and only they, have the access to the People, Ideas & Objects developers to make the changes to the software and are the principles in the service provider organizations that deliver the software and services to the industry.

The other issue that’s been raised is that no one can accurately predict what will happen. If a user community member is managing a process that is heavily influenced by government regulations then one day those regulations are repealed then their entire investment is lost. The people they employ in the service provider are potentially lost. And that capability of those individuals is no longer available to the producer firms. This could also occur purely out of the drive for efficiency. This is an investment that I would suggest can’t be left to atrophy. In an environment where Intellectual Property is a distinct competitive advantage and the overall value that is delivered to the producers. The individual hit to the user community member is of course devastating. The concern that I have is the influence this has on the risk profile and orientation of the user community members and their service providers staff. This will cause them to look at any opportunities differently and stay silent on anything that may be detrimental to them. A contrary point of view of what we are fostering of achieving the most profitable means of oil and gas operations. 

Conceptually there are 3,000 user community members needed for the development of the Preliminary Specification. One for each of the major processes under management by the application modules. These include the Oracle Cloud ERP modules or elements of both. Therefore there are approximately the same number of service providers. We are replacing the administrative and accounting of the producers and reallocating that work to the service providers. The scope and scale of these service provider operations is therefore of substantial revenue in terms of what it is designed to replace. The amount is unknown because the costs are not broken down in financial statements. The amount of overhead allowances, capitalization and other aspects of those reported costs would need to be considered. We can all however see it’s not small. How the service provider organizations are managed is upto the user community member. For example where they’re located, are they working from home etc. We see the user community members as part-time and interacting with the 600 developers needed for this initiative. Therefore approximately 20% of their time is spent with developers. People, Ideas & Objects pay a fee for the title to the Intellectual Property they develop iteratively off the Preliminary Specification and assume that fee covers all of the costs associated with the user community member to do their job. The service providers generate their revenue from the fees they’ll charge the producers for the software and services they’ll deliver. For example the fee to determine elements of the production allocation process. These fees will be charged to the Joint Operating Committees, mostly, and will be variable based on profitable production. 

The question therefore comes about who is the net benefactor of the drive for enhanced profitability of the producers and oil and gas industry? Is it in their best interests to have these communities looking to replicate the bureaucratic process of self-serving motivations that have so comprehensively destroyed the industry today? Or, should it be the user community's understanding of the larger role they take in the industry? That the destruction of real profitability by the current bureaucracy circumvents the value generated by not only producers but all those associated in the service and tertiary industries. The user community members role is to be the score keepers and to be the objective, accountable and responsible to all of the stakeholders that depend on the most profitable means of oil and gas operations. And therefore, ensure that those user community members and the investments that have been made in their service providers are kept whole during times of any transitions from regulatory or efficiency changes. Where they’re able to turn to the community at large and seek out new gaps to fill or new regulatory requirements in the software and services that are needed. The funding for these transitions may be funded by the user community members making small monthly contributions to that fund. And conversely once the service providers are established a separate and much larger fund for that purpose. Revenue insurance for lack of a better term. This however does not mitigate in any way the investment of time, energy and money that the user community member will have to make in order to establish their service provider organization. As the title of this post denotes, the water’s warm, and everyone in the pool!

This is a democratic process where the end user has the say. This is not a top down dictation of the way it must be or what the outcome will be. There are no guarantees and there are nothing but risks as we pass into this future. The framework described here is as the user community member deals with the details of the day to day aspects of the truth that they discover. They are the ones trusted to deal with the issues and opportunities they’ll find in the domain of their processes management. Intelligent people doing intelligent things. Not having to look over the shoulder for the competition who somehow are selling the same service at half the cost. An impossibility in the People, Ideas & Objects environment being created here as the licenses granted to the user community members and service providers will be for their exclusive responsibility and authority for the domain of their process. Yet competition between these service providers will never have been so strong as it finds new and innovative ways to configure their offerings in the market. Using their competitive advantages of leadership, issue identification and resolution, creativity, researching, generating ideas, designing, planning, negotiating, compromising, financing, reasoning and judgement to name just a few. If you find this too risky and unworkable. The objective of profitability everywhere and always seems unattainable. Find that these ideas are naive, altruistic and impractical. Then you’ll determine they’re not for you. And I can assure you that you’ve made the right decision. 

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Our All Reward With No Risk Offer, Part II

 People, Ideas & Objects established the issue of overproduction of oil had been well defined in July 1986. The participation of chronic overproduction of natural gas didn’t manifest itself until 2009 with the overwhelming effect of shale. The next defining event the directors need to concern themselves with was the publication of the Preliminary Specification in December 2013. That is when I had the People, Ideas & Objects product defined as the comprehensive solution to both the oil and natural gas overproduction issue and its associated destruction we’ve all been seeing and living with. Why it's such a comprehensive solution is due to the scope of the issue. To solve the issue involves the Joint Operating Committee and by doing so everything within the producer firm and industry needs to be oriented towards the organizational culture of the industry. The industry was established to mitigate risk through the use of partnerships. The industry was also configured to deal with multiple partners due to the myriad of ways in which producers need to interact with each other. Different ownership of surface lands, spacing units, formations, partnerships, financing etc all defined the demand for the Joint Operating Committee. The culture is represented in the Joint Operating Committees legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks. The bureaucracy has been distorted to focus on the corporation through the introduction of computers in the 1960’s. First they did the accounting, then tax, royalties, compliance and governance soon followed. To where the administrative and accounting are concerned about the corporation and the business of the business is unknown by them. On the other hand, the earth science and engineering resources who are the business learned they could not understand the focus and desire of those on the administrative and accounting side. And as a result we have what we have, two disparate silos within the firm pursuing different organizational objectives. This has led to the need for the Preliminary Specification to move the compliance and governance frameworks of the bureaucracy into alignment with the seven frameworks of the Joint Operating Committee. By doing so, everything within the organization changes. The alternative is a continuation of the failure that we see today.

It’s late December 2013 and the board of directors could for the first time balance the overproduction issue in one hand, and the solution in the other. But that was eight years ago, nothing has been done, and we can assume that shareholders have not only subsidized producers directly with hundreds of billions of dollars in direct support through additional investment, but given up trillions of dollars in opportunity costs that slipped down the drain while the bureaucrats party has carried on without a hitch. And the bureaucrats are 100% correct when they say that the money being discussed here has been washed away and is unretrievable. It’s a sunk cost. People, Ideas & Objects concern is that the total amount of these sunk costs only grows larger each and every year. Responsibility, accountability and transparency (RAT) is not the bureaucrats' forte’ is it? These sunk costs are not recoverable in the sense that they can be recaptured but it is retrievable in terms of skin. What we currently have is an issue that has been well defined since July 1986. The same issue developed on the natural gas side of the business and destroyed prices there in 2009. A solution in the form of a comprehensive approach to these issues which has been available since 2013. And the wholesale shoring up of directors and officers liability insurance in 2020 when I identified these related points.

The aggravating cat amongst the pigeons is the different treatment of directors and officers in the process of bankruptcy. Shareholders as we know are sent on their way in this well defined process, what is it that should happen to their direct representatives? The directors are tossed out as well. Bureaucrats are usually maintained through bankruptcy and are established in the subsequent company in their prior roles. In other words they lose their shares but will be getting new and better ones, but nothing else really changes for them. Directors lose all connection to the firm. And in some cases the officers and directors liability insurance that was maintained on their behalf by the company needs to be either funded by themselves, or in rare cases it’s cancelled or seized by the bankruptcy judge as an asset. Making them particularly vulnerable in the event of bankruptcy being invoked. 

Which of course at $70 / boe bankruptcy would never happen? Ok, the perception that there has been no cumulative damage to these organizations and the industry is common, and absolutely false. These companies are beyond the point in which they could be rehabilitated into viable organizations. Maybe a handful could be, but the time and effort would be monumental, and with the current methods of management, with the issues they face, with so many contingencies outside of their control, or in other words commodity prices, who would be so bold to try. Until management can involve themselves in profitable operations everywhere and always throughout North America, which only the Preliminary Specification provides a viable solution to, the industry will continue it’s steep downward trajectory. The financial condition of the producers is not as represented in their financial statements and their hold on the future is at best tenuous. Big balance sheets mean nothing and do not represent any value. Property, plant and equipment represent the reserves that have been comprehensively proven unable to be produced profitably at any point in their past four decades. If anything they prove the valuation of these assets are outsized when compared to the very low percentage of revenues they generate. Neither higher prices or greater volume will be adequate to make up the difference. They mean these paper assets are being carried and offset by disproportionately high amounts of real, tangible debt incurred through two decades of low interest rates and the producers recording every cost outside of operations as an asset. Producers' futures lie in their own hands through profitable operations that are attainable through use of the software from People, Ideas & Objects Preliminary Specification. Otherwise their reputations precede them. 

The point therefore of our July 2021 RFP Response was to highlight the organizational reasons that the producers need to make this change. In order to deal with any situation demands that you organize the solution first. Running around with your hair on fire is ineffective. ERP software is how organizations in society are organized and operate today. They define, support but also constrain “what,” “how” and “why” things are done. What we can assume in 2021 is that if the bureaucrats had a solution that would have meant they identified the issue and resolved it by now. Which doesn’t seem to have happened. Therefore I don’t see profitable operations ever becoming the norm in the industry under the current bunch. 

As we slip further into the oatmeal of all things progressive in 2021. Maybe it’s best that we realize that the oil and gas bureaucrats' acceptance of their limitations is the far better choice for all concerned. Disintermediation exists for a reason. The status quo’s inability to make the necessary changes to continue in a prosperous way is certainly fact based. A good example is the bureaucratic malaise that’s facing NASA, its prior and current contractor Boeing. This article from Reuters proves one aspect of People, Ideas & Objects' claim, it’s now more than anything a software world. Three entrepreneurs, on a part-time basis, or maybe that would be better classified as hobbyists, Elon Musk, Jeff Bezos and Richard Branson have had little difficulty at times launching rockets and retrieving them safely and undamaged here, there and everywhere. The old school bureaucracy, also known as Boeing, can't get their rockets into the proper orbit. Or here’s a question, since it returned early, did it make it into orbit? It is these issues that are being faced everywhere and in every business. If oil and gas is to perform in the future, it will never be at the hands of bureaucrats. 

What Boeing's rocket failure documents is the complexity of software development, as an addition to the role that it now plays in organizations and its importance in society. Which is now assumed to be something that can be easily undertaken in the bureaucratic business model. And that’s not all. Excessive overhead costs are what we believe to be the secondary cause of a lack of producer profitability and working capital leakage. Excessive overhead costs are wholly attributable to the complexity of the environment that exists today, and the unshared and unshareable manner in which each producer approaches the development and provision of their administrative and accounting capabilities and capacities within each firm. Building bureaucratic, redundant silo’s of exact replicas of each other's administrative and accounting functions is unsustainable and unnecessary with the availability of the Preliminary Specification. People, Ideas & Objects converts the fixed cost administrative and accounting capacities and capabilities of the producer to become the variable cost, industry based administrative and accounting capacities and capabilities. Variable based on profitable and only profitable production. To continue with development of complex ERP software within each producer firm would be an extension of their failed bureaucratic business model. One that may be orchestrated by the bureaucrats as an alternative to People, Ideas & Objects to prove that software is not the answer to these issues. And therefore securing them in their roles for at least another generation. What we can discern from Boeing’s failure, in addition to many of the other failures we see today, is that bureaucracies have a ceiling in terms of their capacity and capabilities. Today’s societal demands far exceed what bureaucracies can competently deliver.

The only solution as it stands today, from a creative destruction and disintermediation point of view, is People, Ideas & Objects, our user community and their service provider organizations implementation of the Preliminary Specification. The natural forces of disintermediation and creative destruction are being obstructed through the diversion of industry revenues away from the development of initiatives such as the Preliminary Specification. And therefore are unnecessarily directly supporting the status quo behaviors that have been proven to be disastrous.

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