People, Ideas & Objects Campaign Report, Part II

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

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

The Other Insurance

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

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

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

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

And 

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

Artificial Intelligence

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

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

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

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

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

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

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

Conclusion to these Consequences

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

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

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

Our Value Proposition: Joint Operating Committee

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

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

Value or Construct?

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

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

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

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

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

But a Rebuilding?

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

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

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

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

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

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

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

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

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

The Joint Operating Committee 

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

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

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

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

Conclusion

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

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

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

People, Ideas & Objects Campaign Report, Part I

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

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

George Bernard Shaw

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

Highlights of Our Campaign

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

Pricing of Oil & Natural Gas

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

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

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

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

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

LNG

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

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

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

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

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

Chronic Lack Of Profitability

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

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

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

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

Capital Costs

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

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

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

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

Absent and Unmotivated Leadership

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

Read more in the original documentation:

[Shakespearean performance at the Exxon annual meeting].

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

Skydiving Without a Parachute

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

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

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

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

Consolidation

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

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

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

Conclusion on the Issues

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

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

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

A Capital Change

 Oracle published in their Oracle Connect News Stories (March 26, 2024) an interesting article with significant productivity implications to future oil & gas producers who will be using the Preliminary Specification. The article was dedicated to the announcements of Oracle Database 23ai, for Artificial Intelligence, which is a development of Oracle Database 23c for cloud. The News Stories are under the subtitle “Bringing the Power of AI to Enterprise Data and Apps.” The article that I’m discussing today is “AI is transforming finance.”

The module this change has been written to is the Partnership Accounting module. That is where the financial statements for each producer, for each Joint Operating Committee they participate in are prepared to determine its performance. If it is profitable it continues producing, if it isn't, it will be shut-in to focus the firm's innovative resources on making the property profitable again. The change is in the method and means of how that performance reporting is generated. First an introduction from the Oracle article. 

Financial Reporting and Analysis

In the Partnership Accounting Module of the Preliminary Specification we are augmenting the discussion with Oracle Database 23ai. The following are from the Oracle article.  

AI can help automate and enhance multiple aspects of the financial reporting and analysis process. In the initial stages, it can extract relevant financial information from various data sources. It can then clean and process financial data by identifying errors, inconsistencies, or missing values and notifying finance staff of the areas needing attention.

AI can then use the data to help generate financial statements, such as income statements, balance sheets, and cash flow statements, transforming the data into reports that highlight key performance indicators (KPIs), trends, and observations. It can also help with regulatory reporting. GenAI can fill out the needed forms with data provided by the finance team for the staff to review and confirm.

GenAI can be used to produce narrative reports, providing context into the numbers by combining financial statements and data with an explanation of each. GenAI can even help prepare first drafts of 10-Qs and 10-Ks, including footnotes and management discussion and analysis (MD&A).

At People, Ideas & Objects, our primary concern is the performance reporting of each Joint Operating Committee (JOC). This performance reporting is crucial for determining the profitability of a property. Profitable properties continue to produce, guided by the reorganization to Cloud Administration & Accounting for Oil & Gas, where our user community’s service providers execute their processes in standardized and objective ways. Producing this requirement in addition to the financial statements and other reporting requirements that Oracle noted in the first quotation will be part of the understanding and responsibility of our user community when they develop the Preliminary Specification.

Currently, there are significant issues regarding the differences in the amount of capital recorded in what People, Ideas & Objects would consider for our method of using the Joint Operating Committee, today’s corporate records, and independent reserve reports. We believe the latter two records are deficient in two material aspects when applied to performance at the Joint Operating Committee:

Overhead Allocation: 

The overhead incurred to operate a property is unknown and untraceable. Overhead costs are aggregated in corporate accounts and capitalized at year-end, with allocations to individual Joint Operating Committees made through overhead allowances that cumulatively balance to zero across the industry.

Capital Definitions: 

While the costs of drilling, completion, and equipping are appropriately included under corporate, reserves, and People, Ideas & Objects definitions, there are differences in how capital is recognized. For example, in the Preliminary Specification, reconciliation will occur on a global basis, with both the producer's depletion and property, plant, and equipment (PP&E) accounts balanced to the cumulative balances in all Joint Operating Committees and done so monthly. Any outstanding PP&E balance continues to be depleted to determine the individual property’s monthly profitability. And for purposes of accounting to the SEC other costs such as the abandoned wells are to be included. Where are they included in either corporate or reserves reports?

In particular, the amount of capital recognized in PP&E differs materially, including all land and bonuses paid, and depending on whether SEC reporting uses Full Cost or Successful Efforts methods. For instance, under Full Cost accounting, the costs of abandoned wells in an eleven-well program are included in the producing well's capital. These costs should be accounted for in corporate or reserves reports, but are not.

Before deploying AI to clean up PP&E data and reported depletion, substantial analytical and audit work must be performed to establish accurate balances for each producer's Joint Operating Committee PP&E and depletion accounts. The Preliminary Specification addresses differences between individual producers within the JOC to accurately determine profitability, recognizing that each producer may have different capital balances due to varying capital and depletion balances. For example, a producer who recently purchased their interest will have different performance criteria than one who has held the interest for a longer period. These issues are managed through the Joint Operating Committees Operating Procedure and its operational decision-making framework. The Preliminary Specification specifically aligns with the seven frameworks of the Joint Operating Committee as part of our Organizational Constructs. Where producers may have determined that for a vote to pass on an initiative requires a 60% working interest threshold. With determination to produce or shut-in, in this instance, being the consequence.

Producers have assumed this substantial work load of preparing financial statements for each property, was too burdensome and unnecessary. People, Ideas & Objects approach was always one of high levels of automation of the business processes. Artificial Intelligence would be a further and welcome development. Hoards of data in the form of information are what needs to be fed to humans to make the appropriate decisions. This is the point we’ll discuss next, one in which we felt officers and directors didn’t fully appreciate or necessarily understand. Possibly unaware of the overall quality of industry information and cultural influences and their implications on producer firms.

Once again I asked ChatGPT to provide me with a drawing depicting how I saw the officers and directors approach. I call this one "A Board Meeting for the Permian."

Is it Data or Decisions?

If only producers could address the more important end of this process. They’d need to decide which that end is. We're in the deep-end now and those that are unprepared are beginning to feel a desperate need for solid ground. The demand for decisions to be made is horrendous in oil & gas. Around 2008 it became difficult to keep up with the pace of the oil & gas business. I would blame the poor quality of the data that producers had then. ChatGPT 4o had the following to say about corporate data.

Specific Trends and Statistics

IDC Report: According to IDC, the global datasphere will grow to 175 zettabytes by 2025, up from 33 zettabytes in 2018. This indicates a compound annual growth rate (CAGR) of around 27%. 

Gartner Forecast: Gartner predicts that by 2025, 75% of all enterprise-generated data will be created and processed outside a traditional centralized data center or cloud, indicating a shift towards edge computing. (People, Ideas & Objects believe the extensive use of IoT will be the cause of this.)

Implications

Data Management Challenges: Organizations face significant challenges in managing and securing this data, necessitating advancements in data governance, storage solutions, and cybersecurity measures.

Infrastructure Investment: Businesses must invest in scalable infrastructure and advanced analytics tools to harness the value of their growing data volumes.

Strategic Decision-Making: Properly leveraged, this data can provide a competitive advantage through improved customer insights, operational efficiencies, and innovation.

The rapid growth of corporate data underscores the importance of robust data management strategies and the adoption of emerging technologies to stay competitive in the digital age.

Improve decision-making

From the Oracle paper.

A 2023 study by Oracle and New York Times bestselling author Seth Stephens-Davidowitz shed light on the dilemma faced by business leaders around decision-making—and the results were sobering.

Of the surveyed business leaders...

74% believed the number of decisions they make every day has increased 10X over the last three years. 97% wanted help from data in making decisions. 93% felt that the right decision intelligence could make or break an organization. 72% admitted the sheer volume of data has stopped them from making any decision at all. 89% believed the growing number of data sources has limited the success of their organizations. 94% felt the right data and insights could help the finance department make better decisions. 

AI’s abilities around data management collection, analysis, and contextualization—just to name a few—help eliminate many of the decision-making roadblocks cited by business leaders.

Oracle’s Recommendations

Some promotional information from Oracle on what is necessary and how producers could approach these issues. 

What can companies do now to prepare for increasing AI use over time? First, aggressively automate processes to reduce transactional work. Second, train staff so they have the skills to effectively interact with AI tools, building analytical capabilities that capitalize on the technology. Giving finance staff increased understanding of AI will also be critical in ensuring the proper security, controls, and appropriate use of the technology.

“As businesses are under pressure to grow revenues while expanding margins, it’s clear that finance teams will be a driving force in that effort,” said Stirrup. “The world runs on data, and organizations that can quickly learn from and execute on it—through the right planning and analytical tools, cloud technologies, and the efficient application of AI—will be the ultimate winners.”

AI depends on data. With Oracle Fusion Cloud ERP, companies have a centralized data repository, giving AI models an accurate, up-to-date, and complete foundation of data. With a complete, cloud ERP system that has AI capabilities built-in, finance teams can get the data they need to help increase forecasting accuracy, shorten reporting cycles, simplify decision-making, and better manage risk and compliance. With Oracle’s extensive portfolio of AI capabilities embedded into Oracle Cloud ERP, finance teams can move from reactive to strategic with more automation opportunities, better insights, and continuous cash forecasting capabilities.

Conclusion

One distinct benefit of People, Ideas & Objects will be our ability to determine the data elements and their appropriate management, storage, and process requirements. While each producer must undertake this task individually, we only need to do it once on behalf of the entire industry. These substantial savings are then distributed back to industry when they’ll not have to conduct that work. This highlights a significant future management question for the industry: how will it be done?

People, Ideas & Objects offers our Preliminary Specification as an alternative to the current status quo. Producer firms, whose officers and directors have ignored this well-known Information Technology difficulty, now face substantial problems. They haven’t asked where to start or how to resolve these issues, instead they’ve dismissed our warnings. We propose a solution that will save them time, effort, and money in the long run. As a result they are not authorized to use any of our Intellectual Property. It belongs to us, and we intend to use it to rebuild the industry appropriately after current leadership abandons their posts. If they do use our IP, we will ensure they cease and reverse any of their unauthorized use.

This discussion does not address the structure of producer firms or the significant issues such as a chronic lack of profitability, lost natural gas revenues or exclusion from LNG markets. The myriad details they will face in managing and interpreting their data will cause continuous difficulties, resulting in wasted time and further financial losses. We believe they promise no future.

Our approach has always been to start with a clean slate, focusing solely on how to best manage the industry for the next 25 years, and to do so profitably. If our Profitable Production Rights seemed implausible to some, consider the future potential for those who will finance the Preliminary Specification. They’ll own Profitable Production Rights in a struggling North American oil and gas industry and will have the exclusive right to process, assign, lease, or rent oil and gas production through the Cloud Administration & Accounting for Oil & Gas system they financed.

They say you should be careful of what you wish for. In 2024, maintaining a lack of accountability to shareholders was popular at the annual general meetings once again. Investors did not act to remove the failing leadership. Instead, they’ve left them to their own devices.

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.