Earning Season is Upon Us

It is this week that we will begin to see some of the producers report their earnings. Remember the line that will solicit our sympathies is “oh whoa is me.” There will be nowhere to hide the scope and scale of the difficulties producers will be reporting. The loss of any material hedging expired in June 2015 and it is believed that only 11% of production is currently hedged. If you were, or expect to be, laid off, have invested in these firms or are actively cannibalizing your service industry firm. Make sure you show a little sympathy for the bureaucrats who brought us to this difficult and unnecessary place.

There does not seem to be an end to the drop in commodity prices. Natural gas prices will see a significant step downwards towards the end of next week. That is when the natural gas storage facilities will be full and there will be no place to put the excess 14 - 15 bcf / day that is currently going into storage. The other aspect of natural gas prices is that the bureaucrats either felt embarrassed about the fact that they were praying for a cold winter a few years ago. Or maybe with all the work of putting the boat back into storage for the winter. They seem to have forgotten to pray for a cold winter. Whichever, it was recently noted that the long term forecast is for a very mild winter this year. Certainly won’t do anything for the demand of natural gas or its price.

When we see the financial reports for the third quarter I think people will be shocked that producers have been continuing on with such poor financial performance. Why would you continue to produce if you were losing such large amounts of money? There won’t be any earnings. There won’t be any positive margins. There never has been positive cash flows from operations. The producers will have been burning cash in the process of producing and even that didn’t stop them from continuing. And don’t expect them to change. What we will see is a number of producers cut the staff right to the bone due to the lack of cash. Even when these firms were “healthy” they had no working capital. The industry for the last ten years has lived off OPM. Other people's money. And there is none of that anywhere. The companies in other industries that have already reported in the third quarter of 2015. Who were losing money have been dealt with very harshly by the stock markets. The oil and gas stocks are rallying in anticipation of good news, it therefore might be a good time to sell.

The concept of an industry raising its own cash from operations to fuel its capital expenditures is so foreign a concept that we won’t even go there. The idea is to produce. And do we ever have a lot of that. To offer an idea that would mitigate the issues that the industry faces is the wrong thing to do. Trust me I know. These bureaucrats have it well in hand. Is it surprising to anyone that I have not received one call from any of the bureaucrats? They know what they’re doing and they will be the ones to ride off into the sunset. Remember what we stated yesterday, bureaucracies do fail and when they do, bureaucrats skedaddle. An element of moral hazard at play.

The trick is not to think of the loss of these shale reserves in terms of the waste and destruction of good valuable property. $0.66 that the Marcellus producers were getting for their gas last week is of value! Who’s to say that that’s wrong? The decline in commodity prices have happened before and the bureaucrats have been able to turn things around by doing nothing before. So have some faith!

On top of all these self inflicted difficulties it seems that the economy is taking another dip into the recession category again. People are seeing that interest rates are going to go up in the next few years and are concerned with how they will pay for their debt service costs. Therefore they are starting to hoard cash. Here’s a tip if it ever happens again. If someone offers you a half million dollar mortgage make sure you run in the other direction as fast as you can. In Calgary there are probably about a million mortgages of that size. Just a thought. The idea since 2008 should have been to pay the debt off, not acquire more debt. The point here is that the demand for oil and gas, on a global basis, could decline if we do fall into a recession. It just gets better and better for these bureaucrats.

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

Langlois on Chandler

I went through some of the earlier posts on this blog looking for a reference to Alfred Chandler’s comments about how the bureaucracy had failed before. It was through a couple of posts that I was able to pick up a couple of interesting quotes from Professor Richard Langlois who has made Chandler a key area of his study. I can remember those days doing the ten years of research that are codified in the Preliminary Specification. I nearly broke my brain, some may think I did. Whichever the case, the work is done and the product can build value for the industry, the people that work in the industry and society in general.

The references for today come from Professor Richard Langlois in his book “The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy.” From it I summarize the process of how a different kind of failure could occur in the oil and gas industry today.

• Management have little to no stake in the producer firms. 
• If a crisis were to strike a firm, the management would resume elsewhere. 
• It is the investor and debt holders who would shoulder the costs.
• Management currently hold the reigns, and are mindful that their options may lay elsewhere. 
• Ownership, in the same fashion as the Merchants will need to start over. 
• Starting over begins with supporting People, Ideas & Objects, our user community and the service providers.
• Chandler noted that management have failed before. 
• During the great depression. 
• A time when government had to increase its involvement in the economy.
• Management may not see the more global picture, and therefore, may fail again.

Today there is a clear global picture. Shale based reserves have changed the dynamic in the industry. The global picture can be seen by everyone. What is unknown is why the producers don’t act to mitigate the overproduction in the commodity marketplace. I have asserted repeatedly that the ability for producers to know the actual costs of any property is unavailable to them. Therefore they can’t answer the question of which properties to shut-in. They also have to cover off the costs of their high overheads. Overheads of approximately 25% of revenues that would seem disproportionate at anything other than full production. So they produce. See if you can spot the similarity in what Professor Langlois notes here.

Indeed, traditional command-style economies, such as that of the former USSR, appear to be able only to mimic those tasks that market economies have performed before; they are unable to set up and execute original tasks. The [Soviet] system has been particularly effective when the central priorities involve catching up, for then the problems of knowing what to do, when and how to do it, and whether it was properly done, are solved by reference to a working model, by exploiting what Gerschenkron ... called the “advantage of backwardness.” ... Accompanying these advantages are shortcomings, inherent in the nature of the system. When the system pursues a few priority objectives, regardless of sacrifices or losses in lower priority areas, those ultimately responsible cannot know whether the success was worth achieving. The central authorities lack the information and physical capability to monitor all important costs—in particular opportunity costs—yet they are the only ones, given the logic of the system, with a true interest in knowing such costs. (Ericson, 1991, p. 21).

It is here that Langlois best describes the futility of our current pursuit of “best practices.” The inability to know the costs, and particularly the opportunity costs, is also a prevalent issue with the producers. These producers opportunity costs are our value proposition. The loss in value of the oil and gas commodity prices as a result of overproduction and the inability to do anything about it. So what can we do about it and how can things change. And it is on this point that I think history will provide us with the best answer.

The first, and most obvious, point is that it was an outside individual, not an organization, who was responsible for the reorganization of the industry. Lazonick is right in saying that genuine innovation involves reorganizing or planning (which may not be the same thing) the horizontal and vertical division of labor. But it was not in this case “organizational capabilities” that brought the reorganization about. It was an individual and not at all a “collective” vision, one that, however carefully thought out, was a cognitive leap beyond the existing paradigm. If SMH came to possess organizational capabilities, as it surely did, those capabilities were the result, not the cause, of the innovation. p. 46

I see this as a strong endorsement of this community to work within the Preliminary Specification and build out the software necessary to run the industry. This is how it has been done in the past and will be done in the future. I am not aware of any other ideas that exist in the marketplace today. Based on the amount of time that I had spent developing the Preliminary Specification, do we have the time to take any new ideas to the level that the Preliminary Specification exists today?

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

Third Friday Off

A Sad State of Affairs

Natural gas prices in the Marcellus region reached as low as $0.66 last week. A clear indication to anyone, that after almost six years of very low natural gas prices, bureaucrats won’t, can’t and will not ever change. The Marcellus region represents 28% of all of the natural gas that is produced in the U.S. What should also be clear to the people who are being laid off, the investors who were told that gas had value, and the service industry that is being forced to work for their meals is that they are not the concern of the bureaucrats. They quite obviously could care less. What is this mindset of a bureaucrat to produce at any price? Certainly there are hedges and other financial devices used by bureaucrats. However, look at the business, it is suffering from a small amount of overproduction that is causing massive price declines! Dumping product onto the market at $0.66 is what a fool would do.

What is needed is the change to the Preliminary Specifications decentralized production model. Enabling the price maker strategy. This is the only way in which the industry is going to get out of this difficulty. It may be radical surgery, but the cancer that is eating at the industry is certain to kill it. After six years of overproduction in natural gas. Where there is never any consideration that the industry is a price maker or a price taker. We find the producers dumping 28% of the natural gas. That’s 20 bcf per day on to the marketplace for as little as $0.66. What do we expect to happen in the future that will correct this situation? Why will this situation rectify itself? Why are we sitting around and writing in the quarterly reports “oh whoa is me?”

The plan is to wait until the reserves that the investors paid so dearly for are used up and dumped onto the market at $0.66. Then a gas shortage will occur and the bureaucrats will have their heyday once again where prices would skyrocket to who knows how high. This is called “rebalancing the market” by cutting capital expenditures. The most blunt instrument known to mankind. Its production that’s the problem, not the level of field activity. When natural gas prices skyrocket in this scenario. It will be “oh whoa is me” that the service industry is being greedy and lazy. That is both of them, because that’s all that will be left of the entire industry by then. And that they can’t find any engineers or geologists to run the industry. “Oh whoa is me.”

It’s almost a cycle. Predictable and automatic. The problem is the extremes are becoming more and more acute. Maybe I’m wrong but I don’t think we can have an industry that is this important to our society bouncing being the extremes of abundance and rationing. What we do know is the response to higher commodity prices will be muted due to the poor financial capabilities of the producers and their exceptional record with the investor class. As a result prices will go ever higher to the point where you’d be crazy not to be invested in oil and gas. This is when the bureaucrats can begin pouring the foundations for the west wing of their cabins. I wonder what I’ll be doing?

As a point of clarity. The other day we discussed how the surplus capacity costs of the producer weighs it down financially in the current high throughput production model. Citing the Nissan case as an example. Some people have asked why this doesn't apply in the People, Ideas & Objects Preliminary Specifications decentralized production model. It is because the costs of administration and accounting will have shifted from the oil and gas industry to the new sub-industry we call the service providers. It will be the service providers who will shoulder the administration and accounting costs of any shut in production. And will understand that at any time their revenue streams may be cut by 15% as a result of shut-in production. As a result they will be able to control those costs. This providing oil and gas producers with the capability to be able to control their administration and accounting costs without having to lay people off.

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

Growth vs. Profit

In the Preliminary Research Report which was published in August 2003 as a proposal to the oil and gas industry. I included the following.

Organizations require a new means of competitiveness for operating in the global economy. The standard operational strategies (focused on growth) are now limiting, and possibly exposing major societies to economic decline. It is this author’s opinion that growth should not be an objective, but is something that occurs as a result of doing the right things correctly.

Growth has been the guiding force behind most company's strategies since the time that I wrote that. Certainly everyone wants to get bigger, but how? In oil and gas you simply step on the treadmill and begin the process of meeting the production targets that you set out for yourself. It’s that simple, and that destructive. No one asks, what value are you providing? It's just an activity. There is no thought into how the process of being an oil and gas company will make money. You will annually stand up in front of the people who give you the money that you spent and state that you made your production targets. In a world where the SEC allows you to record the sum total of all of your oil and gas reserves, times today’s oil and gas prices as the asset value of the company. You will never be faced with the day of reckoning when you will have to account for the performance on the money you spent on capital to drill the wells and build production facilities. That is until the difficulties of the 2008 financial crisis and shale reserves conspire to make your life miserable.

Your production targets are throwing more fuel on the fire of overproduction. Not the solution to the problem, or building any value, commonly known as profits. Change is not the domain of the bureaucrats in any business or government. Technology is the great equalizer in terms of disrupting the status quo and flipping tables over at the wedding reception. And you know that I am truly sorry for having to be the one to do this. ;) Growth is providing no value for anyone anymore. We need to focus on the value that we can provide to society. The investors, service industry, people who work in the industry and the energy consumer. Which by the way all pay taxes. Under the current administration we are growing, however only the bureaucrats and consumers are happy.

It will be the domain of each and every user community member that we are providing the oil and gas producer with the most profitable means of oil and gas operations. This is the basis of how People, Ideas & Objects are different and how we will achieve the development and delivery of value to the stakeholders that are involved in this industry. If growth is profitable then growth will occur. Otherwise the situation will remain the same.

Apple is a company that I point too to show the differences in the concepts that I am making. They don’t do anything unless it's profitable. And yes, they are profitable. From imminent bankruptcy eighteen years ago to being the largest company in the world came about by focusing on the value of what they were doing. Why would you do anything else? And for example Apple’s market cap is in excess of $600 billion yet their capital assets are only $33.1 billion. If they were an oil and gas company they would have capital assets in excess of $1.8 trillion. And their capital asset balance is low because they move their capital assets off the balance sheet as quickly as they can to properly evaluate their performance and lower their taxable income. You will note that their balance sheet, as a result, is stuffed with $230 billion in cash. That would be the natural outcome of a high performance organization, wouldn’t it? Collecting capital assets on jumbo bloated balance sheets as it’s done in the oil and gas industry is a con game that’s coming home to roost. Trust me.

I know bureaucrats don’t want to listen to me discuss the issues in the manner that I do. I don’t care. We’ve had our good times over the past decade and I really enjoyed them. The party is over and I have to move on. The bureaucrats seem to be stuck forever in a world that started in 1950 and there is no hope for them. My appeal is to the people who invested that money with them. And generally they think I’m too kind.

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

Bureaucrats Have a Plan!

“Wake the kids and call the neighbours.” That’s right the bureaucrats have a plan. As far as I can tell this is only on the natural gas side of the business, but we’ll see. After six years they decided to get off the couch and actually do something. Here’s how it goes. Natural gas deliverability in the U.S. has stalled at around 72 bcf / day. We have all heard that producers are still drilling natural gas wells however they are not completing them. Most of the wells are in shale reservoirs. This backlog of uncompleted wells is now estimated to contain approximately 18 bcf / day of potential deliverability. What the bureaucrats hope to do is to wait until the current deliverability begins to decline, draw down the storage volumes, and then put upward pressure on the price.

This is almost an admission that oil and gas producers are price makers! But not so quick. There are some significant holes in this plan and they will not succeed in making it work. The first issue is the discipline necessary to ensure that the most profitable production is produced, and only profitable production is produced. This discipline of course doesn’t exist. They are still in what I would call a “growth” based economy, not one that is motivated on profits. We’ll discuss that point tomorrow. For all we know the 18 bcf of deliverability is potentially the most profitable production out of all of the 90 bcf.

As soon as the natural gas prices begin to move up, what do you think the producers will begin to do? Rush to put their inventory into production. This is due to the fact that they have done nothing to their cost structures. All of their overhead that is necessary to produce that 18 bcf / day is currently being incurred. What they need is the decentralized production model which turns all of the costs of the producer into a variable cost. Then if the producer produces nothing, they have no costs. If they produce at 80% then they will have that level of costs incurred. What they currently have is an expanded capacity. Some of that expanded capacity is not utilized. Therefore the costs of that expanded capacity are not being covered at all. This is one of the key issues of the high throughput production model.

Back in the mid 1990’s Nissan decided it needed to position itself for a substantial increase in its market position. It therefore undertook a substantial expansion of its manufacturing capacity. It doubled its capacity in terms of the number of cars that it was able to produce in a few short years. There was a subsequent recession and they were forced to idle up to 50% of their plants. For the short time that those plants were offline, I recall it was less than two years, it almost bankrupted them. The costs to carry the additional idled capacity was too much. And the company was taken over by European car manufacturer Renault. Our friends the bureaucrats, by expanding the deliverability of the industry, and idling that deliverability have only increased their costs with no additional revenues to cover the overheads. The high throughput production model requires full production to cover off the high overheads. Idle capacity is one of the highest costs you can have in the high throughput production model. And a cost that doesn’t exist in the Preliminary Specifications decentralized production model.

I know I get the argument every time. Oil and gas producers have 5% of their revenues as overhead. And I ask, do they? Look seriously at any report and you will find that is not the case. Yes they are expensing 5% as their G&A. However most, that being 75 to 80% is being capitalized. Meaning that the actual overhead is upwards of 20 - 25% of revenues. It is these fixed costs that will not be incurred in the decentralized production model on any idled capacity. They will be variable costs based on the profitable production profile of the producer.

As producers find their cost structures expanding without any associated revenues. Unable to raise money from unhappy investors. Bank credit lines cut. Where will they turn to find a quick source of cash to finish out the end of the year? You earn two points if you said putting that idle capacity back on production. Without the discipline to produce only profitable production, something that bureaucrats don’t understand or appreciate, they will never have this plan succeed. To adopt the profitable discipline would require that they first catch the religion and deal with those bloated balance sheets. That’s when you’ll know we are beginning to see the end of oil and gas overproduction.

Maybe this plan from the bureaucrats was motivated out of desperation. A fear that they might lose their cozy spot on the couch. I’d like to think it was as a result of the work that we are doing here. That we’re having an impact in the marketplace and maybe showing the way for the producers through a very difficult time. The problem is you can’t tweak the high throughput production model with elements of the decentralized production model. You have to pick one and use it. There are no hybrids. So tell the kids to go back to bed and the neighbours to get out of your fridge. There’s no news here.

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

Canadian Thanksgiving

And a day off.

Oh Whoa is Me!

When we last went through a protracted downturn in the industry. It was as a result of low commodity prices. It seemed to last for decades and it had a significant effect on the people that worked in the industry. What really stands out in my memory though is the quarterly reports that were published by the producers during that time. “Oh Whoa is me!” From the front cover to the back. In every document the same things were said. “The gas bubble in the U.S.”, “the Saudi’s” that. It was obvious to me what the problem was and the producers only had to hold back some of their production in order to correct the market. When you mentioned this, they always said you go first. I think that the chronic complaining will resume in earnest this quarter with plenty of pain and misery to be distributed. As we have experienced, nothing changes in oil and gas.

One thing is different this time. The people I know are not in their thirties with small kids and mortgages living from day to day hoping not to be next on the chopping block. They are now in their late 50’s and early 60’s. And are eagerly waiting for the chopping block. This of course is good for them, however, I question the wisdom in watching so much experience walk out the door. My own kids are in their mid 20’s. Both with good educations. And I have to say they are experiencing a job market that is about is good as when I entered the oil and gas industry in 1977. The primary requirement being a heartbeat. Neither of them is in the upstream oil and gas sector. And none of their friends who were in petroleum engineering or geology found work upon graduation, and are working in other industries or are back in university. You do reap what you sew.

Some of the producers proudly point out to me that they are profitable at these current commodity prices. That all the field service industry providers and engineering consultants are offering to work at substantially reduced rates in order to keep the lights on and the business functioning. When I point out that they’ve never been profitable in the past ten years and that all of the costs on the balance sheet need to be accounted for. They state these are sunk costs and are not to be considered at this time. I would ask, when exactly do these sunk costs ever get considered? There is an attitude here in Calgary that the pain will be felt by other people. The investors who never see returns, the service industry that has to cannibalize itself to survive and for the people who work in the industry. And this is the way in oil and gas.

We’ve learned that this is the way that the industry does operate and no one has stood up to the producers and suggested that it’s wrong. Well I am stating that business as usual is wrong. The muddling along waiting for commodity prices to rise, so the party can begin in earnest again is foolish and irresponsible. You are price makers and there is a solution called the Preliminary Specification. The industry needs to be managed professionally. We have a job to do in the next 25 years and there is no way in which we are going to approach it from the base of the industry in the condition that it’s in. In the past couple of weeks I have published a number of posts that end with the words embrace it. These represent fundamental changes in the industry that need to be accommodated now. We have to start getting our act together so that we can deal with the difficulties that will be upon in as little as five or six years.

Where will the investment dollars come from when the investors have had enough of the abuse from this business. Where will the innovation come from when the field service industry providers are begging for their next meal. And who will provide for the day to day management of the industry when everyone who cares and understands about this business has moved on to their retirements. All because this is the way the business operates? And now we are about to hear a chorus of, “oh whoa is me?” If I sound frustrated raise your hand.

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

Our Value Proposition, Embrace It

We have fallen into a trading range on the oil and gas share prices prior to the second quarter reports. Nobody wants to take a position as to which way the industry is going to go before the news of the quarterly is out. Will this be the bottom? How bad will it be? Or are there more surprises in store for the beat up and abused oil and gas investor? It might be a good time to note that since oil prices began their fall last year to today. The loss in market value of the producers in terms of their stock prices is in excess of $700 billion. Not bad work considering they weren’t even trying. As we have asserted, producers could reclaim this value if they had a plan on how to retrace the oil and gas price declines and begin to constructively approach the next 25 years with a plan. A plan that doesn’t include shrugging of one's shoulders and silence. If only a plan such as that were to exist! Then the reclamation of that value and subsequent stronger footing of the industry would make them look like genius’.

But that’s not all. If you took the present value of the difference in oil and gas prices under the current administration policies of shrugging and silence. And employed the Preliminary Specification which includes as one of its many features, the price maker strategy. You would have on both oil and gas a differential that totals $5.7 trillion in incremental value. And those are pure profits. Already People, Ideas & Objects are up to $6.4 trillion in incremental value and we’re just getting started!

It is our argument that oil and gas producers have bloated balance sheets. Obscenely bloated. To the point where they essentially never recognize the capital costs of any of their operations. Their capital costs just sit on the balance sheets for eternity to pass. And everything that the producer touches is capitalized. And I mean everything. All of the staff in the buildings downtown. They’re included. The accountants and administrators too. Everybody. This is what the SEC calls full cost and successful efforts accounting and they introduced these methods in the 1970’s. Don’t be surprised if many producers still have capital costs from the 1970’s on the books. The issue is, with everything being capitalized, and nothing being recognized as a cost in the current year, other than a minor slice. These balance sheets have grown to ridiculous sizes and the year over year earnings that are reported by the producers are therefore highly overstated because they are not recognizing the appropriate costs.

This overstatement of earnings is so bad that they believe that as long as the producer has good cash flow, that’s all that is required. Not that this is a bad policy, it's just what they also believe in bankruptcy court of a client company in that state of disrepair. Included in those cash flow numbers of course is the annual stock offering to cover the costs of the operation. Are we beginning to see the circular referencing here? Now you have a generation of engineers and geologists who have been raised in this environment who are running the show. They don’t see the issue here as I do. This incineration of capital as an exercise has been one of the primary reasons for the overproduction in the industry. There is nothing stopping anyone from launching a successful oil and gas operation as long as they can talk a good game. That is until the overproduction that is triggered by shale formations.

If you agree with me to this point that the oil and gas producers are bloated with capital assets on the balance sheet we can continue with the determination of People, Ideas & Objects value proposition. These capital assets are sitting on the balance sheets of the producers and under the Preliminary Specification they will be moved to the income statement within a very short period of time. Recognizing the cumulative incineration that’s gone on in this industry over the past decades. How much of this capital remains, I don’t know but I’m going to estimate it at $5 trillion. In recognizing these costs we are able to shift them to either recognize the cumulative loss or generate high enough prices to return the capital to the shareholders. In the case of cumulative losses, they remain available for future profits to be offset and those funds to be returned to the shareholders also. The point is to get these costs off the balance sheet, let them flow to the income statement, where in the Preliminary Specification price maker strategy they will be accurately priced, and then the returns provided to the shareholders. Already we are up to $11.4 trillion.

Speaking of capital, the amount of work that needs to be done in the next 25 years is going to be substantially more than at any other period in the life of the industry. A given. Where this money comes from will have to be the investors. That is if we can convince them that the industry is a profitable place to invest. In order to do that we are going to have to give them a return of their capital and return on their investment. That means we are going to have to also quickly write off any future capital expenditures to the income statement in a timely manner. All of it within three years I would suggest. That way the return of capital to the investors can be done. And the earnings will also need to flow to them. If we are expected to spend $20 to $40 trillion in the next 25 years that makes our value proposition range from $31.4 to $51.4 trillion.

This will require higher commodity prices. Much higher prices. Consumers of oil and gas are going to have to live without the subsidy from the investment community from this point forward. They will have to pay the full cost of the oil and gas commodities and that can only happen in one way. And that is through the implementation of the People, Ideas & Objects Preliminary Specification, user community and service providers. Just curious, what are the bureaucrats offering you.

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

Intellectual Property is King, Embrace It

Throughout the development of the Preliminary Specification, the user community and everything to do with People, Ideas & Objects. Intellectual Property has been a key element of our competitive advantage. Everyone who works within this environment will be licensed, or work for someone who is licensed to use this Intellectual Property. This in turn will secure their employment and business prospects on a go forward basis. We live in a world where the only worthwhile asset to have is Intellectual Property. We’re not there yet, but are we ever close. Now is the time to secure your future in terms of this new and exciting business environment that we live in. This can be done in oil and gas by joining our user community.

The Preliminary Specification states that it is one thing to own the oil and gas assets. Which the producers do today. What is also necessary is to have access to the Intellectual Property and software that makes the oil and gas asset profitable. To be honest this is why People, Ideas & Objects has not been funded yet. Our Intellectual Property is the eight hundred pound gorilla in the room. When I had the difficulties that I had with Oracle in 1997 it was inconceivable to me that I would lose the work that we had done. I owned the Intellectual Property. What I didn’t realize was it was the wild west in terms of how Intellectual Property was dealt with in business and there was nothing that could be done. Today you can look at any situation in any industry and see the origins of the product coming from many years of Intellectual Property development. That is the one big difficult aspect of Intellectual Property. It takes a lot of time, you have to be right and it costs a lot of money.

It’s no longer the wild west. There were many times in which the bureaucrats worked together to try and take the Intellectual Property that is the Preliminary Specification. The most recent was last year through Ernst & Young and Oxford Institute for Energy Studies. There have been so many attempts, they probably are beginning to realize that this fight is over. What should be particularly galling is that I originally approached the industry on the basis of establishing a research firm based on developing the IP with their resources. Which would have made the IP thiers. They said they didn’t work with small research firms.

Continued argument about this a futile exercise. Many years ago I sent an email to all the CEO’s in the industry. Stating that they should not use my IP. I am reiterating that statement here and now. Don’t use my IP. Think about the implications of this. Your CEO is a law abiding citizen who operates a lawful corporation. If you trick your CEO into using my IP, your company is mine. If you spend the money with another software developer to build the system anyway, it will never see the light of day. So you have two choices, that old standby you love to use every minute of the day. Do nothing. Or work with the guy who screams at the bureaucrats five times a day.

Today Intellectual Property is the basis of any industry, and it is a fool who thinks otherwise. There are a lot of foolish bureaucrats in oil and gas. They would rather be unprofitable than accept the Preliminary Specification and the implications that they lose the power and control of the industry. We’ll see how long they can hold out. As I mentioned the establishment of IP in industries has been made. We, as of last week, began the movement to the next phase of the development of IP in the business world. IP as a competitive weapon.

Other than Steve Jobs who understood Intellectual Property better than anyone and developed the largest software company in the world. The next individual in terms of their understanding of IP has to be Larry Ellison of Oracle. And he has stepped up his game in this area. What we are seeing are the small changes and minor tweaks to the availability and methods of management of the Java programming language. It would be my guess it will be removed from the enterprise marketplace in its entirety. And be very limited in any of the other markets. Oracle feels that Java is a cornerstone of their competitiveness and are not satisfied that it is available to their competition. Therefore if only Oracle and Oracle customers, such as us, are able to use Java in the development of applications, then competitors will need to use something else. And to be quite frank there is nothing else.

The Supreme Court would not hear Google’s request for an appeal of their litigation with Oracle. We haven’t heard if Google paid the many billions of dollars in penalties or if they have a license to use Java, yet. The moral of the story is, I think, don’t buy an Android phone. It may not be working very soon. I also think Oracle is using the Federal Government to remove Android from the marketplace. We’ll see.

This is the world that we are going to be operating in in the very near future. Well actually this is happening as we speak. So brush up on what IP is and begin ensuring yourself what it is that is required in the future to secure your commercial and employment opportunities. We have many here at People, Ideas & Objects. The only requirement is, and it is a stiff requirement, that no bureaucrats need apply.

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