Accounting 101

I’m not satisfied that I’ve communicated the scope and scale of the problem that the oil and gas industry faces. It's difficult to express the impact these accounting policies have had on the culture of the industry over the past four decades. These issues will not go away by themselves either. Market rebalancing will never provide for the return of a profitable industry. An industry that operates on the basis that all of its costs are capitalized will always appear to be profitable. That is the bureaucrats motivation. Any revenue you do generate will be offset by little to none of the costs that are left and a small allocation of the capital costs based on the production realized over the total reserves. A fool would be profitable in oil and gas. Based on the financial statements of a producer, you don't know if the producer is run by fools or geniuses. It’s becoming well known in the industry that the North American oil and gas industry is not a viable industry today. It’s also becoming known that it may not have been viable at any time in these past few decades. My narrative is resonating.

In addition to recording profitable operations, capitalizing everything under the sun creates balance sheets that are bloated with those assets. The sad thing is these are considered healthy in the oil and gas industry. These are only testaments to the spending festival that has taken place within the organization. A healthy balance sheet will be composed of predominately liquid assets that have the capacity to be deployed. Sitting with big balances of capital assets have only allowed the annual funding of additional capital from investors and bankers to appear that the producer is reasonably capitalized between debt and equity. The fact of the matter is those capital assets are limited by SEC regulations to be below the total of the reserves as determined by the independent engineers times the market prices for the commodities. Or, the total gross revenues of the firm in its remaining lifetime. A ridiculous and unreasonable method of valuation. And remember it's these assets that are being written down in the impairment charges by the auditors.

What would you do if you were approached by a businessman who wanted you to invest in his real estate business. And when you looked at the balance sheet saw that it was a significantly sized operation and very profitable, only to find out later he recorded the asset based on the 100 year life of the building times the monthly rental they received. You’d run! That’s what I would do. What’s happened in the last four decades is a stampede of investors trying to catch the profits and gains that were being reported in the oil and gas industry. And in some cases many people made money. It’s important however to segregate trading gains on a stock market and what‘s happening in these organizations. The organizations were all overspending their investors money and generating overproduction that lead to lower commodity prices. This is what happened in the late 1980’s and 1990’s and the producers were incapable of doing anything about it. They just muddled along waiting for the market to rebalance. Which did happen after a few decades.

Market rebalancing will not function at any point in time with shale based reserves being part of the makeup of the industry. Production discipline has to be implemented through the decentralized production model of the Preliminary Specification. I undertook to solve this industry issue before the shale reservoirs were discovered as it was evident to me well before then. Now it should be clear to everyone that the business model is incapable of providing any value. When I look at an oil and gas producer I generally wipe out the property plant and equipment off of the balance sheet to determine how they will be configured to approach this new shale based environment. Move those capital costs to the income statement where they belong and see how the producer survives. Not many producers can stand to have this treatment done and reflect a viable going concern. Only the majors are really able to see their way through to a new future in the industry. The rest of the producers generally have negative working capital and are heavily indebted. Some may think this is an unreasonable approach. I think it's highly appropriate. If you look at the assets of the producers today, are they generating any value, or pulling the producer under? What would the present value of these losses generate in terms of an investment's market value. That, I think is how the industry has to be perceived in order to reconcile the difficulties that it’s in and to put itself back in the position of being considered a viable going concern.

Accounting is about performance. Measuring it and making it comparable between organizations and other industries. Investors have believed that oil and gas was like other industries and were being accounted for correctly. They were accounting for it correctly under the guidelines, just the SEC has this manner that they allow for oil and gas and disallow for every other industry. If an organization tried to do this type of accounting in any other industry the SEC would shut them down within a minute. The inconsistency and conflicting principles here need to be reviewed and revised. Investors have to be told the correct story and the producers need to understand their performance based on a reasonable basis. The fantasy accounting that has gone on in oil and gas for these past four decades has become culturally ingrained and is destructive to the core. It must stop.

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. 

A 1950's Wildcatter's Vision

Natural gas was selling for $0.55 in Canada last week. Storage there is at 91% and the demand from the heavy oil plants declined due to the fires. If anyone thought that producers couldn’t earn a profit at $0.55, we all know now they were wrong. Bureaucrats can’t, won’t and will not ever change. They just don’t care. We need to make the change for them by implementing the Preliminary Specification despite them. It is the only way we are going to save this industry from this madness.

Last week on Bloomberg T. Boone Pickens was interviewed in Las Vegas. He made a couple of points that I found to be noteworthy. The first was that he felt that the Saudi’s were probably unable to increase production from their current levels. Recall the Saudi’s have stated they will increase their deliverability by two million barrels per day to match Iran’s increases. I guess Mr. Pickens has some insight that the Saudi’s aren’t aware of. The point I would make is this is just a case of he said, he said. And what Mr. Pickens wants us to do is to wait it out the few years to determine who’s right. It will be during those years that we’ll see continued destruction of the North American industry as a result of $0.55 gas. Think of all of the time, money and energy that will have been wasted picking sides in who might be telling us the truth.

The second thing that Mr. Pickens stated was that he had drilled a well last year that reached payout in nine months. That he was not going to drill an adjacent well there until the price of oil reaches $60.00. This is so typical of an oil man, it sounds just as they did in the 1950’s. Payout is the term used for the time in which the capital costs of the wells drilling, completion, and equipping costs have been recaptured from net revenues. A period of time that is a very high cost operation that lasts as little as 10 days. We should also include in that calculation the costs of the organization that exists to administer and account for that well. Which was purposely built at significant cost, and was paid for during the entire nine months, and is still incurring costs day after day. We should note too that not all wells are as successful and there are other capital costs involved in gathering, processing and marketing of oil and gas. And we should also include all of the engineering and geological costs that went into the development of the drilling of that location. These costs didn’t seem to resonate with him that they needed to be paid as well. And if this well had these costs allocated to it I doubt it would have reached payout in a three to four year time frame.

It's time to stop thinking of this business from the 1950’s version of a wildcatter’s eye. Unless Boone Pickens is willing to go on Bloomberg with the classic 1950’s tin hard hat and be smeared with mud and oil. That image, and that way of managing the industry has died. The fact that the industry hasn’t realized that and is still slow walking itself into oblivion is the issue that we see today. There are more costs involved in this business than what are being reported by these producers. These costs are all capitalized on the balance sheets, including capital, interest and overhead, and left to balloon to unreasonable size and never, ever hit the income statement. The costs go in, but never come out and are never talked about. If the SEC didn’t state that this was the prescribed method you would need much bigger prisons.

The Preliminary Specifications decentralized production model corrects this behaviour by considering all of the producers costs at each and every Joint Operating Committee. We use the Joint Operating Committee as it is the legal, financial, operational decision making, cultural, communication, strategic and innovation framework of the industry. By moving the compliance and governance framework from the hierarchy into alignment with the seven frameworks of the Joint Operating Committee we achieve a speed, innovativeness, accountability and profitability in our oil and gas producers. We also say so long to the bureaucrats.

When we use the service providers for the administrative and accounting capabilities of the industry. Those service providers charge for their services directly to the Joint Operating Committee. Giving an accurate accounting of the costs of the operation of that Joint Operating Committee. And if the property is shut-in for the month, then the service providers will receive no information from our task and transfer network that will trigger any of their work, and hence no billings for any administration or accounting services will be sent to that Joint Operating Committee that month. A property that is shut-in is effectively a null operation, no profit but also no loss. Enabling the price maker strategy of our decentralized production model to take effect based on the individual decisions of the producers at each and every Joint Operating Committee.

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. 

Did You Hear the Story About...

What should be clear to everyone is that the bureaucrats are fine with the situation as it stands today in oil and gas. Biding their time only becomes a challenge when they have to face the shareholders in the Annual General Meeting. They’ve published their first quarter reports. Most of the Annuals for 2015 and the meetings themselves have been put away, only the majors and a few independents are left, and then they’ll all be home free. Such are the stresses and strains on the bureaucracy in oil and gas. It’s summer, and other than that blogger, who cares about the business. It's time to relax and enjoy ourselves. That’ll be the operating strategy for the next eight months for our good friends the bureaucrats. The logistics of managing the cash balances will be left to those that are still grateful they have a job.

I have to say that I was disappointed in the quality of the accounting for the first quarter of 2016. To me it reflected two distinct trends. 1) By publishing the accounting information only created problems for the bureaucrats. 2) Therefore there was a narrative that was otherwise not told. What I saw that led me to these conclusions were the volumes of MD&A that were provided. And to contrast that, the brevity of the actual financial statements. In one case I was unable to secure the Statement of Changes in Financial Position for a senior Intermediate. MD&A are not standardized reporting that are subject to audit. They are a story that management are attempting to tell the investors. In times such as these there are stories that can be told. Much time and effort was spent in preparing the MD&A and shrinking the financial statements to irrelevance. What we need are the full financial statements that qualified investors can compare and contrast between producers and between other industries. That is the purpose behind standardized accounting that is audited or will be audited. Not to tell a story but to make the information comparable.

The interesting news that will be out today is PennWest’s first quarter 2016 earnings. If you want to know what is going to happen to the industry in six months, just watch PennWest. They have been trading around a $1 for the better part of a year. When a producer runs out of cash. When the have no capacity in their working capital. When they have no investors buying the story, when the banks say so long. Your stock drops to around 5 - 10% of what it was. Expect to see this happen to many of the producers more often in the next year. The issue with PennWest is they have $88 million in debt payments to be made in May 2016. No money and no capacity to pay. They are trying to sell their crown jewels in terms of properties. However, I would bet that as soon as that money hits the bank account, the bank itself will seize those funds. Leaving PennWest with less revenue from those properties to live off of next month and defaulting on those May debt payments. Trouble with a capital T.

But then “market rebalancing” could turn the industry around and I might be wrong about the level of destruction that has occurred in the industry. Maybe the investors will realize the bureaucrats are such great guys and give them the money they need to weather this storm. I’ve been wrong before. The fact of the matter is that this will not end. Whether we continue down this road at the speed that we have been these past six months. Which has been pretty fast. Or we take a longer road to armageddon, armageddon is where we are headed with these bureaucrats.

In retrospect it's been a great time to be an oil and gas investor. Companies such as Chesapeake are up over 400% this year. Which is symptomatic of the entire industry. Some may herald this as a sign that things are improving, which would be understandable. I see this as the ultimate opportunity for anyone still around to get out. There is nothing here for anyone but the bureaucrats. This is a classic dead cat bounce and I can’t see anything that has changed in the marketplace. No one is discussing the fact that natural gas storage is going to breach the storage facilities in July or August. Which is bearish on the prices in the short and long term. And no one is discussing the new Saudi strategy that matches Iran’s increase in deliverability in their head to head battle over new customers. “Market rebalancing” will need to continue, therefore, until the North American producers lose another 4 million barrels of deliverability before it works. It’s good to be a bureaucrat, clearly the issues are too big to deal with, best to just sit back and enjoy the summer.

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. 

A Producers Plan of Action

The oil and gas industry needs to redeem itself in the eyes of those that have lost faith in it. Not an easy thing to do, and not an easy thing to do when we consider the current situation. We will need to trash the strategy that is in play, commonly known as “market rebalancing” as it is an irresponsible and foolhardy strategy to be pursuing. Destroying capabilities until the productive capacity of the industry matches demand will be a never ending pursuit with Iran and Saudi Arabia both increasing their capacities by 2 million barrels per day. It's not only the lost productivity that’s at issue, there are the investors losing their investments in all of the oil and gas assets as nothing else is profitable in the industry. The banks are never going to loan money to oil and gas producers again. And people will be seeking employment in other industries that have more security than a fly by night operation.

You do reap what you sow and now is the time to start thinking about the long term and how the industry will meet the consumers needs for energy. You’ll need to win back all of these people, the investors, bankers, service industry and employees. And they’ll need solid proof that you’ve found that old time religion. Profits, because an industry can’t live off of cash flow as a measure of its health. It needs profits. And we’re talking about the real, bankable profits that I’ve never seen earned in the industry in these past few decades. You’ll need, therefore, to base your accounting on something that is more reasonable than what has been done in the past. For as much criticism and blame that I have laid at the feet of the SEC for this current situation, they define the outer limit of what a producer can record as their asset balances. That doesn’t mean that each and every producer hits that limit each and every year.

Beg, borrow or steal the budget needed for the Preliminary Specification. The only way that production discipline is going to be implemented across the industry is through the decentralized production model of the Preliminary Specification. This will also institute the new accounting basis that enables the price maker strategy to be the foundation of each and every producer. It will be in that way a producer can temporarily shut-in any unprofitable production, save the reserves for a time when they can be produced profitably, cease to dilute their profitable properties by producing unprofitable properties, reduce the costs that the remaining reserves have to recover and allow the commodity markets to find the marginal cost. This will be the strategy of the industry as opposed to today’s destruction of the asset and ruining themselves financially in the process of “market rebalancing.”

Participate in the user community. People, Ideas & Objects Preliminary Specification is user based software developments. Active involvement will ensure that the unique needs of your assets are captured in the software and your company will be able to function with the software when it’s built. Bureaucrats have become adept at finding scapegoats to blame for their current demise. Blaming me for not building the software you need is not going to be my fault. It’ll be yours. And to the larger issue, the industry as a whole needs to start taking responsibility for the things that it does do. Those big boy pants are still hanging in the closet.

This situation will be many years of hard work in order to turn around the industry. Don’t expect any help from the investors or bankers that you may have had a relationship with in the past. They have memories. You’ll need to earn their trust back before they start answering the phone again. That’ll be by establishing a record of operating a profitable industry. The amount of damage that has been caused is so significant you can only begin to imagine. You will be alone in this and will need to suffer and sacrifice in order to rebuild this industry. But you know what they say, the struggle is the prize.

I’m sure people don’t like me talking to the bureaucrats like I do. What respect have they earned? Most of them will be leaving in the next year anyway, seeking newer pastures. This plan of action will be implemented by the new oil and gas leadership. One that is going to rise out of the ashes of what is left of the mess that exists today. We have a job to do, let's get it done.

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. 

We Make Shale Profitable

Looking at the first quarter financial statements of the producers is a dismal affair. The destruction has been comprehensive in this the first quarter of 2016. Bureaucrats should be proud. These producers have become comprehensive cash sinkholes extinguishing every dollar bill in sight. It’s systemic, particularly in the large intermediates, blowing any and all cash that was available. The sad situation is these producers are now sitting with no working capital and have nothing but their dismal revenues to keep the lights on. The amount of cash that is being generated by the business, if there is any, is so small as to meet only a small portion of the organization's needs. It appears that these large intermediates are consuming a quarter billion dollars each, each quarter. We didn’t have to go here, I was offering an alternative in the form of the Preliminary Specification for quite a while now. There is no one to blame but the bureaucrats for this comprehensive industry wide failure.

The dynamic of shale has changed the business from one of resource scarcity to one of resource abundance. The prolific nature of shale reservoirs will forever be unprofitable in the hands of these bureaucrats. Many have doubted me about these claims, however I think the evidence is in now. The SEC methodology of accounting created a bias toward overinvestment and overproduction in the industry. Adding shale to bad accounting is the same toxic mix of matches and gasoline.

Once these Annual General Meetings are over, the producers will have to turtle their operations. Hiding in their shells is about the only thing that is going to help them pass the days away. And there are many days ahead in which to get through. How they make each nickel scream blue bloody murder will be an art unto itself. You have to remember however, they will be doing this on top of the destruction that has already taken place. Some producers have been able to sell assets, however I think that season will be short and too painful to face. The banks take the money anyways. The fact of the matter is these next six months will be the point in time when they have indeed run out of options.

I think we have gone through the phase of the investor class known as the bottom feeders. Some companies were able to raise some money in the market these past three months at fire sale stock prices. I think even the bottom feeders have seen enough, it is however difficult to understand the bottom feeders mentality. Conventional investors in oil and gas gave up a while ago. Banks summarily gave up a month ago. Accounts payable are now extended into the annual instead of monthly time frames. Making life in the service industry impossible. These producers appear to be generating enough to make payroll but that’s about it. The choice will come down to do we support the field operations or make payroll? Either way their finished.

Bankruptcy assumes that you have a viable operation. That the organization just overspent and threw itself into too much debt and can’t meet its creditors demands. But the businesses in bankruptcy still generate enough cash in order to keep the lights on. Oil and gas producers may be rejected by the courts for bankruptcy protection. Their not a viable going concern that has a future, what will the bankruptcy trustees do with an oil and gas producer?

People, Ideas & Objects Preliminary Specifications decentralized production model makes shale profitable. By implementing an industry wide price maker strategy, producers are able to produce only profitable properties. Profitable based on a detailed actual accounting. A fundamentally different business model. A business model that assumes the oil and gas industry is a viable going concern. We need to proceed in the developments of this software as this mess that the bureaucrats have brought us shows that theirs isn’t working.

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. 

What Now?

In yesterday’s post we documented that the damage and devastation brought about by the bureaucrats strategy of“market rebalancing” has been achieved. And the bureaucrats should be congratulated on achieving their destructive objectives. The facts remain that the Saudi’s and Iran will increase their production by up to 2 million barrels per day each in the coming years. Pursuing new customers, and their customers growth will be the terms of the competition between these two oil giants. What we’ve determined is that this “market rebalancing” will need to be carried on for up to 20 more years in order to accommodate these facts based on the current decline of only 400,000 barrels in the U.S.

The question therefore that needs to be asked is, what now? The issue is the world’s highest cost producers will produce anything and everything irrespective of the cost. Damaging themselves mostly, their investors, their staff, the service industry and those that might chose to work in oil and gas. The world’s producers, and most specifically the Saudi’s see this behavior, and have formulated strategies to deal with a group that are acting irrationally. I may be biased about the following hypothesis but what would happen if? The Preliminary Specification was under development, or even the funds for the development of the Preliminary Specification were secured. Would this be enough for the Saudi’s to change their strategy. Affecting a change based on the understanding that those that were acting unreasonable were taking steps to deal with their most destructive ways?

Additionally if we look at the next 25 years in the North American oil and gas industry. We know that it is not going to be an easy time. Our capabilities, particularly in the area of our financial strength and ability to provide our investors with a return on their investment will need to be proven if we are going to be able to deal constructively with this future. Is what we have today, consisting of a hollowed out, borderline bankrupt, angry disenchanted investors and fleeing bankers going to buy into the 20 year plan of “market rebalancing?” This context of how difficult the situation will be to rectify will become more and more obvious in the next six months. This is not a plan, it's a capitulation, laziness and stupidity.

The proven track record of the oil and gas industry has been established. It is of significant losses, willful destruction as a strategy and damage to the long term health of all those involved. How can I invest and participate? What is the plan to deal with these issues that still exist today. Mid $40 per barrel oil and $2 natural gas is not going to provide anyone with any profits. It will continue to draw cash into the organization in order to produce. The problem is for producers to cut production would only increase the cash drain. This issue is resolved directly in the Preliminary Specifications decentralized production model.

People, Ideas & Objects provides the oil and gas producer with the most profitable means of oil and gas operations. People used to laugh when I started saying that. They don’t laugh anymore. Our plan deals with the issues that are systemic in the industry today. As much as the bureaucracy has fought me and denied the industry the opportunity to move forward, we have been stuck in this miserable situation called the oil and gas industry. Does anyone look around and think that this is acceptable? Can we trust the leadership that is providing us with “market rebalancing” with the keys any longer? I don’t think so either. It's time to commit to the development of the Preliminary Specification. The Saudi’s have been the only rational player in the room up to this point. If they saw the North American producers acting responsibly and developing the systems and structures necessary to deal responsibly they might change their tactics in the short term as well. What do you have to gain?

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. 

Deliverability Declines!

There is a material decline in the deliverability of the United States production of oil. There is no denying that. The bureaucrats can take pride of ownership in this accomplishment that they have so feverishly pursued. Their dogged approach to “market rebalancing” is having the destructive effect that is desired. Whether this is the reason that oil prices are up almost 70% in the last two months is the question. As I have stated I think its Annual General Meeting season and the capability of the producer to influence prices in the short term. We saw a similar situation in last run up to the AGM and if you look at the futures prices for oil, they have not moved at all in this recent runup. Bureaucrats need a narrative in these meetings and “market rebalancing” is all that they have. I think that what we have learned from the Saudi’s from their last meeting is that they will continue to hold on to their customers as their key strategy. That they will increase their production by up to 2 million boe / day. And I think it is reasonable to impute that they will do this to gain new customers in direct competition with Iran. Rebalance that market.

Why spend the time, effort and money to change the industry to People, Ideas & Objects Preliminary Specification? Acceptance of “market rebalancing” is just a mental process that needs to be processed by those in the industry, and particularly the investors. The wholesale destruction and damage that is done in the process is largely irrelevant to the bureaucracy that exists today, and tomorrow. This acceptance, whether as an investor, an employee who has been laid off, a service industry provider or a student who has so foolishly pursued the engineering and earth sciences as a course of study, only hurts if you focus on it. Forget about it. Move on. It is what it is, and always will be. Party on dude! That narrative is the bureaucrats message to all those that might still be listening.

The quarterly reports that are coming in are as bad as I thought they would be. No one is making any money. And that is based on the SEC’s creative accounting methodologies. Most of the producers are consuming cash. All are projecting that their deliverability will be increasing by the usual annual increment. In light of all that has been stated here what is the future for oil prices in the next couple of years?. More of the same? Where do I invest? Is there any other business that would get away with this? Yet an entire industry is able to muddle along in a fog of “oh whoa is me” in which action to solve their problems isn’t a point of discussion. Any alternatives are actively punished and ignored. I hear from many people that they are unable to read this blog on their work computer. That is because we are on the industry blacklist of websites that are not permitted through a producers firewall.

And so market rebalancing will continue. We’re down about three to four hundred thousand barrels per day in the United States. With the Saudi’s and Iran going at the “new” business with their 2 million a day each, we’ll need to be rebalancing the market for about a decade. The U.S. will clearly have to decline from 8.8 to 4.8 million barrels to just keep the prices where they’re at. To “rebalance” they will also have to reduce the current daily production surplus of about 1.5 million per day, and then also reduce the well over half billion barrels of inventory just in the U.S. That’s a lot of rebalancing. So let's add another decade on top of that first decade that we’re idly sitting by and losing money, to total 20 years before the industry can start to make any money. Sounds reasonable to me.

Rebalancing of the natural gas marketplace is not discussed. At least I have not read anything anywhere that deals with that topic. Again the Saudi’s are the ones that are conspiring to make those prices fall to the levels that they are at today. Natural gas being a continental commodity. Natural gas storage in North America is filling at a remarkable rate as the Saudi’s continue to overproduce the commodity. It’s never the bureaucrats fault, “oh whoa is me” the Saudi’s are this or the Saudi’s are that. Even the Saudi’s in their plans to deal with their country's energy future have identified the bureaucracy as something that they need to eliminate. The big boy pants are still in the closet, pressed and cleaned waiting for the oil and gas producers to take responsibility for the mess they’ve created. Implementing the Preliminary Specification is suicide for the bureaucrats, but I think this alternative of “market rebalancing” is, as far as everyone else is concerned, not such a good choice.

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. 

Specialization and the Division of Labor

One of the key concepts that is missing from the world economy at this time. The reason that we are stuck in this slow growth environment. Is that the bureaucracies in the world have ceased to use specialization and the division of labor as part of the toolset to expand the economy. It hasn’t helped that many people see government as the solution to the problems that have manifest themselves since the financial crisis of 2008. People are still unhappy with the situation and are seeking new solutions. Donald Trump being one of those, and the other being the removal of the bureaucracy from industries.

Within the People, Ideas & Objects Preliminary Specification there is a defined reliance on specialization and the division of labor throughout the specification. It is a key part of our toolkit which includes specialization, the division of labor, quality, automation, making computers work for us, not the other way around, innovation, and accounting and administrative expertise. These are inherent in all aspects of everything that People, Ideas & Objects, our user community and the service providers are doing.

What we do is restructure the industry to create a sub industry we are calling the service providers. They are situated between the oil and gas industry and the technology providers. There is currently a gap between these two industries. Neither industry is able to understand the other completely and are working at cross purposes. A miscommunication is causing issues to develop further over time as opposed to being resolved. When we see gaps such as these between two industries, that is when specialization and the division of labor can be effectively applied. Our service providers will be sourced from the oil and gas industry for their fundamental understanding of the oil and gas industry. And they will be selected based on their technological aptitude, skills, attributes and extracurricular education.

We will also reorganize the oil and gas producer to enable a greater focus on the specific competitive advantages of the producer. These changes consist of the revised prototypical producer consisting of the C class executives, the earth science and engineering resources, some land, legal, and support staff. The administrative and accounting resources of the producer will all be moved to the service providers where they will be providing their services to the industry as a specialized capability. Focusing on one process or subprocess and using the entire industry as their client base. This specialization on one process will enable them to build value for their clients by providing the most efficient management of the producers needs. This reorganization is also a key element of the decentralized production model which generates the majority of People, Ideas & Objects value proposition. A value proposition in the neighbourhood of $25.7 to $45.7 trillion over the next 25 years.

It is People, Ideas & Objects claim that we provide the most profitable means of oil and gas operations. With the decentralized production model that claim is substantial and clear to all who work in the oil and gas industry. However, if the decentralized production model didn’t exist, specialization and the division of labor would still build significant value for each and every producer. With the producer focused on their key competitive advantages of their earth science and engineering capabilities, and their land and asset base. They would be able to increase their firm's value as their primary focus. And with the service providers specialization and division of labor, producers will be able to increase their throughput in terms of their oil and gas deliverability from the same administrative resource base. These attributes are not quantifiable and are not calculated in our value proposition but also generate significant value for the dynamic, innovative, accountable and profitable oil and gas producer.

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 Love Government Involvement

We saw in the lead up to the 2008 financial crisis that we can gloss over issues for a significant period of time before the day of reckoning comes. Issuing mortgages to people who had no capability to own a home was the straw that broke the camel’s back. Making the issues evident to everyone by way of a crisis. We certainly have difficulties in oil and gas. And I have asserted that they go back to the late 1970’s when the SEC began their experiment in creative accounting with full cost and successful efforts methods. Essentially capitalizing everything that the producer touches to the balance sheet for eternity. After several generations of this practice the culture in the industry is that no one is concerned about profits, it's all about cash flow. And bureaucrats state that those costs that were incurred in the building of an asset are “sunk costs” that are never considered in any calculation of corporate profits or costs of operations. As a result the industry has appeared profitable to the investors who have supported it based on this creative approach to accounting each and every year. Without the annual capital inflow from the investors and banks the industry would collapse. Which it now is. In the past, overinvestment based on the reported inflated producer profits led to overproduction eventually leading to depressed commodity prices. This is best represented in the natural gas business. Six years and they just don’t stop producing. Bureaucrats state that they are making money and they will continue to make money at even lower prices. The final straw is the business consumes cash and without capital injections it's slowly eating itself.

In any other industry, this type of accounting would be filling the prisons with “fresh meat.” It's just that in oil and gas it’s allowed and is the prescribed method dictated by the SEC. This maybe regulations finest hour. Maybe we should start prosecuting regulators. That I think would be a worthwhile innovation. What we have today is a desperate situation by anyone’s standard. However, I don’t think its enough to shake anyone out of their complacency. Everyone knew no one was going to be paying those new mortgages that were being issued. Just as everyone today knows that cash is King in oil and gas. It took the absolute ultimate demise of the banking industry to be displayed in front of everyone before anyone stood up and took action. And that is maybe the level of crisis we need to go to before anyone does anything to fix the difficulties in the North American oil and gas industry.

It’s in the high 70 degrees here in Canada today. No one will feel the freezing in the dark for at least six months. The government had to step in to ensure that the banking industry did not fail in 2008. Stating that it’s systemically important to people’s confidence that it be stable and strong. Having a stable and strong oil and gas industry I think is far more important. There is no Fed capable of providing the marketplace with quantitative easing in terms of increased volumes of oil and gas. With the resultant level of government regulation and oversight in the banking industry, a failure in oil and gas is obviously what the bureaucrats are looking for here. They want to really entrench themselves in the industry and make for a secure and long term future. Bureaucrats love more regulations and oversight, it’s one of the key reasons for their existence.

This willing destruction of the business, or “market rebalancing,” has had to of had a purpose. Energy is the lifeblood of our society and certainly the bureaucrats feel that they should be entrenched for all of time. They see the battles with the Ubers and AirBnb’s and think to themselves that this is their moment where they have to take a stand. Otherwise People, Ideas & Objects will succeed and they will be out. If you look at People, Ideas & Objects history, the history of the natural gas business over the past six years, the history of the oil price declines in the past two. And you understand the ability for ideas to spread through the Internet. Why haven’t the producers acted to do something with the Preliminary Specification? Simply it's a productive action that is counter to the best interests of the bureaucrats. The bureaucrats want to continue to willingly incinerate capital, enjoy the good life and not change. They can’t, won’t and will not ever change a fundamentally flawed business model. I have prepared an alternative business model in the Preliminary Specification that addresses these issues and sets a foundation for the industry for the next 25 years. What do the bureaucrats have?

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 Response to Distintermediation

I have a reputation for providing the oil and gas producers with the most profitable means of oil and gas operations and for fighting the bureaucracy. This fight is because they put up such a good fight themselves. When Information Technology challenges them and their livelihood they respond. I’m sure many people feel that I am over the top in terms of my approach here at People, Ideas & Objects. Making a mountain out of a molehill, sort of speak. The fact is bureaucrats will never, ever make the changes necessary to enable the Preliminary Specification to become the method in which the industry operates. They will drive the industry into the ground before they submit to losing control of their franchise and giving up to the likes of us.

Up until recently I had no evidence of the type of response that I invoke within the oil and gas bureaucrat. I had no proof that the bureaucrats were, as I’ve stated, in such staunch opposition to this initiative. But now I do. Calgary has a checkered past with the use of Uber. It has been available for about two weeks over the past few years. Each time it finds the legal environment that it can operate in, it’s slapped with another injunction or legal proceeding that shuts it down from operating. Currently the regulations that have been adopted by City Council are so onerous that Uber says that it can’t provide the service. Our Mayor, Naheed Nenshi is the leader of this anti-Uber campaign and is the public face of the otherwise faceless bureaucrats.

He was invited to MIT in Boston to give a speech. And while in Boston took an Uber car to one of his destinations. What he didn’t know was the driver was live streaming his day. The Mayor took the opportunity to colorfully pass on his opinion of what he thought of Uber. A summary of the key parts are in the following video. Warning, the language is strong.

The full 30 minute ride can be seen here and here.

What’s his beef? Does he have a dog in this fight? Yet here we see an otherwise rational man. A man who has a masters degree from Harvard. Going ballistic over the personalities of the people at Uber. This has subsequently been in the news in Calgary trying to determine exactly who the criminal sex offenders and violent criminals that he mentions were. Does the City incur any liability in doing this? Why would he state such a thing if it wasn’t true? Why would a City go out of its way to prove a commercial business was not adequately screening its employees?

Disintermediation eliminates bureaucrats. It renders them powerless and removes them from the comfort of their environment. It disrupts their lives and challenges them in a way that has never been done before. People, Ideas & Objects eliminates bureaucrats. Read the Preliminary Specification and you can see clearly that the way the industry is managed today is over and done with. The people who are in power and control are diminished to the point of redundancy and are eliminated. Not deliberately or on purpose, it's just how Information Technology works. It’s more efficient and effective. When people are challenged at this level it invokes the fight or flight mentality and they chose to fight. I can’t express to you the shock I experience at the scope and scale of the hatred that I face every day. It is at the scale that this otherwise competent Mayor is in this video.

It is important to keep the people who are members of our user community protected from this environment. This has been our policy since the beginning and it will continue. These bureaucrats are relentless and will do anything and everything to their “enemies.” It’s important for me to express our concern and to show the level of animosity from bureaucrats that people will receive in mentioning they are working with People, Ideas & Objects. For lack of a better term, we are at war, and we have a big fight ahead of us. If you enjoy that, you're more than welcome here.

I also raise this as a point regarding our progress. We have not and will not receive any support from these bureaucrats. I am a little frustrated with the expectation that I have not done my job and had this initiative further down the road. We are not operating in a normal environment. Uber has a market capitalization of over $60 billion that provides them with the ability to fight these issues. We don’t and never will. The oil and gas ERP marketplace is too small to be on anyone's radar. And with the bureaucrats in control of the producers checkbook it’s difficult to see how we’ll ever be funded from the industry. Our appeal has been to the investors of the oil and gas producers and their expectations of me are unaware of this conflict. When they call the producers the bureaucrats say it's all “happiness and rainbows. Nothing here to see.” We’ll keep fighting here, the need in the marketplace is significant and the Preliminary Specification is the solution to these problems. Theirs has no future.

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.