I'm Impressed!

On two occasions this past week, I’ve watched on Bloomberg, and seen a report from Deloitte & Touche regarding the capital structures of the oil and gas industry. It would seem the narrative in the industry is changing from what a producer can produce oil for at this very minute. To one that considers all of the costs of the business in the context of the future. Very impressive. Deloitte even went so far as to state that the industry would have a $2 trillion cash shortfall over the next five years. I would like to point out that our value proposition of $25.7 to $45.7 trillion includes this value. It however includes all of the $4 trillion of capital Deloitte notes will need to be spent in the industry, and will hence be returned to the investors under our business model. Bloomberg and Deloittes calculations include the costs of the current operations, capital costs, the debt obligations and dividends that may be expected by the shareholders in determining any shortfall. Excellent work people, keep it up.

The history of the industry has to be taken into consideration. The producers had their hands in the investors pockets “building the business” over the past number of decades. Each and every year feeding at the trough for more capital from the investors. Never recognizing these costs of capital in any of their annual reports to the shareholders. Stating they were “sunk costs.” We still need to deal with this phoney baloney accounting methodology that capitalizes everything for ever. It’s ridiculous and has, as I have stated here many times, led to overproduction of oil and gas in North America. Many of these assets still sit on the balance sheet, however there is no capital structure supporting them. It's all been wiped out by losses and what’s left is all debt. Now “market rebalancing” has starved the production profile into a semi-permanent state of decline that will require massive capital expenditures to turn around, even more capital to achieve growth and so on. Where can I as an investor line up?

It will be a fool that invests in an entity that requires this rehabilitation. Defined by Deloitte as the $2 trillion cash shortage. Even Deloitte recognizes that the prices realized are not going to be over $55 per barrel in the next five years. Investors, according to the Bloomberg analyst, will be making critical choices as to who to invest in. I think the choice is academic. These carcases are toast. Run by bureaucrats who are unwilling to recognize the issues and deceitful about their operations only makes me want to double my bet that they will never turn these ships around. How? The more a rational person analyses the oil and gas industry the faster they run away. If you put your money in, you’ll at best get an extremely small percentage of the company's already deep and wide investor pool of issued stock. Any alleged earnings won’t be supported by cash that’ll be distributed. And even if there was, it would be diluted by those yuge balances of bank and bond debt. Makes the valuations in Silicon Valley look rational and exciting!

Investors interested in oil and gas are going to want to see a commitment to profits. Bureaucrats don’t understand the concept. People, Ideas & Objects, our user community and the service providers are configured to provide the oil and gas producer with the most profitable means of oil and gas operations. That is our competitive advantage. It’s what we’ve been talking about for 12 years now. A decade or so of having the bureaucrats laugh at us “that no one cares about profits, stupid.” We also provide the organization in which the investors can start a new dynamic, innovative, accountable and profitable oil and gas producer with 100% of the equity and no debt. One with the full scope of administrative and accounting capabilities available to them if they have a production profile of 1 bbl of oil per day or 3 million. This industry based administrative and accounting capability, when our service providers are built, will be available to them immediately and on demand.

Buying properties from existing producers that have been willfully damaged by “market rebalancing” will be the opportunity for these investors to poach from these carcases. The ones the investors are now considering their “sunk costs.” With the People, Ideas & Objects Preliminary Specification, our user community and the service providers we are able to implement the price maker strategy and remove the marginal production from the commodity market and have the oil and gas prices reach their marginal costs. For the bureaucrats “marginal costs” include the cost of capital, operating costs, royalties and overhead a.k.a. all of the costs. Oil and gas is a business, not a piggy bank you can raid at your leisure, too bad you never understood that.

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 Task and Transfer Network

Within the Preliminary Specification we have what we’re calling our Task & Transfer Network. Although there is not a lot of detail contained in the Preliminary Specification it is a simple concept to understand and implement. As producers conduct commercial activities this information is captured in the Task & Transfer Network. Production data is captured, aggregated with all the other production data in the industry and distributed to the appropriate production accounting, revenue accounting and royalty accounting service providers etc. This enables the specialization and division of labor between the service providers. For example, possibly there will be a service provider who reviews just the drilling day work for payment. Ensuring that it is consistent with tour reports etc, and other methods of verification. Then that service provider will generate their invoice for their services based on the information that they receive from the Task & Transfer Network.

I can see the bureaucrats squirming and wincing in their seats. Their concern is the security of the information that they have and the proprietary nature of that data. They are in no way going to allow their data to be processed in this fashion. Have I ever mentioned our $25.7 to $45.7 trillion value proposition? I think I must have at some point along the way. Continue on with the way these bureaucrats are doing things and we will all be out of business. We also have the Security & Access Control module of the Preliminary Specification. If that is incapable of meeting your needs then you’re not getting the point of having user community based software developments. Use the user community to ensure that the security of the Task & Transfer Network is at the level that ensures compliance to all the regulations and ensures that no unauthorized access is enabled.

What a service provider is going to be faced with is a constant flow of data from the Task & Transfer Network. It will be the service providers work that will be able to take that data and process it in the most effective way for the oil and gas industry. Specializing on one process may sound like a redundant and boring approach to accounting and administration. However, if you put your mind to the task you can become quite creative in developing the tools to make the process cost effective, innovative and high quality for the industry. And that is just in the first iteration of the Preliminary Specification. Over the life of the system the process management would evolve in ways that we can’t imagine at this point. The science of data, statistics and information would come into play in a serious way and become part of the value proposition of the service provider, and would also begin to form the basis of competition between service providers.

If there was no production from a property, then no information is delivered through the Task & Transfer Network, no processing conducted and no service providers invoices sent. The decentralized production model is implemented and the producers have the price maker strategy operational on the North American continent. This is how all of the producers costs become variable based on production. Taking the data down to its simplest form, aggregating like data and processing it on a specialized basis by those who have the people and the software development capabilities in hand to deal with the issues and opportunities they see their producer clients having. That is how we reorganize the industry and ensure that we provide the oil and gas producer with the most profitable means of oil and gas operations.

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

No posting today.

How Our Users Make the Difference

It is our user community members and their service provider organizations that provide the key differences in enabling the producers to achieve the most profitable means of oil and gas operations. They’re the critical infrastructure necessary to enable change in the oil and gas marketplace. They’re the source of quality in the producer firm and the industry. And they enable the dynamic implementation of business models such as the decentralized production model. When a change is needed in the industry today, who do you turn to? In the future there will be no question as to who you will turn too. The user community member that is responsible for that area and has the capabilities to implement the changes on behalf of the producer and industry. They’ll have the power and control over the Intellectual Property that is the operational understanding of the industry. The derivative of the Preliminary Specification. It is theirs to do with as they believe is in the best interests of the producer and industry. The People, Ideas & Objects software developers will only ever look to the user community for what software it is that they will develop.

What we have learned is that software, and ERP software particularly, defines and supports an organization. In order to implement any change it is therefore necessary to make the change in the software first, otherwise the people will regress back to the old ways which are defined and supported by the old software. Bureaucrats have interpreted our breakthrough in this area as; securing their position in the organization by never changing the software. The user community member who is also the principle in the service provider sits in the new sub-industry that we are building. Working with the industries producers to ensure they are the most profitable they can be. Understanding their issues and opportunities. And, having the People, Ideas & Objects software development capability on hand to make the changes that they see necessary to fulfil their requirements of keeping their clients the most profitable that they can be.

Quality is a difficult aspect of an offering to define. Speed has to be an element of quality. Having things done right the first time as well. Affordability also has to be part of a quality offering. Recall that the configuration of the service providers are what provide our price maker strategy possible in the industry. Achieving the lowest cost possible but missing out on opportunities such as the price maker strategy would be foolhardy. The value that we provide the industry is so much more than just an efficient and effective cost. We are able to leverage the value that the oil and gas industry generates by making changes in the business models that we have the power to control. It is here where we become affordable. The service providers are a cost of doing business that is already incurred in the oil and gas industry. The $45 to $65 billion in G&A costs will be transferred and become the revenue streams of the service providers. When you compare the annual cost of the service providers over their value proposition of $25.7 to $45.7 trillion over the next 25 years, it’s a profitable value proposition for the producers.

Now we come to the decentralized production model of the Preliminary Specification. It is the reason that we have configured the service providers in the manner that we have. By restructuring them on this basis we will have done two fundamentally important things. First we will have moved the administrative and accounting capabilities from each individual producer, where they are replicated, redundant and unshareable; to an industry based administrative and accounting capability. Secondly we will have made all of the producers administrative and accounting costs variable, based on production. If a property is shut-in then all of the costs of the producer, except for capital, will not be incurred. The burden for the administrative and accounting cost control has shifted, if there ever was any cost control, to the service providers. Who at anytime might experience a drop of 10% in their revenue. The 10% being the amount of production that might have to be shut-in to maintain oil and gas prices. A budget-able contingency that can easily be handled by the service providers.

It is this kind of flexibility and capability that the dynamic, innovative, accountable and profitable oil and gas producer needs. They have enough to focus on with their competitive advantages of their earth science and engineering capabilities, and land and asset base. Constructing an administrative and accounting organization, which is exactly like each of their neighbors is destroying their profitability. If they had any, that is.

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. 

It's a Business Opportunity

More than anything the People, Ideas & Objects user community is a business opportunity for those that work in the administrative and accounting fields of the oil and gas industry. We are developing and creating a new sub-industry that includes People, Ideas & Objects software developers, our user community and their service providers. It is these people who are working to provide the oil and gas producers with the most profitable means of oil and gas operations. That is their purpose and their focus. Turning the industry around from a bureaucratic slog to a dynamic, innovative, accountable and profitable industry.

The business opportunity comes from the fact that the members of the user community will be independent business people with their own going concerns and two distinct revenue streams. The first will be the fees that are earned when they are resident or are working on the software with the People, Ideas & Objects developers. Working to make the software that they want and need. These user community fees are paid by People, Ideas & Objects and are detailed in our budget. Our budget only deals with the initial phase of the Preliminary Specification. What it will take to implement the software in its first commercial release. The user community member should assume that this revenue stream would continue far off into the future.

We are expecting that we will need to have 3,000 members of the user community in order to acquire the full understanding of the manner in which the oil and gas industry operates. We also expect that at any time 600 of these users will be working directly with our developers. So although this is a cornerstone of the business opportunity for the user community member, these revenues are only for their part-time efforts.

Each of the user community member will be focused on one area within the Preliminary Specification. And will focus and specialize on one process within that area of understanding. The competitive advantage of the user community member is their division of labor, specialization, automation of business process, quality and innovation. This process that they manage will be theirs where the license granted by People, Ideas & Objects gives them exclusive rights to that process. Competition between service providers and users is not on the basis of cost where one steps on another's functional or process domain. It is through their ownership and control of the service provider organization that they will manage the process on behalf of the oil and gas industry. Competing on the basis of specialization and the division of labor, etc. It is in the service provider organization that the second revenue stream of the user community member will be derived. They will have the salary, bonus, dividends and capital gains they earn from their ownership of their own service provider firm.

How big a service provider would need to be in order to manage a process on behalf of the industry is the question that no one can answer at this time. They would be of a moderate size considering they would be replacing the $45 to $65 billion in administrative and accounting costs that are being incurred in the industry today. It would be reasonable therefore to estimate that the service provider's revenues may be in the range of $10 to $30 million per year. This should therefore be considered a substantial business opportunity.

If we are undertaking the replacement of the accounting and administration of the industry. These numbers come into focus. Who knows maybe the bureaucracy will change into the dynamic, innovative, accountable and profitable organizations that we seek! With the costs and prior bank and investor commitments in excess of $200 / barrel, however, with organizations that are stale and choking on paper, there may not be too many investors that are interested in supporting that old model of organization.

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. 

It's Not a Price War!

I did not catch the name of the individual that I saw the other day on Bloomberg. He had an energy consulting company, had at least 40 years experience and a PhD from Stanford. Certainly well qualified, but I fundamentally disagree with his position that we are in a price war with the Saudi’s and Opec. He said that when you’re in a price war you have to produce at your marginal costs. The marginal costs of some of the shale reservoirs, he stated, was as low as $10 and the Middle East was even lower. Noting that he thought oil prices might bottom around there. This is yesterday’s thinking. What the bureaucrats use for their excuse to do nothing. And how we find ourselves in a devastated industry where investors are used as ammunition to fuel an unnecessary war.

Oil and gas commodities fit the textbook description of what qualifies for “Price Maker.” This entire oil and natural gas depression has been brought about as a result of a small percentage of over production. Maybe 1 to 2%. Which has led to price decreases from their long term highs that are in the region of 70% on oil and 90% on gas. My math is pretty good, and I can tell that this is a losing proposition. All that would be needed would be to curtail a small amount of production in order to reclaim all of that lost pricing. This is also one of the key characteristics of a price maker. Where does the thinking come from that has producers continuing to produce oil and gas at a financial loss, yet they think that those actions don't impact prices? Bureaucratic sloth I would suggest.

The strategy that the Saudi’s have adopted is fair and reasonable. It has however changed from their position as the swing producer role which they occupied until recently. They feel that it is the North American producers who need to fill the swing producer role. The swing producer role involves removing production from the marketplace to ensure that it remains balanced. The Saudi’s changed their position as it was apparent the North American shale based producers, who are also the higher cost producers, were forcing them to curtail too much production to balance the market. Saudi Arabia was having to give up its customers in order to do so. Eventually, under the Saudi swing producer scenario they would have had no customers and no production. Therefore they changed their strategy to a fix production level and committed to their customers that they will provide their needs reliably. It is a sound business strategy. It is not a declaration of war.

We should note too that bureaucratic sloth is evident in the natural gas marketplace where the Saudi’s and Opec don’t exist. Natural gas has displayed these overproduction characteristics for the past six years. Who is responsible for that markets overproduction? I would suggest it’s the same people. The issue the bureaucrats will not deal with is shale based reservoirs. Recently the Energy Information Agency noted the Mancos shale formation in Colorado has been defined as 4,000 ft of pay. They have adjusted their 2003 evaluation of 1.6 tcf of gas to its current evaluation of 66 tcf of gas. What the bureaucrats will now do will be to ensure that the necessary steps are taken to get this natural gas onto the commodities marketplace so that it too can be fairly priced along with the other 2,500 tcf of gas that is sloshing around the continent. Producing everything that exists, irrespective of the financial implications is madness. Especially when the Preliminary Specifications decentralized production model employs the price maker strategy that would make all production profitable.

It’s odd that during these times I have been screaming myself hoarse that these commodities are price makers. And that the Preliminary Specification deals specifically with that issue in the industry. The issue that I generate in the process of bringing my solution to the marketplace is that I, like so many Information Technology based solutions in the marketplace today, disintermediate the bureaucracy. Bureaucrats are toast once the Preliminary Specification is in place. And they know that. So for them to consider the thought that they would eliminate themselves from the marketplace is comical to them. Why else would they ignore our $25.7 to $45.7 trillion value proposition over the next 25 years. We need the investors who have been used and abused by these bureaucrats to turn the tables and oust these bureaucrats by supporting the Preliminary Specification.

The bureaucrats can hire all the consulting firms and all the PhD’s in North America to go on Bloomberg and be the talking heads for them. Engage in nuclear warfare on their behalf and ensure that the issues and opportunities of the industry are obscured and unaddressed for another decade. This may be a test for how collectively stupid the western world has become. If “this” is acceptable and allowed to continue.

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. 

The Next Ten Years in Software

We are all beginning to understand the Information Technology environment that is now developing around us. Two years ago people had a disinterest in Information Technology that had been consistent since the 2000 dot com meltdown. Now we are beginning to see the potential that exists in the marketplace with all these devices. I for one am quite optimistic about the future. There is much that we can gain in terms of the quality of our life from Information Technology. We are only beginning to realize its potential.

It’s only in the last few years that it has been possible from a technical point of view to build the Preliminary Specification. It’s big and complex, and the demands that we are asking of the technology, those issues that were beyond the technologies capabilities, would have had to have been compromised in order to bring our product to market. There will be no technical compromise involved in bringing the Preliminary Specification to market now.

Choosing Oracle Corporation as our systems vendor provides us with the integrated technologies that we need to deal with the demands of the Preliminary Specification. We will not have to chase a disparate group of vendors who choose to pass the buck instead of take responsibility for the issues that we face. It will be Oracle that will be able to solve the problems. In the hardware, software and services end of the Information Technology infrastructure. We are fortunate to have them as our provider.

I think people will be surprised at what the People, Ideas & Objects software development team will be able to achieve. In these next ten years there will be very little that we cannot accomplish. Our first objective is the most important of all. The continued development of our user community and the establishment of their role in the industry. It will be the user community who are able to determine what is possible. It is here where the ideas will be coming from. They will have the power and control to make the changes to the software and implement them through their service provider organizations. Doing so at will. It is the user community that will make the oil and gas industry dynamic.

The first iteration of the Preliminary Specifications deployment will take what exists today and implement that in the software. We will have the industry operate based on that definition. The user community will not be innovating on this first iteration of the Preliminary Specification. They will be bringing the processes and their management to the framework of the Preliminary Specification and making it operational on the basis of the Joint Operating Committee being the key organization construct. And it will be in this work that they can be as innovative as they would like to be. Therefore to clarify, in terms of how they implement the Material Balance Report in the Preliminary Specification they can be as creative and innovative as they feel necessary. What I am stating here is that they should not innovate on the business model, the framework or the manner in which the Preliminary Specification is put together until the second iteration of our software’s development.

Once the user community has implemented the Preliminary Specification and it is operational in the marketplace they will have free reign over any and all aspects of the software. It will be then that they have the foundation necessary to make the innovations valid and functional. Introducing major business model or framework innovations too soon in the development will only cause confusion and disorder. Best to write down any innovative thought that you might have during the first iterations development and bring it up later during the second iteration. We are headed to an unconstrained world where we can change our environment to suit our needs. Those members of the user community will hold a special role in the oil and gas industry. If I wasn’t otherwise occupied, I’d be jumping all over that opportunity.

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. 

Duck and Cover

This week I documented and reframed the competitive landscape of the oil and gas industry. Noting that the existing producers, with their catastrophic losses, are no longer competitive in the marketplace. That the costs and commitments for each barrel of oil produced total at least $200 and that is the legacy of their ways and means over the past many decades. The second quarter financials will be out in as little as two months from now. What I expect we will see is that the viability of the existing producers business model has expired. They will no longer be competitive or have earnings as a result of their legacy. This is contrary to the fact that they are stating they can be profitable at current commodity prices. They may report that they’ve generated operational cash flow, however, these few dollars will be consumed by their mounting debt payments and their lack of financial resources and capabilities. This is what I expect to see on a wholesale basis in the second quarter reports. But more than that, it is what the future of the industry will continue to be if we leave it to the status quo bureaucrats. No investor or banker is going to run to the aid of an ailing producer. The history of the industry has been that the investors capital are “sunk costs” that are not considered. The bureaucrats reputation regarding their fiduciary duty to their shareholders is known.

As I stated yesterday, I can’t compete with people who misrepresent the situation. According to the producers all is good. Their profitable and the commodity prices are up. That however is not a practical or honest representation of the wholesale devastation that the industry has experienced. It hit an iceberg in 2015, and the Captain of the ship is telling the band to keep playing. When in fact the producers have been taking on water and there is no one doing anything about it. For producers, in a time such as this, to choose to lie about the situation puts into question the capabilities of the industry in other areas. Where are we headed when the Captain of the ship is obviously deranged?

Oil and gas prices have been leaping from the market lows they reached most recently. Everyone is heralding this as the end of the bad times. I don’t think so. Particularly in natural gas. It’s never orderly or civil, and you can’t necessarily make out the logic when there’s a rush to the exits. Natural gas storage facilities will be filled sometime this summer. It will be the first time this event will have ever occurred. What will happen to prices then? When the fires started in Canada and the heavy oil plants shut down, natural gas prices in Canada dropped as low as $0.55. That was with 91% of the storage capacity filled. If you take all of the U.S. storage capacity offline, in terms of demand, natural gas prices could collapse in a similar manner. Best to get out of the market now, which has a temporary and decidedly upward pressure on prices.

What if the scenarios that I’m predicting here are the common sense approach the investors are taking towards the industry. What faith have the bureaucrats earned that they are capable of dealing with the issues and opportunities they face. When bureaucrats exist in a devastated landscape of their own doing that they don’t recognize or appreciate. That they state ridiculous claims regarding their viability and profitability in the face of such obvious facts. They are inspirational in ways they do not understand.

Further destruction of the industry on a wholesale basis is about to begin. Thanks to our good friends the bureaucrats our producer firms have no financial resources or capabilities. I think people have lost faith in the bureaucrats and are taking their positions before another big hit occurs. The good news is the Preliminary Specification is ready to go. All we need to do is to continue to develop the user community and then we can begin the developments of the software. The long, but relatively low cost and difficult time constraints of doing something like this have been completed in the development of the Preliminary Specification. Now we have to go through the relatively short period of time that will see the high cost era of our development.

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. 

Honest Competition?

It’s a deliberate misrepresentation to state that you can produce at $48 / barrel when your costs, as we’ve calculated them here, exceed $200 / barrel. Producers have never wanted to honestly account for their performance in these past decades. Oil and gas is a capital intensive industry where their bureaucrats refuse to consider the cost of capital in the determination of profit. Choosing instead to bury their capital and overhead costs onto the balance sheet for eternity. The fact of the matter is, that in today’s capital markets, to account for their performance and their costs would preclude them from consideration by that market. Pushing out an unaccountable narrative that they are profitable at $48 / barrel is irresponsible, corrupt and fraud. We should see more from the people who are responsible for the industry. The issue that I see is that it's the culture. It’s not one individual, it's the entire industry that has developed on this basis, and no one has stood up to the bureaucrats and said that it’s wrong.

If we had some accountability in the industry my job would be simple. I provide oil and gas producers with the most profitable means of oil and gas operations. I can provide an oil and gas producer. One that is a start up with the ability to produce oil at $100 / barrel. The most cost effective level possible in North America. The best anyone else can do is $200 / barrel. The existing producers are no longer competitive. They will never, ever be competitive again. This is the fact that leads the bureaucrats to misrepresent their performance. They know the legacy of their spending hasn’t evaporated. It still resides on their balance sheet in the form of bank debt that needs to be paid. Bonds that need to be paid. And investors that have been fleeced annually for the past decades who will be curious “what happened.” Telling these people that their costs and commitments are now $200 / barrel, and there is a solution that can halve that figure if you bail on that pathetic producer, isn’t going to do well for that bureaucratic cash flow known as a paycheck. If bureaucrats think they can fool all of the people all of the time, then they are too far gone to be rehabilitated.

The irony, the dichotomy, the contradiction, hell the hypocrisy of my arguments. Is that I’m telling the investors and bankers that the existing producer is a “sunk cost,” and therefore is irrelevant and should be ignored. There is no sense in trying to rehabilitate it, just walk away. Start new and fresh with People, Ideas & Objects Preliminary Specification. Reducing the costs of production to half of what it is today. Providing you with up to 100% ownership. With no bank debt to encumber the assets. It's a free for all in the asset marketplace. The most dire producers have their crown jewels up for sale at fire sale prices. What better way to get into the industry in a serious manner for the long term with one significant difference. Profitably on your entire investment.

How will a producer with the cost structures and organizations that are so constrained compete in the future? Can they? I have a theory in life, never expect a mouse to run like a horse, you’ll only be disappointed. Is there an expectation that these old, tired and lame horses will make it into the Kentucky Derby tomorrow? Or is it best just to shoot them. Creative destruction is the reason that our economy has developed the way that it has. When the means of production becomes so convoluted and costly. When the status quo becomes so uncompetitive in the marketplace. It is wiped away and new organizations come along and take their place. Creative destruction is being hampered by the fraud that the bureaucrats are selling. Producing oil at $48 is a myth that doesn’t stand the laugh test. They just don’t want to face the destruction aspect of creative destruction and therefore will say and do anything for that bureaucrats pay check.

It’s a confusing time. Hard choices have to made. The desire to want to hang on to what you have overrides everything. And just maybe the status quo will get better! Or people can choose to look at alternatives and decide what their future will be. People, Ideas & Objects are developing their user community and that might be the place where you can make the transition quickly and effectively. And we may be having difficulty convincing people in the marketplace, but what can you do when your competition just outright lies about their competitiveness.

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. 

Let's Revisit "Recycle Costs"

Competition is healthy. Everyone strives to do better every day and that is how we progress to earn the standard of living that we have come to enjoy. I suggested yesterday that current producers are claiming that they can produce at $48, whereas People, Ideas & Objects Preliminary Specification could only achieve the $100 estimate that I calculated. I’m not offering a very competitive alternative, no wonder the bureaucrats don’t appreciate me. I seem to be traveling backwards when I should be moving forwards. How can this disparity occur? Lets for the purposes of selling my point of view revisit what “recycle costs” are.

I have yet to see a CFO of a producer quote these numbers that you hear producers are able to achieve in terms of their costs and profitability. They know precisely the layout of the local prison cells and the number of inmates per cell. I’ve never heard or seen a CFO quote those numbers, and with those prison floor plans I am certain we will never see or hear them state these absurdities. When I do here or see one of them you’ll be sure to hear it here first. The people that are pushing those numbers out are unaccountable useful idiots that the producer might set out on the street. Or, as in most cases, the press is only parroting what these people have told them. No one in the industry believes these numbers. They are fudge.

How is it that an industry that receives over $100 per barrel and is barely profitable suddenly reduce their costs below $50. It’s a miracle! I’ve heard that it’s due to the innovations that have been instituted by the producers since the decline in oil and gas prices. Since the western world uses historical accounting how do you innovate the costs of a well that was barely profitable at $100 down to profitability at $50. I worked in oil and gas accounting from 1977 to 1985. I worked in oil and gas auditing from 1986 to 1994 and I have seven accounting courses, but I don’t know how to do that. And I’ve never been in prison either.

So the question comes down to what are “recycle costs” the industry term for what it currently costs to produce. Simply it is the cost of production that would be necessary to produce a profit at an oil price of x. If x = $50 the cost of production must be below $50 so the recycle cost would need to be $48. Done, how else could you justify full production that eliminates your entire capital base? After they get these numbers out on the street the investments will flow back into the firms on that false belief. The bankers love it that you’ll be profitable down the road as well. When the time comes to answer the bankers and investors questions it will be “oh, this operation did this, and that operation did that, missing our targets, but our costs next quarter will be $44.”

If you haven’t caught on yet, I’m accusing the industry of wholesale fraud. But remember you never heard an officer of anyone of those companies ever state what the oil or gas price they are profitable at. It’s all heresay, the press believes it, the investors believe it and the toilet stuffed with cash flushes again.

It goes back to the desire to never account for the “sunk costs” in the industry. Why when you can continually get away with fraud. This has gone for so long it’s the culture of the industry. People are taught and trained to do this. If you don’t play along you’ll be ousted like that blogger at People, Ideas & Objects. Persona non grata, but I’ve never felt I had anything to lose except my integrity. Yesterday I calculated the costs and committments that the current producers incur to produce is at $200 and they say they can produce a profit at $48, someone is selling an agenda.

An industry that has had their capital base wiped out is not normal, but highly abnormal. That states unequivocally that they never made any money during the entire life of the organization. They’ve destroyed any money they were given. That includes the time when prices were over $100. I would suggest that there is something seriously wrong in that industry. In the case regarding the oil and gas industry it is run by a group of self interested bureaucrats who have a good thing going for themselves and could care less about anything else. When an industry has proven that it’s incapable of ever making any money it’s time to start sweeping out the old. It is corrupt, not functioning and unable to be rehabilitated. Or maybe they did get their costs down to $48, their debts paid and returned the money back to all their shareholders. And this was just a dream, and J.R. didn’t get shot.

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.