Best Business Opportunity, Ever, Part I

In terms of the business opportunity that we’ve been discussing here these past few days. The one in which investors were establishing new, start-up oil and gas producers. One that is present today, that sees the investors skip the dilution from other shareholders, bank and bond indebtedness of investing in the existing producers, and in turn, purchased properties from today’s cash strapped producers. For it to qualify as the best business opportunity that has ever existed in oil and gas. There would need to be an opportunity for those start-up producers to pursue some lofty goal after they had secured the properties. One that would focus the energies of the entire industry for the mid to long term. I think the opportunity that the North American continent becoming energy independent in terms of profitable oil and gas production is that lofty goal that makes this the best business opportunity, ever.

This opportunity is being presented to us at this time. And it is the biggest opportunity in terms of setting up a new oil and gas producer, ever. And if Donald Trump gets elected, the industry would have his administration pushing for this objective as well. When was the last time the oil and gas industry had a positive relationship and was on the same page with the U.S. government. This scenario paints a much more vivid image of an industry that people want to be associated with. One where the doom and gloom of the day to day is eliminated and we can all focus on rebuilding the industry bigger and most importantly, profitably.

With the implementation of the Preliminary Specification in North America, the oil and gas investor that this opportunity appeals to, has a guarantee that all of the production from the continent would be profitable. It is the only thing that the producers will pursue as it is in their best interests. If only production that is profitable is produced, each and every day, each and every year, then the investors know that their risk is limited to the capabilities of the earth science and engineers that they have in the producer firm, and the quality of the assets and land position that they’ve secured. If their oil and gas team are unable to find profitable production in commercial quantities then the producer would be a failure on the basis of the underlying performance of the producer. Not on the basis of the overproduction and oversupply that is chronic within the Industry and prevalent today.

The key to this knowledge is the way in which the producer can approach the business once the Preliminary Specification is implemented. If the producers maximum deliverability is 200,000 barrels of oil per day then that is their capacity. If they could produce all of that profitably then it would be the best opportunity from the producers and investors point of view. However, if only 100,000 barrels of oil per day was profitable and the other 100,000 was shut-in. They would first of all, have a large inventory of shut-in properties that they would be able to apply their engineering and earth science skills towards in order to turn them into profitable properties. But most importantly, under the Preliminary Specification, the amount of overhead and administration that was incurred if they have the 200,000 barrel per day capacity is not what they would incur if they produced 100,000 barrels per day.

One of the key changes that we make when we implement the Preliminary Specification is the conversion of the individual producers administrative and accounting capabilities to become the industries administrative and accounting capabilities. Changing the dynamic of these costs from fixed within the producer firm to variable across the industry based on profitable deliverability. Turning these costs into a variable cost has the dynamic, innovative, accountable and profitable producer able to scale their production profile up and down with all of the producers costs (royalties, operations, administrative and accounting) being variable in nature. The producer is therefore never diluting their earnings from profitable properties by losing money on unprofitable production. They can eliminate the unprofitable production from their deliverability and ensure that only profitable operations are produced and the firm continues to be the most profitable at any level of their capabilities from 1 to 200,000 barrels per day.

This is the source of the solution that the Preliminary Specification provides the industry from overproduction and oversupply. Currently each producer is looking to offset their administrative and accounting costs by allocating them to the highest level of production that their capacity provides. Creating the chronic overproduction and oversupply. Then, on that basis, their overheads do not look as far out of place. To eliminate this inherent contradiction within the industry the Preliminary Specification reorganizes the producers and the industry on a different basis. Enabling the producer to focus on their key competitive advantages of their earth science and engineering capabilities, and land and asset base. With the establishment of service providers, which are configured from the administrative and accounting personnel in the oil and gas producers, which will focus on one specific process and apply it across their client base of the entire industry. Using specialization and the division of labor as two of their many key competitive advantages.

Then if the property produces, the service providers receive data and information that reflect that production. Their process is completed and an invoice for the specific administration or accounting cost is charged directly to the Joint Operating Committee. If there is no production then the service providers receive no data or information and hence no services and no invoice for the administrative and accounting services will be rendered. The costs of administration and accounting have in fact shifted from the oil and gas producers. Where today they can only lay people off in terms of matching overhead costs to production. To where they will now reside with the service providers who will know that at any time the oil and gas industry may see up to 15% of their productive capacity decline across the industry. A situation which can be easily budgeted for on an annual basis within each service provider.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. 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. 

Creative Destructions Finest Hour

The business opportunities that are available to investors, bankers and bondholders are spectacular. When this much destruction is occurring in the oil and gas industry, the opportunities become more prevalent. The thing is you have to pick your target. Buying Crescent Point and Encana may make you comfortable by being in a room full of likewise dissatisfied investors. There is however a new path that should be considered by each and every oil and gas investor. That is the establishment of new oil and gas producers. The advantage here is that your investment is the only game in town. When the company is formed you have the majority of the shares or the debt that the company has been established with. No dilution of your investment as a result of the past bad behavior of the producers over the last 40 years.

By investing purely and cleanly into new organizations you are able to skip the lineup when the dividends or interest payments are made. You're the only game in town. That there is such a strong “buyers” market in oil and gas property market, which makes it ideal for the dynamic, innovative, accountable and profitable oil and gas producer. Entering the market now will provide you with a world of opportunity as the only ways and means that the existing producers can survive in the short term is by dumping their properties. And these producers will all soon be trying to raise as much cash as possible. The rush to the door may have already started, but I can assure you that the number of properties that will be put up for sale will make a well capitalized start-up leverage this crisis to their benefit.

The trouble with this strategy is that the real brains in the oil and gas business, and the brains are a critical aspect of the success of the firm, are all trying to workout the difficulties in the existing producers. What the investor may want to do is to offer some options or a piece of the producer firm for those brains to bolt the existing producer and run the start-up. Their choice would be to struggle through the difficulties of the existing producer. With every investor and banker shaking each and every skeleton in the closet from the past forty years. Or start fresh and new with the chance to eliminate the mistakes that were made before. Everyone can see the appeal of a fresh start.

The opportunity that this process provides is approximately equal to the extent of the difficulties in the industry. I have stated that the overproduction and oversupply are the biggest issues in oil and gas, ever. That would make the opportunity to establish a new producer the best, ever. Which is the case. To ensure that the new producer doesn’t fall into the same old problems they will turn to People, Ideas & Objects and have the Preliminary Specification built. Maybe the principles of the existing producers could fund our budget for the development of the Preliminary Specification as their last official act. That way the new producer would ensure the investors that they have the system built to ensure they are the most profitable. And in the meantime the start-ups could use the existing producers capabilities in operating the properties that they’re purchasing. All for the measly costs of the COPAS overhead allowances.

This is creative destruction’s finest hour in oil and gas. I am pleased to be providing the creative elements to this process. Look to the existing producers if you think you can stomach the destruction. Where do you stand in terms of this opportunity? Is the drudgery and destruction appealing to you? The existing producers competitive structure and prior obligations have completely destroyed the viability of the producer. Paying investors and bankers back for the decades of capital expenditures doesn’t appeal to many people. Or is it the expectation that these existing producers will suddenly right all the wrongs and live that fairy tale life? Business decisions having been made in good faith on the basis of what was the old oil and gas industry. These decisions were wrong and there is no one to hold to account for them. Unless you appreciate the art of kicking dead horses, the best approach is to start anew and avoid these same bad decisions once again. I propose the industry do this on the foundation of the Preliminary Specification. But then my recommendation, so they say, is biased.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. 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 Exception that Proves the Rule

I have argued that the equity markets were closed to the oil and gas producers. It would seem that there are some with a higher threshold for pain and suffering than I have. Crescent Point and Encana, two Canadian producers were in the market last week raising funds for their 2017 capital expenditure programs. Crescent Point had the luxury of issuing their shares on a bought basis. These were both sizeable offerings, however, upon their announcements both stocks dipped well below the offering price. In each case investors were displeased with the further dilution being realized by the offering. In the case of Crescent Point this is an annual ritual going back to 2002 with only the 2013 year being missed. Almost the entire life of the company, or should I say science experiment.

Under what basis would a producer go to the market to raise money today? You can’t earn any profits. You’ve lost all of the money that was ever raised in the equity markets by the company. You continue to bleed cash at a pace that is shocking. Your field operations consume more cash than what they produce. You are unable to deal with this reality and look to passive, obscure events like “market rebalancing” as the methodology to cure the problem. And refuse to address the real issues of overproduction, oversupply and prolific shale formations. I guess the fact that you need the cash is one reason to go to the markets. A recent Deloitte survey of the industry states that its sunshine and rainbows as far as anyone in the industry is concerned.

And People, Ideas & Objects Preliminary Specification is rejected out of hand due it being “collusion.” It’s not collusion, it's treating the industry as a business, not a science experiment. By each producer evaluating each property based on an actual, factual, detailed and complete accounting of the property. And that accounting reporting that the property is profitable, then the property continues to produce. If it is unprofitable, then it is shut-in until such time as it can be produced profitably. That is how a business operates. This is foreign and unacceptable to the producers who operate in the industry today. They believe it is “collusion” which proves their level of understanding of business is extremely low. Why would you continue to produce properties that are unprofitable? Yet the entire industry currently is substantially unprofitable. And they don’t see that as an issue. As long as there is more investor money to fund next year's capital expenditure program, everything will be ok in their corner of the daycare.

These are unsustainable businesses without outside capital being invested annually. Whether that is debt, equity or bonds the oil and gas producer has always had their hand out. Even in the alleged good times when prices were higher. The industry uses a methodology of accounting, dictated by the SEC, where the investments made in annual capital expenditures sit in Property, Plant and Equipment for decades on the balance sheet. Producers stuff this category with capitalized overhead and interest payments. Making field operations appear like their “cash flow positive” because they recognize none of the capital costs of the operation, in a capital intensive business, and always include the annual investor grant as part of that cash flow. This has destroyed the industry fundamentally and completely. An industry which apparently now believes that the good times are just around the corner. That what People, Ideas & Objects are selling is illegal and wrong. How backward can this industry be?

Tomorrow we will hear "definitively" the news that Opec won’t be making any production freeze agreements. And the producers will respond by saying that Opec doesn’t matter anymore. In direct conflict with what they were saying about the promise of an agreement last week. Hope, fairy tales and soothers are what pass for comfort in the industry today. There is just no way these companies are ever going to see the light that their unprofitable overproduction is the problem. Which leaves us with the creative part of their destruction. As with many industries before, the old gets washed away by the new. This week we’ll detail the phenomenal business opportunities that exists in oil and gas today once we turn our backs on these big baby’s.

This overproduction and oversupply is the greatest issue the oil and gas industry has ever faced. It's not business as usual under any basis. Those that think they will just resume normal operations are kidding themselves regarding how much damage has been done in the industry. Issues such as this, left unaddressed for this amount of time, fester into more difficult issues to resolve. People, Ideas & Objects believe only creative destruction will resolve this. However, to make matters worse producers have not been minding any of their business and will soon have to deal with the increased interest rates that are appearing on the horizon. It is conceivable that interest rates will double the amount of interest that producers will need to pay in the very near future. Unaddressed problems fester, and additional problems become more difficult to address. The industry is behind the eight ball and I don’t see them finding a way out.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. 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. 

Head in the Sand

Producers may be finding the “market rebalancing” storyline getting a little thin and not playing as well to their investor audience as they might have expected. We hear many pundits are starting to calibrate the time in which the chronic production surplus in both oil and gas will subside. With many of these projections being pushed further out as far as two years from now. Just as they were two years from market rebalancing six years ago. We anxiously await the news from the Opec meeting, only to dispel the impact that they’ll have in the market when it’ll inevitably be announced that once again they won’t do anything. The problem is that the producers have no cash and the only source of cash is production. Therefore the producers will produce. That is their business model. That none of the production is profitable is irrelevant. And in Alberta we hear that producers have stopped paying their freehold royalties. Therefore not earning title to the oil or gas. Cash is very tight indeed.

Raising money in this market is impossible. Investors and bankers have had enough of what the producers are selling. Bond holders of Chesapeake won a court case last week in which they were awarded an additional $300 million in compensation. The court’s seem to think that oil and gas is a business. We know it as a science experiment where paying the investors, bankers and bondholders holds mythical status. Why would the industry pay those that provide the capital to run these science experiments? Wilbur Ross was also on Bloomberg last week stating that he was back investing in oil and gas. This would seem contrary to what I’ve been stating, however, Mr. Ross says that he is only buying the producers bonds in the distressed bond market. Which of course doesn’t provide any money for producers to pay any of the bills. And is in essence, just a gamble that the price of the bond will go up if the Saudi’s do freeze production.

I wonder what would happen to a producer's prospects of raising investment and banking capital if they had a plan on how to get out of this malaise. One in which the producer could be an active participant in dealing with the issues in the industry. A plan like that which the Preliminary Specification provides. Where profits were the focus of the organization. Strange but true. Then when you stated that you were profitable, you might earn some credibility in the investment community when you did earn a profit. Today an investor hears you saying you’re profitable at $43 and then you publish financial statements that show you're losing record amounts of money and have no cash. I’ll bet the investors would get behind those producers, that had a plan, new what a profit was and could start building for the future. Producers need to stop this nonsense and fund our budget.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. 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. 

An Out of Control Science Experiment

Faith in “market rebalancing” takes a hit as the IEA states.

The surplus in global oil markets will last longer than previously thought, persisting into late 2017, as demand growth slumps and supply proves resilient, the International Energy Agency said.

World oil stockpiles will continue to accumulate through 2017, a fourth consecutive year of oversupply, according to the IEA. Consumption growth sagged to a two-year low in the third quarter as demand faltered in China and India, while record output from OPEC’s Gulf members is compounding the glut, said the agency, which just last month saw the market returning to equilibrium this year.

“Supply will continue to outpace demand at least through the first half of next year,” the Paris-based adviser said in its monthly report. “As for the market’s return to balance—it looks like we may have to wait a while longer.”

The problem is none of the producers that I’ve seen have the financial resources to make it through these tough times for another year. And doesn’t this change in the forecast sound just like the previous changes in the forecast? Where the “markets rebalancing” will somehow always magically appear within a two year time frame. The problem is it never happens. Just as we saw in the 1980’s and 1990’s the producers continue to produce, complain about the low prices and say it’ll get better. The difference today is that shale makes it devastatingly difficult to call the industry commercial. Its really just an out of control science experiment.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. 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 Calm Before the Storm

I am taking a couple of weeks off. This may be the last opportunity that I’ll have for a while. I don’t see good things coming about as a result of the current leadership's betrayal of everyone’s interests. And it's going to happen soon. I may post here during the next two weeks however, don’t expect anything during that time. There are going to be tough times in the oil and gas industry and we will have much work to do to build the Preliminary Specification. Capitulation by the commodity markets will occur. I think within the fourth quarter of 2016. Both natural gas and oil prices will decline precipitously to new levels. And they will stay there until such time as the North American producers attain production discipline. The only manner in which to attain production discipline is through the Preliminary Specification and that will take some time to build. It is the solution to what can only be described as the biggest issue in oil and gas, ever.

It didn’t have to be this way but that is the way that change is made. The old ways fail to operate and they have to be removed. The current producers have no back up plan on how to deal with the situation if “market rebalancing” is determined to be a failure. Which is what capitulation will imply, as well as the lack of faith in the current administration. They also have no financial reserves remaining to cover off their continued losses and will not be able to shore up the business's survival any longer. Confidence in the producers that they have things under control will evaporate. Time to prepare for the storm.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. 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. 

Capitulation

The Saudi’s are working to stabilize the price of oil with their announcement of a production ceiling agreement with the Russians. Only to declare that this agreement might be something that they’ll use in the future. Maybe. Oh well, it seems at times the Saudi’s are just playing with the market. They know that their customers are being serviced by their production, and as they’ve stated, that is their strategy, to service their customers. The price of the commodity is not something that they feel they’re able to change without losing their customers and the price is therefore for others to deal with. The North American producers have flooded the market with oil in the past few years with absolutely no understanding of the impact of producing everything that they can, whether it’s profitable or not. And as we’ve seen, no North American based producer is profitable these days. Incurring and reporting record losses reflects the scale of the overproduction epidemic in the industry.

Every day we are provided with news of how shale has destroyed the commodity market space with overproduction and oversupply of both oil and gas. Recently Apache reported a discovery of 3 billion bbls of oil and 75 tcf of gas. Numbers, that in prior decades, would be from the planet Mars. We note Apache are moving these reserves on to the market as we speak. There is no understanding that the oil and gas industry is a business. It's just an engineering exercise in how to get everything producing as quickly as possible. There are no consequences.

And so it’ll go. This is what we’ve seen year in and out. The innovations being brought about by Packers Plus and others continue unabated. The volume of the reserves being discovered, the length of the lateral sections of wells being drilled and the deliverability from those wells continues on their upward trajectory. The only thing that is more impressive in the oil and gas industry is the size of the losses being incurred. Most producers have eliminated all of the capital that they’ve ever raised through the equity markets. With today’s commodity prices, and the projected future prices, continued losses are all that can be expected. That is until the “market rebalances.” That magical time when the world achieves permanent peace, clean air and absolute harmony.

My position on “market rebalancing” is that the producers are continuing to fool themselves that this overproduction and oversupply is self correcting. The Saudi’s know that it isn’t. Until the North American producers are made aware of their disastrous methods no one will make money anywhere in the world in oil and gas. What is needed is a method of production allocation to ensure that any production that is produced is profitable. That way the commodity markets are not overwhelmed, as they are now, with high cost unprofitable production. Only People, Ideas & Objects offer a method of production allocation based on profitability. The possibility that the production allocation of the Preliminary Specification would work is denied by the producers. The alternative therefore is to continue to push more production onto the marketplace until? The market capitulates.

Natural gas capitulated a few years ago. The market stopped believing the producers had the solution to the overproduction and oversupply in the natural gas markets. “Market rebalancing” didn’t work after all of the natural gas production was put on the market at once. As a result, all faith in the natural gas prices and the natural gas producers collapsed. No one talks about natural gas anymore because no one listens anymore. They don’t believe the producers will ever get a handle on the supply side of the shale based natural gas reservoirs because they continue to put all of the natural gas reserves onto the market. And therefore the natural gas price is about one third of what is necessary to earn a profit. That is an actual accounting profit based on all of the actual costs being considered. That being a full accounting of the costs. Not these mythical “recycle costs” coming from the producers.

I think we’re at the beginning of the capitulation of the oil markets. It seems like it's been decades that we’ve been hearing about “market rebalancing” and how that is always somehow just two years away. Is anyone believing what is being said anymore? Everyone looks to the actions of Opec and the Saudi’s. I think they’re laughing in our face because we have become so gullible to the “market rebalancing” theory of the North American oil producers. Fool me once. This’ll be about the tenth time that the industry has been put on notice that the Saudi’s are going to meet and as we can see, nothing is done.

When and if the oil market capitulates, the credibility of the producers will be finished. No one will look to them for the answers to how to get out of the desperate situation we’re all in. New solutions will be sought with the intention of implementing them. The only solution in the market today is the Preliminary Specification of People, Ideas & Objects. Then we can begin the process of rebuilding the industry brick by brick and stick by stick. Until then it's fairy tales and “market rebalancing.”

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. 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. 

Funding the Budget

I have repeatedly claimed that producers need to fund People, Ideas & Objects budget in order to begin the process of building the Preliminary Specification and address the issues in industry. Our Revenue Model specifically addresses the need for the producers to be the ones to pay the freight on our budget. And this has been one of many sticking points between ourselves and many of the producers. They feel that there are other means in which the software could be financed and those should be explored in addition to the producers footing the bill for these software developments. I’ve disagreed and pointed to our Revenue Model as the reasons for this difference of opinion. However with most aspects of the producers dealings, one being with the service industry vendors that support oil and gas, producers have a method of dealing with vendors that is inconsistent, I believe, with the best interests of the oil and gas industry.

Specifically the oil and gas industry is a primary industry. Its source of revenue is from the sale of oil and gas. The service industries that support the oil and gas industry are secondary industry participants whose primary source of revenue is the oil and gas producer. This doesn’t make them leeches, lazy or greedy when it comes time to conducting operations for the oil and gas producers, it's just a fact of life. A more progressive attitude would be for the producers to understand that they, as well as the vendors in the secondary industry, are all generating the revenues that the oil and gas producers receive. That the producers hold the cash from the sale of oil and gas and that doesn’t necessarily mean that it’s all theirs and no one else is entitled to it.

We see the extension of this attitude when the service industry is expected to conduct much of their research and development on their own dime at the expense of third party investors and bankers. Producers don’t financially participate. At the same time, once the innovation is proven, the Intellectual Property underlying the technology is not respected and passed on to the vendors competitors and potential competitors. The producers thinking that if they have more solutions providers in the marketplace then they will be the net benefactor. The Resource Marketplace and Research & Capabilities modules were developed to deal specifically with these issues and provide for a more innovative footing within the oil and gas industry.

This pirating of Intellectual Property needs to stop. Continued use of these policies, and the difficulties being realized in the service industry, the oil and gas industry will be presented with very few options in the field in the future. This as a result of the treatment that they’ve provided to the service industry in the past and currently. They’ve fundamentally cut them off financially and let them fend for themselves. As bad as it is in oil and gas, the situation in the service industry is far more desperate. When, and if, things return to normal there will be no vendors in the field able to conduct operations and their ability to find qualified people will be challenging. This as a result of the leadership in oil and gas capitulating any responsibility by adopting the standard operating procedure of “market rebalancing.” Accepting that this current environment is normal and to be expected is what’s truly wrong. This willful destruction of the industry as a policy must end. It would be kinder treatment if the producers just told the service industry to let them eat cake! How can the leadership be so blind to the damage and impact of this foolish way of doing business?

I am asked why I don’t approach the royalty holders to raise some of the money that is needed for our budget. And the question is also asked, what is Oracle doing, why are they not participating in the budget. There is a long history of the producers treatment of ERP systems vendors in this marketplace. The big guys left decades ago as they were unable to source any funds from the producers to do any development work. Sound familiar? The producers felt that the ERP providers were being given a good business opportunity and should make the investment in developing the software themselves. And the producers would buy it when it was finished. Fool me once shame on me. Fool me twice, or three, four, five times? We’ve been down this road throughout the history of ERP systems development. No one is investing in the business because they know once the system is built the extremely low number of producers expect that it will be sold to them for 10% of a sustainable asking price. It’s too small of a market to concern themselves with and that is the reason why there is now a preeminent software bug in the oil and gas industry.

I could promote Oracle into developing this software on behalf of the industry and would have no difficulty whatsoever in doing so. All I need from each producer is the assignment of their future revenues in exchange for Oracle’s promise. Or alternatively I could get the royalty holders to sign on to take a big share of the costs too. With royalties being the largest cost item a producer incurs, we would then not focus on those royalties of the producer in People, Ideas & Objects, the user community or service providers. Just pay the royalties being asked. But then I would not be able to claim to provide the oil and gas producers with the most profitable means of oil and gas operations. There’s only one group that has the means and the motivation to fund these software investments. If I can’t convince the producers to do it in their own, substantial best interest, who would volunteer their money to do it? This industry should be considered a business, not an engineering exercise. There are trillions of dollars involved in our value proposition over the next 25 years. I guess that doesn’t mean anything to the oil and gas producer.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. 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 Big Picture

Based on the industry's behavior it would seem that everything is ok in the oil and gas marketplace. Just ignore the problems of overproduction and oversupply and they’ll go away. The only issue is that I keep writing about it here. If only I would stop writing then everything would be fine. As we’ve documented here and as was reported in the producer's second quarter reports. There is no time to be wasting in terms of focusing our efforts on building the Preliminary Specification. Avoidance is somewhat the historical approach to solving problems. It has to become a full fledged crisis in order for people to act. The slow drip of the daily news doesn’t motivate anyone to make the change until the time comes when the changes are made for you. I think we’re at that point. The industry is taking its last few moments of peace and tranquility before things get out of hand and no one will be in control of the events.

Rumor was that the recent decline in oil prices to $39 was due to record volumes of short positions. Opec was unhappy with the movement of the price as a result of these short positions and therefore made the announcement they were getting together to discuss production freezes. The price then leaped back to $48 burning the shorts. Or did they? The price has been in freefall since it reached those highs and is now in the $43 range. This isn’t normal. I don’t think this most recent downfall is attributable to the short positions or a loss of faith in Opec. I think it’s the same thing that we saw in the natural gas marketplace a few years ago. The loss of faith in the producer's ability to deal with problem at hand. A loss of faith in the concept of “market rebalancing.” When this happened in natural gas we saw it breakdown from its traditional 6/1, then 10/1 pricing structure. It’s now trading at 16/1 over oil which is up from the 20/1 last year.

Nothing has happened in terms of making any changes to address the overproduction or oversupply in natural gas since 2010. Shale gas reservoirs currently provide centuries of natural gas for the North American continent. Producers are scrambling to turn all of those reserves on to the market as quickly as they can in order to raise the only form of cash that they can. This is the state of the industry. Oil is maybe four years behind the characteristics that we saw in natural gas. This is due to the fact that oil was not originally produced from shale, only natural gas. If it is as I suspect that the oil market is capitulating in terms of the price, we could be seeing the beginning of a fundamental breakdown in the price of oil. Then, as I have stated here many times before, that that will be the last source of funding drying up for the producers.

When the oil prices fundamentally break down, will that constitute a crisis in the industry that’ll motivate the producers to develop the Preliminary Specification? No investors will put money into the industry due to the state of the finances of the industry. They are abysmal, primarily due to the four decade long deception of bloated balance sheets being carried out at investor's expense. This charade being clearly evident on top of all the other difficulties. Bankers are now taking any money that hits the bank accounts. It's probably a good idea not to call them. Asset sales are about as impossible as can be, especially when companies such as Chesapeake are dumping their prime jewels for $0.00 consideration. Just to get away from the cash drain. Everyone is running around trying to produce as much oil and gas as they can because they need the cash. And the leadership in the industry predict “market rebalancing” some time in the next 2 - 3 years. Exactly as they predicted it four years ago.

The industry is financially destroyed. The commodity markets are destroyed. Gas fundamentally broke down, and oil is about to fundamentally breakdown. The world is awash in shale based reservoirs and the producers haven’t a clue what to do about them. The old business model, based on oil and gas scarcity, is redundant and has led to this crisis. We need to shift to a new business model that deals with the abundance of shale based reservoirs. Where producers are able to allocate production fairly and equitably across the industry based on profitability. If the well can be produced profitably when all costs are considered, then it produces. Otherwise it will remain shut-in. Current producers can’t do this because they don’t know which properties are profitable and which ones aren’t. If they do shut-in any production their losses increase because their accounting and administrative costs are fixed.

With the Preliminary Specification we use the decentralized production model which enables the price maker strategy to be implemented across the industry. By reorganizing the producers and industry we are able to identify each individual property's actual costs. Determine which properties are profitable so that the producers can shut-in the unprofitable properties. Saving those reserves for a time when they can be produced profitably. Increasing their overall corporate profits by not diluting their profitable operations with unprofitable properties. Allowing the commodity markets to find their marginal costs and reducing the costs of their reserves by the losses that they would otherwise incur in the current system.

So let's move. Let’s get People, Ideas & Objects funded and on its way to delivering the software the industry needs. It’s early September, what better time to start! I don’t see anything positive coming from the current situation.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. 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. 

An Assessment

We begin a new week with a 50% probability that oil and gas commodities will be higher at the end of the week. This should lead to a 50% probability that there will be higher commodity price projections by media pundits. Leading to the only conclusion, that we have a 50% probability of being in a bear market. The most interesting article to read is the one regarding Packers Plus innovations in Argentina. Taking the time to frac a well using coil tubing from 220 hours down to 7 hours for an open hole completion. Packers Plus is wholly responsible for the innovations in multi-lateral fracing. Their history is also one in which they struggled and fought industry to bring their technologies into being. If completions are being done in 7 hours which recently took 220 hours, you can be sure that the most important number for producers to understand is the 17% of all shale based reservoirs are located in the United States. This fact will need to become more prevalent in the minds of the oil and gas producers. The high cost of fracing just collapsed, but remains highly unprofitable due to shales prolific nature. Production discipline is needed and that can only be attained by implementing the Preliminary Specification.

It’s the beginning of September and we should be developing software but we’re not. We continue to develop the user community which provides us with the knowledge and understanding that we are continuing on the path to the delivery of our solution to the industry. September may be the ideal month in which to start the development of a project such as this, however it is not the only month in which it can be done. To put into context the point in time that we find ourselves in, I am reminded of a quote from Sir Winston Churchill. It was during the lead up to World War II. A time when he was ostracised for his position against Hitler’s violations of the Versailles treaty and armaments.

When the situation was manageable it was neglected, and now that it is thoroughly out of hand, we apply too late the remedies which then might have effected a cure. There is nothing new in the story. It is as old as the Sibylline books. It falls into that long dismal catalogue of the fruitlessness of experience and the confirmed unteachability of mankind. Want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusion of counsel until the emergency comes, until self-preservation strikes its jarring gong -- these are the features which constitute the endless repetition of history. 

It is today that the Preliminary Specification can cure the oversupply and overproduction issues in oil and gas. What happens in the interim while we are clearly in this period of “Want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusion of counsel until the emergency comes.” It is therefore necessary that the dynamic, innovative, accountable and profitable oil and gas producer. The producer that will use the Preliminary Specification to achieve those attributes, will be guided and provided with the flexibility to deal with whatever those future contingencies may be. Whether they are issues or opportunities the industry must be structured to deal with them in an effective manner. Disposing of the “muddling along” strategy permanently.

The only manner in which to do this is to ensure that the software that defines and supports the dynamic, innovative, accountable and profitable oil and gas producer is driven and defined by the user community that we are creating. Only then will the ability of the user community be able to act in the best interests of the producers, and be able to implement those features with their access to the defined software development capabilities of People, Ideas & Objects.

I heard the “jarring gong” long ago. I think some other people are within range of hearing it soon. However there are many in leadership positions that choose to ignore the situation, and are for some reason permitted to do so. We have here in two articles (here and here) from World Oil that the leadership of the industry, at a conference, were quoted as saying that “market rebalancing” may not occur in oil until 2018 and not in natural gas until the early 2020’s. And that is the extent of their involvement in this crisis. Just wait it out. Muddle along and maybe whistle a show tune.

Producers don’t have that time. Many are struggling to meet payroll now. They are the walking dead. And what we should be doing is appreciating the fact that we only have to deal with low commodity prices. Will these producers limp along for the next few years in the state that they’re in? I think that is foolish. That is plenty of time for the next “issue” to make itself ever present in the industry. Maybe that’ll be higher interest rates. Or a general downturn in the overall economy. Ignoring the problems of today is not a solution. Self preservation instincts need to be initiated and solutions put into action. It is obvious that we are dealing with “the endless repetition of history” here, but based on Winston Churchill’s quote we are also very close to the time that the “jarring gong” resonates across the industry and we begin developments of the Preliminary Specification.

The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. 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.