T Minus Four Months and Counting

We began our 26th year earlier this month, now we look forward to the developments of the Preliminary Specification on September 25, 2017. Potential members of our user community should complete their applications and submit them before this date in order to be considered in this first years development. We are looking for a total of 100 people to make up 33 man years of effort in this first year. User community participation is always a part-time paid position. However the majority of the time spent and revenue that a user community member will generate will be through the service provider organizations that they develop to meet the needs of the oil and gas industry. These are substantial business opportunities, in my opinion. As the service providers are the replacements to the current accounting and administrative capabilities of the individual producers. Producers will have limited if any accounting or administrative resources employed within each of their firms under the Preliminary Specification. Instead they will engage with the service providers to manage their processes. Service providers in turn will use specialization and the division of labor, automation, innovation based on administrative or accounting expertise, making computers work for us and quality as their key competitive advantages. Managing one process, and only one process, service providers will administer that process across the entire industries data set.

In none of the annual reports or quarterlies that I’ve reviewed over the past decades, has any producer mentioned that accounting or administration were their key competitive advantages. The dynamic, innovative, accountable and profitable oil and gas producers key competitive advantages are their land and asset base, and their earth science and engineering capabilities. The closer they move to a strict interpretation of this division of labor the more focused they’ll be, and the more variable their cost base will be. The Preliminary Specifications takes all of the producers overhead costs and makes them variable costs that are accessed from an industry wide capability. No longer will each producer have to generate accounting and administrative capabilities in-house that are fixed in terms of costs, unshareable and replicated within each individual producer firm. This reorganization under the Preliminary Specification allows for an enhanced profitability across the industry.

This industry based, variable accounting and administrative capability of the service providers enables the price maker strategy of the Preliminary Specification. Each service provider assesses the Joint Operating Committee for their service fee. Not the producer itself. Therefore when the producer finds that a property is unprofitable and shuts in that property no information will be generated as a result in our task and transfer system, our system that drives the service providers. As a result no work will be done by any of the service providers and as a result no invoices will be sent to the Joint Operating Committee. Enabling that property to record a null operation. No revenues, royalties, operations or overheads. No profit but also no loss, a null operation. Therefore the producers profitability is maximized due to the losses on operations are no longer diluting the profitable properties, as they do today. The marginal production has been removed from the commodity markets, enabling the oil and gas prices to increase. The reserves are saved for the day in which they can be produced profitably and those reserves costs will remain constant as none of the losses that otherwise would of occurred would be added to the reserves cost base.

People, Ideas & Objects user community is the critical source of quality for our offering. The user community is endowed with significant and substantial power to affect change within the oil and gas industry. This is not your grandfather's user community. They will be the ones that our software developers work for. We are blind, deaf and dumb to anything and everyone else. The user community is also in complete control of the Intellectual Property that makes up the Preliminary Specification and its derivative works. As a result of these two key components, significant power is attained by them to ensure that they are not blind sleeping walking agents of whomever will feed them. And are able to develop and direct the changes that the oil and gas producers need in order to ensure that their future issues and opportunities are addressed. We do not want to lock the industry into the Preliminary Specifications business model permanently if there are better ways in which to manage the industry. Review of People, Ideas & Objects Revenue Model shows that we are change oriented software developers. That is how we generate our revenues. Through the changes that are initiated by the user community. If you want change based, user community driven ERP systems in the oil and gas industry, what are waiting for?

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. 

Some Deep Soul Searching

The solution to this chronic industry malaise is for the producers to jump on board the People, Ideas & Objects, user community and service providers software developments. These are beginning September 25, 2017 with the initial $100 million in funds that will be sourced from the producers. Enough to fuel our first years developments. If the bureaucrats believed that I would be nice to them after they’ve destroyed the industry to such an extent, then they’d be mistaken. I have many competitors that would tell them all the sweet nothings that their losing propositions have mythically obtained. If bureaucrats take what I’m saying personally then they’re being unreasonable. I have tried to solve this problem for 26 years now and received nothing but a repeated and frequent disciplining with their baseball bats. If they want to fix their business this is the place in which to do so. The question they need to ask themselves is, if they undertake to build the Preliminary Specification will the investors see that as the beginning of a new industry in which they would be interested in investing in? Breaking the log jam of the investors non-participation these past number of years. Their investor's concern is regarding the commercial viability of shale reservoirs. Producers financial statements are showing that the industry is not commercially viable and as a result investors are on strike. Creating the critical cash shortfall all producers are experiencing.

Within the first year of our software developments, and well before September 2018, producers will need to fund People, Ideas & Objects entire development budget. Stopping and starting is not an option, there is only stopping and failing. User community participants need to see that the producers themselves can take the actions necessary to resolve their problems by funding our full budget. There is no other way in which these overproduction and oversupply, and unprofitability issues will be resolved. We should also be concerned with the short attention span of the producers. If the marketplace should happen to temporarily improve this may lead some bureaucrats to believe the follow on financing of People, Ideas & Objects et al is not necessary. This lack of follow on financing would be a critical and fatal mistake and something that I would point out now to the oil and gas investors.

And what’s in it for the producer to follow our recommended course of action. People, Ideas & Objects, our user community and service providers provide the oil and gas producer with the most profitable means of oil and gas operations. We do this with our business model as defined here. Our software defines and supports a reorganization of the industry and the producers to operate a new business model that deals with today's issues. Our value proposition is priced in the trillions of dollars over the next 25 years. With our price maker strategy producers will be able to only produce profitable properties which will remove the marginal production from the marketplace. Producers will then be able to recognize the capital costs they’ve stored these past decades in property, plant and equipment by passing them through to the income statement. This way they will be able to replace those balances with balances in the accounts of current assets and then be able to pay dividends, pay down debt and fund their own capital expenditures.

These changes can only be done through the deliberate act of developing our software. Any attempt to make the changes without the commensurate changes in the software first, will cause the industry and producers to regress back to what the software that exists today identifies and supports. We need to take control of the development of the software that the industry uses in order to take control of the ways and means of the industry. Spontaneous order, of which we have relied on for centuries, is circumvented by the software that we use. Software cements the organization in an unchanging structure. Until now it has been convenient for the bureaucrats to distort this fact and ensure their position remains unchallenged by never changing the organization's software. However the damage to the industry and all concerned is tragic and will only continue to escalate. We may find days which are acceptable intermingled with days where everything is falling apart. What we do know for sure is that the overall trend is on a steep downward trajectory.

Later this week OPEC is meeting to discuss the extension of their production sharing agreement. North American based producers believe they’ve proven that their costs are lower than OPEC’s and have established themselves as the priority in terms of who produces. This may be incorrect. If as the BP Chief Economist suggested a few months ago. That there is adequate oil to supply the world twice over up to the year 2050, and as a result, the low cost producers, which are OPEC, will find the economics of production at any price is better than never realizing any value. This would preclude the North American producers from the oil and gas marketplace, because of their high costs, until the year 2050. There has been an acceptance that North America is the new swing producer. However, there is a misunderstanding as to what that means in the North American marketplace. The swing producer will be the first to curtail their production to support the price. Something producers would achieve dynamically with the Preliminary Specification. I would suggest some deep soul searching on behalf of the North American producers and suggest they develop a plan to deal with the next 25 years. A plan that is consistent with the reality of shale reservoirs, which happens to be the one that we recommend and are moving forward with the commencement of its development on September 25, 2017.

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 Producers Choice

The worst performing stocks of the first quarter of 2017, on a global basis, are the North American oil and gas producers. Even though OPEC has tentatively committed to extending their production cuts until March of 2018. Oil prices remain barely above $50 due to the shale producers zeal to fill any void left by OPEC’s production sharing agreements. Producers all claim that they’re profitable at $34. This is attributable to the fact that they never recognize the capital costs of past production. The capital costs they do recognize are so insignificant, due to the fact they recognize them over the usual 15 year period of depletion. Causing their property, plant and equipment balances to bloat excessively on their “well protected balance sheets.” In the first quarter of 2017 our sample of 23 producer’s spent $10.2 billion on capital expenditures and recognized $14.3 billion in depletion. Reducing the property plant and equipment balance by $4.1 billion to $459.2 billion. At this rate another 112 quarters should clear these balances. The point of the exercise is clearly to store these costs for as long as possible, to never recognize them and pretend that they’re profitable under the basis of a perverted SEC ruling that is the exception and counter to all other industries.

Running a producer as a business is the solution. Moving the balances of property, plant and equipment to the income statement in a timely manner would have recorded a collective net loss of $397.3 billion. Providing key evidence to our claim that producers need a tripling of oil and gas revenues to survive. This would therefore also represent the amount that the investment community, the source of the capital to fuel those losses, has subsidized the energy consumer. With these costs sitting on the balance sheet for eternity the industry will always look profitable. Oil and gas is a capital intensive industry, the real costs are in the drilling and fracing operations not in the operation of pumpjacks. This is not just ludicrous from a business point of view, but from a practical manner as well. If the producers only produced profitable production as with the Preliminary Specifications decentralized production model and price maker strategy. They would obtain the prices necessary to eliminate the property, plant and equipment balances and recognize the real costs of the oil and gas business. In turn the “business” would generate cash that could be used to pay dividends, pay off debts and fuel future capital expenditures. Their property, plant and equipment account on the balance sheet would be replaced by current asset accounts they could use. That would however require they begin running a business.

Our price maker strategy is the issue the bureaucrats point to as being unacceptable. They will never intervene in the market to “make” prices. They want to see the “market rebalance.” Markets do one thing and only one thing and that is provide information by way of price. If the price is adequate for you to produce and make a profit, you produce, otherwise you don’t. And that is the way markets everywhere and our price maker strategy work. If the property earns a profit, considering all of the costs, including capital costs on a reasonable basis of recognition, then it produces, otherwise it’s shut-in. This is not collusion as the bureaucrats claim, its independent business decisions being based on actual factual accounting information. You’re in business to earn a profit. Why would you produce if you didn’t earn a profit? You wouldn’t. With the Preliminary Specifications reorganization of the producer and industry the shut-in production incurs a null operation, no profit but also no loss. The shut-in property will incur no royalties, operating costs and no overhead of any kind. Therefore the producers profits are maximized as a result of only producing profitable properties, no unprofitable properties are diluting their earnings. The commodity markets find the marginal costs of the commodities due to the marginal production being removed from the market. The reserves costs remain constant due to the fact that consecutive losses are not added to the reserves each year. And those reserves are saved for a time when they can be produced profitably.

I’ll admit that People, Ideas & Objects our user community and service providers are part of the lunatic fringe as a result of this thinking. We are absolute evil, and how dare we suggest that the industry be operated as a business. It’s just what we do. This industry has been operated on this basis now for four decades. Most of the people in the industry don’t know anything different. It is culturally ingrained and the destruction is beginning to be recognized. Note the word beginning. When you don’t recognize your capital costs for the first few years, or even decades, it’s an advantage. Then as the balances of property, plant and equipment build up, that advantage turns into a disadvantage in order to equal things out. Mostly due to higher depletion rates, large balances of debt and large numbers of shareholders offsetting these very high balances of property, plant and equipment on the balance sheet. Where’s the upside for a new investor? Outsized balances of property, plant and equipment will be the albatross of these producers for decades to come, under the current methodology. The other consequence of not recognizing your capital costs is that you report healthy profits in the early years which draws in excessive amounts of capital. You remember those good old days don’t you. That excessive capital leads to overproduction or over capacity. Which from a business point of view, I don’t think there is a more dire and difficult business problem to overcome. Most businesses can’t survive when they’ve invested into too much capacity. The increased overhead of the surplus capacity eats you alive. The oil and gas industry has invested into too much capacity. What will happen as a result? Will it be that the producers support one another by participating in the development of the Preliminary Specification, or drag each other down? With the only source of cash being “more” production I think we have our current answer.

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. 

Victoria Day

No posting today.

Third Friday Off

No posting today.

Our Developments in Sight

In as little as four and one half months from now we begin the developments of the Preliminary Specification. Not a lot of time to complete the things we need to do. People interested in our implementation or our plan can follow those links. If you’re interested in being one of the one hundred or so members of the user community that we’re starting with in our first year then you should complete your application as soon as possible. Remember these are part time positions that we are looking to fill approximately 33 full time positions with. We are looking for our user community to provide us with a broad scope of understanding of the industry. To fill out a detailed outline of the Preliminary Specifications deliverables for September 2018. Therefore we need a reasonably large number of user community applications to select from. Selection for the first year does not preclude those that are not selected from joining the user community in subsequent years. We will be looking for a total of 3,000 user community members making up 600 man years of effort per year when we are in full development.

Our software developers are a different story as they are full time hires and employees of People, Ideas & Objects. We are therefore looking to fill this requirement somewhat dynamically in the first year, if that makes any sense. These will be critical team members for the long term of the project. Therefore user community members may see rapid turnover in some of the developer positions in the initial phase of this development. This is one of the reasons that we need to start this development now. Our products and services are needed in the marketplace today, but nothing like what they’ll be needed in the next few years. As long as everyone understands that I’m sure we’ll be able to work through it.

Another aspect of what our developers will be working on is having the Oracle Fusion Middleware and Oracle Fusion Applications operational in a cloud computing environment. That way the user community will be able to see the base of the applications that they’re building upon. And they will be able to see their iterative developments as the developers code is committed and run on that environment for the users to see and use. It will be this facility that will enable us to move much quicker and the user community increase the quality of their offerings. Our only constraint is the speed of the user communities ability to think. Oracle also has one third of the costs of our initial budget made available to them to begin the technology transfer from their organization over to People, Ideas & Objects. We’ll need to learn many things and Oracle will be able to bring us up to speed in the shortest possible time. They will also be able to support their applications and our developments at a much higher level than what we would otherwise be able to do. We have a large technically challenging task ahead of us. Oracle has fully one third of all of the costs of our entire budget to ensure that these objectives are achieved in the long run. I have worked closely with Oracle in this capacity during our 1992 - 1997 joint development efforts. It is the superior methodology to ensure that we mitigate the technical risk we face and achieve the success that the oil and gas industry requires.

I have been abusive towards the oil and gas producers throughout the history of this blog. We have a MAAA (Mutually Assured Abuse Agreement) in place and I adhere to the spirit of that agreement. If they want to stop abusing the group that is providing the most profitable means of oil and gas operations. Who are conducting the only issue identification and resolution in the industry. Then I’m game. We are unquestionably the personification of evil but producers could easily overcome this by funding our first year's $100 million budget in a timely manner. Producers need to think and ask themselves critically, do they have the situation under control, and are their investors convinced that they have a plan for the future? Or do they need to address the business model in which the industry is operated and implement one that provides the oil and gas producer with a dynamic, innovative, accountable and profitable footing? As I said the other day, the writing's on the wall and my focus in on getting this software and the user communities services operational in a successful manner in the oil and gas industry. They are certainly welcome to join us here at anytime before our start date of September 25, 2017.

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. 

Onward and Forward

The one thing we should be grateful to the producers for is that we now have tangible proof. Proof that spending money like drunken sailors never made anyone rich. We’re doing something about the issues in oil and gas so we don’t look like the bureaucrats, developing our software beginning September 25, 2017, otherwise we are no better than the bureaucrats who do nothing. And therefore we are at the very beginning of the delivery of the Preliminary Specification to the oil and gas industry. Key to this delivery is our user community that we see as the source for the quality of our software and the services that these user community participants will provide through their service provider organizations.

Almost three and one half years of user community development is the investment that has been made by People, Ideas & Objects. It had to be made. The user community is the critical point of success and quality of our offering. It is now the only major impediment to our speed in delivering our solutions. For the industry to move and implement the necessary changes the user community can be deployed in rapid fashion and deliver on the vision of the Preliminary Specification. It is the speed in which the user community can think that will be the constraint that we are now limited by. That multi-year investment has been made and now it's time for us to act on that investment and the vision of the Preliminary Specification.

I published the Preliminary Specification in December 2013. It provides the overall vision of how and what the industry and producer needs in order to to become dynamic, innovative, accountable and profitable. Since then we’ve worked to develop the user community. There is a saying that I think is appropriate for everyone to consider at this time.

‘Vision without action is merely a dream. action without vision just passes the time. Vision with action can change the world!’

With the participation of the user community in the development of the Preliminary Specification we can change the oil and gas industry to one that is dynamic, innovative, accountable and profitable. With no bureaucrats allowed! It comes down to the individual decisions of the people within the user community who have and will decide that enough is enough. What the producers believe today is that everything will soon return to normal. Shale is here for the very long term. Outsized balances of property, plant and equipment will be here for a long time. The debts will be here for a long time, and most probably, growing. The overproduction and oversupply issues are systemic and chronic and prompted me to seek a solution in 1991 to the overproduction in the mid 1980’s that caused the oil price collapse. Producers then just continued to lose money and increased production until the day they died. Sounds familiar doesn’t it. These problems are not going to disappear under these current administrations. These issues appear to me to be a feature of the business model that’s in use. Continued inaction, without any vision of the future, has us wasting time that is too expensive for all concerned. Which is exactly what the bureaucrats want.

I would argue that these problems will only become more protracted and difficult for the producers to deal with. The lack of cash is the current symptom that is plaguing the industry. And there are many ways to remediate that cash shortfall, none of which the producers are finding that they would consider affordable. And so they will muddle along and do nothing. It is now clear to those within the industry that shale production volumes increase at much lower price levels than first believed. Of course they would, it’s the producers only source of cash. Even in natural gas it was believed that shale production volumes stopped increasing last year. Now we find that to be untrue. Natural gas prices began their precipitous shale induced decline in the summer of 2008. Other than lose vast amounts of money and time since then nothing has been done. This business model is truly flawed. Our changes need to be made in the oil and gas marketplace and now is that time. Otherwise we’ll be stuck here forever.

It is the user community that is the source of the quality of the ERP systems that we’ll use in the future. People, Ideas & Objects have invested heavily in the development of our user community and now is the time for you to begin your participation. The issues in the industry are not being actively discussed and there is no vision and no plan to deal with them. More time will be wasted as a result and based on the financial performance of the industry a lot more money too. We can remedy this with the vision of the Preliminary Specification and the individual actions of the user community participants.

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. 

We Are The Standard

Yesterday we detailed the issue that oil and gas producers face as a result of their inaction and covering up the difficulties they’re experiencing. Chronic and systemic overproduction and oversupply are now a permanent feature of shale based reservoirs. And commercial financial performance has never been attained anywhere in the industry over the past four decades. This has set the investment community on strike, creating a cash crisis that deepens with each successive quarter. Continued avoidance of the issues by the producers can only continue for so long. At some point they will need to regain the trust and confidence of the investment community, and banks, in order to function as viable going concerns operating commercial businesses. How can that trust and confidence, the integrity that they have things in hand, be earned by the industry?

People, Ideas & Objects, our user community and the service provider organizations that they’re developing will be the means in which the industry regains the trust and confidence of the investment community. Primarily by providing the oil and gas producers with the most profitable means of oil and gas operations. Something that we’re dedicated too and have developed as key elements of the Preliminary Specification. Everything that is done in the Preliminary Specification is to generate the profitability that a commercial industry needs. This is done so that society can prosper as a result of a healthy oil and gas industry. People will continue to be gainfully employed. People will be able to look to the industry as an area of interest to pursue through their university education. People in the service industry will be able to develop businesses that continue as going concerns and not risk everything on the “cyclical” nature of oil and gas. These people will pay taxes, as will the oil and gas producers. Who will also pay royalties. And lastly the investors who have made this all happen will be able to see the day when their investments have actually paid off. That is how an industry contributes to society. Other than the bureaucrats, whose benefited in the past four decades? No one.

People, Ideas & Objects, our user community and the service providers are the standard of expectation and the standard of performance that the industry will attain. Our Revenue Model specifies how we are able to source the resources that we need to achieve this. We are not blind sleepwalking agents of whomever will feed us. We are delivering the systems, accounting and administration that is necessary to achieve the most profitable means of oil and gas operations. By running the industry as a business we will be able to achieve much more than what’s been done to date. What will be expected of us in the next 25 years will be the most demanding period that the industry has ever faced. Where is the current discussion of this future? Muddling along through the next 25 years will only bring more of the poor performance we’ve seen throughout the past four decades. Muddling along and doing nothing are abject failures as the strategy of every producer. It was an inane strategy, ridiculous to consider and foolish to pursue. Now the evidence shows that it’s been a financial disaster.

We commence developments with our user community of our software on September 25, 2017. Producers need to realize the situation that exists today and take steps to remediate these problems. Otherwise the end is clearly in focus. Their participation is a necessary element of this development in a number of ways. They hold the financial resources that we need to build our product and services. We need the $100 million for our first years development costs in place by our start date. We then will need our full budget in place by September 2018. Producers should ask themselves if the act of funding our budget will satisfy the investors to the point where they’ll call off their strike? Another aspect of our need for producers participation is in terms of software quality. They need to work with our user community to ensure that they are receiving the software that they need to function. If you put nothing into this development I can assure you’ll get nothing out of it. There are fundamental and significant changes being made to the producer firms and industry. Being unaware and unknowing of these would be terminal to your operation. There would also be, in my opinion, no opportunity for you to catch up once the software is operational. The speed of the producers on our system will overwhelm your performance in the marketplace.

The writing's on the wall. What will you do? Try the junk bond market again? Muddling along will certainly be the operative strategy. However the difficulties will be about as high or higher as they have been these past two years. A constant chronic and regressive struggle throughout your future. Or you can choose to make the change that will end this destructive cycle that began long before most of the people began working in the industry. The culture is flawed and needs to be shelved. We need to adopt the dynamic, innovative, accountable and profitable culture that is the by-product 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.

ROFLOL

Earnings of the producers for the first quarter of 2017 have all been published for the most part. I have been critical of the earnings and accounting of the producers on this blog. On many occasions I’ve stated that they did not have any real profits for the past four decades and that they were not innovative. They’ve certainly proved me wrong with this first quarter's performance. In most cases the producers did report somewhat healthy profits in comparison to the past two dismal years. The problem for the producers is that there continues to be no cash. Although there were profits, no real cash was generated. Which seems odd doesn’t it? What they’ve done is increased the number of years in which their depleting their property plant and equipment. Extending it out to 15 years in some cases. Which dropped the amount of depletion recognized in the current quarter by, you guessed it, the differential in this quarter's profits. When a producer says their innovative don’t forget to include the innovations that occur in accounting as a key part of that. For the last year we’ve heard the producers claim that they reduced their costs to ensure that they were only producing profitable operations. I guess that’s true when you reduce the amount of depletion per barrel of oil, that is a reduction in the cost of oil and gas. Bernie Madoff is proud of this bunch.

This farcical and comical act reflects the bureaucracy doubling down on their positions. It reflects the position that they will stick their head in the sand and avoid the problems in the industry, at whatever cost. The quarter generated no cash, producers have no cash, no working capital and no access to any capital markets. They’ve been cutoff now for the better part of a year from the serious money that traditionally invested in the producer's annual stock offerings. I saw no money being raised by any of these firms in the first quarter. Banks have stopped all material lending of any money. Those that were fortunate enough to have raised any cash from banks spent that cash on dividends. Otherwise they would’ve had to cease the distribution of those dividends. Profitable yes, in an obscure accounting sense, but cashless.

My analysis of the quarter determined a new factor that I think effectively reflects the distorted nature of what I’ve been talking about here. That bloated balance sheets of property, plant and equipment exist everywhere in the industry. And as a result none of the producers recognize the capital costs of past production and as such have never been profitable. It does no one any good to have these capital costs, in a capital intensive industry, sit for 15 years. If the industry would have recognized them in an appropriate manner, as a business, these costs would have flowed to the income statement. Where, if they were receiving commercial prices for their products they would have been able to report real profits and return those capital investments in property, plant and equipment back into cash for further investment. This would be a commercial operation. But why would you do that when you can just hold an annual share offering.

This factor that I am speaking of reflects this distortion but also shows that the fake profits that they’ve reported over their lifetime don’t amount to a hill of beans. I reviewed 23 companies and compiled a summation of those companies into a representative sample of the industry. These are North American based producers that have 7.688 million barrels of oil equivalent per day output. Their undepleted property, plant and equipment currently stands at $459.2 billion while their cumulative lifetime earnings as represented in retained earnings sits at $61.9 billion. Most if not all of these producers are in excess of 20 years old. The return of dividends in 2016 was $8.5 billion or 1.85%. We’ll assume that has been the case for each of the prior years. Nonetheless, returning only 13.5% of that investment over the life of those assets, above the possibly 37% in dividends over that period. Is abysmal. And that is on the basis of an accounting that is highly questionable. On a reasonable accounting basis this producer sample would have reported $397.3 billion in losses.

This is the issue that the bureaucrats need to focus on. Chronic, systemic overproduction, oversupply and unprofitability. If they don’t see that problem I’d be surprised. They certainly went to great lengths to try to hide these facts in the first quarter 2017 reports. The issue is performance, and clearly there is none, and never has been. I have detailed the number of reasons that this issue exists. The remedy is the Preliminary Specification, its decentralized production model and price maker strategy which we are undertaking to begin developments on September 25, 2017. Please note the change in the date. I have moved it back three weeks.

I doubt that I am the first to look at these numbers from the point of view of an investor. I’m sure that’s why there is no further investment being made in the industry. And these first quarter 2017 accounting shenanigans will not have changed any minds. Clearly there is a problem and the investors were only adding to it by participating in the annual stock offerings. Why would that continue? I see no reason for that until the producers deal with the issues at hand. I think they’re fooling themselves into believing that this is fixed.

This is the history of the industry. And we all know that accounting doesn’t matter in oil and gas. But accounting is about performance. Clearly the industry in the past four decades has not performed. It is reasonable to state that it never attained a level of commercial operations. Investors had expressed their concerns that shale may not be a viable commercial operation. We are nowhere near answering that question. Is a continuation of these non-commercial operations for the next 25 years in the industry's future? What’s the plan? It's one thing to avoid the problem, it's another to publish quarterly reports that represent the wholesale dishonesty of what has been said in the past year. “We are profitable at $40.” etc. Integrity is a hard attribute to reclaim once its lost.

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. 

2 millionth word

I estimate that we are now in excess of two million words on this subject.