Revenue Model, Part III

Whom Are We Building Systems For.

We now apply and extend Professor Jurgen Habermas’ 1960’s theory of different knowledge interests. Building on our discussion of People, Ideas & Objects value proposition, and the development of our Initial Coin Offering as the source of funding for our software development budget. We now delve into the difficult question regarding what we need the Preliminary Specification for. Are we developing systems that manage the commercial operations of an oil and gas producer, service industry and service providers? Yes we are, but that does not address the societal and individual needs of these systems. If we continue to look at just the needs of the producers, then we are leaving many needs unaddressed. Society and individuals are critical elements of a successful oil and gas industry. For example society benefits by having producers and the service industries efficiently interact, develop profitable operations, pay royalties and taxes. Individuals create innovative solutions to the demand they see for their services.

Overall organizations, individuals and society benefit by an increased and expanding division of labor and specialization. In today’s globalized, high technology workplace an expanded division of labor and specialization can be more efficiently created through a permanent industry wide software development capability such as that described by People, Ideas & Objects in its Preliminary Specification. When we concern ourselves with the economic output of the oil and gas industry. To expand that output requires that we organize ourselves based on greater levels of specialization and a further division of labor. The responsibility for increasing output does not fall to society, individuals or organizations in isolation but to all three. Therefore it is reasonable to state that what we need is the Preliminary Specification to address societies, individuals and organizations needs. I do not foresee further development of the division of labor or specialization occurring within the oil and gas industry without the active involvement of systems development. In a somewhat deliberate manner where all groups are represented such as People, Ideas & Objects has.

If we look critically at the division of labor, and eliminate some of the constraints to expanding it further in oil and gas. Constraints like the limitations of working within one firm or one Joint Operating Committee (JOC). If an individual has the capacity to apply their skills to a task for a geographical region that includes 100 producers and 200 JOC’s, the efficiencies could be substantial. The ability to manage a task in this fashion doesn’t exist within industries current organizational context. However this style of reorganization is a key part of the Preliminary Specification and our service providers.

The current downturn in the oil and gas industry has been the most significant and difficult in its history. The Preliminary Specification mitigates these issues by implementing our price maker strategy. Enabling the commodity prices to reach their marginal costs which we estimate to be $151 / boe. The difference between the commodities current price and the prices that are enabled through use of the Preliminary Specification are the extrinsic value of the oil and gas industry and this is also known as People, Ideas & Objects value proposition. In September 2017 we were able to prove to the marketplace that the oil and gas producers are not interested in this extrinsic value as a result of their non-participation in our developments. Funding our budget is too much heavy lifting for them. Therefore we are issuing an Initial Coin Offering (ICO) to fund our software development budget. In exchange for these funds coin holders will have the monetary value represented in the coin. This value will be derived from the Permission Rights to exclusively access People, Ideas & Objects software. With these Permission Rights the coin holder will therefore have the right to negotiate with the oil and gas producers for their access to the software in exchange for a share in the extrinsic value of the industry that the Permission Rights holder is able to generate. With no up front costs or efforts necessary in developing that extrinsic value, the producers would see this as free money. And the coin holders will have a shared revenue stream with the producers, that being the value proposition of People, Ideas & Objects.

To sustain this software development requires that we cease being subjected to the individual decisions of one or more producers. A company that chooses not to proceed with the development or implementation of these technologies can not hold up the greater benefit of all concerned. Essentially I am stating that the decision to support these communities needs to be made where appropriate representation considers the needs of all concerned. Looking at the cost benefit analysis of supporting this software from the point of view of only one producer, misses the benefits to society and individuals. For example the 2017 value proposition or extrinsic value lost of $890 billion requires production discipline be imposed throughout the industry.

Habermas theories deal with the issues of power, influence and most importantly emancipation. But when it comes to using science or computers to change the relations of power in our society, when emancipation is put forth as a knowledge or development interest, then the question of values becomes more controversial. Who is to be emancipated, and from whom? Who is to lose power, and who is to gain? And how can it be the business of scientists or computer professionals to take part in a political struggle for power?

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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.

Revenue Model, Part II

Our Value Proposition

People, Ideas & Objects value proposition is that we provide oil and gas producers with the most profitable means of oil and gas operations. We do this through providing, supporting and defining within the Preliminary Specification a business model that enables the producer to be more profitable than any other available business model. In particular our value proposition is quantified by comparison to the current “corporate” business model currently used by the oil and gas producers. We have calculated our value proposition for the 2017 calendar year at $890 billion for the North American marketplace. We have always stated that over the next 25 years it would range from $25.7 to $45.7 trillion in value. This value is as a result of the differences in the average oil and gas prices that were realized for the 2017 year vs. what we have determined to be the necessary prices producers need to realize a profit. These prices were based on the assumption that the property, plant and equipment account of the producers, as they stand today, would be exhausted in the next 30 months. All the value and the cash resources of the industry are held up in the property, plant and equipment account. If industry were to recognize those costs based on our prescribed method they would resume normal healthy operations at the end of the 30 months. Key to this strategy and the realization of this value is the implementation of the Preliminary Specifications decentralized production model’s price maker strategy which would enable the $151 oil price and $15 natural gas prices. Please review the Preamble to the Preliminary Specification for more information on our price maker strategy.

Everyone intuitively understands that if each producer scaled back their production by 5% their revenues would triple. The issue is the producer organizations that have been built today were developed during the period of resource scarcity. When resources are scarce full production is assumed to be necessary at all times. Therefore use of the high throughput production model, where full production is used to offset the high costs of the operation and its overhead, is the logical organizational methodology. However the shale era now consistently presents the commodity markets with that incremental barrel that causes commodity prices to collapse. Therefore a new organizational methodology is needed in which to organize the North American producer. One in which only profitable production is produced. And profitable from the point of view of all of the costs being recognized on a timely basis. Turning over the capital trapped in property, plant and equipment so that the capital resources are not sitting idle waiting for decades to be returned to be redeployed. Investors are unwilling to invest their money and watch it sit in property, plant and equipment for ten to twenty five years when other industries are turning their capital over in as little as six months. Oil and gas producers are not competing for capital, only consuming it.

Bureaucrats are thinking to themselves that an incremental $890 billion in revenues from the Preliminary Specifications changes are ludicrous and excessive. I suggest this is the costs of their operation. What these revenues will attract in terms of incremental costs is a 25% royalty of $222 billion, recognition of the depletion of their bloated balance sheets to the tune of an additional $470 billion for a gross profit of $198 billion, income taxes of $70 billion for a net profit of $128 billion which will begin the retirement of what we believe to be a cumulative deficit, based on our calculations across the industry of $707 billion, down to $579 billion. This would also provide producers with $598 billion in incremental cash flow. Of which they could pay down their disproportionately high levels of debt, fund current year capital expenditures, pay dividends to their investors and rebuild their cash balances.

An additional future cost to the industry will be the share of this value proposition that the Permission Rights holders will receive in order to process the producers production. What has been proven in the past decade of depressed natural gas prices and three years of depressed oil prices. Is that producers do not have an answer and are wholly unconcerned with the issue or the opportunity to remedy it through People, Ideas & Objects offering. We have therefore begun the process of raising our budget through the Initial Coin Offering that will distribute these Permission Rights. Only the Permission Rights holders control the access to the Preliminary Specifications software and therefore will be the only solution for producers to implement the price maker strategy. To realize these higher prices the producers will have to incur the costs that they will need to negotiate with the Permission Rights holders on the production they’ll have processed by them. It is believed with no effort and no upfront costs incurred by the producers they will participate with the Permission Rights holders in this way. It will be otherwise free money to them.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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. 

Revenue Model, Part I

With all the changes at People, Ideas & Objects we need to document them. The first rewrite is of our Revenue Model. I want to take a moment however to note that nothing has changed whatsoever regarding our user community and service providers. People, Ideas & Objects will always be user community based software. That is our priority and focus and nothing will change that. If anything the role of the user community participant is enhanced through the opportunity for them to participate in our ICO and hold the Permission Rights of access to the software they build and service. The second point I need to make is that there are no changes in the Preliminary Specification itself. The model as it was published in December 2013 remains unchanged and is just as valid, if not more, than it was then. Using the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer provides us with one key attribute. That being the alignment, as a result of moving the hierarchies compliance and governance frameworks to the Joint Operating Committees legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks provides us with the speed, accountability and profitability that we seek in our producer organizations.

This revision to our Revenue Model is due to the failure of our prior Revenue Model which was dependent on oil and gas producers participating in the development of the Preliminary Specification. After more than a decade of attempting to move this initiative forward based on the Preliminary Specifications ability to remediate the producers substantial business issues. Where those business issues have led to a precipitous decline in the financial health and well being of the producers and industry. A decline that People, Ideas & Objects believes will now be terminal for the existing producers. And the decided lack of support we received from them to meet our September 25, 2017 software development start date. We have proven that a new Revenue Model is necessary. Our previous Revenue Model was critical of raising money from investors to fund our developments. This methodology had been abused by the producers to the point that there was never any opportunity whatsoever of raising any equity funding in the oil and gas ERP marketspace. We therefore sought the software development funds from the producers themselves. This proved to be a failure for a variety of reason. Bureaucrats are adequately fed by the cash flows of a capital intensive industry. And as we noted in our Preliminary Research report, organizational changes can only be successfully achieved through the implementation of software first. This knowledge motivated the bureaucrats to avoid being challenged in their franchise by never sponsoring the development of any software.

Our discussion at this point is not unfamiliar with all other industries in North America and Europe. The implementation of robust ERP systems at this point in time is very poor in my opinion. They are based on technologies that are generations old and were sold on the premise that those technologies would bring tangible gains. There is little to point to in the ERP marketplace that would provide oil and gas producers with evidence that revised ERP systems would be of value to their organizations. Which is always the case when no money or resources are dedicated to an arena. As difficult as the oil and gas marketplace is, it is not inconsistent with other industries.

Lately a significant change has entered the ERP marketplace. Funding to the startup ERP software provider has been available in the form of Initial Coin Offerings (ICO). Based on blockchain technology these offerings are finding a ready market for investor interest in ERP software startups. It is important to note the role of the startup here. They are unconstrained in their approach to the issues that are present in business and the technologies themselves. The term “rip and replace” is becoming the method that ERP change is implemented. Only the unconstrained nature of a software startup can approach the blank slate of issues and opportunities of an industry with the appropriate solution. To implement the change any traditional way takes too much time and energy with the bureaucratic inertia against those changes most likely succeeding in the long run.

These coin issuances provide rights to their holders. In People, Ideas & Objects instance we are attaching Permission Rights to the coin which grant exclusive access rights to our software. These Permission Rights will therefore enable the holder to negotiate, through a governing organization established by them, with the producers for their accounting and administrative processing through the People, Ideas & Objects software. This negotiation will be over a settlement of the extrinsic value of the producers production over today’s base case operation. The producers have proven they are uninterested in developing this extrinsic value for themselves, however, if they are able to earn some of that value through access through the Permission Rights holder then delivery of that shared extrinsic value is at no upfront cost or effort to the producer. The funds from the ICO and the issuance of coins will be to develop the software based on our budget.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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 Now Have Proof

We return to an environment that is fundamentally different to the one we left before our three week break. Seeking the support of the producers to fund the development of our Preliminary Specification has been futile. This being the latest failure in an oil and gas ERP marketplace that has seen nothing but disasters and false starts. Initially producers were able to play the abundant number of ERP providers off one another and consume the enthusiastic investors in those firms to provide for their needs. That led to a shortage of providers and frankly a poor representation of the technology in the oil and gas market. Oracle attempted a significant development in the 1997 to 2000 time period and left in frustration on the inability to herd enough producers to keep their financial interest. I believe it was 2005 when IBM sold their market leading Qbyte application as they were unable to gain any support from the producers to develop that application any further. I am unaware of any material ERP software developments that have been made in the industry since 1997, and probably much earlier than that.

Our journey has been a different approach to the market. Taking investors money and attempting to provide them with a return is impossible in the small (150 producers) oil and gas ERP marketspace. Producers know that there are few producers who will purchase the product and will wait until the vendor becomes desperate to keep the lights on and offer pennies on the dollar for the product. This approach was unacceptable to me and the need for producers to pay for the software development was a given due to the market’s size. In addition the value of the ERP software was never quantified or qualified by any of its vendors. Vendors approached the industry from the point of view of the latest and greatest technologies offering xyz. The business value was never discussed. With the Preliminary Specification the qualification and quantification of material business value to the producer firms was put forward in our value proposition.

Our’s has not been a blow out the budget on marketing dollars campaign. This is a long term game and I have been at this in one form or another since May 1991. The Preliminary Specification has its origins in my Master’s thesis which I published in August 2003 and May 2004. This blog has been written consistently since that time in an effort to raise awareness of the issues and opportunities that I see in the oil and gas market space and our solution. The environment where the Preliminary Specification began to be seen as necessary was soon after the financial crisis. With the decline in natural gas prices as a result of shale based reservoirs, the current business environment has proven that production discipline is needed to be adopted within the industry. In 2014 shale began the destruction of the oil marketplace as well. Since that time we have seen nothing but a dialog of “market rebalancing” from the producers as the solution to the problem. Optimism that oil prices were beginning to increase was gaining once again in September of 2017. Three weeks later we are seeing a new consensus building where the problems regarding overproduction and oversupply will be “around much longer.” This cycle of elation and depression has become shorter with each predictable iteration. The only conclusion that is reasonable from this is that the bureaucrats within the industry do not care about the business. Bureaucrats will always be adequately fed from cash flow in a capital intensive industry. Therefore what exactly is the issue?

We established reasonable deadlines for producers to participate in the development of the Preliminary Specification. This deadline passed on September 25, 2017 and our effort joins a long line of failures in the marketplace. Bureaucrats can’t, won’t and will not ever make the necessary changes to their business to fix these issues. Something that we can say that we’ve now proven. The deterioration of the industry from this point is a given. Validating our value proposition which is estimated in the $25.7 to $45.7 trillion range. It is this value, the extrinsic value of the industry, the amount in which the Preliminary Specification provides the industry, that will form one cornerstone of the value of our Initial Coin Offering (ICO) that we are now preparing as the financial means in which to build the Preliminary Specification. Additional value is gained through the granting of Permission Rights to the ICO holder to the exclusive processing of oil and gas accounting and administration through the Preliminary Specifications software. We suggest that initially the Permission Rights holder would negotiate with existing producers to have their production processed through their Permission Rights as a business offering. Earning a negotiated percentage of the extrinsic value of the producers production being processed through the software. Today producers have proven to be uninterested in this extrinsic value and it is available to those who are willing to develop it. Since at least July 19, 2011 we have stated it's not enough to own the oil and gas asset, you must also have access to the software that makes the oil and gas asset profitable. Permission Rights holders will have that exclusive right of access.

The future of the industry as it stands today is very short term with no prosperous horizons. I believe that eventually the Permission Rights holder will take ownership of the individual Joint Operating Committees for the production they process through our software. Fulfilling the creative destruction principle that our economy depends upon. As it stands today I hold all of the Permission Rights that will be distributed through the Coins. These will be issued to fund our budget, probably on a pay as you go basis. Our ICO is probably a year away and before that we need to raise money to organize the ICO and other aspects of the changes that we are implementing here today. I believe this could be done by contract to sell some of the coins in a pre-market sale.

People, Ideas & Objects have been patient and we have done our job. We have proven the Preliminary Specification is a viable working model in the industry. It addresses the current issues and opportunities in the marketplace. And provides the means in which to provide for the future issues and opportunities. We have proven that the bureaucrats are constrained, conflicted and complacent. To the point where the industries destruction has become permanent and the existing producers will not be able to proceed or succeed. Investors and bankers have given up. The people who are working in the industry, I consistently hear, are giving up too. With no future what is there? The time for producers to have acted has past and these changes to our position are what we are proceeding with. As I mentioned in September, I don’t think we can do anything for the existing producers. It would be too little and too late. Leading up to a functional failure on our behalf. It’s time for the process of new ownership of the industry to begin with the issuance of our Permission Rights through our ICO.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry 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 our future Initial Coin Offering (ICO) that will fund these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

Third Quarter 2017 Statistics

At the end of the the third quarter of 2017 our sample of 23 producers recorded the following performance. Oil prices were up 12% during the quarter, natural gas prices were down 1%. The market capitalization of the producers we follow in our sample rose by 9% over the past quarter. For the past year oil prices rose 9% and natural gas prices fell 1%. However, the market capitalization of our sample producers over the past year have declined by 13%.

I have always asserted that investors would be better off investing in the commodity markets as opposed to the producers themselves. If the producers were only mocking the moves in the price of the commodities there would be less risk involved if you were to invest in the commodity markets. This theory is proven valid once again as the commodity markets investment performed significantly better than an investment in the producers. This is a pathetic performance. Management should always outperform the commodity markets and built value above their price increases. Both in rising and falling commodity markets. This may be evidence of the effectiveness of the story that “market rebalancing” is just around the corner. Sitting around doing nothing while the business is being destroyed is never a good strategy.

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 Going This Way

Needless to say there has been no action on our deadline of today. We have done everything that we could for the producers, it’s now time for us to move on. We have a responsibility to ensure the market is rehabilitated and the oil and gas industry is a contributing member of society. We have proven that that is not in the interests of the bureaucrats and they will do nothing about the situation that they find themselves in. Our plan now is to prepare for and issue the Permission Rights we discussed earlier this month. I think that what we’ll be seeing from the oil and gas industry is that the ideas expressed here and in the Preliminary Specification have value. Producers are currently talking about the “changes” they’ve made in their approach to oil and gas. How they’re now “disciplined,” that production growth is no longer the game and returns to shareholders are. The problem they don’t seem to understand is you can’t change a leopard's spots. The problems these producers have today are culturally ingrained and organizationally constrained. Talking a better game is not going to solve them. Talking is not doing. Trying to take the shortcut, which is what they appear to be doing now, is what we should have expected from these bureaucrats. It’s their $50 / 5 minute solution to their multi-trillion dollar issues. It proves they are not serious. Without our software, and a defined software development capability as we have proposed in People, Ideas & Objects, we wish them luck.

Our discussion of the capital asset policies of the producers shows that the investor's investment in the producers is captured in the property, plant and equipment account. Turning this account over will generate the cash that the industry needs to prosper and provide the return on investment that is necessary for a viable commercial operation. Now that the producers have chosen not to participate in the development of the Preliminary Specification this value is trapped in the producer organizations that are noncommercial in nature. For them to proceed in the current environment without our software will leave this value unrealized. These producers are, as we have suggested, in permanent, terminal decline. Whether through bankruptcy, dissolution, property sales or reorganization the investors value in each producer will be irretrievably lost. This is the future that the bureaucrats have chosen for the industry.

People, Ideas & Objects propose our alternative scenario. We build the Preliminary Specification, the user community and service providers. Establish the price maker strategy across the North American industry to ensure that only profitable production is produced. And profitable production will be defined on a proper accounting basis, not the fictitious methods used today. Through continuous long term profitable operations existing producers, under new administration which we’ll discuss in a minute, we will be able to deplete their property, plant and equipment balances to reasonable sizes and establish the industry on the basis of turning over its capital in rapid fashion. It will be the highly commercial and competitive producer that seeks to carry a zero balance of property, plant and equipment.

The Preliminary Specification will be developed through the funds raised by the issuance of Permission Rights using blockchain and smart contract technologies. The Permission Rights holders will be able to exercise People, Ideas & Objects value proposition of $25.7 to $45.7 trillion over the next 25 years through controlling access to the software developed from the Preliminary Specification. The software that they built by funding People, Ideas & Objects budget. Who will purchase these Permission Rights?

• Those oil and gas investors who have value that is otherwise trapped in the existing producers. These investors have no opportunity other than the People, Ideas & Objects methodology in which to realize that value. Oil and gas producers have proven they will not concern themselves with this issue or act in their investors interest. The Permission Rights will enable these investors to earn their investment back by realizing the value trapped in property, plant and equipment and the extrinsic value of the Permission Right itself. They will realize these values as the administration and accounting will be conducted on their behalf by the People, Ideas & Objects software, our user community and service providers. 
• Our user community members are the founding members of the service providers. The user community members are also part-time participants in the development of the People, Ideas & Objects software on a continuous basis. They may be interested in extending their investment in the infrastructure of the industry by participating in the Permission Rights. Expanding their revenue and participation in the overall ecosystem. 
• Existing producers may be interested in participating and there would be no particular reason for them not to. By participating in the Permission Rights market directly they would be able to purchase adequate Permission Rights to enable their entire production profile to be processed through our system. Allowing them to realize the full benefits of the value trapped in their organization and the extrinsic value of our value proposition.

This is how we plan to proceed in the next few years. Develop the Preliminary Specification and realize the value that is being wasted in the industry. Right now the favorite game of the producers is reading the tea leaves of the future supply and demand structure of the oil market. It is these types of distractions that occupy their time and energy. Focusing on their own domain, which they have full control over, is too much effort, therefore they will postulate as to the implications of the butterfly flapping its wings on the shoulder of the Saudi King. They’ve lost their businesses through neglect and a lack of caring. It is our responsibility to ensure that oil and gas is rehabilitated and once again becomes a contributing member of society.

I’ll be taking a few weeks off returning October 16, 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. 

Third Friday Off

Unanswered Investor Questions

As we prepare to say so long to the producers that we feel have a limited and difficult existence. People, Ideas & Objects have a few more housekeeping duties to clear up before we move to our new plans to deliver our products and services to the industry. I am disappointed that the existing producers have no capacity to accept new ideas or new thinking. Sitting around waiting for market rebalancing is very foolish and wasteful. When alternatives are offered to solve the issues that are costing the industry as much as the depressed commodity prices are, you would think there would be action. I think the CFO’s of the producers, who should clearly understand our point of view, should be embarrassed. Investors and bankers have been looking for answers to two questions. How the producers will deal with the “accounting” that they’ve conducted and how shale becomes commercial? Two questions that we’ve answered in the Preliminary Specification. The oil and gas investors have received no response or discussion from the producers on these topics. The tenacity and persistence of the oil and gas bureaucrat is remarkable.

There is an optimism that is creeping back into the market that the good days will be back soon. OPEC is meeting to maybe extend and deepen their production cuts, many groups are suggesting that growth in the demand for energy may see the end of low oil prices. To me it feels just like deja vu, all over again. This optimism will last for a while and will drive the similar cycle that we’ve seen before where shale producers rush in to fill the alleged void. Only to find ourselves back in the same situation that we’ve been in for the better part of ten years. Until there is production discipline within the North American industry this will be the cycle of optimism and reality that will play out for eternity. The only way in which to achieve production discipline is by implementing the Preliminary Specifications decentralized production model’s price maker strategy.

Only when each producer is motivated to maximize their “real” profits from operations will production discipline be achieved. The production of losing properties along with profitable properties has to end so that the producers profits are no longer diluted by the losses on their poorly performing properties. Shutting in those unprofitable properties until such time as the commodity prices rise, innovations drive down the costs or expand the reserves. Then they can return to profitable operations. Only when producers across the industry begin to maximize their profit in this way will the commodity prices find their marginal costs, the reserves can then be saved for a time when they can be produced profitably, and the additional losses that otherwise would have been incurred won’t have to be made up by the remaining existing reserves. Running the industry like a business.

Adopting this in the shale era is critically important for two reasons. First the high costs of drilling and completion are substantially higher than conventional operations. Secondly the steep decline curves leave large balances of undepleted capital costs to be recovered over decades due to the lower production volumes. The industry needs to turn its capital investments over during much shorter periods of time than they had in the past. The dependence on investor money year after year has been unique to oil and gas and uncharacteristic of a commercial enterprise. Diluting your investors year after year and providing them with no end in which the organization is “building” is for fools. Performance needs to be adopted as the culture in everything that the producer does and that starts at the very beginning. Only a culture of spending exists in the producers today. They have not performed at any point over the last number of decades and have fooled themselves into believing otherwise.

Bureaucrats love to shriek at the idea of our price maker strategy. They believe it's either collusion or going to put oil and gas at a competitive disadvantage to renewables. Reflecting the level of business understanding that exists in the industry. If our price maker strategy is collusion then every other profitable business in the world is colluding when they only sell their products for a profit. It’s considered a business to earn a profit, that’s the point. And if renewables become more affordable than hydrocarbons then we can pave the planet with windmills and solar panels. Other than that it’s a question that is beyond the scope of what a profitable producer can involve themselves in.

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. 

Permanent, Terminal Damage

It may be difficult to understand my point of view regarding the damage that producers have sustained. The question comes about as a result of taking money from investors each and every year, spending that money and never accounting for it in a reasonable manner. Capitalizing all your spending makes everyone look good. Big assets and no costs to recognize on the income statement. Profits are reported by everyone despite the quality of the operation. The genius oil and gas men are indiscernible from those with the size two hat. If you conducted yourself on this basis for a year or two it would be overlooked. The industry has been doing this for over four decades now and there is a culture that has been developed within the industry that spending is the business. And anything that the producer spends money on is a capital asset. Which has become a science in terms of its justification to include every conceivable cost that the producer incurs.

To not consider this an issue in the industry today will be the downfall of the current producers. The structure of the financial statements are heavily balanced towards bloated values of property, plant and equipment. These are the costs of past production that were not recognized in prior periods. These also define, therefore, the outsized balances of debt and equity value of the producer. The equity values are therefore bloated as a result of the annual shareholder fundraising that has occurred and repeated annual accounting profits. Are these debt balances something that the producer can sustain in a normal operation or are they too heavily indebted as a result? The prospective investors look at the capital structure of the producer, looking to invest $100 million, which earns them .01% of the total share distribution. Very exciting! Banks look at the revenues and cash flow and are concerned that their model of oil and gas borrowing may have been too liberal. No one is putting any money into the producers.

The reason for the annual share issuance was of course to fund the next year's capital expenditures. The dependence on the investors to replenish the cash balances each year was an inherent part of the oil and gas producers business model. Over the past four decades it has been instilled as the industry's culture. Good producers were those that had a good reputation with the investment community and could access more funding. The producer's reputation driven purely by their ability to grow at the speed of the investment communities demands. This is not a business. There is no element of the North American producer that can be called a commercial enterprise. It doesn’t generate adequate cash to fund itself, and never has. It doesn’t produce any real profits and hasn’t for many decades. It is a game of accessing cash and spending it. Report that this activity is profitable and do it again. To assume that there were never any expectations of performance on the spending that the producers were making was the wrong assumption they were operating under.

For all I know the merry-go-round may start up again, however someone will need to account for the multi-trillion dollar sinkhole that is the oil and gas industry. Without outside financial support it is in a death spiral that is clearly evident to everyone, particularly the banks and investors. What change will make the difference in the industry? The Preliminary Specification is designed to resolve this issue. Every opportunity has been given to the producers to act to correct the issue. Nothing to date has happened. And we have established September 25, 2017 as the point in time in which we believe we will be unable to assist the industry in this issue anymore. That we will pursue an alternative course of action to rebuild the industry brick by brick, and stick by stick. An alternative course that does not include the producers as we believe this unique situation is terminal to each and every producer in the marketplace today. The timing of the producer's demise is the only thing that the healthier producers will be able to extend.

The only way to remediate these issues is through the long term rebuilding of the value that has been lost. No one is going to recapitalize the industry, there isn’t that much money and throwing good money after bad is a bad idea. Producers need the Preliminary Specifications decentralized production model’s price maker strategy to establish the commodity prices for profitable operations, deplete the costs that sit in property, plant and equipment and use that cash that will be generated from the organization to provide the shareholders and bankers with a return on their money and reestablish the industry as viable. With all of that cash waiting to be generated out of property, plant and equipment why would you do anything else? If the producers really want cash for their operations then they only need to look to property, plant and equipment to turn those balances into cash through profitable operations. There is nothing else that will be done. Long, tedious, hard work is what will get the producers out of this situation and the bureaucrats are not oriented to that.

For the past few years in which the oil price has been depressed. Producers have had the limited and only capability of progressively calculating their costs lower and lower as the commodity prices dropped. These alleged “innovations” were based on extending the period in which their property, plant and equipment accounts were depleted. Such innovations are all that they’ve conducted and accomplished in the time that these oil prices have declined. The same could be said for the decline in natural gas prices over the past decade. I would have to say outside of the price declines producers have had a favourable business environment in which to operate. No other external crisis has stricken the industry. I would put that down to good luck. Their ability to sit and do nothing in the face of this ongoing crisis and have continued good luck will only last so long. They need to act before September 25, 2017, but that is asking too much.

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. 

"Can't Shut-in Production" Part II

In this second quotation of the World Oil article that I began quoting yesterday. We find some other interesting nuggets of twisted logic operational in the oil and gas industry. The quote in particular is.

While Canadian gas will almost always trade for less than U.S. gas -- due mostly to the cost of moving the fuel to markets in Texas and the American Midwest -- the discount recently widened to the most since 2005. The culprits are prolific new wells that are hard to shut off, along with outages on a network of pipelines that move gas around Alberta.

But with the pipeline repairs that caused those disruptions mostly completed and producers like Royal Dutch Shell Plc and Petroliam Nasional Bhd’s Canadian unit dialing back on output in British Columbia, the glut of Canadian gas may ease. Higher prices would be a boon for Canadian producers that have been forced to cut costs and seek new outlets in the face of escalating competition from the U.S. shale gas boom.

First someone should alert the Alberta Regulators that some producers have “prolific new wells that are hard to shut off.” If producers are out of control on these wells someone should maybe know about this. These ridiculous excuses and statements, and this one of not being able to shut-in production because of its “prolific” nature, should be added to the other lame excuses we discussed yesterday.

Today’s second point is that the totality of these two paragraphs implies that natural gas is inherently subject to the economic principles of, wait for it, price makers. Exactly what the Preliminary Specification is structured to provide the dynamic, innovative, accountable and profitable oil and gas producer. In this article we see the producer's behavior is that no matter what the rest of the world does, they will continue to produce at full production no matter what the financial consequences to the short, mid or long term nature of their firm. The producer lives in their own little world and is immune from any kind of actions from others. It’s full production always, no matter what. This is not a business. This is the kind of activity that is conducted in day care in order to occupy little minds. After the complete destruction of the industry maybe someone should have a look at this as one of the key reasons for the producers downfall. The other capability of these producers is there capacity to spend money. Any idiot can spend money, it doesn’t require talent or skill. Just two suggestions that might help.

My frustration is that these are all lies. No producer is directly standing up and saying these things. They’re putting the ideas into some analyst head at Raymond James. So they won’t even stand behind their own untruths. Primarily because they know their false. They need the Raymond James cover story in order to do nothing. The business is in a terrible state and this is what occupies their time and energy. It’s consistent with what I’ve found in my discussions with the industry. That or a denial based on an absolute fear that things are as bad as I’m stating.

Next Monday will see the passing of our September 25, 2017 deadline. I am unaware of anything to the contrary. It’ll be on that basis that we gave the producers every opportunity that they could have possibly needed. They are persistent in their denial and misrepresentation of the facts. Next Tuesday we will be unable to do anything specifically for them. We will be jumping ship and swimming as far away from the producers as we can. Not to get taken down with them as they sink. Everything was within the producers domain to act to save themselves, the Preliminary Specification was published December 2013. We’ve been screaming for a while, we have no obligation to go down with the ship.

We will be turning to other sources to fund our developments and revising our Revenue Model. Issuing Permission Rights through the blockchain and smart contract technologies. Unfortunately that pushes us back in terms of time that we’ll be able to deliver our product to the marketplace. I’m thinking we’ll be losing about a year in this transition. Not that a loss of a year is any difficulty to us, we have enough work to do, it's the oil and gas industry I’m worried about and the people that work there.

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.