Our 12th Module, Part IX

One of the advantages of using the blockchain is the immutable nature of the data contained within the blocks. The ability to change the data within the block is possible, however the checks and balances inherent in the technology make it nearly impossible to get away with it. Any changes to the data are written to subsequent blocks and the user can therefore see the result of the two blocks data which provide them with the information that they’re looking for. A simple description of this is featured in this YouTube video.

Using the Ethereum blockchain throughout the Preliminary Specification would be the preferred technology at this time. However, there is significant innovation being made in the various blockchain technologies being offered. For example one blockchain technology has now achieved the capability to process 2.5 million transactions per second. What People, Ideas & Objects and our user communities needs will be and the capabilities that will ultimately be provided by Oracle’s Cloud Blockchain offering will need to be determined by the user community after consideration of all of the industries needs and technical requirements.

As the Petroleum Lease Marketplace describes there are a number of data elements, mostly attributable to the Joint Operating Committee, that come into play as a result of this module. What is necessary is that the data that is captured by the Preliminary Specification in any of the modules must be unimpeachable in terms of its quality and integrity. Chasing data elements to ensure that they’re the correct data is a well respected time consumer. With blockchain the nature of the data within the Petroleum Lease Marketplace can achieve this unimpeachable level of integrity and save the industry time and effort in checking information that was either correct or should have been correct. The level of effort necessary to achieve this assurance on a consistent basis is the job of the user community. Doing the research, design and development once, then defining the process management in the software, and the data source that provides these levels of assurance can be done by the user community during our development. This level of examination and review is what is necessary for the oil and gas industry to move forward to the next level in terms of their systems quality.

Financial Marketplace

Within the Financial Marketplace we concern ourselves with something that is present in the other two marketplace modules. That concern is how the dynamic, innovative, accountable and profitable oil and gas producer obtains their capabilities. At the extreme, each producer can house all of their capabilities within their own organization and therefore mine for the steel to make their own drill bits. Or it can use the market to obtain the capabilities that it needs. Within the Preliminary Specification we move from the current producer configuration to one that is more dependent on the market to obtain its needs. This is most obvious in the shift of the administrative and accounting that will be conducted by the user community based service providers. Moving from the fixed overhead of the producer to become the variable overhead of the industry. The point in moving resources around is to focus on their key competitive advantages, enhancing the focus on the service industry is to expand the throughput of the industry by way of specialization and the division of labor. Enabling the producers themselves to focus on their key competitive advantages of their land and asset base, and their earth science and engineering capabilities.

We also implement the change of using the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. Therefore from a financial point of view we are moving from a producer perspective to a Joint Operating Committee perspective in order to advance the speed, accountability and innovativeness of the industry. In the Financial Marketplace and other modules we are therefore looking to establish each Joint Operating Committee to be its own standalone organization. With each providing full financial statements of the property where these are consolidated upwards to the producers that are represented in the partnership. These Joint Operating Committees will have their own bank account, bank loan and financial resources that the banking community currently provide the producer firms. Then at the end of each month, in addition to the consolidation of the financial statements the profits, those being the real profits, can be distributed to the owners of the Joint Operating Committee.

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 profitable 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.

Our 12th Module, Part VIII

Innovation in oil and gas will not withstand decades in which coiled tubing developers are begging producers to try their product to see what the possibilities are. Or Packers Plus is abused and humiliated for their ball dropping developments. People, Ideas & Objects can speak of these things as we’re only the most recent example of the abuse that people have to withstand to deal with the oil and gas producers. Nothing in the industry would have happened in the shale industry if it weren’t for a number of individuals who brought those technologies to life in the service industry. These innovations taking decades for the producers to accept as common sense. Today with Canadian producers paying customers to take the natural gas off the producers hands, People, Ideas & Objects can assume that it’s only a short period of time from now in which the producers realize that producing only profitable production with our decentralized production model’s price maker strategy is considered common sense. Or alternatively this next quarter may be the Canadian natural gas producers most profitable yet!

A more cooperative and collaborative environment is created within the Resource Marketplace to ensure the innovations that the industry needs in the next few decades are brought to market in a timely manner. An environment where ideas are respected, supported and developed with the understanding that it is the producers who will benefit from them. What other purpose could there be for coiled tubing or ball dropping? The service industry is not the producers enemy and they are not leeches, greedy or lazy. What I’m most concerned with as a result of this downturn is that producers will begin to reap what they’ve sown.

It is therefore within this area of the Resource Marketplace module that blockchain is most valuable. Supporting the recording of transactions and reporting them through the distributed technologies is what the user community will implement. Specifics of what and how will hopefully be done through collaborations between our user community and the producers. Even if it is just our user community that determines the details of the Resource Marketplace and its use of blockchain, we’ll be more than satisfied with that. With the Resource Marketplace module there is the implementation of the Marketplace Interface which is shared with the Petroleum Lease Marketplace and Financial Marketplace modules. There is also from a transaction processing point of view the Accounting Voucher and Partnership Accounting modules. In addition the Resource Marketplace module feeds critical data and information into the Research & Capabilities, and therefore the Knowledge & Learning modules. It is the focal point, the point where much of the transaction history that will be reflected in the blockchain begins.

One of the markets that blockchain is uniquely qualified to address is the area of Intellectual Property. Particularly from the point of view of the smart contract technologies that are included in the Ethereum blockchain. As we noted the innovations and the IP of the oil and gas field operations mostly resides within the service industry. And those people or companies have ample protection provided by the three forms to secure Intellectual Property by way of copyright, patent and trademark protections. What I’m suggesting here in the Resource Marketplace module is that we have an element of the Marketplace Interface that is a registry of that Intellectual Property. This registry would be implemented within the blockchain and therefore be available for people to view and see when and where the ideas were created. In addition it could be used as a marketing tool by those who are behind the idea to recruit producer participation and active involvement in the funding and deployment of those IP based technologies. It would focus the innovations and ideas of the oil and gas industry and exclude any other noise of innovations or ideas from outside the oil and gas domains. Concentrating the focus of the service and oil and gas industries on these innovations and developments of the field technologies.

Petroleum Lease Marketplace

Don Tapscott defines blockchain technologies as the Internet of value. In terms of value land and mineral rights are the area where producers secure their ownership of oil and gas reserves. Having a registry of land titles in the blockchain is a logical direction for the industry to pursue. Most of these registries are managed by the federal, state or provincial governments who lease the mineral rights. Would they, or are they beginning to consider this as an area of development of their service? Nonetheless the user community should fully explore the opportunities and issues that are present in using the blockchain to manage the land titles for the industry. What would be needed to stimulate the governments to act and would that be within a time frame that is consistent with our initiative. Otherwise we will be reliant on developing the Petroleum Lease Marketplace on the basis of the Preliminary Specification as it stands today. That is not an issue as I see it as a necessary part of our system and would be an advancement in comparison to the current market offerings. Subsequent developments to incorporate the blockchain within the module would be enabled once the jurisdictions had enabled their registries to use the blockchain technology. Subsequent developments being one of the defined benefits of People, Ideas & Objects software development capability.

Petroleum Lease is a marketplace module implying that it is the place where buyers and sellers interact to transact for things of value. This marketplace would be populated by producers seeking to acquire and divest of oil and gas assets, make arrangements with new partners in Joint Operating Committees, post and bid on new leases and engage with the market as a whole. As with the Resource Marketplace module the Petroleum Lease Marketplace module is a source of transaction origination. Therefore the administrative and accounting service providers, producers legal representatives and others would also be engaged with the principles behind the transactions. Ensuring that the details of the transaction were understood and implemented on that basis. As has been mentioned in the Marketplace Interface both “tiles” and contextual menus would be available to support these transactions and their principle users. Embedding these within the blockchain, even if it may not initially involve the issuing jurisdictions registry, would still provide value with a history of the transaction and a level of integrity achieved over the history of the property.

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 profitable 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.

Our 12th Module, Part VII

Continuing with yesterday’s discussion of integration of the blockchain in the Security & Access Control module. Implementation of the blockchain technologies at this point open a number of possibilities as to how the technology will be implemented. There are a variety of possibilities and too many to go through now and document here. The need for our user community to fully identify and explore the issues and opportunities of each of these possibilities will be their responsibility during development. Producers needs in the area of confidentiality and their specific concerns regarding the cloud, encryption and security, as well as the many other areas, need to be addressed through their active involvement with the user community. Otherwise decisions will be made without producer involvement and there will be little in the way, after the fact, for them to make the changes that they desire. User community based systems are the only development methodology worth pursuing, the user community understands oil and gas, and can implement that understanding within the software on their own. Without producer involvement only producers will suffer. It is in their own best interests to participate by interacting with the user community.

The key area that producers will suffer is that their perception is in their belief that these developments are a one way street. That the users absorb what it is the producers want and deliver that to them. That was the theory in 1989. Today the producers need to keep on top of the changes that are being made in the software and how those developments impact their organization. Implementation of the software will have to be done with significant consideration to its impact by the producer firm. Changes will need to have been made during our development and most definitely during implementation. To sit out the first round of software developments with the user community may preclude the producers organization from ever benefiting from the software. As the ability for a producer to assimilate the first round of changes alone while iterations are being made upon those in the second round of developments may render the producer unable to keep up with the industries new standard of profitable organizational performance.

People, Ideas & Objects use the cloud implementation of Oracle to host the software that will be derivative of the Preliminary Specification. In Oracle's Database version 12 we adopted their new feature called MultiTenant. Although each “tenant” or producer in our case have a unique database instance, that is its data is separate and distinct from all other instances (producers) data. Each instance of the database is using the same database for its functionality. From a software development and deployment point of view this significantly reduces our costs and difficulties in deploying the Preliminary Specification as conceived. Each producer will have their own, for all intents and purposes, database and applications that are distinct and unique onto each and every other producer. In prior databases, and in other vendors currently, the need for cloud implementations of those databases to be either separate containers each or we would have had to use a producer ID in order to identify the data belonged to one producer in a pooled database of all of the other producers in the industry. Either of these last two options would have been either wholly unacceptable or costly from a licensing and support point of view.

When we look at the decentralized nature of the blockchain we see a further separation of the data and information of the producer from each of the other producers in the industry. Although we are unaware of the implementation within Oracle technologies at this time, please review the IDC whitepaper, the addition of decentralized ledger technology that is the blockchain will have the effect of enhancing this MultiTenant effect of the Oracle database. It is difficult, in my opinion, to justify the use of hardware and software for ERP purposes within the producer firm itself. The decentralized nature of the blockchain can be achieved through the cloud implementation just as easily. The feature that we want to maintain by using the cloud is the overall feature of the Security & Access Control of “the right people having the right access to the right information with the right authority at the right time and at the right place.” For these purposes the “right place” is the cloud and whatever the location may be of the user. It is my understanding that there is a feature of blockchain that is called Blockchain Access Control. It consists of public / private key encryption technology enabling access to the blockchains individual blocks. Eliminating the use of passwords and providing the level of security and overall access control that not only the producers data and information needs but also for that of the Joint Operating Committee.

Resource Marketplace

“A marketplace to support contracting from A to Z.” Pretty simple really. The issue that People, Ideas & Objects takes to the manner in which the industry is operated is that producers appear unaware and uncaring that they are the benefactors of being a primary industry. They feel the secondary industries that they rely upon to complete the work they need done are “greedy and lazy” and are leeches off of their revenue stream. It is simplistic to view the world from this perspective when you collect 100% of the cash from oil and gas commodity sales. It is however difficult to understand that those revenues were not earned 100% by the efforts of just the producers. Cutting the service industries “costs” during times of difficulties, extending the time in which accounts payable are paid to 6 and 18 months are easy to do when everyone does it. And everyone does it when no one is paying attention to the fact that overproduction of oil and gas commodities are chronic and systemic, yet unaddressed by an uncaring bureaucracy. The Resource Marketplace changes this. It also identifies the source of the innovations that the producers are first to claim as theirs in the press are really those of individuals who have worked hard for decades in the service industry. Who have had their Intellectual Property disrespected by the producers and who’ve been generally ignored until the producers so badly need the innovation from the service provider they finally begin to approach the situation responsibly.

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 profitable 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.

Our 12th Module, Part VI

Canadian natural gas producers are driving the industry forward with new innovations on the natural gas front. We can only assume they’ve been unhappy with low natural gas prices and therefore have implemented a policy of paying their customers to take their gas. That’s correct negative prices of natural gas are all the rage in the Canadian natural gas industry. After all, the time to have implemented the Preliminary Specifications decentralized production model’s price maker strategy and only produce profitable production was around 2009. We have to give them credit for this bold and determined move since then to fully explore the implications of chronic overproduction. Now we’ll only have to wait and determine if the same principles of chronic overproduction apply to the oil market.

We now shift back to our documentation of our Blockchain module. Before we get into that I want to clarify a seeming contradiction in last week’s commentary. That producers are focused on “where the money is” of finding and producing reserves which is consistent with their competitive advantages of their land and asset base, and their earth science and engineering capabilities. Therefore their current focus is appropriate. My criticism is that they don’t understand that they’re a primary industry and the secondary industries that support oil and gas, the service industry, pipelines and software etc. need to be a part of the business and the producers concern as well. Producers can’t just leave the outcome of these activities to fate. They need to be involved in order to make them happen and they need to be involved in ensuring these businesses are compensated appropriately. If investors see that the service industry, pipelines and software businesses are treated with disrespect and financially abused then they’ll be hesitant to get involved in those businesses, as is the case today. Leaving producers unable to get the job done. So yes they need to focus on the things that they’re able to be competitive in. And they need to understand that as a primary industry it’s not just the producers who’ve earned or are entitled to those oil and gas revenues.

Security & Access Control

We’ll now take a module by module step through each of the eleven modules of the Preliminary Specification and discuss the implementation of the Blockchain in each. The first module is the Preliminary Specifications Security & Access Control which seeks to ensure that “the right people have the right access to the right information with the right authority at the right time and at the right place.” Which is one of the more difficult aspects of the Preliminary Specification. This requirement is complicated by a number of unique elements that are introduced as a result of using the Joint Operating Committee and the expectation that producers, as well as service industries dependent on the producers, will be required to expand their throughput through enhanced specialization and division of labor. This as a result of the natural demand for more engineering and earth science effort in each incremental barrel of oil or gas produced. And the reduction in the industry wide availability of earth science and engineering resources as a result of the recent downturn and the anticipated retirement of large percentages of those professions. Triggering the need for a pooling of technical capabilities between each of the producers that are participants in the Joint Operating Committee and imposing a temporary compliance and governance structure over this pooling through the Preliminary Specifications Military Command & Control Metaphor, a feature of the Security & Access Control module.

The majority of the information that is contained within each producer firm regarding the Joint Operating Committee is the same. Each producer shares in all of the data and information that is pertinent to the Joint Operating Committee and will be party to the billings from the service providers for the administrative and accounting services that are rendered for that Joint Operating Committee. One clarifying aspect of using the Joint Operating Committee was the data and information that was created and used within that organizational construct was unique to the partnership. The sharing of this data within the Joint Operating Committee is standard fare in the industry and has always been. This contrasts to the unique and proprietary nature that is contained within the producer firms data and information. Segregating these two unique types of data from each other would and should be the first order of business during our developments. That way members of a Joint Operating Committee, of which a producer firm may have an interest in several thousand of, doesn’t leak any proprietary firm data.

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 profitable 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.

These Are Not the Earnings We're Looking For, Part XVII

Focusing on the earnings of the producers is not the only concern of People, Ideas & Objects. Ours is a more global perspective that includes the societal impact that oil and gas has. Starting with the consumer who realizes 5,000 man hours of labor with each and every barrel of oil that is consumed. Consideration of how and with what other energy source that could be replaced with should have everyone understand the real value of these resources that we consume. At the same time it is the largest and most powerful economy that consumes the most oil and gas. Using the mechanical leverage that is available to us through the use of oil and gas is the means in which we can advance our economy the furthest and the fastest. We owe it to our future to at least produce our energy profitably. Otherwise it would be wasted.

And the broader scale of our economies are dependent on a healthy and prosperous oil and gas industry as the primary industry that drives much of the activity that the industry itself depends upon. With over ten years of devastation in the natural gas marketplace. And more than three years in oil. We can measure the impact and number of losses outside of oil and gas that have been adversely affected by this downturn. The service industry has had it much worse. The people who have dedicated their careers to the producers are finding that their efforts are not as valuable as they thought they were when they line up in the unemployment lines with the construction laborers with only their high school education. In Alberta, partly due to mismanagement, the government has incurred a debt of $43 billion. Oil and gas royalties are a big part of their budget which has caused the deficit to form and expand. This in the land where savings in excess of $30 billion had been the norm. I can only assume that the situation is similar with other royalty regimes. And what about the cities and towns where all of these companies and people live and work. They’ve also felt the downturn with many businesses closing and sending the mood across the town’s and cities down too. Alberta is possibly unique in that we are a one industry province and Dallas, Houston and Oklahoma may not be as dependent on one industry to carry the freight for all concerned.

The question that people should be asking is why is this happening? Why is it necessary that investors pay for the capital costs of oil and gas on behalf of the energy consumers? If the consumers are generating real value from the consumption of their hydrocarbons, and the real cost of energy is incidental to its replacement, hire 5,000 people for an hour as a replacement to a barrel of oil to discover the difference. Why don’t they pay full value for that. And full value as we’ve calculated here at People, Ideas & Objects is $137 / barrel for 2017. This wouldn’t be a doubling of the consumers energy costs as most of their costs are taxes that are fixed in nature. Therefore doubling the cost of the feedstock would not have the effect of doubling the consumers energy price. Even if it did can we continue to function as an industry on the basis of finding new and naive investors that will volunteer their capital to subsidize energy consumers? The other alternative is we watch the industry atrophy to the point that it is now, and as we’ve noticed in the first quarter of 2018, begin to see it fall off the cliff where the operational and political declines are as dramatic and as devastating to all those concerned above, but also the consumer who can’t source their energy securely and reliably. Do we have to go to that level of destruction in order to prove the point that this situation is not working?

We can also assume that this has lost its lustre for our friends the bureaucrats. Instead of dining for hours for lunch their having to spend their time finding truck drivers to haul water in the Permian, which isn’t what they signed on for. The logistics of putting the people that are needed into place have now become complicated by the fact that the supplier can’t work for you because you haven’t paid him in 18 months and their starving. Or you haven’t paid them for 18 months and they refuse to work. Complicated by the fact that the cash resources that were used to overcome these kinds of troubles and get the job done is now empty and lining up everyone and everything is near impossible. I’m certain, it’s not that bad in industry today, but do we have to go there before anything changes? The only people that are financially satisfied in the industry are the bureaucrats who are running the show. Although they were challenged here and there at their annual meetings, those have always been useless venues to orchestrate change. And the bureaucrats are now entrenched for another year.

Bureaucrats will never care about these issues. As long as their making out like bandits that’s their only concern. As soon as things become untenable though, as they are now. They’ll hightail it to greener pastures in other industries or retirement as the wheels fall off. It’s up to us to provide the industry with an alternative. That is People, Ideas & Objects Preliminary Specification. That is the only way we’ll proceed as a healthy and prosperous industry.

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 profitable 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.

These Are Not the Earnings We're Looking For, Part XVI

We see with oil prices reaching $70, the past behaviors of the producers coming back into play. Also known as muscle memory, the downturn that they’ve experienced is over as far as their concerned and it’s time to drill some wells, because that’s where the money is. While they focus on expanding their reserve base that generates the revenues they earn as a primary industry. It will be somebody else’s responsibility to develop the service industry, the pipeline takeaway capacity, software and all the other needs of the oil and gas industry. Producers will pay for those services on a 6 to 18 month accounts payables basis, or when they should happen to feel like it. “That is the way the capital market system operates” they’ll say. “If you go after the reserves all these little nuisance parts of the business will work themselves out.” This is also known as the “muddle along” strategy and the “do nothing” operating procedure. And as I’ve said before in this never ending cycle of producer behavior, here we go again.

Just as the investors have learned in oil and gas, bureaucrats take care of bureaucrats. As I’ve documented many times before the expectation by the producers is that “someone” will fund the development of systems that they’ll eventually purchase. This was the game that was played in the late 1980 and early 1990’s. The problem came about when the system vendor, who survived off of the otherwise naive investors money during development. Couldn’t sell their systems for the appropriate price. The producers new the small size of the limited oil and gas market that uses ERP systems and as such squeezed the software vendor for all its worth. This is the primary reason that no software developments have been done. Investors realized there was nothing in it for them. And this same story can be heard across the landscape. Small service industry firms are never given the chance they would otherwise have had in any other industry. Producers only deal with the “big boys” who can provide them with the services they need. The Schlumberger and Halliburton’s of the world get bigger while the rest of the service industry atrophies. The point everyone should learn about the oil and gas or service industries is to never have an idea. 

Most people are beginning to fully appreciate the changes in society as a result of Information Technologies. The only businesses that will exist in the future will be software companies such as WalMart, Apple etc. In oil and gas with the Preliminary Specification it’s not enough to own the oil and gas assets anymore, you’ll also have to have access to the software that makes the oil and gas asset profitable. People, Ideas & Objects Preliminary Specification provides oil and gas producers with the most profitable means of oil and gas operations. Or in other words the way things are done today is about to end. Maybe not next Friday, but certainly soon. With the producers resurrecting their past behaviors due to the $70 oil we know we’re close to the top of the cycle. I would suggest that our collective future may begin to look a lot like the recent past, downward. The big difference this time is the producers are in desperate financial condition to be able to survive either a boom or a bust. They’ve damaged themselves so completely that they will need a decade of extremely good times just to rehabilitate themselves. If you can find the capital that can wait a decade to show any signs of life in the investment, oil and gas producers are in desperate need.

Most of the smart people in Information Technology have left oil and gas many years ago. They’re selling Apps on the App store for $2 to the 7 billion people on the planet. It’s an easy business in comparison and one that leaves only the crazies thinking they can bring the ERP systems to life in oil and gas. The point of this rambling dissertation is that dealing with the producers will be frustrating in trying to see outside their point of view. And if you should happen to capture one of them, their attention spans are as limited as the daily direction of the commodity price. What we can say is that we tried, once again, and once again proved that it was futile.

Not to contradict myself in the many ways that I am about to now. Our Initial Coin Offering is developing as to be expected. The token that we’ll be issuing will have the rights in which it will be able to process the oil and gas production through the People, Ideas & Objects Preliminary Specification. We have recommended that the price the producers would pay for this would be one third of the incremental value that is attributable to the use of our system and the result of the decentralized production models price maker strategy. For the one year period ending March 31, 2018, on a North American production basis, this amount would total after royalties and taxes at $112.594 billion. There have been two developments on our ICO. First, my assumption was that we would generate our full budget from this market at the beginning. A necessity when we were dealing with the mosquito like attention spans of the producers. However this is now deemed to be unnecessary. We could issue additional tokens on a pay as you go basis throughout the course of our development. The balance of the unissued coins would remain in my hands. Secondly the development of the Private Initial Coin Offering (PICO), using the SAFT project which provides a level of compliance and governance over the tokens. This will reduces our timeline down from a little less than two years to about 18 months.

It is frustrating and difficult to determine what the outcome of all of this will be. Attempting to work with the producers has been an exercise that has borne no fruit. As much as we all would like to see a healthy oil and gas, and service industry it is not going to happen under the current management. Our appeal to the investors over the past decade has been very lucrative. They see the world in the same way that we do. What the result of all of this will be can not be speculated upon. What we can do is our job by continuing to work on developing our user community as our first priority. Work on our PICO and the completion of all of the other initiatives that were involved in. Where and when this all comes together is one day less than it was yesterday.

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 profitable 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.

These Are Not the Earnings We're Looking For, Part XV

One of our sample of 23 producer firms is Devon Energy who’s stock had a good jump on news of their financial performance, or monstrous deliverability at some Permian wells they drilled. It must have been the wells performance because if we look at the company, which is generally a good company, we see the state of the industry is very desperate. First I want to get to the size of their property, plant and equipment account which sits at $21.3 billion. Their current market cap is $19.7 billion. One of our favorite producers of all is Cenovus which we awarded the most creative accounting award, ever to in 2017. A recent change in CFO’s seems to have them cooling their accounting creativity and adopting some conservative principles. One of them is they’ve increased their depletion in an attempt to begin to bring their property, plant and equipment ($33.25 billion) below their market cap ($12.5 billion.). A variance of $20.75 billion for Cenovus and $1.6 billion for Devon. A recognition of Cenovus’ creativity under the previous CFO and the overall asset bloat in the industry.

We also heard Devon has laid off a number of their staff. A reduction of 10% or 300 individuals. This marks the period between the boom and the ensuing bust at less than 3 months from my point of view. Maybe the next boom will be 4 months! Devon claims they’ll achieve savings of $150 to 200 million as a result of these layoffs. Which doesn’t quite work out in the math department. At 10% that would indicate their overhead is in the region of $2 billion yet G&A for all of 2017 was only $872 million! That means that $1.128 billion must have been capitalized to property, plant and equipment. Which to be honest, at 56% of the total G&A that is at the very low end of the scale in comparison to its peers. If Devon recognized the full $2 billion of G&A on the income statement what would the implications be? First G&A costs would total 38% of their oil and gas revenues. I’ve excluded their purchased product revenues. Their earnings as reported in 2017 of $898 million would have actually been a loss of $230 million. And their annualized cash flow from operations would have been $1.781 billion instead of the $2.909 billion. Just a small difference really, except for when you calculate their industry standard valuation. At six times cash flow their market cap would have been justified at $10.686 billion as opposed to the $17.5 billion. But these are minor differences, aren’t they?

It’s also interesting to note that Devon drained itself of a bit of cash in the first quarter of 2018. Cash was down by $1.214 billion which isn’t a lot in the real scheme of things. Way back in 2016 in order to have some cash, you might recall, Devon issued an additional 27% of their shares for the fire sale price of $1.469 billion. Good thing they did because they would have had to face the music one quarter sooner if they hadn’t. Working capital for a stellar company such as Devon is holding up nicely at $153 million. That too is down $1.323 billion in the past three months. What we can probably suggest here is that there will be more paychecks that might not be able to be cashed in the coming days. I say stellar company because its others who define the outer limit. Suncor have “assets” listed in property, plant and equipment of $76.495 billion and a working capital deficiency of $1.193 billion. They’ve actually nominated their accounting staff for the Nobel Prize in Physics. Their capacity to shuffle bills around at the speed of light is apparently a sight to see!

For Devon to be laying staff off in this the Information age is not that much of an issue. There are hardware and software that can easily replace the people that are being lost and pick up the slack. That would be the thing to do in a crisis such as the oil and gas industry is in. To invest in the capabilities necessary to deal with the future through the implementation of advanced hardware and software. Word is that Devon has decided that in this bust, with the loss of these human resources they will be slashing their hardware and software purchases. Therefore there’s no sense for me to be knocking on their door to see if their interested in the Preliminary Specification. They probably have more wells to drill.

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 profitable 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.

These Are Not the Earnings We're Looking For, Part XIV

What is clearly evident in the oil and gas producers 2018 first quarter reports. Is that Calgary, Dallas, Houston and Oklahoma have no more change between the cushions of any couch’s anywhere. We noted last year that the cash crisis brought on by the withdrawal of investors and bankers funding of the day-to-day needs of the producers. Had led to a determined search for the cash that had fallen between the cushions of the couch as one of the few lucrative sources of cash open to them. And if you were unfortunate to drop a quarter on the ground in one of these cities, your best chance of survival would be to quickly get out of the way of the stampede of producers seeking to picking it up. The demand for cash was epic. What was needed then was oil prices to be within the mid $60 region in order for the producers to be profitable. Now with prices are at $70 the cash crisis that has been epidemic for well over two years has slipped into a deep, dark black hole. Almost every producer in our sample of 23 producers reported significant declines in their cash balances in the past three months, down $6.8 billion, that is if they had a balance to begin with. Declines in their working capital of $4.8 billion to $14.1 billion. With 3% working capital for the $467 billion of property, plant and equipment, something seems disproportionate here. The amount of cash that was used in the first quarter of 2018 is approximately equivalent to the amount of cash that was generated in all of 2016 and all of 2017. It’s almost as though the producers need $130 oil prices in order to survive. Who would have thought?

Profitability was also hit. Not as a result of producers taking our advice and depleting large volumes of their property, plant and equipment. Recognizing the capital costs of past production will have to wait as the depletion that was recorded in the first quarter of 2018 was lower than the first quarter of 2017 @ $14.562 vs. $12.246 billion in 2018. Even at that the first quarter of 2017’s profits were $3.9 billion vs 2018’s $3.6 billion. Moving the number of years that property, plant and equipment will need to be depleted from 8.94 years to 9.58 years. Is it that operations are just consuming the cash and profits? Are overheads that much of an issue in oil and gas? These facts provide me with two distinct understandings. Investors and bankers, who have been on strike for the past couple of years, who now see the further rapid deterioration in producers operations, working capital and cash balances, will not be running to save them on the basis that they’re managed today. They will need to see some change to the future outcomes of the industry before they’ll commit new cash to the oil and gas industry incinerator. The second point is this cash crisis will bring about the end of the “muddle along” strategy and “do nothing” operating procedure. Sitting around doing nothing while the house is on fire is a bad strategy for all concerned. Time to act.

It has always been People, Ideas & Objects contention that the industry has distorted its accounting for the past four decades. Recording the capital costs of a capital intensive business as assets in property, plant and equipment. Then depleting these costs over the life of the reserves that were discovered. Whether those reserves would last 20 years or 100 it didn’t matter. Capital was rarely recognized as a cost in the oil and gas business for these past forty years. The working capital deficiencies of this type of operation would of course be significant. Investors and bankers were expected to provide the lifeline for the producer to a) call themselves successful and b) keep the lights on. What in fact was going on was, and what has deteriorated to a significant level over these past forty years is a dependency on investors unlike anywhere else at anytime. As a result the effect of this mismanagement is that the consumers of energy have effectively been subsidized by the investors supporting the producers capital needs in these past four decades. The consumers have paid the operating costs and a small sample of the capital, the balance of the consumers capital cost subsidy is proudly displayed on the producers balance sheet as property, plant and equipment. And the size of the assets on the balance sheet is what gives the CEO his/her their proof of legitimacy, not evidence of their level of spendthrift.

To express the level that this culture is systemic and chronic within the industry there was an article from WorldOil with the following quote regarding Exxon.

CEO Darren Woods is seeking to rebuild oil and gas reserves in an investment drive targeting $30 billion in annual outlays well into the next decade. Woods’ vision runs counter to what investors are demanding from rivals, which have been restraining spending and returning cash to shareholders in the form of stock buybacks.

Exxon production was down substantially in the first quarter of 2018. Below 4 mmboe / day for the first time since the merger with Mobil. Leading the CEO to continue with Exxon’s high capital expenditure throughput. Which as noted as contrary to the investment communities desire. However, without that investment the reversal of the production profile is current, rapid and unforgiving. What the culture of the industry reflects is that it’s an either or situation. You can either have the appropriate level of capital expenditures and maintain your production profile. Or your production profile will shrink and the investors will be paid what they’re entitled to. If oil and gas was a business then the cash flow that was generated from pricing the product as a result of only producing profitable production, as the Preliminary Specifications decentralized production models, price maker strategy does. This cash flow would fuel growth in capital expenditures, the ability to pay down debt and make the appropriate returns to shareholders all at the same time, all the time. Where every year would be a “good year” in oil and gas and not just the 5 out of the last 32.

Therefore the demand for higher prices to support the costs of these capital programs is necessary. Austerity is not the answer to the issues that the industry is facing. And I don’t believe that this is the demand that is being expressed by the investment community. It is however, the choice of the bureaucrats through their “muddle along” strategy and “do nothing” operating procedure. Generally when you run a business, the business itself generates the funds to provide for the industry needs in the short, mid and long terms. What a concept, eh? And what Exxon’s CEO shows is the continuation of the attitude of having the shareholders subsidize the consumers for their capital costs of a capital intensive industry. Instead of charging the adequate price for their product, the producers would prefer to short sheet the bed for the shareholders and keep spending the money.

And now we’ve come to the third year of a self inflicted cash crisis. What to do? We will not make it out of 2018 without the actions necessary to rectify this situation. Working capital of $14.1 billion divided by the current burn rate of $4.8 billion / quarter gives you 2.94 quarters left. What bureaucrats will do without any working capital will be an interesting development. The easy way for producers to alleviate the pain would be for them to fund the Preliminary Specification. That way the investors and bankers see that there is a plan to deal with the issues and opportunities that are present in the industry, and a means to deal with the future issues and opportunities. Investors and bankers are forward looking people. They like to see what their money can do for them in the long term and with the Preliminary Specification operational in oil and gas, the future would be that of a well run business.

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 profitable 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.

These Are Not the Earnings We're Looking For, Part XIII

This week marks the 27th year that I’ve been working at developing these ERP systems for oil and gas. As far as I’m concerned I can do this forever. What producers should ask themselves is how much longer my productive career will be? Note, I had far more than a decade and a half of work and business experience in oil and gas before I started this. And if People, Ideas & Objects are not around to do this work, what fool would start their probable 30 year trek if what we’ve done here with the Preliminary Specification isn’t good enough. I personally would suggest too, that if this effort is deemed not good enough, that the ability of the industry to use it after I leave the stage is a no brainer. I didn’t do this work to watch someone else build it. Intellectual Property is the basis of this offering, if it’s deemed to be of no value to the industry then it’ll be of no value to the industry, ever. This is not to suggest that because we’ve held on for 27 years that we’re entitled. We’ve solved the current problems in the industry. The disintermediation the industry needs to go through which is being held up by the self serving bureaucrats. Who’ve destroyed the financial, operational and political foundations of the industry. I would also suggest that the big technology providers rolled out of here in the latter part of last century in Oracle’s case, and in 2005 for IBM’s. In both instances the inability for producers to sign on to any software developments was the issue for their exits. After they’ve seen a 27 year effort being refused they can only assume that it’s the same old, same old.

Speaking of self interested bureaucrats, if not for the statutory requirement to issue financial statements and face their shareholders at the annual general meeting once each year. Bureaucrats would live like kings. Reading the financial statements of the producers I have become concerned with what appears to be a trend that is well past the point of getting out of control. Many of the producers are reporting deductions to their revenues for “royalties.” Now everyone knows producers pay royalties in order to earn title to the energy they produce. This would go for Crown or Federal lands, freehold and Gross Overriding Royalties. It is my understanding, and I may need to be educated here, that these royalties are never reported by the producers as they never owned the product. Therefore, and most producers financial statements bear this out, revenues are reported net of any Crown, Federal, freehold or Gross Overriding Royalties. These royalties that are being reported are also in the range of 1 to 2.5 percent, far less than the 20, 25, or even 30% royalty rates assessed by some jurisdictions. Dare I ask is this the new form of bureaucratic compensation? Since the practice seems to be prevalent in Canada, home of the most creative accounting, that would seem to me to be the case.

According to World Oil producers capital structures have become more complex and difficult to deal with. Instead of just the “wildcatter” there are now Hedge Funds and distressed debt owners etc. Making the producers capital structures very difficult to do deals. Also suggesting that assets are not as good as they once were previously believed to be, other than the Permian. Hedge funds are rumoured to be investing heavily in the oil and gas commodities themselves. Oil specifically. Why not, if a producer only mimics the changes in the commodity price, why invest in the stock of the producers? Generating value outside of the rise in commodity prices, such as the Preliminary Specifications value proposition does, is not in the bureaucrats interest. That’s work!

Last year we were promoting that the Best Business Opportunity, Ever was an investment in a newly formed oil and gas company. Our thinking on this has changed in a material way. We can see by way of our estimate that the North American producers have what we believe to be $1.6 trillion in property, plant and equipment on their balance sheets. These “assets” as the bureaucrats would assert, are really the unrecognized capital costs of past production. They also represent the precise accounting of the amount of investment money that has been diverted from the investors to subsidize the consumers of energy. By not recognizing these capital costs of past production the consumers have never paid the full cost of a product that is a result of a capital intensive process. Therefore the need for the investors to earn their investment back in terms of free cash flow can only be achieved by recognizing the $1.6 trillion in property, plant and equipment present on existing producers balance sheets. If these producer firms ceased to operate those capital costs may be irretrievably lost and therefore would not be readily available as further costs in determining the pricing of oil and gas in the Preliminary Specifications decentralized production model’s price maker strategy. And therefore these capital costs would not be able to be retrieved from the consumers justifiably with the “new producers” under the assumption of the Best Business Opportunity, Ever. These “new producers” would appear disproportionately profitable, and the investors would not be able to retrieve their past investments in oil and gas, ever. Therefore the need to deal with the existing producers is a necessity for the investors in order to recover that $1.6 trillion in unrecognized capital costs of past production.

Maybe the investors will continue to treat the oil and gas industry as a sunk cost which was the assumption that underlies the Best Business Opportunity, Ever. The decision is for the investors to make. We are seeing a much higher level of activity in the annual general meetings with a number of the more distressed producers facing stiff opposition to their slate of board members and overall direction. Proxies are always a fun way to watch a boxing match where one fighter is paid to take the fall. Bureaucrats never lose. They control the John Q. Public shares and as a result are able to overwhelm the control block with votes from people who never read the financial statements, or vote. And then the circus roles up the tent for another year. What is needed is more active involvement by the boards of these firms and a firmer handle on the disaster that is the oil and gas industry. I’ve been saying that things are bad in the industry. And that the first quarter of 2018 would be no different. I was wrong. The first quarter is far worse than I believed was possible. Action is required in 2018 by funding the budget for the Preliminary Specification, or the ability to turn this around will be lost.

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 profitable 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.

Our 12th Module, Part V

Implementing blockchain technologies within the Preliminary Specification is mandatory for the oil and gas industry and producers. With the volume of transactions that are managed through People, Ideas & Objects system a means to provide the safety, security and documentary evidence that the blockchain provides is the only reasonable way for the industry to proceed. We are not providing a solution that is available tomorrow but one that will build value for the industry in the mid to long term. Therefore the adoption of Oracles technologies including their Oracle Blockchain Cloud Service (BCS) and Oracle ERP Cloud in combination with People, Ideas & Objects Preliminary Specification, our software development capabilities, our user community driven development and service providers fit well with the needs, opportunities and issues that the industry and producers face today and in this time frame.

Might I be so bold as to suggest. It is clear in evaluating the financial statements of the producers for the 1st quarter of 2018. That the accounting games are still being played and the lack of cash in the industry continues. No cash is being generated from operations. Nothing is being provided from the investment community and no banks are jumping back on the bandwagon. Therefore no one’s buying the industries story. Producers continue to manage as if the status quo is the only operational choice they have. This as far as any objective person can see is a dead end. I would therefore ask, what would happen if the industry proceeded with the developments of the Preliminary Specification by providing the funding for our budget. Would that change the perspective of the investors and bankers that the status quo was being discarded for the mid to long term future? The future that is defined by People, Ideas & Objects Preliminary Specification and therefore prove to the investors and bankers that the industry was a viable choice for their investments once again?

One of the areas that will benefit the most from blockchain technologies is our Material Balance Report. It resolves the processes involved in the measurement and reporting of production of oil and gas on a monthly basis. Capturing the production data in the field through field data capture and automating the subsequent processes all the way to the financial statements. Within this broad definition we have introduced the Material Balance Report as the means in which the producers within a Joint Operating Committee are able to balance the reporting of the various disparate groups that are involved in these processes between field data capture and financial statements. Introducing the ability through the report to material, system and partnership balance the production. The user community through their work will need to determine at what point and where the production volumes within the Joint Operating Committee for a property, plant or gathering system can then be recorded within the blockchain that supports these transactions. Once that production data has been captured, verified and secured then the processes and automation that we note in the Accounting Voucher and Partnership Accounting modules would commence.

Within those modules we address the never ending amendment process that plagues this area of reporting. This is a natural part of the oil and gas business and will continue for some time, I would imagine. What needs to be done in the case of volumetric amendments is that they are written in similar fashion to the blockchain. This somewhat denotes that there is a specific blockchain for the industries production volumes. Which would aid significantly in the global reconciliation processes that are instituted within the Preliminary Specification through the material, system and partnership balance reconciliation process to ensure the integrity of the reporting is either consistent with the facts of the production, or the agreements that governs the Joint Operating Committee. Whichever of those two is in effect. As I noted before it will be the user community that determines the use of the blockchain and whether we are using one or many blockchains within the Preliminary Specification. If there were many one could understand the need for blockchains for volumes, prices, fees and distributions.

The use of Ethereum’s blockchain has the added advantage of implementing smart contracts. Therefore if there was an Ethereum blockchain for processing fees then the smart contracts could be used to process the appropriate fees on the volumes that were processed through those owners assets. On a fully automated basis. This is the concept that the Material Balance Report is designed to capture. Control the production volumes and ensure that the numbers reported, which includes the amendment process, captures the integrity and unimpeachable level of confidence in the volumetric data. Therefore by doing this we are able to automate the remaining processes on an iterative and continuous basis. Providing the ability of the industry to increase the throughput of the industry through enhanced specialization, division of labor and automation. From the Ethereum website

On traditional server architectures, every application has to set up its own servers that run their own code in isolated silos, making sharing of data hard. If a single app is compromised or goes offline, many users and other apps are affected.

On a blockchain, anyone can set up a node that replicates the necessary data for all nodes to reach an agreement and be compensated by users and app developers. This allows user data to remain private and apps to be decentralized like the Internet was supposed to work.

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 profitable 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.