Pipelines, Producers and Pacifiers

Contrary to what my readers would think, I did hold off writing this post for 10 minutes in an attempt to cool my rabid frustration with the Canadian oil and gas producers. The news that the Canadian government is taking over Kinder Morgan’s Trans Mountain Pipeline and will build it happened yesterday. Some may consider this good news for the Canadian producers as they will now be able to deliver their heavy oil production to a secondary Asian market. That being the stated purpose all along. I think from my point of view this is maybe the worst development that could have happened at this time. What we know for certain is that the Canadian oil and gas producers bureaucrats dogged pursuit of this pipeline. Their late nights of suffering and sacrificing to get this done. Their outstanding leadership in showing the way in which they are the dynamic, innovative, accountable and profitable oil and gas producers in the Canadian economy. My sarcasm is ripe today, what we know is that they did absolutely nothing and now they’ve accomplished nothing. Big bonuses all around to the bureaucrats.

From what I can tell Kinder Morgan was never supported in their fight to get this pipeline built. Producers were nowhere to be seen. This might open the argument to the criticism that I’m not aware of what’s happening behind the scenes. The fact is this inability of producers to do anything is typical of the argument made in the Preliminary Specification that they’re not considering the broader scope of their operation. The service industry and pipelines need to be supported by the producers as those companies revenues are dependent on the primary industry revenues of the oil and gas industry. To leave the service industry and pipeline companies to fend for themselves is what the oil and gas producers do. The one thing the producers do however is call these service industry companies lazy and greedy so there is a high level of cheerleading that has and does go on. We also see throughout the oil and gas industry the issues with takeaway capacity, field operations are having difficulty sourcing the field resources that are necessary, items like water and hauling, and of course the Canadian natural gas producers pay their customers to take their gas. Yes it’s these points that are indicative that I am fully unaware of what’s going on behind the scenes.

The issue for Kinder Morgan was the government in British Columbia was denying them the right to build the fully approved pipeline. This was contrary to all the laws that are in the Canadian Constitution and would not hold up in court. Interprovincial trade can not be held up at the border by other provinces. Imagine if someone needed to negotiate with each state government in order to get shale oil production from the Dakota’s down to the Gulf Coast. Canada is a country where one does not interrupt the other part of the countries operations or economic livelihood. We have a Prime Minister who is a former snowboard instructor and bar bouncer. A decided step down from a community organizer. His capacity to understand things has severely diminished, I think, as a result of the drugs he admittedly consumes. However legal drug consumption begins next month in Canada as a result of his efforts. Taking the easy route to solve this problem is probably the way it was going to end anyway, dude. This fight that Kinder Morgan needed to undertake was after full approval and an already unnecessary and long protracted battle with the environmentalists and native rights issues. Kinder Morgan had had enough and cancelled the project.

What this shows investors is all that they need to know. The oil and gas producers bureaucrats are lazy, incompetent, uncaring and only riding the train as long as they’re compensated. Allowing things to become so difficult for the service and pipeline industries who are battling it out for the producers on their own. Trying to open secondary markets for them that they now determine the best business decision is to walk away. I’m sure when investors see that producers allow the government to take the lead in the industry, there’s not much to be gained. What is the next step for the Canadian oil and gas producers? Full government ownership? Government subsidies? Or government authorized pacifiers for the bureaucrats. What they have shown is that they are incapable of managing the business profitably for the past four decades. They must have a constant flow of new capital from shareholders to keep the doors open. New capital based on specious profitability that doesn’t consider the capital costs of the products produced, in a capital intensive industry. They are incapable of building pipelines on their own. It’s just too hard for them to do. Supporting the pipeline companies who have such a broad and diverse group of industries in which to generate revenue from, just as the service industry does, doesn’t seem to be a thought in the bureaucrats mind. They are selfish and uncaring, I therefore vote for the pacifiers as the first stage of the remedy for the oil and gas industry.

This is a fundamental failure of the Canadian oil and gas producers. What is the next step in this never ending destruction? The slow insidious acceptance of things that would have never been considered before, happens daily. There are no plans, no understanding that there is an issue and no one cares who could begin to correct the issues. Shareholders were fundamentally rebuked during the proxy fights at the annual general meetings last month. Is the next shoe to drop the investors join Kinder Morgan on the sidelines? Meaning they dump the shares they own and get out of town for good. What is the argument against the use of the Preliminary Specification in oil and gas? Are profits such a bad word that they dare not be spoken. The $1.6 trillion in property, plant and equipment that sits on the producers “stellar” balance sheets and represent the amount of the subsidy that investors were forced to provide energy consumers. This amount of money is probably also the equivalent amount of societal costs incurred by others in this downturn. That is any other group other than the bureaucrats. The Preliminary Specification addresses these issues specifically in the Resource Marketplace and Research & Capabilities modules. It’s been available and could have been built years ago. Why wasn’t it?

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.

More Updates

Maybe the producers have the oil and gas price difficulties behind them. As I’ve stated before I’ve been at this for a while. As soon as things become somewhat reasonable in terms of the price of oil or natural gas the excessive drilling and chronic overproduction begins. These cycles of destruction seem to be getting shorter as time passes. Last week we learned that OPEC exceeded their production limits by a substantial percentage. Over 2.5 million barrels of oil were removed from the marketplace each day. On this side of the Atlantic we saw a 5.8 million barrel build in oil inventories. Drilling activity is also up to 1044 active rigs. It’s the nature of the bureaucrats business model that it’s culturally ingrained in the oil and gas industry to continue in their ways of overdrilling and overproduction, because that’s where the cash is. What’s to stop the producers from overproducing to the point where oil and gas prices fall into the territory that is lower than their recent history. Nothing. I’ll give it a 75% probability that’ll happen in the next couple of years, and a 25% probability that we’ll continue with at least what we have now. That leaves 0% of any upside from here. Either way this is clearly unacceptable to everyone other than the oil and gas bureaucrats. They’re fine by the way. Organizations in every industry are moving away from the manner in which they’ve functioned for the past number of decades. Now is the time for action in terms of developing the Preliminary Specification.

This is the way the world ends, not with a bang, but a whimper. - T. S. Eliot. 

Action is necessary to defy the slow, steady and inevitable destruction of the oil and gas industry as a result of the issues that we see present here today. Creative destruction is the method of industrial renewal which is how People, Ideas & Objects seeks to change oil and gas.

OPEC and Russia to the rescue! Highlighting their concerns for the consumers pocketbook, particularly in China and India, Saudi Arabia and Russia are openly discussing curtailing much of their production cutbacks in their upcoming June meeting. They feel that they’re currently highly prosperous and can sit on these prices. We see trends in the industry reverse this quickly. If North American producers had been recognizing their capital costs in a more appropriate manner for the past number of decades. And had reduced their property, plant and equipment balances down to the appropriate sizes for viable producers then they too would be satisfied with today’s prices and be truly profitable. But they haven’t done that. Their balance sheets are stuffed full of the unrecognized capital costs of past production and therefore need the $141 we’ve calculated as necessary to capture these past costs and return the firms to “healthy” and “profitable” operations.

The decision is therefore necessary to be made by the investors. Are the unrecognized capital cost of past production a sunk cost that should be ignored in any future decision? If so the current producers can be written off as failed and defunct organizations. People, Ideas & Objects provide the alternative means in which to rebuild the industry in the vision of the Preliminary Specification. If the investors want to recapture that $1.6 trillion investment that sits on these producers “stellar” balance sheets, then the development of the Preliminary Specifications decentralized production models price maker strategy is required. The current producers only value rests in their unrecognized capital costs of past production. The rest of the organization is trash as it builds no value and incinerates cash. These past capital costs can be used to defer the reporting of future profits and justify the higher commodity prices needed from the consumers to recapture the amount that investors have had to subsidize consumers energy costs these past number of years.

People, Ideas & Objects maintain that the North American oil and gas producers have lost control of the financial, operational and political foundations of the industry. We see the political foundation being expertly handled by OPEC et al in their noted expression of concern for the consumer. They’re able to read the North American producers financial statements and have seen that their foundations have so eroded that they are not repairable at $60.00 or $70.00 or even $80.00. North American producers love to suggest that Saudi’s costs include the cost of their society and the Kingdom. However, Saudi’s oil and gas costs are as low as $10 / barrel and if we’re including the societal costs then the North American producers costs are far more significant than the $141.00 we’ve calculated them to be.

A few years ago it seemed that North American producers were catching on to the fact they were becoming the global swing producer. However with anything business related their attention span is counted in days and not years. The role of the high cost producer in business is appropriately the swing producer. Swing producers would entail the capacity flexibility to meet the market demands in terms of its surplus and deficit. Pulling production off and putting production on as required to maintain the prices necessary to support their profitable operations. With all the other global producers cost structures being lower they will always be profitable. This requires the North American producers to maintain a business perspective with respect to their operations and only produce what’s profitable. This is obtainable through People, Ideas & Objects Preliminary Specifications decentralized production models price maker strategy. We hear a variety of excuses as to why this can’t be done. “It’s operationally too difficult to do.” Recently we saw Ford shut down the production of all F-150’s. Which unquestionably must be easier than determining which wells are unprofitable and shutting the valves and pump jacks off.

Another great excuse is that the nature of the price maker strategy is illegal. It’s not illegal. We call it our price maker strategy based on the fact that oil and gas commodities are defined as “price makers” in terms of the economic terminology of price maker characteristics. The proof of which is in the OPEC production sharing agreement which saw 1.5% of the production removed from the marketplace that led to exactly 50% of Friday’s 11:00 am oil price in terms of increases. Price makers! If you took 1.5% of a price takers product off the market, such as bottled water, it would have exactly 0% difference on the price. What is needed is for the North American producer to get their head out of the sand frac and learn a few business principles. And do so before their investors make the decision that they’re sunk costs.

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.

Memorial Day

Our 12th Module, Part XII

Partnership Accounting

It is the Partnership Accounting module that captures what is traditionally known as oil and gas accounting. It is a comprehensive module that includes the Material Balance Report, accounted for elsewhere in this Blockchain module description. One of the unique attributes of the Partnership Accounting module over what is offered in the marketplace today is the Gas Cost Allowance functionality and process management. These features make for a unique cost to each and every producer within the Joint Operating Committee depending on the makeup of their investment in associated properties. If they have an interest in the Joint Operating Committees of the gas gathering and gas plants, compression or other facilities then their costs will be unique. The complexity of these calculations make for the manual manner in which they are calculated. Most are subjected to an annual, but sometimes monthly, equalizations and therefore use Gas Cost Allowance estimates for each month of the year where they are corrected and filed at the end of the year.

Gas Cost Allowance being a predominately manual process, the Preliminary Specification seeks to automate it with the Material Balance Report capturing the data and information within the blockchain in order to build off of that the automation, specialization, division of labor, innovation and quality of the various processes dependent on that data. The Gas Cost Allowance calculations should fall under the process of the user community developing the process to a highly automated level. If that still requires estimates to be used during the year than that will have to be done, however the level of automation that can still be done outside of these, I believe, is comprehensive and adds substantial value to the dynamic, innovative, accountable and profitable oil and gas producer.

Once we’ve obtained an understanding of the blockchain’s features and capabilities we begin to see the value that it provides society. People, Ideas & Objects concern is with the greater issues associated with society and not just the oil and gas producer. We see in this down turn the cost that society has incurred as a result of the bureaucrats not paying attention to their business and leaving the overproduction and overcapitalization to fester and metastasize. Oil and gas is the primary industry that drives more than the producers profitability. The follow on effects of their actions, and mostly lack of actions these days, is catastrophic. There are more than the producers at stake in this situation. The investors were the first to experience the difficulties and what I think we can see is that the methodologies of today’s organizations are inadequate for societies needs. New ways are needed in which to deal with the issues and opportunities that are presented in the business, as the existing organizations are too slow and conflicted.

Blockchain is described as the Internet of Value. Augmenting the Internet of Information that we’ve had for the past decades. Anything of value can be secured virtually and securely through the blockchain. Business in terms of the organizational structure no longer has to be constrained by the physical and intellectual constraints of yesterday. People acting in their, and hence societies best interest will ensure that progress is achieved everywhere and always. Sounds to good to be true however the difficulty is that the failing rate of our current organizations is something that we can no longer sustain. They are dragging us under at a faster rate each and every year. How much longer will it take for the operational, political and financial degradation that we’ve experienced begins to affect the capabilities of the industry in ways that are irreversible? The question I think that is on most people’s minds is why is this even necessary?

People, Ideas & Objects provides oil and gas producers with the most profitable means of oil and gas operations. Why is the oil and gas industry unprofitable today? Clearly the producer organizations involved in the oil and gas industry are unconcerned and uncaring of these larger societal issues. The bureaucrats themselves are fine. What we can conclude today is that those who are facing the consequences of oil and gas unprofitability outside of the oil and gas industry, the investors, royalty holders, service industry, taxing authorities, and the people involved in those groups don’t have a say in the manner in which the industry is operated. An alternative methodology is needed. I am proposing the Preliminary Specification as that methodology and with the blockchain module that is being included as our 12th module, society achieves the capability of managing the “value” that is inherent in the primary industry we know as oil and gas.

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 XI

Within the Petroleum Lease, Resource and Financial Marketplace modules there is a common interface known as the Marketplace Interface. When first proposed it was quite controversial but since that time things have settled down, somewhat. It is a virtual representation of the marketplaces that exist within the industry and Preliminary Specification. Users, vendors, service industry representatives, producers and others will have avatars within the People, Ideas & Objects Preliminary Specifications Marketplace Interface that enable them to interact within this virtual marketplace. Organizations may want to establish virtual real estate to house a representation of their commercial offerings. The ability to invoke components of all of the Preliminary Specifications modules functionality and process management, and conduct transactions, interactions and connect through the interfaces elements through “tiles,” or the right click of a mouse to engage others in the business of the oil and gas business. It is intended to be a new medium of communication and capability positioned between the undocumented yet highly available telephone and the well documented yet difficult to arrange in a timely manner meeting. With implementation of blockchain technologies within the Preliminary Specification the documentary elements of these exchanges, transactions and interactions become immutable and secure. More importantly, as noted in the two TED Talks below, trust becomes the commodity that is available between parties.

The following two TED Talks are highly informative in the sense that they provide an understanding of the implications of blockchains technology on trust and how blockchain will replace people’s trust that they have in organizations and institutions with a trust that they’ll have in strangers. The implications of the shift in trust are dramatic, and when you view these videos please consider them from the point of view of their integration within the Marketplace Interface as described above and in the Financial, Petroleum Lease and Resource Marketplace modules definition.

Within Bettina Warburg’s presentation she mentions that “Institutions are a tool to lower uncertainty to connect, interact and transact within society.” With Rachel Botsmans presentation providing the example of AirBnB where a visitor would not leave the place in anything but great condition because otherwise they’ll be rated poorly. Noting that distributed trust which is defined as transparent, inclusive, decentralized, accountable and bottom up is replacing institutional trust that was opaque, closed, centralized, licensed and top down. Ms. Botsman also introduces her “Trust Stack” concept which includes three steps. First is to trust in the idea, second to trust in the platform and third to trust the other user. It is these elements of trust that help people earn the trust they need to begin to take the “leap of trust” or “leap of faith” from the known to the unknown.

It is the integration of blockchain within the Marketplace Interface that makes for what I believe to be a new environment of what and how business will be conducted in oil and gas. I see great potential for the ability of people, and organizations to interact at a much greater speed with less issues regarding what level of trust should be given and an understanding of the level of capabilities being offered. If the user of the Marketplace Interface is able to review the blockchain history of a potential party they may be choosing to interact with. See that they are who and what they represent and that they have the history of delivering that capability into the marketplace. Then the confidence in those transactions may be higher than what can be attained in today’s organizational structures.

Included within the Preliminary Specification softwares writing to the block of the blockchain that documents the transaction will be a video or screen capture of the sessions of all of the users in the transaction and of course the documents that are produced as a result of the interactions. These will be secure and captured within that block of the blockchain. Blockchain will make the work that is conducted in the Marketplace Interface highly secure, the data immutable and the documentary value unimpeachable.

Within the Financial Marketplace module we briefly discuss the concept of securitization of the oil and gas properties. The blockchain makes this a reality. The ability to secure the title through the Petroleum Lease Marketplace, enable the funding through the Financial Marketplace module, both facilitated by the Marketplace Interface. And to have the properties administrative and accounting conducted on behalf of the working interest owners through the service providers enables the investor to deal directly within the oil and gas industry as a producer. They may have little in the way of oil and gas earth science and engineering capabilities, however the second business model of the Preliminary Specification is the trading of these capabilities between producers both within the Joint Operating Committee and throughout the industry. The investors would therefore obtain these capabilities through their Joint Operating Committee. The blockchain provides the investor with the trust model necessary to ensure that the title interest is theirs, and their property is producing profitably at all times.

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 X

The U.S. dollar is expected to be the monetary means in which the oil and gas producers are operated. Our use of blockchain within the Preliminary Specification is to secure transactions within the distributed ledger technologies that are available. Coins or tokens are not the purpose of implementing blockchain as a replacement to cash as this provides no value and there is no compelling reason to challenge the use of U.S. or Canadian currencies. Within the Financial Marketplace module the shift to the Joint Operating Committee benefits from the use of the blockchain technologies. Having an immutable ledger of the transactions within the Joint Operating Committee provides an assurance that only authorized transactions are completed. When there are what is expected to be 3,000 individual service providers providing the administrative and accounting services to each of the potential several hundred thousand Joint Operating Committees. Only those authorized public / private keys of the service providers and Joint Operating Committees will be used to write to the specific Preliminary Specifications blockchains. Eliminating the opportunity for other non authorized organizations from billing the Joint Operating Committees as part of a larger fraud.

The level of automation that is introduced throughout the Preliminary Specification is one of the many features of our product. People, Ideas & Objects software development capability, our user community and service providers seek to enhance automation, specialization, the division of labor, quality, innovation and having the computers working for us throughout the oil and gas, and service industries. Seeking to secure the Preliminary Specifications data within the blockchain itself enables us to ensure that the data that is captured is the precise data that is needed. Saving the time of redundant checking. Securing that data and reporting that data to the appropriate producers, Joint Operating Committees and users. Once this data is as it should be we can then automate the processes that are possible. Not only the automation that is mentioned in the Preliminary Specification, but that which will be developed and included by the user community during initial development and the subsequent iterations prepared by the user community and the application of our software development capability. If we have a reliance on the immutable and unimpeachable quality of the data and are secure in its origins and integrity then the automation can alleviate us humans from the menial tasks we are somewhat consumed by today of checking data, entering data and processing data. Activities that are best left to computers which would then provide us with the time to approach the higher level tasks of leadership, problem solving, decision making, creativity, collaboration, research, ideas, design, planning, thinking, negotiating, compromising, innovating, sensing emotions and financing. A specialization and division of labor between people and computers for the 21st century.

The Financial Marketplace module will be where this vision hits the proverbial road of reality. That is the cash balance. Automation of the checking, verification, validation and audit processes on the data but also on the automation itself is necessary. This is where a level of sophistication and understanding of the entire Preliminary Specification is necessary in order to make the appropriate changes to the industry and producer structures so as to ensure that any leakage or opportunities for those without a kind heart are not provided with entrance for their fraudulent ways. In addition to the implementation of internal controls, our budget for the Preliminary Specification includes in the Compliance & Governance module a budget of $114 million for the Public Accounting firms to review these processes on behalf of the oil and gas industry. The purpose of these funds is to ensure compliance, review the code of the Preliminary Specification and provide an understanding that it does not violate any Generally Accepted Accounting Principles. It will also ensure that the producers annual audits that are undertaken by the Public Accountants have as there base this overall systems review as a foundation of their annual audit.

Speed and control are some of the objectives that are included in the Financial Marketplace module of the Preliminary Specification. The ability of a producer to turn capital over quicker is determined to be a competitive advantage over today’s business model. The ability for a producer to therefore be self funding would be realized if they were able to maintain a minimal or even zero balance of property, plant and equipment. The capacity to fund their capital projects must be done quicker and easier, and as a business that should be a given. Shifting the focus to the Joint Operating Committee where the operational decision making, financial and legal frameworks of the Committees nine frameworks exist will also speed up the process. Having the participants of each Joint Operating Committee come to a consensus on the issues and opportunities of the specific property provides a clearer strategy and focus without the constraints of the operator becoming the impediment to progress. At the same time, as the Financial Marketplace mentions, speed is nothing without control. It will be understood, I would assume, that if a property is not profitable, or a subsequent investment takes the property into unprofitable territory then it will be shut-in which will impose a new capital discipline within the producer. Also, with the Financial Marketplace modules ability to enable the banks to deal with only the Joint Operating Committee, the ability to leverage the returns of the producers interest in the property becomes a reality.

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.

Some Updates

If you haven’t been paying attention to the “crypto” market you may have been missing the developments in that area. The Wall Street Journal calls this market “frenzied” and what I’m seeing is the beginning of a wholesale shift away from corporate equities to crypto currencies or tokens as the replacement. This is just in the small business arena at this time, however, that may be as a result of the size of the crypto market’s capacity for funding. There are investment groups shifting all of their new business to crypto and away from equities. The advantage that I see is the tokens provide the liquidity that facilitate an exit for investors at anytime. And enable the innovators to ride out their visions to their ultimate destinations without having them cut short by selling the business when it realizes its initial successful run. Enhancing the speed and availability of capital to the highly innovative areas of the North American economy.

Therefore People, Ideas & Objects will be changing priorities to move our Initial Coin Offering (ICO) into our second priority behind our user communities development. This crypto marketplace is developing quickly with its capacity for financing growing at a remarkable rate. Our demands are too large at this time however there are new blockchains such as Cardano that are under development. With Cardano we can use its treasury function to get a start on development by issuing $100 million in tokens with the rest of our budget coming in as needed. The $100 million will be used for the initial eighteen months in preparation for full development. I’ve set our timing for raising these funds for October 2019. Establishing April 2021 when we would begin full development. If producers feel that our timelines are not in their best interests then they could mitigate this time by funding the Preliminary Specification by participating in our ICO. What I expect will happen throughout this period is the systemic overproduction of oil will collapse its price again and the bureaucrats flee like rats.

What we have to offer through our ICO is the exclusive rights to use the software built from the Preliminary Specification. With these exclusive rights held by our coin holders they are the people that the oil and gas producers will need to negotiate for their access to the People, Ideas & Objects software which includes the decentralized production models price maker strategy. We have proposed that the producers fee to the coin holder be one third of the net incremental value that the Preliminary Specification provides in comparison to the pricing model in use by the current producers. For the month of March 2018 our pricing for oil is $141.20, natural gas would therefore be $23.53 and the amount payable per boe to the coin holder would be $13.20 which is included in those quoted prices. I have calculated North American oil and gas production at 33.9 million boe / day. If producers are unhappy with those prices then they should have spent less. If they are unhappy with the value leaking to the coin holders they should think instead of their investors money they’re wasting today. These high oil and gas prices reflect the excessive buildup of property, plant and equipment that is stored on the producers balance sheets. Clearing these amounts is what these prices will achieve.

The Wall Street Journal also reported last week that producers spent $1.13 for every $1.00 they brought in during the first quarter. Clearly what the Wall Street Journal doesn’t understand is that if you never recognize the $0.80 in capital costs of that $1.13 then you’re profitable and your cash flow is high. If they think this spending is outsized they should have seen when producers had investors and bankers backing them. These bureaucrats spent like no one could ever have imagined. A minor imbalance of $0.13 in the first quarter of 2018 is not significant, what is difficult for the producers is that they now have no cash and no working capital and they can’t stop this systemic bleeding, particularly of cash that no one will give them anymore. Show me an investor or banker who will provide a company with cash to augment their working capital and I’ll show you a fool.

Producers are all giddy with themselves over the price of oil these days. Having also survived the annual general meetings in most instances, with some having challenges from their investors, they feel they have another year of partying and the good times are owed to them, once again. My advice would be to be careful. The media and analysts are certainly promoting the return of the good old days for oil and gas. If this should turn out to be another false dawn, as we’ve witnessed so many times in the past decade, what credibility will the bureaucrats have then. Giving the investors the stiff arm during this year’s AGM was successful from the bureaucrats point of view, ignoring their disgruntled shareholders at this point is not going to earn them any sympathy if their credibility plumbs the depths of negative territory such as those negative Canadian natural gas prices.

What we learned from the producers first quarter of 2018’s financial performance is that they’re damaged. Unable to deal with the legacy issues of overproduction of their commodities, for over a decade in natural gas, has left them with the financial resources that enable them to put up a good fight for about five minutes. The other legacy issue that has been discussed here at People, Ideas & Objects is of course bloated balance sheets. Although our arguments have been stated here many times. The issue appears to be one that is inert to the oil and gas bureaucrat in that it’s an “accounting issue” that doesn’t affect cash. Except in reality it’s the money that was raised from investors and bankers and the bureaucrats will never account for their former lavish spending. These bloated balances are a long term issue that does’t get and can’t be resolved through any actions of management. Bloated balance sheets are an albatross around their necks and they are incapable of addressing it as reporting massive, chronic losses might be considered contrary to their best interests. The unrecognized capital costs of past production will haunt these producers in good times and in bad for the next several decades. As much as it was easy to report good profitability and cash flow as a young producer, over decades the buildup of those capital costs became outsized to the performance of the firm. That is where we are today. We have crossed the threshold of reasonableness in terms of acceptable levels of property, plant and equipment. When our sample producers produce only 12% of their property, plant and equipment in revenues in the first quarter, we have some bloat. Depletion at 2.5%, and capital expenditures at 3% of property, plant and equipment for the first quarter shows the never ending desire of the bureaucrats to hide their past wild spending from everyone. This is now the issue that they can’t deal with and can’t account for. When their overproduction overwhelms the market again, what will they do?

The fact of the matter is turning your capital over every ten years was a good business model when the banks and investors provided you with all the cash you could ever want to backfill the deficiencies. A business would normally have to turn that capital over quickly in order to recapture that cash back in the form of higher cash flows. These cash flows would then be used to pay down debt, pay dividends and fund capital expenditures. And that’s not a menu of possibilities as it’s thought to be in oil and gas. A healthy business would have the cash flow necessary to do all three of the activities of paying debt, dividends and funding capital expenditures all the time. That oil and gas producers feel they have to trade one off for the other shows how limited their thinking is. Of course it would be impossible in today’s environment to generate the cash flows necessary to do all three. Producers used their investors dollars to essentially subsidize the consumer for their use of energy by having them pay for the capital costs. These capital costs sit, glowing on the balance sheets of the producers where the CEO can strut about thinking it’s worth something. The only thing that property, plant and equipment reflects today is the amount of unrecognized capital costs of past production and therefore the amount that producers have subsidized consumers for their energy. And how much of these costs needs to be captured in future prices in order to rehabilitate the industry.

As the Wall Street Journal notes, we see with today’s oil and gas prices they are woefully inadequate to cover the cost of operations and overhead of the oil and gas producers. The deferral of recognizing their capital costs continues, and increased in the first quarter of 2018, and they’re still spending more than they bring in, they’re desperately short of cash, yet wildly profitable, with great cash flow. Drilling is being conducted at a reasonable pace now and with shale overwhelming pipeline takeaway capacity pretty much everywhere, the constrained deliverability in those areas is reflected in the high differentials producers are realizing. When pipelines are built we can be assured that the constrained deliverability will be released to the larger market where it’s impact on commodity prices will certainly be reminiscent of the past. And we’ll hear the bureaucrats chime in once again “oh whoa is me.”

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.

Victoria Day

Third Friday Off

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.