Industries Political Foundations Erode Further

President Trump has been convinced of the producers profitability. Being a businessman he understand that public companies need to report based on standardized accounting. The earnings of Apple Inc. are conceptually and theoretically the same earnings that Suncor and Walmart report. Standardized accounting that is audited by the public accounting firms to ensure they reflect SEC requirements. The issue is the SEC’s anomaly that allows oil and gas producers to record anything as an asset as long as it doesn’t breach the producers total reserves times the current commodity prices. This anomaly skews the reporting for oil and gas in North America to overstate assets, profits and cash flow. Few in the oil and gas industry would agree with me on that statement and that is why we are in a decades long downward spiral to oblivion. Expecting sophisticated investors outside of the industry to appreciate or be knowledgeable about this anomaly is difficult to assume. Only recently did the current oil and gas investors realize the effect of this was to pay for the discount on the consumers consumption of energy. As a result we’ve heard the president repeatedly comment on Twitter that the oil prices are too high and OPEC should increase their production. If he knew that the profits that were reported by the producers these past four decades were nothing more than air then maybe he would have better understood the need for higher domestic prices.

OPEC is an interesting case study these past few years regarding the price of oil. Until November 2016 they were actively overproducing trying to put the North American producers out of business. Allegedly or whatever. Then they reversed their policies and began withholding production to support prices in the face of continued North American shale production increases. As OPEC removed up to 2 million bbls per day off of the market, the American producers alone have increased their production since November 2016 from 8.6 mmbl / day to now 10.9 mmbl / day. OPEC doing the heavy lifting for all of the producers to realize oil price increases from $38.56 / bbl to now $67.02. I think the message that North American producers should have learned from this case study is that oil and gas commodities are subject to the principles of price makers. Price maker is an economic term to reflect the characteristics of a product. Not a strategy for producers to deviously collude to increase prices, which is what North American producers believe, and will run the industry into the ground rather than adopt the Preliminary Specifications decentralized production models price maker strategy. What price makers characteristic are is they have large price changes from small production changes. OPEC removed a small percent of global production from the market and prices increased by 73%. I believe this was the message that was being sent from OPEC and for the North American producers to understand that message and begin to govern themselves in a similar manner. With our price maker strategy that would involve only producing profitable production that considered all of the costs on a reasonable depletion schedule. Or in other words run the industry as a business.

It’s important to remember that the North American producers are the most costly form of oil production on the planet. Saudi Arabia can produce oil for as little as $10 considering the full cost of exploration and production. North American producers therefore need to adopt the swing producer role in the world oil market. Meaning their production profile will vary to accommodate the changes in global demand and keep oil prices at a level high enough that the swing producers remain profitable. After all the oil and gas industry is a business and not just an activity one involves themselves in. So in summary we have a situation where the U.S. is pressuring OPEC to increase production to drop prices. After almost two years of OPEC showing the North American producers how to effect the prices of the oil and gas commodities. At $10 / bbl in terms of the cost of exploration and production does Saudi Arabia need to concern itself with the profitability of their production when prices were $38.56 in November 2016? I don’t think so. I’m not taking their point of view, I’m only trying to express what I see in the market and how the “politics” of this situation is completely out of hand from the point of view of the North American producers. Particularly when I read the following. From World Oil.

Two of Asia’s largest crude buyers are considering teaming up to buy U.S. supplies and counter OPEC’s dominance in the world’s biggest oil market. India and China are discussing ways to boost imports of U.S. crude to Asia, a move aimed at reducing their dependence on cargoes from members of the Organization of Petroleum Exporting Countries, according to an Indian government official. The two nations want to put pressure on OPEC producers to keep prices under control, he said in New Delhi on Wednesday, asking not to be identified because of internal policy.

And

The oil-buying alliance may initially be made up of India and China, with South Korea and Japan -- also major buyers -- joining the club later, the Indian government official said on Wednesday. While OPEC countries are still the dominant suppliers to Asia, almost all big importers in the region have increasingly turned to U.S. crude after a four-decade ban on American exports was lifted in late 2015.

If I were OPEC I would listen to the President and flood the market with so much crude that the North American producers would be out of business likety split. Crash the price down to the low $20 range and ensure that China and India, as well as anyone else knows that their best interest lies with OPEC as their primary supplier. Let anyone know who happened to believe the North American producers were profitable, like the President of the United States when he was led to believe the oil and gas industry was, learn that that was a myth. Let the oil and gas investor who is tired of subsidizing the energy consumer through their investments in North American producers. That they will now be taking on the discount for the Chinese energy consumer as well. That their total investments will be worthless in short order too. After almost two years of OPEC working to support prices for everyone’s benefit. The only effective contribution by the North American producers was to establish a “buying alliance” to poach OPEC’s key customers. Expect to see OPEC take this one laying down and accepting the role the North American producers desire, or assess who it is that really has control of the political foundations of the industry.

Whether the North American producers see this as an issue or not wouldn’t surprise me. We disagree on so many things. I would suggest they see it as an issue and the remedy would be to begin building the Preliminary Specification. It would be in that way they could offset some of these future political ill winds.

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.

A Critique of "Muddle Along"

I’ll continue to chip away at the foundation of the industry with my arguments. We’re headed somewhere that I think no one has considered and have made no plans for, maybe for our own special kind of hell. The equivalent of being driven off the cliff. Read on, it doesn’t get better. “Muddling along” is and has always been the thing to do. Shutting in production to ensure only profitable production requires mental and physical effort from the bureaucrats and is therefore disregarded. We are expected to believe that this chronic malaise is the situation in oil and gas and that acceptance of the bad years is part of being in the business. This of course is ridiculous and has created the environment where we now see that the investors are gone, the banks are gone, real profits never existed at anytime in the past four decades, cash has eroded to the point where working capital across the industry is unable to service its needs. And now the political situation that’s being orchestrated against the North American producers by OPEC and Russia, where commodity prices will only ever rise to their most recent highs, has removed any upside from ever materializing. I frequently read and hear John Q. Public beaking off about the high prices for gasoline, the excess profits that the industry are making and how the consumers would love to get ahold of an oil and gas bureaucrat. I always suggest they buy some bottled water, sit down, drink it and really think about the situation. Muddling along has been such a disaster that it will take a concerted effort by everyone to correct this mess.

If you do provoke one of these bureaucrats you will find that they’re particularly edgy these days. Mostly defensive about their profession and the “excellent work” they’ve done. My criticism travels far and wide over the Internet and the cumulative body of work from my efforts have not gone unnoticed. People do ask me why it is that I am so hard on my potential “clients” and I reply the oil and gas producers are not my clients. They’ll pay the bills and use the software that we produce but People, Ideas & Objects are focused exclusively on our user community as our “clients.” They are for all intents and purposes our customers. If oil and gas producers want to have a feature included in the Preliminary Specification, they must deal exclusively with the user community. People, Ideas & Objects will be unable to do anything for them. It will be the user community itself that has the oil and gas producers as their direct clients. Therefore our criticism is not detrimental to our success or failure. What is critical to our success is that we continue to always provide the oil and gas producers with the most profitable means of oil and gas operations. By ensuring that we provide them with the greatest value that can only be achieved through the structure of our software development team, our user community and their service provider organizations. That is how we compete and generate our value.

The culture of the oil and gas producers is to grind out the bad times by keeping costs down. Since oil and gas has had 27 bad years out of the last 32, how have the producers done in terms of cost control? We’ve calculated the costs of our sample of 23 producers is $141 / barrel. In 2000 the price of oil was $27.39 and in 1970 oil was $3.39. What we see is the cost control that the industry has exercised has paid big dividends. The fact is, that as we progress, the easier and less expensive to find and produce oil and gas is produced leaving only the more difficult, geographically challenging and costly reserves remaining. What bureaucrats want us to believe over these past four decades is that the cost of oil and gas exploration and production has never gone up. Only their corporate asset values have risen. In ten years time their “muddle along” strategy will bring them profits based on each of their trillion dollar balance sheets. Cost control is really the shell game that they play with the investors. If they can sell the investors on how prudent they are in spending investors money as in “look at our assets,” the investors will come back next year and give them even more money. Welcome to the oil and gas business, open your wallet and keep your mouth shut because “its science and it's really complicated.”

As we’ve noted before you can fool some of the people some of the time. At some point the business model ceases to function when no money is ever made. Taking money from investors, spending it lavishly on whatever qualified as cost control, never recognizing those expenditures as a cost of the business and hence reporting good profitability was a great business while it lasted. This scam is well known now by everyone including the marks, those being the investors and bankers. The only thing now is to “muddle along” as it were and ensure that you have your own personal “exit” strategy to get out of the industry when things become untenable. Whether that is retirement or the exodus to other industries it doesn’t matter. When everyone leaves at the same time no one remembers who they were.

If the bureaucrats take offense to being accused of running a scam then I’d be surprised because they’ve never displayed any such concerns before. The innocent always scream and yell about how innocent they really are. If we go back to 2005 when the price of oil leaped to $50.44 the industry was having a good time of it. Maybe the heyday of all heyday’s. What is obvious today, was obvious in 2005, as it was in 1986 when oil prices averaged $14.44 and I saw this problem in the industry. If they can’t make any money at $14.44 then shut-in their unprofitable production. The way oil and gas producers are structured makes that impossible and it just doesn’t work that way. And therefore I started this software adventure in 1991 to develop the systems needed to resolve the issues as I saw them. Our solution to that is the Preliminary Specification. Today the bureaucrats have stopped the beatings and abuse that I became so familiar with. The opportunity for them to have done something may have passed now. Any action on their behalf will now only appear like they should have acted decades ago. It’ll be far better for them to just retire or leave and no one will remember their name. After all what could any one of them have done?

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 XIX

The concerns that we’ve expressed in the development of the Preliminary Specification and the implementation of the blockchain technologies are the same concerns being expressed by PriceWaterhouseCoopers in their PwC Blockchain Validation Solution. These concerns are being addressed in our budget where we allocate $114 million to the public accounting firms for their work in assuring the oil and gas producers that the developments made under the Preliminary Specification are consistent with Generally Accepted Accounting Principles and the appropriate business practices. These public accounting firm reviews of People, Ideas & Objects developments, and our user community, will be part of the continuous developments that are undertaken as part of our permanent software development capability we provide the oil and gas industry. Our second concern is that there is a consistent belief building that blockchain can somehow eliminate the need for audits. Nothing, as we mentioned yesterday, could be further from the truth.

It is with this mindset that PriceWaterhouse is now offering software and services based on the blockchain that will aid in their audit processes of their client firms. Entirely consistent with People, Ideas & Objects thinking of what is required in terms of the Compliance & Governance module of the Preliminary Specification and the needs of the dynamic, innovative, accountable and profitable oil and gas producer. It would be a simple decision to specify PwC’s software within the Preliminary Specifications Blockchain module. I would however make one suggestion that I think is important to People, Ideas & Objects. Our budget of $114 million was to be distributed to all of the participants in the public accounting industry. Having them pool their resources in order that all of the oil and gas producers that they represent are included in their work with us and our user community. I would also prefer to see all of the public accounting firms pool their blockchain software and services into one offering. There are too many conflicts when one firm chooses KPMG to conduct the audit of a firm that has implemented PwC’s Blockchain Validation Solution.

The reason that I see this pooling of these accounting firms resources as necessary is that the future is different. PwC rightly is approaching all industries and all companies with this blockchain software. Attempting to create a substantial competitive advantage for their firm. Which is not incorrect and should be commended. However they are also locking in those clients to their other services in order to get the full meal deal and the best of breed solution. If the blockchain software was pooled with the other accounting firms then their clients shareholders would be free to select any audit firm they want.

We had in the late 1990’s a difficulty with the audit firms owning the ERP software that were being used by the producers in the industry. It wasn’t working and the divestments of those assets came about. I think the reasoning for those divestments is stronger today than it ever has been. Conversely the type of software and service that PwC is offering in its Blockchain Validation Solution is an extension of their statutory requirements to the producer firms. This could be argued is the future of the public accounting firm and there is no way that I can see that we can put the genie back in the bottle now that the idea has been presented. Therefore the pooling of the public accounting firms in order to offer a generic solution in the audit capabilities of blockchain technologies is in my opinion a necessity. The software and services associated with these products are in there infancy and will develop to include more and more of the compliance frameworks. Creating a demand for the product to grow in terms of its function and process capabilities to the point where it becomes, I would suggest, too large for one of the large audit firms to undertake and manage on their own. Secondly it would be too much of a burden for the producer firms and firms in other industries to carry the costs of up to ten of these same software development initiatives being undertaken by public accounting firms.

People, Ideas & Objects have developed our pooling concept in a number of ways for the oil and gas industry. First in the sense that all of the producers are pooling their IT budgets into one ERP system development. Avoiding the demands of each producer developing the inhouse capabilities to build and support an ERP system that does not present them with any competitive advantage whatsoever. By pooling the producers budgets we are able to save substantial sums for each individual producer and focus on the needed developments of the industry with the larger aggregated budget to do so. The pooling of the earth science and engineering resources in the Joint Operating Committee is also provided as the solution to the expansion of the division of labor and specialization of those professions. An expansion that would soon move the scope and scale of those producers capabilities, and key competitive advantages, outside of what a commercial operations budget can sustain. And will provide a means in which to deal with the prospective shortfall in those technical resources as a result of the pending retirements and lack of new intakes.

By pooling the public accounting firms resources on one software solution they will be able to access the budget that will be necessary to build the kind of solution that this will eventually come to be. An ominous and comprehensive solution for the audit profession. To avoid lock-in, which is something that I would suggest is necessary. If an accounting firm used their blockchain and auditing software to lead their sales effort and lock-in their services then that would be contrary to everyone's best interest. However if they were able to share in the revenues of the blockchain and audit software and compete based on the quality of the audit services that they’re able to provide above and beyond their competitors, then that would be the best solution for everyone concerned. The choice for the shareholders will then be based on the best auditors available for the job and not the firms software that they implemented a decade ago.

People, Ideas & Objects Blockchain module is provided as a significant enhancement to the other eleven modules of the Preliminary Specification. Including this technology eases much of our needs to resolve some of the difficult technical questions we raise as a result of the complexity of our solutions. That is where I see the technology being most valuable to the oil and gas businesses and will continue to update and develop the Blockchain module, as with all of the modules in the Preliminary Specification, as the situations arise.

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 XVIII

Compliance & Governance

It’s difficult for me to see a substantial role for the Blockchain module in the Preliminary Specifications Compliance & Governance module. In the Partnership Accounting and Accounting Voucher section of this Blockchain modules discussion we noted what role that the blockchain technologies could be used. This lack of vision in terms of its use in Compliance & Governance doesn’t preclude the user community from developing unique and innovative ways to ensure compliance and governance is attained through blockchain technologies. What I am finding is that the extension that blockchain will provide everything to everyone gets to the silly stage when we’re talking about compliance and governance issues and opportunities. Articles such as this one from Oxford Academic which are stating that blockchain will eliminate the need for public accounting firms and the annual audits are not fully understanding the role of these audits in business.

3.7.a. Accountants and financial intermediaries

In a world with real-time accounting, consumers of financial statement information would not need to rely on the judgment of auditors and the integrity of managers. Instead, they could trust with certainty the data on the blockchain and impose their own accounting judgment to make their own non-cash adjustments such as depreciation or inventory revaluation. The potential US savings equals the total revenue of the accounting industry, which exceeds $50 billion per year. This sum represents the social cost for third-party validation of the accuracy of company accounts, or more simply, the social cost of mistrust of corporate managers. Instead of relying on the auditing industry, which itself has been subject to moral hazard and agency problems (Cunningham, 2006; Ronen, 2010), each user could costlessly create their own financial statements from the blockchain’s data, for whatever time period they wished. Users could access the firm’s raw data and make their own decisions about depreciation schedules, marking assets to fair market value, and recognizing non-cash accruals to earnings. To survive, accountants would need to reinvent themselves as interpreters of raw financial data, and given the large size and complexity of many companies, market demand for their services would probably continue in some form.

As a former auditor, prior to my days in the software business, these are ridiculous assertions. Just because a transaction has been recorded within a blockchain does not reflect that the transactions integrity is beyond question. The role of auditors is not to verify that transactions have been recorded in the system appropriately as much as the transactions that are reported are the legitimate revenues and expenses of the business. Misappropriation of corporate assets can and will take place no matter what technologies are used. Those people who are bent in that manner will always find a way to circumvent the systems that are put in place. That is the same for blockchain technologies. Elimination of the audit function from the role of the public accountants is never going to happen. Not with blockchain or with any technology.

It is the business that drives the needs of the Preliminary Specifications twelve modules. We are not technologically focused on providing solutions to the oil and gas industry. People, Ideas & Objects are solving business issues and exploiting opportunities for the oil and gas producer with the understanding that we provide the most profitable means of oil and gas operations, always. No amount of declarative referential integrity in a database is going to solve the business issues that oil and gas producers face. Holding up blockchain as the be all and end all solution to what ails business is a part of the myth that has been built up around this technology. We’ll remain focused on the business issues and opportunities of the North American oil and gas producers and solve those through innovative means by working on the businesses solutions and implementing them appropriately in our software. That is our business offering and we’ll continue to differentiate ourselves to those that are selling the latest technological widget for 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.

Range Bound

Oil and gas producers need to come up with a business model that deals specifically with the commodity prices that are now range bound. The highs are defined by the actions of OPEC and their unwillingness to inflict pain on the international energy consumer. And the lower end is probably in the $40 region where OPEC will invoke their proven discipline to hold back production. Natural gas prices will continue to be defined by their chronic low prices for the foreseeable decades. These range bound prices put the North American oil and gas producer in a situation where they’ll never earn profits. Therefore the ability to raise capital will forever be a pipe dream. No one is going to see the oil and gas industry as a viable choice for their investment dollars.

Even at the relatively high prices of $64.94 for oil at the end of the first quarter of 2018. Cash in our sample of 23 producers that we follow had an apparent tendency to disappear. Contributing to the further erosion of the cash and working capital situation in the industry. No one is investing in the business and no bank is loaning any money. And now with the cash and working capital depleted as they are no one will touch them. Sophisticated investors and bankers don’t fund working capital deficiencies. To be clear, bottom feeders are no doubt circling about in the industry. Desperate producers should take a spin with those people if they feel the need to get out from their difficulties. That I’m sure will be the answer. To reiterate no investors, no bankers, no profits, no cash, no working capital and now with the commodity prices being range bound, no upside.

We heard this past weekend that Russia had joined Saudi Arabia in breaching their agreed production sharing agreement quota’s. They are the friends of the energy consumer. They are the ones that are fighting to keep the prices at the pump down. It is my suggestion that the only viable choice for the North American oil and gas producer is to implement People, Ideas & Objects Preliminary Specifications decentralized production model’s price maker strategy. This can be done by producing only profitable production and shutting in any unprofitable production. They can only do this with the Preliminary Specification in place for a variety of reasons. In summary these reasons are the accounting in the industry is incapable of identifying which properties are profitable. This is due to the overhead being corporate and most of it allocated to capital. In the Preliminary Specification overhead is charged directly to the Joint Operating Committee. Current organizational structures are incapable of making the changes to shut-in production. Shutting in production will only enhance the losses of the current producers. In the Preliminary Specification our reorganization ensures that only profitable production is produced and is never diluted by unprofitably production, reserves are saved for the time in which they’ll be produced profitably, and those reserves will not have to carry the years upon years of chronic losses as additional costs and finally by removing the unprofitable production from the commodity markets we enable those markets to find the marginal cost.

The added benefit of implementing the Preliminary Specification is the enhanced cash flow that the producer will realize. For the past four decades the industries producers have deferred the recognition of capital costs in this capital intensive industry for up to 27 years in some situations. This is the root of their current issues. By not recognizing their capital costs they have been able to bloat their balance sheets of property, plant and equipment beyond anything reasonable. And inflate their profitability by not recognizing the capital costs of exploration and production. Augmenting the cash deficiencies of this tactic with annual investor injections. What they need to do now is to ask themselves are their bloated balances sheets of property, plant and equipment an asset or a capital cost of prior periods production? If there answer is the right one, that it is a capital cost of prior periods of production, then they’ll soon find that this is also the source of their cash requirements.

By using the Preliminary Specifications decentralized production models price maker strategy the producer will be able to raise the commodities prices to the point necessary to cover the current costs and the past costs that their investors incurred to subsidize the consumers energy costs. Or the amount of property, plant and equipment that wasn’t appropriately recognized in prior periods. Then with our price maker strategy they’ll be able to raise the commodity prices by shutting in the unprofitable production and realize the higher prices to offset those capital costs they should have recognized decades ago. Generating, dare I say, the appropriate cash flow to fund their capital expenditures, pay down their debt and pay dividends. Doing all three at the same time is what a business does.

This was considered heresy when we first proposed this methodology. Now with the North American producers losing financial, operational and political control of the industry they will be seen as the only ones responsible for the higher prices. Inaction does have its costs. Producers face the end of their existence in the manner that they’re being managed today. A few more quarters, or maybe a full year from now they will lose control of the organizations themselves. Then what? The slow slide into oblivion has been consistent since I began writing this blog in late 2005. Almost a generation ago. Plenty of time to have done something to have saved the situation and carried on as a viable industry. Instead the producers have chosen to be seen as the greedy ones as far as the consumers are concerned and ran the industry into the ground. The societal costs have been tragic. The Alberta government has incurred $43 billion in debt in the last four years. Millions of people have been displaced in the industry and service industry. Taxes and royalties have been unpaid from the producers that should have been profitable. And lets not forget the investors and banks. Now that their money was used to subsidize the consumers for their energy needs, the consumers will no doubt have forgotten about those gifts they were sent and begin to identify and deal with the greedy and lazy North American producers themselves. They’ll know OPEC were the ones that moved to keep commodity prices low, and to add insult to injury, be thankful they’re at full production at all times, unlike their North American counterparts. Brilliant.

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.

Third Friday Off

Our 12th Module, Part XVII

The Research & Capabilities module documents the capabilities that the producer is able to conduct. Those procedures that they’re able to replicate on a consistent basis. Capabilities that are made commercially available to the various Joint Operating Committees they have an interest in. There is a second business model and hence revenue stream of the dynamic, innovative, accountable and profitable oil and gas producer. That is the sale of these capabilities to the Joint Operating Committees under the pooling concept discussed earlier in this module. There is also the opportunity that these capabilities will be sold to other producers on a direct sale basis. The documentation of these capabilities forms a foundation of the Intellectual Property of the producer firm. Having these capabilities documented and subsequently published across the larger population of producers represented in their Joint Operating Committees through the Knowledge & Learning module secures their copyright. Having these captured within the blockchain will provide documentation of the time and place that these capabilities were developed and ensure that the producer would be able to defend them against claims that they violated other producers ideas.

Knowledge & Learning

Access to the various capabilities of the participating producers in the Joint Operating Committee is made through the Knowledge & Learnings Planning & Deployment Interface. Blockchain makes this access secure. Using the private / public key encryption of the blockchain only those producers who are members of the specific Joint Operating Committee will have access to those details. It will be necessary that each Joint Operating Committee has a unique key that is also shared by the users who have an interest. Then the data and information can be encrypted by the public key and reviewed by the shared private keys held by each of the producers. What we see with these two modules of the Preliminary Specification is the development, deployment and controlled access to the research and capabilities of the producers involved in the Joint Operating Committee. The implementation of the blockchain technologies provides us with an enhanced ability to deliver this solution to the producers for their needs in this area.

There are many other elements of these two modules that will benefit as a result of the blockchain. The need to include a discussion at this point would be moot and understanding these two features that we’ve highlighted here will help in determining how the blockchain is ultimately implemented. It is these two modules that provide a distinct advantage by the use of blockchain technologies. The one advantage that I’m particularly pleased with is the clear vision of how these features can now be developed. Before, without the blockchain these processes and functionality were not necessarily the easiest parts of the Preliminary Specification to build.

I would like to take a moment to highlight the reason that the Research & Capabilities and Knowledge & Learning modules are structured this way. It’s an important point that needs to be understood why we’re doing so and the reason for this is captured in the Research & Capabilities module. The quotation below is from Professor Richard Langlois, then I discussed how it is I’ve interpreted this understanding and applied it in oil and gas.

The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) who point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). p. 9

To be specific, what we’re doing in the Research & Capabilities module is “moving the knowledge to those with the decision rights.” And this is where the alignment under People, Ideas & Objects begins. What the bureaucracy is trying to do is to “move the decision rights to those with the knowledge.” And that is where the conflict is being created. The Joint Operating Committee has the operational decision making framework and there is little that can be done to change that. The knowledge is held within the participating producer firms. It is therefore necessary to create a process that sees the knowledge flow from the producer firms to the Joint Operating Committee and that is what the Research & Capabilities modules Dynamic Capabilities Interface does. 

Analytics & Statistics and Performance Evaluation

Another dual use set of modules as the Analytics & Statistics module deals with the producer firm and the Performance Evaluation is concerned with the Joint Operating Committee. Due to the fact that these are modules that are designed to contain algorithms of analysis that will determine specific performance criteria. And then also provide the user with the ability to prepare ad-hoc analytical reporting there is not much that I am aware of in terms of what the blockchain technologies can provide here. Blockchain is concerned with the recording, securing and reporting of data in distributed ledgers. The Analytics & Statistics and Performance Evaluation modules are not involved in the generation of data only the manipulation of data that has been acquired through other modules and outside of 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.

Our 12th Module, Part XVI

Just a quick note to mention the progress that is occurring in the Initial Coin Offering (ICO) marketplace. People, Ideas & Objects have a budget that is about the size of the issues that the oil and gas producers face. If someone can solve the producers problems with the $5 in resources that the producers are willing to pay to solve them then they’re welcome to try. We’ll be sticking with our budget. And the producers are sticking to their plan of going out of business as quickly as they possibly can. The ICO market is where we’ll be raising our budget from. We are deferring our entrance into this market as our budget demands are in excess of the capabilities of the ICO market. However, Block.one’s ICO has closed effective June 1, 2018 and they raised $4.2 billion. In 2017 total ICO’s placed a little under $4 billion. To date in 2018 ICO’s have raised more than $13 billion. Clearly the plans of People, Ideas & Objects to raise our $6 billion budget from this marketplace are looking less and less “ridiculous” each and every day.

Research & Capabilities

A brief introduction of the Research & Capabilities would be to quote directly from the introduction of that module.

We have also discussed the current producers capacity to deal with issues are constrained by the systems that are in use today. That we see a repetitive inability, or lack of capacity to deal with the existing issues of the industry. Highlighting just the takeaway capacity and commodity pricing as the two premier issues that we seem to be reliving from the 1990’s. There is also an inability to approach new issues that industry is faced with; such as planning for the shale based reserves development and the relationship with the service industry. I have suggested that the industry seems to be in a never ending cycle in which it is unable to exit. The systems that exist today have us operating from a day to day basis and they are unable to deal with the long term perspective.

This cycle of day to day existence is hurting the industry. The ability to deal with this issue is by adopting the Preliminary Specification and acquiring the software development capability proposed by People, Ideas & Objects. Then the innovative and profitable oil and gas producer will be able to break the cycle of systems dependence and effectively plan and execute the business of the business. Until we do this, its best to become familiar with the various elements of the scenery that we’re in. And that primarily involves the losses on operations in North America. 

The Research & Capabilities module provides the exit from this endless cycle. How the firm breaks away from what it has done before and develop its capabilities to enhance its business in the long term is detailed here. There are a number of things we do in this module that make that happen in the Research & Capabilities module.

Within this quote I believe that I’ve captured the essence of the issue that has plagued the industry since 1986. Does anyone believe that proceeding along this same course that we’ve traveled for the past number of decades, and with the passage of even more time, provide any change to the profitability of the industry? The scenery is the same as it was in 1986 and only the bureaucrats have benefited.

The Research & Capabilities is a producer based module whereas the Knowledge & Learning module is a Joint Operating Committee based module. Based on the research that was conducted prior to writing the Preliminary Specification we were able to determine many things that are detailed specifically in those two modules specification. Items such as the producer should be the ones that are developing the innovations for their deployment in the Joint Operating Committee. Then they’ll be making the inevitable mistakes made during the development of the innovations once and only once. Then when the innovation is developed and is successful it can be released from the Research & Capabilities to the Knowledge & Learning modules where it can be deployed to the Joint Operating Committees as a capability available for its use. Making any process development mistakes once in the producer firm, not repetitively in each of the Joint Operating Committees is a key to the dynamic, innovative, accountable and profitable oil and gas producer. Reading of these two modules are keys to the development of the innovative oil and gas industry. Much of the research of Professors Giovanni Dosi and Richard Langlois were implemented within them. Enabling the innovations and capabilities of the firm and Joint Operating Committee, which are unquestionably the key competitive advantages of the producer firm, their focus and priority.

How this is implemented in the Research & Capabilities module is with a collaborative textual interface called the Dynamic Capabilities Interface that captures the research or capability. The key attribute of the blockchain implementation in the Research & Capabilities module will be within this Dynamic Capabilities Interface documenting all of the processes of the producer. As time passes elements of each of the processes are amended and improved upon. Our Dynamic Capabilities Interface will highlight the changes that have occurred since the reader last read that “page” of the interface. By using the blockchain, changes to the individual processes are written to subsequent blocks of the blockchain. Therefore each of the blocks concerning that capability will provide the reader with the a history of the processes development with the latest block representing the most recent version. A comparison will be made to the previous version number that was read by the user, and any of the changes that have occurred since then will be highlighted in different colors. Enabling them to become familiar with only the changes quickly and easily. A similar interface in the Knowledge & Learning module called the Planning & Deployment Interface will operate in the same manner.

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.

Commodity Prices

It appears that the trend on oil prices is downward. Speculation that OPEC will resume full production is becoming the common thought throughout the industry. From World Oil we read

Weighing on OPEC’s decision is mounting global outcry against steep fuel prices on the back of higher crude futures. While U.S. President Donald Trump has said crude prices are “artificially Very High” and India faces calls for price caps on gasoline and diesel, a truckers strike over surging fuel costs in Brazil culminated with the resignation of the state oil company’s CEO on Friday.

It also appears that there’s been a ceiling established for the height that oil prices can climb. That being around $70 U.S. for WTI. Based on our calculations for our sample of 23 producers, they need prices in the region of $141 U.S. for WTI. These prices being what are required for profitable oil and gas production. Today oil and gas investors are disenchanted with the performance of the producers. They’ve withheld investment from the industry for over two years in an attempt to shut off the excessive drilling that causes the chronic overproduction. This hasn’t worked. The issue for the oil and gas investor today is that the market never seems to be adequate for them to earn a legitimate profit. One that recognizes the costs of capital in a capital intensive industry. Now that a ceiling is being placed on the limit that oil prices can achieve, not only will producers never be able to attract oil and gas investors again, they’ll never be able to charge the appropriate amount to cover all of the costs for the oil and gas that they produce. The appropriate amount being based on a full and accurate accounting of what it costs to explore and produce oil and gas in North America. A paradox of proportions not seen in the industry before.

Financial, operational and political control? Dreams from the past that once were. Now producers can’t raise any money in the financial marketplace. Can’t borrow any money from banks. Can’t make any money. Have no money or working capital. Bureaucrats always said they were wildly profitable at these and even lower prices and the consumers and politicians believed what they said. Consumers are therefore unwilling to pay and that’s now the rule producers will have to live by. Producers never had a plan. The plan has always been to seek greener pastures in other industries when employment in oil and gas became untenable. The plans were therefore personal. Wait until the time to jump ship was obvious and make sure your not the first or the last to do so. The oil and gas industry be damned. To me it looks like were awfully close to that point in time. Just a few more pay checks will do and that’s all that the bureaucrats will need. On to technology or the space industry.

Commentary on Canada’s Prime Minister’s deft move in nationalizing the Trans Mountain Pipeline has been pretty much unanimous. No one likes it and no one thinks it’s the right thing to do. Many believe the oil and gas industry will find it hard to convince investors that Canada is the place to put their money. The inability of the producers to get the job done being the issue. It’s not just the oil and gas industry though. Many think this will have repercussions for all industries and for all foreign direct investments into Canada.

Oil price are down over 10% since the Saudis and Russians started talking about increasing their production. You can feel the energy taken out of everyone in the industry. The prospect of higher commodity prices were the only hope of any future and now only vivid memories of the dozens of times that commodity prices have fallen in the past decade. You could see that no one was jumping on the bandwagon as the prices reached the mid $50’s, then the high $60’s and onto the low $70 ranges. The only thing it provided was the hope that given time producers might be able to heal financially, investors may find them attractive and the show would go on. This hope is gone and the number of times that we’ve been at this exact same point over the past decade shows the ridiculous nature of the bureaucrats approach to the oil and gas business. “Do nothing” the standard operating procedure and the “muddle along” strategy. I can tell you that this is as good as it gets. There is no more. This is the trend that I’ve watched in this industry since 1986 when prices collapsed to $10. Then producers moaned “oh whoa is me.” And the fact that I’m writing this today shows that absolutely nothing has happened in these past thirty two years.

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 XV

Accounting Voucher

The Accounting Voucher and Partnership Accounting modules are the two pure accounting modules within the Preliminary Specification. They work hand in hand to provide the full scope of accounting requirements of the dynamic, innovative, accountable and profitable oil and gas producer and Joint Operating Committees. Each of these organizations will be provided with full financial statements that reflect the state of true profitability of each organization. The scope and scale of the Preliminary Specification accounting and process management include everything the upstream producer needs and can be defined as high levels of automation from field data capture to financial statements. Only this basis of accounting can be considered to be the base level of what is necessary and required for the next generation of oil and gas producers. Effectively changing the role of accounting in the industry from a statutory compliance and governance requirement to a dynamic decision making capability.

The unique feature of the Accounting Voucher is the capability to manage the pooling concept introduced in the Preliminary Specification. Pooling sees all of the participants in a Joint Operating Committee being capable of being actively involved in the properties day to day operation. Through the expansion of the earth science and engineering capabilities of the producer due to specialization and the division of labor. It will be few, and possibly no producer that will be able to fully staff their organization with the resources to cover off the global scope of the sciences demands. Producers will need to specialize on specific capabilities to ensure their cost structures remain within what a commercial operation can tolerate. In addition, the perceived future shortfalls of the earth science and engineering resources need to be addressed. The Preliminary Specifications pooling concept allows the producers within the Joint Operating Committee to each contribute their unique capability. Eliminating what People, Ideas & Objects have called an industry wide unshared and unshareable nature of the surplus capacity present in today’s earth science and engineering capability.

In essence what will be possible is for a participant within a Joint Operating Committee to raise an Accounting Voucher for either their producer firm or a specific Joint Operating Committee. That Accounting Voucher would allow them to process what is traditionally understood to be an accounting voucher for whatever purpose. The Accounting Voucher itself is an electronic representation of the document. Therefore it is shareable between the producers who are participants in the Joint Operating Committee. It is here that the blockchain comes into play. Although the shareable concept at first seems inconsistent with the blockchains incapability to duplicate the specific block. The Accounting Voucher is sharing the blocks information not duplicating the block for each of the participant producers.

It is also the immutable nature of the data contained in the block of the blockchain. These data elements would include everything regarding the Accounting Voucher. Be accessible only through the public / private keys of the participating producer in the Joint Operating Committee, or the individual producer depending on the nature of the Accounting Voucher. The data would be encrypted and unable to be viewed by anyone else. Changing any of the data within a block that is representing an Accounting Voucher would cause the hash code to be rewritten. Once the hash code is rewritten then it can’t be verified through its distributed ledger. It would be recommended by People, Ideas & Objects that the distribution of the blockchain ledgers that are used within the Preliminary Specification be distributed to each and every oil and gas producer within the industry. This is the security feature of the blockchain with respect to the immutable nature of the data. If all copies of the blockchain are in agreement as to each blocks hash codes, then no tampering has taken place. If someone attempts to tamper with the data they would have to replace the revised hash codes on each copy of the distributed ledger the instant they made the change. This is not considered reasonable or possible in terms of how the blockchain operates.

Blockchain enables the Accounting Voucher in a more simple and secure implementation. We are unaware of Oracle’s integration of blockchain within their technologies and how they will ultimately be implemented. What we can assume and assure ourselves with is that Larry Ellison, the Founder of Oracle and its current Chief Technology Officer will be implementing the blockchain technology in an advanced and integrated way with their database. Our choice of Oracle as the technological provider for the Preliminary Specification provides us with distinct competitive advantages from the point of view of our ability to implement the innovations and developments of People, Ideas & Objects.

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.