Whom has the Real Cash Flow?

In our March 1, 2019 plan we have set ourselves on a course to raise our budget from the Initial Coin Offering that we’ve been discussing for the past year and a half. We believe we’ve proven that the oil and gas producers, directed by the self-absorbed bureaucrats, have no interest in recognizing they have an issue or are dealing with it in any way. As much noise as we make in the marketplace the harder it becomes for the producers to deny our existence but that does not stop them from doing so. We need to look to other methods of raising the necessary resources to build the Preliminary Specification and the ICO is the optimal market for us. Based on the rights that we grant the coin holder, they will be able to earn a percentage share of the extrinsic value of what the current producers have stated, through their inaction, they’re not interested in. We have defined the extrinsic value as the difference between the base case of what the industry has accepted as today’s operating environment and the environment created by the Preliminary Specifications decentralized production model’s price maker strategy. Currently the price of oil is averaging $57 and we believe, based on our analysis of a sample of 23 producers, that the true cost of oil and gas exploration and production is in the range of $150 to $160. With the price maker strategy only profitable production is produced and therefore the only production that will be produced would attract a price that covers all of these costs. The extrinsic value, as we call it, would therefore be the difference between today’s base case and the $150 to $160 that is needed to cover the actual costs of exploration and production. Or $93 to $103 would be the amount subject to the levy that the coin holders would be assessing on production.

Producers today are grateful that I’ve provided this additional comedy into their lives. They are free to make what they like of our plans and we are certainly opening ourselves to their further abuse. The fact is the industry under the current administration is dying. There is no future and the travels that people have had to endure while bureaucrats have whistled past the tombstones is unnecessary and as we recently noted, evidence that we have half of a well cooked frog sitting in the fry pan of boiling water. The frog didn’t jump when it could, and now it can’t. I recently took the stock price of a sample of producers from the beginning of this month, from the heights that they achieved just prior to the difficulties in the financial crisis and on December 31, 2013 which was the day that the Preliminary Specification was published in its final form. Enabling them to have taken action at that time. A time when the natural gas prices had declined and were breaking down as a result of shale. Oil was still unaffected by shale overproduction. You can practice this for the producer of your choosing but in most cases you’ll be surprised at the damage that has been realized. In most cases there was a sizeable drop from 2008 to the end of 2013. As would be expected and not many businesses and individuals were immune to the consequence of 2008. It’s 2013 where the natural gas business declined precipitously and the producers were able to rely on the otherwise healthier oil side of the business to cover off any difficulties. The fan was completely overwhelmed with what was thrown at it when oil prices also declined putting both oil and gas in difficulty. Named companies like Apache are trading at 22.5% of their former glory, Chesapeake who’s story is well known, is rumored to be on the mend and is trading at 5%. There are also a number of well managed small intermediates such as Bonavista trading at 3.48% and not so well managed Obsidian at 1.1%. That is today’s oil and gas industry. I can only recommend that the bureaucrats chuckle hardily at our plans.

I could very well be wrong and these companies are fully supported by their investors and bankers and will be rehabilitated to their former glory. I’m on record otherwise. We know the industry continues to generate cash flow as a result of the prior investments in a capital intensive industry. This cash flow, in our opinion, is being diverted by the bureaucrats to buy the allegiances of others to ensure that there’s no support for any industry change. Currently these allegiances include the people who work in the industry, as would be expected, and those with immediate contact with the producers head office. Such as our competitors. There are also demands on that cash flow being made by banks and investors in terms of the large loan balances outstanding and the investors who have been deceived by the specious accounting in prior decades. They are getting their pound of flesh and will continue to do so. There will therefore be no action arising as a result of them. The point of this is to show that People, Ideas & Objects et al remain isolated and alone in our pursuit. Which is fine by me as we’re able to move at light speed in terms of our actions and accommodate any changes or opportunities in the marketplace that come our way. We remain unconstrained in our approach.

What our March 1, 2019 plan does is begin the process of carving out the cash flows of the industry in a manner, based on the Preliminary Specification, that support our initiative. If bureaucrats can do that to support their efforts, we’ll show them how to do it with style. Buying allegiance is not difficult to do. We have the credible plan in which to do it with the Preliminary Specification. The industry has been destroyed by the incumbent management. And therefore we are able to compete in terms of how the industry will be configured and who will participate in the future. The one distinct disadvantage that we have is that we are doing the right thing in resurrecting the industry and rebuilding it. Versus what the producers bureaucrats are doing which is fundamentally destroying it, they still don’t have to give a damn. The one distinct advantage that we have, is based on profitable pricing, we have much more cash flow.

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 American 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

A Minor Point of Difference

The Wall Street Journal has an interesting article regarding the shale business. The article is here, although it’s behind a paywall. It suggests that shale producers are finding difficulties in maintaining their production profile projections as a result of an issue that has recently crept into the management of shale formations. It is referred to as the parent - child issue and it sees the close spacing of shale wells affecting the performance that was expected from the lease, based on the original parent well’s performance, and the drilling of the child well in close proximity. Stating that some producers were experiencing up to 50% declines from the expected performance of the child wells, and these child wells when drilled were also impacting the performance of the parent well. What is and what will be the optimal spacing will have to be determined. The objective has to be to maximize the volume of oil and gas from the formation. And how that is done is unknown at this time. What I do know about oil and gas is that this is an engineering issue. And with all engineering issues we normal human beings are out of our league in determining what the future holds for these formations and the outcome of this issue. I have found it best to be quiet about these kinds of things, revisit them in a few years and find that the issue was resolved and the production volumes and recovery factors are spectacular.

There are two methods in which to deal with the problem. The first is to expand the spacing of the wells. This has the effect of maintaining the wells higher production throughput however, the overall recovery percentage from the lease will be less as there will be less oil and gas that is exposed to the well bore. The other is to maintain or reduce the spacing and ensure that the oil in place is recovered to an overall higher percentage than the previously mentioned method. Either way the WSJ correctly asserts the producers will need to adjust their production forecasts from those in their prospectus’ and annual reports. From a business point of view I see a few things differently. The article hinted at the area of concern that I have with this specific parent - child issue. But also the general issue that I have with all oil and gas. Which is the overcapitalization of the properties. The WSJ notes.

Shale companies face the equivalent of an industry wide write-down if they are forced to downsize the estimates of drill sites they have touted to investors, some of which promised decades’ worth of choice spots. That raises questions about the high costs shale companies paid to secure drilling sites from Texas to North Dakota, and the true worth of their land positions, one of the primary ways they are valued.

The tendency is to want to “build the balance sheet” and therefore it is implied that money spent is increasing the value of the company, a phenomenon only known to oil and gas. Nothing could be further from the truth. The spending must be recognized as the cost of production. The earlier that a producer can recognize and recover the costs of capital that were incurred at the property, the more competitive they are. Reducing the properties “asset” balance to zero as quickly as possible should be the strategic and competitive imperative of the producer and the industry. Instead what we have is all the motivation and incentives for the bureaucrats to defer any and all of the costs that are incurred by the producer firm across the entire formations reserves. Recognizing only those capital costs of the reserves that are produced. This leaves the majority of the capital costs in the ground for decades and demands the producer seek out new capital from investors in order to keep the lights on and for next years capital program. Recovering cash from the prior investments that have been made has never been a feature, or a bug of the oil and gas industry, it just isn’t done.

If as the WSJ suggest a write down of the properties capital costs is necessary, because of too much spending, or inadequate performance compared to what was expected, then the shale producers will be hit with that write down once again. And I am fine with that. What I don’t think is appropriate, and I’ve seen it in every oil and gas producer that has had to exercise a ceiling test write down. Is once the write down is complete, in the following year and subsequent periods is to reduce the amount of depletion because the write down took care of the excess costs that were valuing the property too high. Therefore the property value is now correct, the properties reserves remain the same, and therefore depletion per barrel is lower and therefore that which is recorded in subsequent financial statements is lower. This thinking only leads us to a second and third round of write downs. The first write down cleared out the past inadequate recognition of costs and therefore corrected that. What also needs to be corrected from the point of the write down, in my opinion, is the depletion per barrel has to be increased in order to better reflect the new cost dynamics based on the now known properties history.

Now if I was a CFO of an oil and gas producer I would have the entire company aligned against me arguing that I’d lost it. I’ve suggested throughout this dissertation, also known as the Preliminary Specification, that the producers are enhanced spending machines that have no concept of financial performance in the real world. Taking money from investors and spending it was the business for the past four decades, until recently. You have, not a generational issue, but a cultural issue. No one in the industry knows any different, or any better. The reason they would refute my argument as CFO is that it would prove they were unable to compete in a commercial environment, as I suggest all producers can’t. That is, they would continue to report they were losing money. I believe the solution wasn’t to subsequently change the measurement of performance of the properties by reducing the rate of depletion, as the industry has done for decades. The solution would be to get new engineers that were able to spend effectively and produce profitably in an environment oriented towards financial performance.

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 American 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.

Gain Some Here, Lose Some There

It may seem inconsistent for People, Ideas & Objects to be spending the next three and one half years raising our budget. Last year we were able to cut our time lines significantly. Reducing years off of our delivery time when years in oil and gas means hundreds of billions of dollars per. One of these changes was the realization that the development and deployment of our own software development team would take many years in order to acquire the appropriate level of capabilities needed to develop the Preliminary Specification. It may have taken the better part of a decade for People, Ideas & Objects to gain all of these capabilities. Therefore instead of these efforts we made the changes necessary to become an Intellectual Property, research and user community based firm. Offloading the software developments to Oracle. What we offer the producers bureaucrats is not the flavor of the day and as a result we have none of the financial resources to proceed. There are no developments being undertaken in the user community either. We are at a standstill and are crawling through the ICO process. This is not our choice and we have little to say or do about it. What we do know is that at the end of the three and one half years we will be needing to proceed as quickly as we possibly can. Therefore we are staying with our current organizational focus as I have become more comfortable with it, and find it more consistent with the overall specialization and division of labor.

There is a gaping hole in the oil and gas industry. The destruction of value has carried on for decades in unchecked fashion with the oil and gas industry now worth essentially nothing or worse. You would need to pay someone substantial amounts in order for them to get involved. When the industry consumes cash in the manner that it does then no one wants to take on the task of feeding the beast. The real issue is no one seems to care or understand the point and therefore continues on with the same behaviors that brought about all of this destruction. The destruction doesn’t stop there. The producers are involved in a primary industry and circumvent the flow of cash to the secondary and tertiary industries for their own benefit. These sub-industries are wholly dependent on the oil and gas industry and have no alternatives other than to absorb the hit. They’re extending the pain and suffering across the provinces and states where oil and gas was once active. Royalty holders are being short changed for their fair share when commodities are sold below their real value. Governments are not collecting the tax revenues they once were and are paying out in terms of higher levels of social services. Here in Alberta during the last four years, in a province that proudly claimed an almost $35 billion savings account, we now sport a $95 billion debt. This is all plain as day to anyone who lives in any of the towns or cities that oil and gas occupies. Yet in the rarified air of the oil and gas producers bureaucracy, it’s a situation that they’re unaware of. Primarily due to their lack of concern or caring.

The investors and bankers should be the last on our list of groups to be concerned about, however, I think what we have here is the perfect example of the failure of socialism. An uncaring bureaucracy who are financially secure and are fine, thanks for asking. While the rest of the economy is being ripped apart as a result the of inability to properly account for the value that is being destroyed. Investors and bankers signalled long ago that this was not acceptable and the bureaucrats have insisted they don’t understand, and will employ no remedial action. We are therefore seeing the effect of capitalism when it is not existent in the marketplace. Where the bureaucracy has no means of measuring their performance and wouldn’t care either way if you could. What we hear from those in the media and those that are directly affected in the primary industry is the endless cheerleading of tomorrow will be a better day. “Muddle through and it will be better in six months, that’s the nature of the business.” That this has become the accepted manner in which the industry is operated is intolerable in the 21st century. It’s also a lie when the five good years of the last thirty three were only experienced by the producer bureaucrats with their litany of new and innovative forms of compensation.

Let’s not kid ourselves or anyone else. We’re not talking about complex concepts to some kindergarten class. The bureaucrats are fully aware and only feign ignorance in order to claim they’re doing the best that they can. The beatings of People, Ideas & Objects and our Preliminary Specification were for the exercise, not because we have them in our sites. They know we will be terminal to their party and good times and as such must be silenced at whatever cost. Having an $8 billion budget, and our Intellectual Property are two aspect of our offering that make our life difficult. Producers never have, and I guess never will, pay for anyone’s IP. They want to steal whatever ideas are about and wash them amongst the industries producers at little to no cost to them. That was the deal in IP’s wild west days. It’s now the 21st century and the time to pay the piper is here. The same goes for our budget. The fact that two thirds of the budget are to my benefit are enough to cause a heart attack in any mild mannered bureaucrat. The fact that they won’t accept is that it’s the only way in which I get paid. Their past behaviors in the ERP marketspace have been such that they’ve used and abused any and all goodwill to the point where they now have no choice. Besides the Preliminary Specification has a value proposition in the $25.7 to $45.7 trillion range. Should I be paid the new minimum wage of $15 / hour for the work that I’ve done? What would you do?

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 American 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.

Performance!!!!

People, Ideas & Objects will not be making any changes to the honorable task of reviewing the financial statements of our sample of 23 producers. How else are we to map the demise of the industry if we don’t monitor and measure it. With that in mind it is the end of the 2018 fiscal year and all of our sample producers have reported. I have to say that faith in the prospects of the industry are waning very quickly at this point. As we indicated the other day the stock prices of the producers have diminished substantially in the past decade. If you think back during this time what we find is we’ve been provided with the wonderful explanations that the producers were just waiting for a cold winter, markets to rebalance or OPEC+ to reduce their production. The past two years we’ve seen no commentary coming out of the producers whatsoever and the question is, are they getting tired of hearing themselves too? We have documented throughout this period of time that the only bureaucratic action to remedy what ails them is to silence People, Ideas & Objects discussion of the Preliminary Specification. It’s just too bad for them there’s the Internet, I couldn’t do my job without it. Action on their behalf is something that should have happened many years ago. But that is not the way of the oil and gas industry. And therefore here we stand on the mess that is the industry and look forward to a future of…

Performance is the title that I wanted to call this post. Something that I’ve built in to the Preliminary Specification, criticised the industry for, begged them to do something about and they have done nothing about or even bothered with. Hence our plan to do our developments without them. The concept of performance, to compete within the capital markets, to be innovative and profitable do exist in the minds of the bureaucrats. The problem is they’re all delusions that have manifest themselves over the course of four decades of naval gazing and listening to one another say how great they are. There is nothing as pious as an oil and gas bureaucrat who has a history of annually raising money from investors for the capital budget, to then capitalize all that spending and turn around to more investors for more cash. Stating that the depletion charge on the income statement wasn’t anything but a sunk cost and not relevant to the situation today. Profits are irrelevant, it's all about cash flow and “when you add in the amount we raised last year our cash flow is ballistic!” They never had any concept of performance. Money was made by taking it from investors. That was the oil and gas business. The number of times I was told that I was crazy for focusing on profits when we began this journey is ridiculous. From mature adults who claimed they graduated university!

Guess it’s becoming obvious that I’m not enamoured with the 2018 financial statements. I’ve always stated in my business career that I should never expect a mouse to run like a horse. What we have here is a rat’s nest. Turning it into a stable of thoroughbreds is beyond what’s possible. I think that my thinking here is completely in line with what the investors and bankers are thinking. They have endured many decades in which they’ve listened to the garbage coming out of the producers. How bankers and investors, as mere mortals, can have no comprehension of how difficult oil and gas is, or how brilliant the producers they’ve invested in are. It’s clear they’ve had enough and want out. In our sample of 23 producers the following actions occurred. Dividends were paid in the amount of $10.5 billion, bank loans were paid down by $20.6 billion, and stock buybacks were $15.2 billion. Additionally short term liabilities were drawn down by $7.1 billion. All I can say is it's good to see the people in the field being paid finally. Everybody is getting their pound of flesh out of the industry and that is a positive development. Hopefully they’ll be able to make something from their investment, and what was that song in the 1960’s from the group The Who, oh yes, “Won’t Get Fooled Again.”

As we head into the AGM’s now I do want to wish all of the bureaucrats my sincere best of luck. I would also like to suggest that stock buybacks for me are the second greatest form of wealth destruction known to man. The first is investing in oil and gas. If you conduct a pro-forma analysis on a stock buyback you’ll see that not only did the investor themselves not receive any cash, but you’ve really hurt the organization. I have a suggestion, instead of recommending to the shareholder another stock buyback program, offer instead to just shred the money through the paper shredder. I recommend that at least dividends put the money in the investors hands. That provides value.

Once you’ve done something for four decades it becomes the culture of the industry. No one knows any different. The things that are done and said are the only things that are understood by those within the industry. The last two years has seen the producers being very quiet because they don’t understand why no one is buying what it is they’re saying and what they’re doing. “This all used to work so well before. What happened?” The number of years, at the current depletion rate, without any further capital expenditures, is a value that never stops rising in oil and gas. In 2016 it was 6.18, 2017 was 6.74 and 2018 stands at 7.71 years. Meaning it would take that number of years at current rates of depletion to extinguish the property, plant and equipment account, without considering any further capital expenditures. The other factor of interest in this ever escalating capital balance is the fact that capital expenditures in 2018 were 104% of depletion. Reflecting the fact that the exercise is to never recognize the capital costs of oil and gas exploration and production. It is to build balance sheets bigger, better and badder than anyone else, a.k.a. spend money like a drunken sailor because that is the oil and gas culture of performance!!!!

Making something of this lot is no longer my responsibility. I’ve given up on them. To have them compete with Silicon Valley, Wall Street or any other industry for the capital they need is so far beyond their comprehension. It’s taken a decade to this point and they still don’t understand. The ability to recognize the capital costs of exploration and production on a timely basis is beyond their desire to understand and do. Turning over the capital in a competitive, profitable way would have provided them with untold cash to spend as they wished, pay off their banks and investors and keep their interests in their firms undiluted. Instead they just kept going to the well for more cash and never recognized any of the costs of doing so. Now it’s clear to everyone, other than the bureaucrats, the only beneficiary other than them with their highly creative forms of compensation has been the energy consumer. Who have had the capital costs of their energy consumption paid for by the oil and gas investor.

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 American 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.

What's the Plan, Part VI

Our new plan seeks to fund our budget from a pending cryptocurrency offering, our ICO. We expect that we will raise our revised budget of $8 billion there within the next three and one half years. The question therefore is what will happen within the oil and gas industry during that time. That is certainly adequate time for any “recession” to have yielded back to the forces of growth and prosperity. And that is where we have the difference of opinion between what we’re doing at People, Ideas & Objects and the bureaucrats of the producer firms. They believe it to be a temporary setback in which time will heal whatever its cause. We understand it to be rooted in the structure of the industries culture and organizational methods which are incapable of dealing with the issues the industry is presented with, and hence these factors are terminal and an existential crisis to the current producers. Creative destruction is being played out in slow motion due to the large cash flows being sourced by the bureaucrats, for the bureaucrats health and financial welfare. The startup producer has been eliminated from the scene. Junior producers are being challenged financially as never before and all of them are finding the environment so hostile that they’re unable to deal with the force and volume of issues they’re faced with. The weaker intermediates are being challenged in the same manner and will also be replaced. There are no healthy producers when the industry is a rotting corpse, only those that believe, and those that unfortunately now know better.

Bureaucrats have feigned ignorance and at the same time the confidence that they knew what ailed their firm. All the while pursuing a declared universal strategy of “muddling along” and “doing nothing.” They persist in claiming to be unaware and unknowing what it is that the investors and bankers are so concerned about. After three years of an investor strike they feel the majority of the investor induced austerity is over and their perseverance will soon be rewarded when investors finally capitulate. Listening would provide the answer in clear and unpleasant terms. The see no evil, hear no evil and speak no evil tactic has them state that they’ve innovated to reduce costs of drilling by massive amounts and will continue to do so. It is the simple act of drilling wells that unleashes the untold wealth acquired when reserves are discovered. That is how you make money. That this is done unprofitably throughout the industry has never been an issue. There was always one more sucker to bleed for their last bit of cash in any of the thousands of rounds of investor fleecings. However, cash and more specifically working capital, has now become such a critical issue that its management is becoming a major part of the business. It is a drilling and cash management business.

I was surprised the other day when the Alberta Premier rolled over the mandatory production allocations for the month of March. She being from the NDP party which is far left of the Democratic party in the U.S. she stated that inventories were still high. Now why would an industry use inventories to determine actions? Everyone knows in oil and gas when prices collapse you scale back your capital expenditures. That is how you reduce supply! That a government with a left leaning background knows that it is far more important and effective to watch inventory levels than to cut back capital expenditures shows the level of understanding and care that is taken by our oil and gas producer bureaucrats. This fienging of any knowledge or understanding of business is systemic, cultural and leads to the belief that reduction of capital expenditures is the one and only solution. People, Ideas & Objects suggest that reducing capital expenditures is the dullest, bluntest instrument known to business in this universe. It is a useless tool. Both OPEC+ and the Alberta government have shown the management of inventories is the solution to the chronic overproduction. An issue that is aggravated by deceptive and specious capitalization of any and all costs to property, plant and equipment and shows any fool with a size 2 hat can be profitable in oil and gas and therefore the responsibility for any overproduction always falls to “other producers.”

You can not deal with these people. They are quick to blame others and accept none of the responsibility. They sit on the cash flow of a primary industry and disrupt the flows to the secondary and tertiary industries that they depend on fundamentally. Then they are treated as if they’re leeches. Yet not once have producers expressed or considered the long term consequences of these actions. Calgary, and to a lesser extent Alberta are one industry towns. Wholly dependent on oil and gas and its follow on industries. There is an election coming and Jason Kenney the leader of the opposition published the following graphs from Statistics Canada. Showing that almost one third of the payroll of the province has evaporated as a result of the actions of the producer bureaucrats. $5 billion per month taken off of the diner table of every family in the province of Alberta. But hey, who’s counting. What is the consequence of the producer inaction across North America? It probably is not that identifiable in the U.S. due to the diversity and depth of the economy in Texas and other oil and gas based states. Other graphs from Statistics Canada show the severity of this downturn is unprecedented in Alberta’s history. Reflecting a $109 billion drop in Canada’s economy from the probable oil and gas difficulties. Seems like $8 billion to People, Ideas & Objects would be an investment!

Here we see the radical, and completely unnecessary gyrations that the producer bureaucrats, a.k.a. throttle junkies as we call them, create with their application of the dullest, bluntest instrument in the universe, reducing capital expenditures. Only to catch up again soon. Why would you run an industry on this basis in the 21st century?

This last graph shows that some sanity reigned in the 1960 to late 1970 era in Canadian oil and gas. Someone had a steady hand on the spending and control seemed to be the operative word. The throttle junkies soon took over after the SEC implemented their accounting proclamations in either 1977/78 and the rest is history. 1980’s recession in Canada was purely political with Trudeau’s implementation of the National Energy Program. The depth of that recession wasn’t as bad but the scale of the loss was tremendous. Note that the initial decline that we’ve experienced here the past few years has been more dramatic than what was experienced in the 2009 / 2010 time frame. Either the residual of the financial crisis hangover or the beginning of the end for oil and gas when natural gas prices began their spectacular crash.

Issue, what issue? The one argument that I get frequently is the optimistic attitude that it will all be better soon. The media are all in for the producer and everyone just hopes and prays. I always tell people, no, this hasn’t been resolved, it will get worse. They are now believing me more than anyone else. Unfortunately. So it is in these next three and one half years while we work on other things that include our ICO we will sit and watch the industry continue to deteriorate rapidly and radically. It will only get much worse until the Preliminary Specification is implemented. It has been 27 years that we’ve been doing this, it will be 28 in May 2019. Of the past 33 years we’ve noted that the industry has had 28 bad years out of the past 33. To assess where we are in terms of the destruction that the oil and gas producers have done to themselves we suggest a quick exercise be conducted. Take two thirds of the property, plant and equipment account and write it down to depletion in some prior period. This is the net effect of where the producers and the industry exist today. Every producer has done nothing but incinerate money and destroy value. Calling rash spending accumulated over decades “assets” is hilarious. We know that the two thirds of property, plant and equipment account, when evaluating the performance of the producer, is nothing more than the unrecognized capital costs of prior production.

We can solve this. This plan and budget which are designed to build the Preliminary Specification is the solution to all that ails the industry. Three and one half years sounds like a lot of time, and it is, however 28 years doesn’t seem that long ago. We also have many things to do. Review of the user community vision will give you an understanding of what. It may seem like we’re thousands of miles from the resolution, and we are, yet the time will be well spent and the following 25 years in oil and gas will be its best years. If we maintain the long term view and take this opportunity to do things right then we have the control that will ensure the industry realizes that. Big words I know but just look at what the bureaucrats are offering.

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 American 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.

What's the Plan, Part V

Ours is a 25 year plan to deal with the issues and opportunities within oil and gas, establish a foundation for innovation and profitable operations everywhere and always. It would all be so much easier if we could just phase this project in and take one stage at a time. Except it doesn’t work that way. We run into a unique situation with People, Ideas & Objects Preliminary Specification. With the shift away from the corporate model to the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. We change every element of how the industry operates. To have this part of the industry operate on some components of the Preliminary Specification, and leave others to follow on later wouldn’t work and we would gain none of the benefits of the decentralized production models price maker strategy. A strategy which would be the first objective attained in any interpretation of a phased plan. Service providers can’t be built to operate on some functional areas of the industry and not on others. In order to make the transition to the service providers there must be the change where the service providers are available to implement the entire Preliminary Specification. Otherwise that would require duplicate administrative and accounting administrations throughout the industry. One industry based, the other producer based. The service providers are the key organizational change that makes all of the producers costs variable. Taking the fixed overhead capabilities of the producers and rebuilding them as the variable based administrative and accounting capabilities of the industry. Variable based on production.

In order for each producer to benefit from the implementation of the Preliminary Specification each producer has to be operational on the Preliminary Specification. That’s not stating that it's our way or the highway. The Preliminary Specification is more of an industry based ERP system with components operational in each of the oil and gas producers. Each producer needs to be able to use the service providers in order to shut-in any of their unprofitable properties or they will not be able to compete in the new, dynamic marketplace for capital that would be created once the system was operational, the determination of which property is shut-in is based on the profitability of the property. Therefore all of the data and all of the functionality of an ERP system needs to be available in order to determine the profitability of each property. Currently producers know the revenues, capital and operations of a property but use allowances for overhead. These allowances are inadequate to determine the real cost of oil and gas administration and accounting. Service providers will bill for their services directly to the Joint Operating Committee. Therefore the actual overhead costs will be known.

In addition the producers role has been expanded to include two separate and distinct revenue streams. One is oil and gas production. The other is the services of their earth science and engineering capabilities that are provided to the properties they own, or are provided as a service to other producers. The Preliminary Specification costs these resources to the various Joint Operating Committees that these people work at during the month to generate the revenues that offset the producers overheads that are incurred to maintain their earth science and engineering capabilities. This is a detailed costing of these resources, without this feature being available the actual cost of the properties will be unknown and some properties that are unprofitable and should be shut-in will not be, and some producers that should have offset their overhead costs will not have. What we would have is a far more inaccurate accounting then what were provided with today. The Preliminary Specification is seeking to attain an accounting throughout the industry that is timely and accurate, failure to implement the full specification would lead to the reverse of this accounting holy grail. Besides anyone who has worked in oil and gas knows that manually matching and patching systems together to make some kind of coherent sense is what the bureaucrats are good at. Therefore we would only guarantee them further employment. I wouldn’t want to be responsible for that.

Automation, innovation, the benefits of specialization and the division of labor, integration of new technologies, quality and gaining the leadership of the user community and service providers in dealing with the issues and opportunities of the oil and gas industry throughout the industry must be done. Why undertake the review of a mostly manual 1970’s / 1990’s concept of accounting systems and bring only one element of our plan into what can be done, and has proven to be of value in other industries? Bureaucrats believe they can muddle through for another 25 years without revisiting these points. Ours is a comprehensive plan due to the scope and scale of the issues that are destroying the industry. Any critical review of the industry shows that the current model is untenable and must be addressed. Ours is a highly interdependent oil and gas system that deals with the issues and opportunities that are present and sets in place the capabilities to deal with them in the future. Pursuing one issue at a time is beyond the time scale that the producers currently enjoy.

There is the opportunity to have each producer cobble together all of the needed elements mentioned above on their own. What they state is impossible for People, Ideas & Objects to undertake in terms of scope and scale can easily be scaled at each and every producer location with their much smaller individual budgets and with the greater demand for IT services by these producers in an ad-hoc disorganized fashion. One of the elements of People, Ideas & Objects et al’s offering is the permanent software development capability that is being purpose built through this plan. Change will be enabled within the oil and gas industry as a result and the issues we face will be able to be dealt with in this era where software sets organizations in cement. The only way to have the flexibility and dynamism that change demands is for an industry to have the software development capabilities available always.

People, Ideas & Objects et al believe that oil and gas energy independence on the North American continent, for the remainder of this century, is a viable and worthy objective. It is unattainable however with the current bunch. Profitability is foreign to the culture of the industry and they have proven incapable of changing or understanding our point of view. Theirs has been 28 bad years out of the past 33, “so what if the next 25 years doesn’t generate any more value increases.” Energy independence can only be attained and sustained by a profitable industry. As a result we have started down our own road to provide the systems that the dynamic, innovative, accountable and profitable oil and gas producers will be needing not only today but for the next 25 years. Our timelines are a bit scattered here as a result of our new plan. We know that it will be 3.5 years for us to complete the financing of our Initial Coin Offering. Making our delivery of commercial software somewhere beyond the time in which we can accurately plan for. There is much to do, as you could imagine, and there is one main ingredient that is necessary and that is you, so join us.

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. 

What's the Plan, Part IV

I’ve now published our revised budget to the Preliminary Specifications wiki. I have also updated this plan under the Implementation heading. Both the plan and budget are located on that one page. The old April 7, 2017 plan has expired, however I’ve left it there for the understanding of some background to the process that we’ve passed through and the origins of our current plan. We’re no longer attempting to create a sense of urgency for industry to act in their own self interest. They do not respond to any outside input and have established for themselves a comfortable regime where they’re satisfied with the performance and future of the oil and gas industry. Simply they don’t care, and to build a sense of urgency is futile. There’s is a self-centered and destructive pursuit that realizes the industries cash flow will always be adequate to maintain their fortunes. I believe the remainder of the industry, the secondary and tertiary industries, investors and bankers, governments, royalty holders and most importantly the people involved in these groups are not the concern of the current crop of bureaucrats and I believe we’ve established our credibility in attempting to deal with them.

The relief that I sense in no longer having to create a sense of urgency to act. That we hold the solution no longer implies to me that we hold the responsibility to solve it anymore. We are changing our perspective from an overall concern and sense of urgency to one where the primary focus and concern of the larger community involved here of People, Ideas & Objects, our user community, the service providers and our coin holders is on the quality of our offerings we ultimately deliver. That will be the manner in which we can approach a task that has the scope and scale of difficulty that we are collectively undertaking. We now have the time, and will have the money in order to make this transition successful. We continue to permeate more and more minds each day throughout the oil and gas industry and it is this slow and time consuming process of having people evaluate our offering, assessing the difficulties of the current administration and making their own decisions that will grow to the point where the impossible things we are attempting will become the inevitable.

Of the past 33 years 28 have been financial disasters, all of those as a result of the overproduction that is chronic throughout the industry. Therefore we can be assured that this will not be going away as I see the producers behaviours and actions continuing. The dull blunt instrument of reducing capital expenditures in the face of these issues is now being done for the 28th time in these past 33 years. Anyone see a correlation? There is also handsome profitability being reported by the majority of the producers so each of them know intuitively that they are not the ones that are responsible for any overproduction. And so it will be if their administration is in control of the industry in 2045, who knows, they may be able to muddle through and do nothing to survive that long.

The other characteristic we see through this situation is that the cyclical nature of the commodity prices. When this is married to the phenomenal capability of the industry to suddenly produce oil for $40.00, in a capital intensive industry, where the historical costs of production was I assumed fixed, if the price of oil should happen to drop to $49.00, is the other reason why the producers have the upper hand today. Although more layoffs are still being reported there is a calm in the market that all will be well soon. Which is the same calm that arises almost annually since the natural gas prices collapsed in 2008. The fourth quarter reports show that cash continues to be the area that bureaucrats are unable to resolve. Oddly this has been the case since investors and bankers abandoned the industry. The point being the behaviors have been evident in the industry for decades. These behaviours were overlooked when investors were backfilling the producers with their cash each year. The industry has developed under these behaviours, sees nothing at issue today and these have now formulated into the culture of the industry.

In terms of how I see the situation this frog’s legs are well done, the body is only cooked rare at this point but the brain is still functioning. Therefore the frog still believes it has a future. And we can see through the actions of the bureaucrats that the frog has never been happier. It may be unreasonable to compare the industries leadership to the mind of a frog slowly cooking, however I find it quite appropriate. It is the producers responsibility for the demise of the industry. We went well beyond the call of duty in attempting to deal with them. Sure I had some fun in the process, but they needed to see the other side of the issue and my criticism provided that. Now we need to move forward and do our thing. We have 3.5 years before the financial resources will be raised through our Initial Coin Offering. People who wish to participate in any aspect of our offering will need to be able to use this time productively. Please review the user community vision to determine what it is that you can and could be doing during this time. The most important thing about this plan is that people need to understand that there is a plan in place. It is these people that are the most important aspect of that plan and the solution we are providing for the future of the oil and gas industry. Their role is critical. Taking a moment away from the noise at this point to think about the Preliminary Specification and the role you could take in the future is what you should be thinking about as the opportunities in my opinion are amazing. Now is the time to leverage what we have and begin to bring it all together.

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.

What's the Plan, Part III

Now that I’ve dispatched that Neville Chamberlain characteristic to the history books and taken on the Winston Churchill point of view. Attempting to work with the bureaucrats and have them do the “right thing” was never going to come about. We’ll need to “fight them on the beaches” and such, and most importantly on their ability to generate value for all concerned in oil and gas. The Preliminary Specification is designed to resolve the issues of the industry and build a foundation of innovation for the future. People, Ideas & Objects, our user community, the service providers and our coin holders will provide the most profitable means of oil and gas operations throughout North America. Our value proposition is in the range of $25.7 to $45.7 trillion over the next 25 years and is derived from two critical aspects of the deficiencies in the bureaucrats current business model. Our price maker strategy will bring about at least $5.7 trillion in incremental profits over that time period. The $20 to $40 trillion is based on industries estimates of what amount of capital expenditures will be needed in order to meet the demand for oil and gas during these next 25 years. Bureaucrats believe that they will raise that money from dopey investors who will watch with amazement and excitement at the size of the producers balance sheets, as property, plant and equipment grows to unseen and unheard of heights and spectacle! We believe the capital investment in the industry is adequate as it currently stands and will recycle the approximate $1.5 trillion sitting in property, plant and equipment in rapid fashion, recovering that invested cash repeatedly in order to meet whatever the future demands for capital will be. Bureaucrats have proven that they love to sit on their duff’s, spend money and fill their pockets. Expecting action to be taken by these bureaucrats was foolish of me to have ever considered.

It’s in that sense that we need to discuss our user community. Our focus and the point of our quality software offering. We initially published our budget in November of 2013 as part of the final version of the Preliminary Specification. It was determined at that time the standard charge out rate for user community participants would be $185 U.S. per hour. We are changing that to $250 U.S. per hour in this revised plan. We are also increasing the volume of hours that are dedicated to the user community by 10% to accommodate the recently completed 12th, or Blockchain Module. This therefore increases our budget by $324.7 million for the user communities requirements. With the required Intellectual Property royalties and profit margins of People, Ideas & Objects our budget is raised by $955 million for user community changes. With respect to the increases in cost and the addition of the Blockchain Module we are increasing our development dollars as well. The principle we have always used is that for each user community hour there will be one hour of software development. Therefore there is a commensurate increase in the development costs in terms of hours and we’re also including the rate change in these budget revisions. I am satisfied with this increase due to the fact that we did not adjust our budget in 2018 for the change we made in hiring Oracle Consulting to conduct the work. This was done to reduce the number of calendar years that would have been consumed by People, Ideas & Objects in terms of recruiting, building and having our team perform at the level necessary for the oil and gas industries demands. Or at least what we expect they will need. By cutting the number of calendar years off in this fashion we were able to save the industry substantial amounts of money due to the fact that the price maker strategy would be operational sooner and without it, the industry is losing hundreds of billions of dollars each and every year.

As an incidental item I’m increasing the research budget of People, Ideas & Objects from $10 million for the project to $30 million. We recently refocused our organization around the changes where we’re using Oracle Consulting for our software development. Reclassifying ourselves as a user community, Intellectual Property and research firm. This will help us to deal with the many changes that are occurring in the marketplace from a business, technical and market perspective. Therefore what was a $6 billion budget has now been updated to these new realities and is a $8 billion budget, for now. Time's a wastin and time is money. In our case the value proposition we provide is highly leveraged to those within the oil and gas industry. We have the opportunity to provide our software with any two of three priorities. On time, on budget or feature rich. The general rule in software development is you can pick two at the expense of the third. Therefore we’ve picked the timeliness and feature richness as our two priorities which causes the solution to be inordinately costly.

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.

What's the Plan, Part II

When we’ve discussed the coin holders in the past we’ve always discussed the idea that they would be capturing their revenues from the producers for their share of the extrinsic value of the industry that they negotiated with the producers. It would be from that revenue stream that the coin holders in turn would pay People, Ideas & Objects for the use of the software, any further and future software developments and the user communities participation in those developments. We have also held out the option, at the coin holders discretion of whether or not they also wanted to collect the fees from the producers for the service providers as well. In doing so they would be able to attract a cost plus fee structure of the service providers fees in addition to earning their share of the extrinsic value. The service providers fees would be a current cost to the producers that is paid within the normal accounts payable cycle and as such would take minimal capital requirements in order to participate. The attraction would be that they are earning a fee off the total administrative and accounting costs of the North American oil and gas industry.

To suggest that these incremental costs that are being incurred here and there by People, Ideas & Objects et al are detrimental to the viability of the oil and gas industry is evidence of the inability of current management to critically review the situation as it stands in the industry today. Although our costs are higher in comparison to the current model, we are profitable in that we are applying basic business sense to the exploration and production of oil and gas. In order to motivate the people to make the changes to divert the cash flows away from the current and highly destructive management of today, we will have to incur some small incremental costs. The focus of the People, Ideas & Objects is to provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. This is what we will have to do in order to achieve that. Just out of curiosity what is it that is being offered today?

Having two sources of revenue for the coin holders makes our ICO more appealing. To raise the amount of money needed for this project the attraction will have to be highly compelling, mitigate as much business, technical and market risks and be very profitable for the coin holder. Therefore we will do what we need to do in order to achieve this. The opportunity to participate in the ICO is open to everyone in our community, oil and gas investors, people within the industry and John Q. Public. As opposed to arguing the rising cost issues the point should be to evaluate the Preliminary Specification to determine the viability in the marketplace and its capacity to deal with the well identified issues in oil and gas. Then determine if the ICO is an investment of interest for yourself.

We are unaware of the amount of administrative and accounting costs that will be incurred by the service providers when the Preliminary Specification is operational. Under our model the actual costs of the overhead of the industry is charged directly to the Joint Operating Committee in the current period. This allows the producer to turn around the cash that is used in the payment of the overhead, charge it to the consumer of the oil or gas and reuse it repeatedly throughout the year. What happens in today’s bureaucratic nightmare is that up to 80% of the overhead of the industry is capitalized and held on the balance sheet as property, plant and equipment for upwards of a decade. Then the cash that is consumed each month by the overhead is very slowly returned over the next decade in the form of depletion. A brilliant use of the cash resources of their investors. If the coin holders choose to also manage the service providers revenue stream as part of their value proposition to the industry, then they will add their levy on top of the amount of industry overhead being charged to the Joint Operating Committee and have that cash recovered in the subsequent months accounting period. This is due to the fact that the treatment of overhead under the Preliminary Specification is as a cost, not an asset as it is today. The coin holder would then be able to earn a handsome finance fee for the management of these costs.

We do not expect to define the coin holders percentage of the extrinsic value that we think they should be entitled to. They will better understand their process and will be able to negotiate with the producers what it is that they expect in terms of access to the software. We also do not expect to define what the percentage fee of the service providers costs would be. We see the coin holders being somewhat separate and distinct from People, Ideas & Objects, our user community and the service providers. It's in that sense too that we don’t want to limit the types of revenues that the coin holders would have available to them. There are possibly many other sources of revenue that would be just as valid for them to pursue. As we develop the coin offering these can be better defined with some of their input and begin to assess the incremental costs that will be incurred by the industry. The key point of their business offering is that we are providing them with the access point in which producers will access the oil and gas ERP systems that are being built in the vision of the Preliminary Specification, based on the input from the user community and financed by the Initial Coin Offering or coin holders we’ve discussed here. The value proposition of the coin holders business offering is substantially greater than today’s base case and that will be the draw for oil and gas producers investors to demand they participate in the use of this software and receive their share of the extrinsic value that is generated throughout this community.

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.