Consumers Will Choose When Given the Facts

Another feature at this time of year is we can begin to hear the whining that it’s not the producers fault for the troubles that plague them. This is an orchestrated litany of excuses as to why the industry has performed in the matter that it has. We’ve already seen the list of reasons here in Canada which include the Federal and Provincial governments, pipelines that haven’t been built, OPEC, mother goose and the easter bunny. The only thing that I can conclude is that the loss of revenues that the producers have experienced is as a result of others doings. Which is critical in the understanding regarding the revenues that the producers did report. They weren’t responsible, accountable or had anything to do with the generation of those revenues either. They too were someone else’s doing. Muddling along, inaction, doing nothing and blaming everything and anyone else are the toolkit of the producers. Taking a proactive leadership position in dealing with the issues and opportunities that the industry currently faces, and giving some direction to the future of the industry are really too much to bother with. It’s all about drilling wells. When the reserves of oil and gas are released through drilling, that’s how the value is made. Except nothing of value has been generated for over a decade now and the disaster that is the industry is in such a steep downward trajectory that the ability and capability to turn it around is very questionable.

The dialogue that is generated in the industry and portrayed in the media is all one sided and particularly beneficial towards the oil and gas producers. Maybe they feel sorry for the poor financial condition that they’re in. Exploitation of this favorable media environment is being filled with feel good stories of how good the industry is doing and what the industry holds for the future. If you only look at the deliverability of the oil and gas then yes, shale has been a particularly strong development in these deliverables. I hope no one was considering that I was going to suggest that the producers were responsible for these increases in deliverability. Without shale where would we be? If we consider the addition of the shale reserves, if we consider the huge increases in oil and gas productive capacity. We should then ask where is the value? There is none. As we’ve seen during the time of the development of shale based technologies, by the service industries, and today’s deliverability we are seeing an absolute meltdown in the value that exists in oil and gas. It is worthless now.

The liquidation of value has happened without any discussion outside of People, Ideas & Objects. I’ll admit the Preliminary Specification is comprehensive because it has to be. Trillion dollar issues can’t be solved overnight with $5, as much as the oil and gas bureaucrats demand. The issue is subtle and was not readily apparent when I began this pursuit in 1991. OPEC decided to drop the price of oil to $10 and the producers began what has been 33 years of excuses and blaming others for their doing. This too has become the culture of the industry and what all CEO’s aspire to get right. Complaining that others messed up their revenues is on page 9 on the oil and gas bureaucratic handbook. Today overproduction is as obvious as the nose on everyone’s face. Yet nothing is discussed about it, nothing is done about it and we all just muddle along complaining about the government or the service industry or whomever. When I assert the Preliminary Specifications decentralized production models price maker strategy is the solution, bureaucrats run away screaming with their hands in the air saying its collusion. They’re worse than Robert Mueller.

This is leadership and conduct that is unbecoming of the oil and gas industry. Producers need to get out there and start managing their business more effectively. And for the first time earn the revenues they take for granted and the revenues that others have avoided them from earning. Start selling the point of view of the oil and gas industry and its significance to society. Instead of turtling at every mention of the environment or allegation of dirty oil. Start showing that each barrel of oil equivalent is leveraged to produce the same energy output as 23,200 man hours of work. And at 123 million barrels of oil equivalent per day that is the equivalent of 1.461 billion man years of benefit that society gains. That is 20% of the yearly output of all of the people in the world today, earned each and every day. Therefore, as a result of oil and gas production we realize 76 times the labor of the population on the planet each year. So yes, lets just shut it down for some alleged science that may happen in one hundred years, or a political distraction designed to scare people. The contribution of the oil and gas industry is critical to the quality of life that everyone on the planet benefits from. Sell that point instead of fighting the lunatics at the protests. And understand that the country that consumes the most energy will also be the most powerful economy in the world. That would be a given with the U.S. consuming 21% of the world's energy. This may be old school thinking and we do have to think of new ways of doing things. Until those capabilities and technologies show up we’re going to need a base that powers the 7 billion people on the planet to make those changes. Idle naval gazing by lunatic congresswomen can’t stand up to the facts. It would only lead to a dystopian future of war and hunger without the energy necessary to fuel the economy. That would be a far more likely fact, besides Obama early in his presidency fixed “the rising of the oceans which have begun to slow, and our planet began to heal.” Why would I not believe him?

We’ve discussed these points here before on People, Ideas & Objects. These are nothing new. Just the further erosion of what the industry used to be. We don’t expect anything from the existing producers and how could they. They’ve done nothing and will do nothing. Our plans are to head in different directions as we’ve noted before with our new plan and it will be on the basis of the arguments put forward there. Consumers can enter a world of climate change that may come about, or you can certainly enter a world where scarcity and conflict will dominate your day. Consumers can choose. If politicians want to scare people with foolish ideas about the atmosphere then we can counter them with the facts that our society has benefited from oil and gas to help those that will have to choose which alternative they want. That would be the start of some effective leadership in oil and gas and what we’re beginning with here at 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 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.

Two Issues Haunting Bureaucrats

Now that producers have their financial statements published they only have two short term issues to overcome. First of course will be the Annual General Meetings and secondly the impact on oil prices based on what actions OPEC+ will take when their current production sharing agreement expire this June. It’s not that there’s any apparent care or concern being expressed anywhere towards the producers that I can see. In a highly innovative industry, such as oil and gas has declared itself to be, one would have expected that they’d have resolved their difficulties by now. Yet if we think back over the past decade to the time when natural gas prices began to fall, what’s been done? Other than the lack of care or concern about the business I am unaware of anything that would rise to point that I would call effort. When the investors and bankers strike and stop the flow of money to the industry, well over three years ago, there are not many more stark indications that others do care and are concerned. Yet, even this action by their investors has done nothing but invoke the persistence of the bureaucrats to wait the investors out until they return. You only have to remember that the declared strategy of the entire industry is to “muddle along” and “do nothing.”

The annual meetings have the potential to be a snooze fest. The demands of the producers for capital and their needs to be fully supported by their shareholders will be in plain site. Last year there was overt shareholder actions being taken at two Canadian companies Crescent Point and Obsidian. Proxy wars are for losers and anyone that starts one is rarely able to exercise any change. Such is the nature and power of the bureaucracy. Both Crescent Point and Obsidian were able to pass through their AGM’s last year without any material changes. Crescent Point was trading at $9.13 around this time last year and are now trading at $3.01. Crescent point topped out at $49.86 in March 2013 which is only a drop of 93.96%. Note too that this was the time that I was well on my way to complete the writing of the final publication of the Preliminary Specification in December of that year. Obsidian was trading at $1.00 last year and are now trading at $0.29. Which is not too bad considering it traded at $42.98 in August 2006. That’s only a drop of 99.33% so there’s lots of time left for the bureaucrats to get moving on this one. It appears to me the fact that Obsidian and Crescent Point were able to avoid any material action from these proxies is evidence that everyone in and out of the industry also want the bureaucrats to be responsible and accountable for their despicable performance.

Anyone showing up to make any proxy changes, or even voting at these producers AGM’s would probably think otherwise if they were discovered doing so in public. “Yes, now I want to intervene to take action on the stock that I’ve lost over 99% on.” And although these may be representative examples, or not, the state of affairs in oil and gas would reflect that Crescent Point and Obsidian were only more advanced than most. Their trailblazing leadership only showing the way and making it easier for others to follow. Which makes me question who really is the fool here. I think we’re now seeing the brilliance of the bureaucrats plan and how it is they’re able to secure a fully vested pension consisting of the cash flow of an oil and gas producer. Step one, ensure that no one gives a damn about the scope and scale of damage that you’ve caused the producer. Step two cash the check.

The motivation for OPEC+ to continue with their production sharing agreement past June has to be in question as far as I’m concerned. Why, they’ve suffered and sacrificed consistently in the past number of years in order to provide space in the oil markets for the North American shale production increases. If no one cares about the industry in North America, with producers in such financial peril, where bureaucrats are only establishing for themselves pensions by dubious means. Why not give them a helping hand and push them over the edge into the abyss. Do so by producing to fulfill their market share with their favoured customers and dominate the markets they want to control. American producers have gone from 5.2 million barrels per day of production in March 2009 to 11.849 million barrels per day today. Yet nothing but value has been destroyed throughout the North American industry. In addition their overproduction has caused nothing but grief for OPEC’s budgets and they could do much better. Or something along those lines. Tell me the logic, the strategy, the value and the brilliance that North American oil and gas producers have been working to create. I’m not seeing it. It’s the same issue that I’ve not been able to see for over four decades in the industry. Where’s the producers plan, I’m missing it.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North 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.

How Our ICO Will be a Success

Needless to say I see the role of Initial Coin Offerings (ICO) taking on a much larger role in society than what they currently occupy. I believe they will have a revolutionary effect in the business world. When entrepreneurs can access the capital they need without the regulatory requirements of a listing on an exchange, then things change. The regulatory environment exists to establish a level of trust for the investors in the companies that are listed on the exchanges. Standardized accounting, consistent reporting and regular audits are some of the features of the regulatory environment. These should be included in any business and anyone stating otherwise is not operating in the investors best interest. The ICO is based on blockchain technology that introduces a new trust model that has greater consequences, I think, to those who are not operating in the best interests of their coin holders. It is the reliance on this new trust model that has enabled the regulators to pass, for now, on their regulation of ICO’s. Regulators are studying them in order to determine their future requirements and involvement.

One of the key attributes that I see of the ICO is the ability of the coin holder to have liquidity from the beginning. With the current model, in the instance of a private company investment, the entrepreneur is forced to sell in order to compensate their investors with a big payday. What happens therefore is the technology industry comes to be dominated by a handful of tech companies that reap the long term upside from the entrepreneur. For example the owners of YouTube sold out for $1.65 billion in 2006. A preemptive and valuable acquisition by Google. How much of Google current $800 billion market capitalization is represented in their YouTube product? Let's say it’s only $100 billion for our purposes, the $98 billion is what the founders and their investors have missed out on in the past thirteen years. If they would have kept the product for themselves they may not have realized that, there could have been competitors such as Google video which was the number 2 product in the market, etc. The point regarding the ICO is the liquidity offered is much earlier and far superior to the private company with the potential to capture some of that long term value that the founders may have missed.

When it comes to identifying who would be interested in People, Ideas & Objects ICO I think our model provides a good example for our coin holders. Those who would be interested would of course be those that are part of the larger community of people and firms that are associated with the upstream oil and gas industry. Starting with our user community members, their service provider organizations, producers, their employees, service industry representatives and anyone else that falls within those categories. Why would they participate? They know and understand the oil and gas business and are involved in it every day. Through their coin ownership they would be participating directly in the production of oil and gas. This is a result of the rights that are granted to the coin holders for exclusive access to the software and services of People, Ideas & Objects and the service providers that we’re creating. For all intents and purposes the current producers are exhausting the value they hold until such time there will be nothing of interest for anyone in those companies. Then they fall apart. We are putting the industry back together in the vision of the Preliminary Specification and making it profitable and innovative. The exclusive rights the coin holder gains is a share of the extrinsic value, as we call it, of the difference between today’s base case and the environment that is created through the deployment of our Preliminary Specifications decentralized production models price maker strategy. This overall upstream oil and gas community knows and understands the business and would therefore have a direct representative value in the output of the industry.

Essentially the coin holders will be levying a tax on the production of the industry. How this will be done is through our free money strategy. Everyone likes free money. Let’s assume the coin holders negotiate a one third levy on the extrinsic value of the industry. Therefore two thirds of the extrinsic value is being realized by the producer themselves, and based on the price maker strategy, the levy of the coin holder will become a cost of production that is passed onto the consumer. Therefore any producer who doesn’t want to participate due to the optics of the levy or for whatever reason would have to answer two critical question to their shareholders and investors as to why they were not gaining this incremental, extrinsic and free value. A) Why were they not participating in the free money strategy? B) How were they managing their business without access to the necessary software and services? Software and services that the producers incurred no time, effort or money in developing? Except for paying the levy.

What is that elephant doing standing on that 800 lbs gorilla in the middle of the room for? Yes, that unanswered, difficult question. Funding our $8 billion budget through an ICO is well beyond the capabilities of the ICO marketplace. Funding $8 billion from anywhere is well beyond the capacity and capabilities of any marketplace. Making this an almost impossible task, just like the producers are facing today. Yet we were able to come up with the Preliminary Specification on a timely basis. An additional complication is that we will not have the critical support of the user community until such time as they can be assured that they will not be left out of the industry as a result of a funding shortfall. We need to have secured the necessary funding to complete the task and that includes the safety and security of the user community. This however does not preclude those potential user community members from participating in the ICO.

The way this gets done is for the coin holder to be representative of the upstream oil and gas industry we’ve discussed above. People involved will need to assess the viability of the producer firms in their current form, the effect that creative destruction will have on the industry and where we’re headed with respect to these. All I can do is point them to the record store for a vision of how others dealt with similar issues. They will then need to assess the viability of the Preliminary Specification, its user community and service providers as an overall solution to what ails the industry. Does it also provide the means in which to establish oil and gas as a profitable and innovative industry? I don’t believe that these assessments can be made by individuals in the greater investment community. The need for intimate knowledge regarding the issues and opportunities around oil and gas are too significant for them to appreciate. We are deep in the weeds here on this one and are delving deeply into the nuance of accounting and administration of the industry and where it needs to go. These are not the attributes that investors assess. They look to the financial performance. This also shows a key personal strategy for me. You don't have to be crazy to do this kind of work, it's just that I find it to be a distinct competitive advantage.

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.

Success and Oil & Gas Can Mix

We will discuss in tomorrow’s post why it is that I think People, Ideas & Objects Initial Coin Offering (ICO) will be successful in raising the budget necessary for building the Preliminary Specification. Today I want to discuss the change initiative that we’re undertaking with the implementation of the Preliminary Specification and the rebuilding of the industry in that vision. In our prior plan I set out the scope and scale of the changes being contemplated through the implementation of the Preliminary Specification, were comprehensive from an industry scale. The sense of urgency in which these needed to be approached was what was believed to be the decline and demise of the “old” oil and gas industry through the forces of creative destruction. Seeing our implementation as the formation of the infrastructure of the new oil and gas industry. None of that scope and scale has changed. The sense of urgency for action has now past. We are now in what I consider to be the crisis stage and the future will be an interesting one in my opinion. We therefore have much to do. In order to make this initiative a success in either the new or the old version of the industry it is difficult for me to understand how one individual could be accountable and responsible for its success and therefore the industry. In our prior plan we stated that the risk of failure was not an option for the producers and if they were seeking to transfer that risk and responsibility to me through their classic tactic of issuing a Service Level Agreement, I wasn’t biting. No SLA can capture the ingredients necessary to make this successful. No one individual or organization can make this successful. In the old plan I therefore shifted the responsibility for the success of this initiative to the oil and gas producers themselves. Stating that without them it would not happen in the manner that would meet their needs. Their direct participation was not requested but demanded in order to ensure that the outcome would be successful.

Under our new plan we have to a large extent accepted the outcome of the North American oil and gas industry as final. Therefore the plans that we had to hold industry to the success of the initiative was destined to fail due to the rapid decline we are now seeing in the producer firms. How then under our new plan do we achieve success? I insisted that the producers pay the full budget for the development of the Preliminary Specification in advance. This was primarily a result of the need to protect the user community from the vested interests who would like nothing better than to attack any identifiable member of our user community or service provider. That must be the case in our new plan as well. There must be the assurance that the user community and service provider members and anyone else that subscribes to participate in this development is protected by the knowledge that we have the financial resources to at least complete the job. Starting off on a pay as you go basis would only have had the bureaucrats shut down any further funding after three consecutive days of oil price increases. Then what do the members of our community do? Will they be ostracised from the industry permanently? Based on my treatment I think I have a pretty good idea as to what the results would be.

The first element to our overall success and the subsequent success of the oil and gas industry is the security of the user community and service providers. Which demands that our $8 billion budget be raised in its entirety. A tall order for today’s ICO market. More on that tomorrow. If they can’t feel secure financially in the work that needs to be done what compromises will they then find that need to be made and will they be more concerned about their future. The financial security of their part-time income from being a user community member will help them bridge the distance from being a fully financed participant in the oil and gas industry today to the enterprise they will be building as a service provider in the new oil and gas environment. Therefore with our budget secure their user community fees will be able to be paid in full until the job is complete and then transition to the revenues that they’ll earn in their service provider organization.

Success for the delivery of the Preliminary Specification and its implementation will be as a result of our user community. I’m able to swear on a stack of 100 bibles that I will do everything to ensure the success of this initiative. The problem is that statement amounts to about as much value as it took me to write it. Although the user community will be proceeding with the assumed lack of direct assistance of the oil and gas producer. It is still they who are the ones with the tacit knowledge of how the industry operates. And it will be they who are able to ensure that the explicit knowledge is captured in the system and their tacit knowledge is available and deployed in their service provider organizations, with our software, to the future oil and gas producers. Relying on 3,000 individuals in our user community is the only way in which I see the success of this coming about. It is unfortunate for them to undertake such a burden, however we have seen the depths that the bureaucrats will take their firms before any action occurs. And that of course is never.

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.

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.