"Not Gonna Do It" George H. W. Bush

I have consistently argued that producers are able to point to and blame others for the difficulties they’re experiencing in their business. When you’ve reduced the scope and scale of the producer operations to just drilling wells it’s expected that someone else will pick up all of those “other” activities that were done before and should be done by producers today. The key issue here I think is leadership and responsibility, or the chronic lack of it. If we look to today’s producers for their vision and leadership all that we are inspired with is the systemic strategy of “muddle along” and an operating procedure of “doing nothing.” They’ll complain that highly regulated pipeline companies have not done their jobs in getting the appropriate takeaway capacity built in time. They’ll complain that the service industry is too lazy and greedy when times are good and their demand for the services of the service industry far exceed its capacity. All of this complaining is designed for everyone to lose focus on what the producers are doing and to attract their attention with a variety of bright shiny objects.

For example, Canadian Natural Resources was in the news complaining about the new formula for Alberta’s mandatory production allocations. They felt the new formula affected them adversely and they wanted some revisions. It was CNRL along with the other heavy oil producers such as Cenovus that were the ones who were lobbying the Alberta government for the production cuts back in December 2018. Differentials then were providing them with net oil prices in the $10 to $15 range. Now these heavy oil producers seem to be displeased with the way in which the government is going about doing their production allocations. This is the issue with any production allocation methodology, is it fair and reasonable for all concerned? The point comes down to the reason for the success of the capitalist system and the absolute failure of socialism. No method of production allocation, other than People, Ideas & Objects decentralized production models price maker strategy, can be seen as fair and reasonable if it is not based on market economics. The Preliminary Specification determines the properties eligibility to produce based on accountings objective determination of profitability. If it is profitable and can be proven objectively to be so, then it will produce. That is the only manner in which a production allocation methodology will work in the era of shale. It is the method that has been used by profitable businesses for the past two hundred years.

Instead of looking outwards as to why the oil and gas producers are failing. The producers in the future, and I’m referring to the ones that are reconfigured from the current bunch, based on the Preliminary Specification, need to focus on how they can maximize their revenues and profitability. Neither of these two aspects of their business would, at times, involve drilling more wells. For the past four decades producers have been flushing value out of the industry while they pursue the wholly grail of more production, at whatever cost. The more wells they drilled the more money they made, so they thought. The fact is that without the investors subsidizing the consumers capital costs of the oil and gas they consumed, the economic situation we have today, after a three year investor strike, would have occurred at any point in time over the past four decades. Oil and gas has never concerned itself with the business aspects of the business. Even today we here no concern about the profitability of the producers or the revenues not being realized from chronic overproduction. Why is that?

Producers will evidently never realize they have any issue with the way in which they conduct their affairs. (I just could not say “the way in which they manage their business” that would be a falsehood.) Pipeline companies revenues and profitability are regulated and therefore guaranteed if any new pipelines are built or not. There business is not based on growth. Investors buy utilities for the guaranteed return that is second only to U.S. bonds. You do not find dynamic, entrepreneurial activity in regulated companies. Then why is it that the producers expect that the leadership that takes the development of pipelines through the logistical, political and environment processes will come from these utilities? Why can’t it come from the producers? It will be the producers revenues that will be held up in the process, it will be their profits that are held up in the process if there are any delays or difficulties. The fact of the matter is pipeline companies are utilities, which are managed by a bureaucracy who are managing a bureaucratic process through a government bureaucracy. And the producers expect that the leadership, dynamism and entrepreneurial activities will be undertaken by these utilities in order to ensure that the producers revenues are maximized.

In Canada we have the cellfie Prime Minister Justin Trudeau. If you’ve seen him, you’ll understand that Canadians have had enough of him. The producers blame him for dropping the ball on the pipelines development. They might have a point, however I’m at a loss to identify at any time in the past that I could say that there was leadership from the oil and gas producers moving the issue forward. They just sat in their big comfy chairs and decided to “muddle through” I guess. Just as the Former PennWest, now Obsidian is muddling through with a stock that’s at 1% of its former glory. Sitting back and waiting for the fearless leadership of Prime Minister Justin Trudeau to present itself is poor judgement by the producers.

The environmental movement has developed over the past four decades in concert with the “muddle along” theory of business producers have developed and put in play. As a result, two decidedly one sided issues that work against the oil and gas producers have come to be. The first is the effect that the environmental movement is having on the day-to-day of the oil and gas industry. In all aspects of the business. And the second is the parrotting of the environmental movement by the oil and gas industry itself. There are always two sides of any story and the only one being asserted by both sides of the argument is the elementary school theory. You know the one where we scare the kids into believing they have 12 years left before we all burn in a fiery hell brought about by oil and gas. Who is going to inform the consumers of the darker side of the equation regarding the elimination of their oil and gas use. Because elimination is the ultimate purpose of the environmentalists. Who is putting across that a barrel of oil equivalent is 23,500 man hours of equivalent work? That each year oil and gas output generates 76 times what the global population does. And who’s asking where the replacement team will come from to make up for that 76 times 7 billion people. There really is no sense in educating the consumer of the implications and consequences of their actions is there. We’ll just all muddle through. I find these actions by producers unacceptable, especially in light of their refusal to adopt the Preliminary Specification and the chronic abuses they’ve thrown at me for even suggesting it.

People, Ideas & Objects, our user community, service providers and coin holders are rebuilding the industry on the basis of the leadership and responsibility for their oil and gas revenues and profits. Not cowering under the table to the environmentalists. Oil and gas has a critical value proposition that determines the success or failure of our species. That is what needs to be represented to the consumer so that they can make a wise decision based on a full understanding of the consequences of their “environmental” decisions. And our future oil and gas industry will stop blaming others for things that are under the producers control.

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.

"Can I Hear $14"

“Can I hear $14.00” the auctioneer barks out. Exxon is now claiming it is achieving a cost structure in the Permian that consists of “development, operating and land costs of $15 / boe” Can I Hear $14.50? The modern miracle of oil and gas costs is they defy the fact that they’re recorded historically. What was $100 when it was acquired is now $14. Amazing isn’t it. This is a simple exercise that is not that miraculous when you see how it’s done. Exposing the magicians secrets is not healthy for the future prosperity of the magician however since these are oil and gas companies I don’t think anyone will mind. The first number, the $100, is the actual historical cost that was incurred. There is no doubt to that and no one is refuting it. It is accurately recorded by the accountants and reported to the appropriate regulatory bodies, audited and everyone is otherwise happy. These are also “sunk costs” that are of little concern to anyone who is someone in oil and gas. The $15 is provided based on the question “what can be done today if everything went perfect in the Permian.” They’re based on estimates from vendors who are bidding on work for a project and hope to gain the contract. These costs you should note do not include any of the costs of depletion. How could there be depletion if the money hasn’t been spent? Is this a deceptive practice on behalf of Exxon? That would be difficult to say as it’s a practice that is exercised throughout the industry. And therefore “if everyone is doing it why are you looking at me?”

The light oil that is produced in the Permian is now creating bottlenecks further down the supply chain. Initially all of the production could be handled by the takeaway capacity and facilities in the area. However as producers began drilling more and more, bottlenecks began to show in the takeaway capacity. Differentials are now depressing the value producers are seeing for their production. These differentials are all the rage in North America. Whether it’s gas or oil it doesn’t matter. The highest differentials are showing up in the most prolific shale areas. Marcellus has a particularly tragic history in terms of the prices they recieve. People, Ideas & Objects have asserted that once the takeaway capacity in these regions is enhanced these regional price pressures will be released into the larger continental market in the case of natural gas, and the global market in the case of oil. But that isn’t the worst news. That would be that today shows the amount of light oil in the world is beginning to overwhelm the refining capacity of that grade of crude. Oriented to the heavier crudes the refining capacity would either need to be reworked to accept the lighter grades, or producers change the mix of what is produced. Therefore any release of the higher production volumes out of the light oil areas will also overwhelm the light oil refining capabilities of the refineries. These price differentials would have a negative impact on the global price of oil, and now with refineries unable to process that grade of crude, shortages of refined product. Bad for the intermediate producers and those that are smaller. Good for the integrated operations. What they lose on the upstream side of the business will be more than made up for on the downstream side. Enter the highly motivated refiners who are wanting to spend money so desperately on upgrading their refineries to handle lighter crudes! Of course they are.

It also appears that the momentum of bloated balance sheets is starting to work against the current producers. That is they are now incurring more and more capital costs each quarter as a result of the size of property, plant and equipment. Don’t get me wrong, still nowhere near enough to recognize the cost of exploration and production. Just as a startup is profitable because of the deferral of most of their costs, they appear highly profitable for the first decade, and this carries on into the second and third decade of the producer to the point where the build up of unrecognized capital costs of past production that should have been recognized eventually comes home to roost and takes on a larger than life issue within the financial statements. The excessive profits of prior years eventually meets the excessive costs of future years. This legacy of bloated balance sheets is why I think everyone is running around saying they’re building their balance sheet. The equivalent of putting lipstick on a pig. It’s also why Ms. Kardashian became the world's youngest billionaire with her makeup business. She sells a lot of lipstick online.

The producers legacy of bloated balance sheets is the problem that can’t be fixed with accounting wizardry or bureaucratic denials. These balances represent many different elements of the oil and gas producers difficulties. The balance of property, plant and equipment is equal to the amount of the discount that the producers investors have had to subsidize the consumers for their energy consumption. The subsidy being the fact that the account is not an “asset” but the unrecognized capital costs of prior production. It therefore also represents the opportunity for the current investors to have their investments recaptured by recognizing those costs after the Preliminary Specifications decentralized production models price maker strategy is implemented. That way the commodity prices would be adequate to cover the appropriate past and current capital costs of oil and gas exploration and production. These costs may be lost in the termination of the producers as they stand today. More and more this becomes a reality. Finally the amount recorded in property, plant and equipment also represents the cash resources that have been stuffed in the cupboard and forgotten about. Building balance sheets must of been discussed during one of the accounting classes that I missed. I also can’t find it through google. Primarily because it’s a ridiculous notion. Producers need to recycle their capital in a competitive manner against the standards set in the capital markets.

Lastly I’ll leave the following quotation that accurately reflects the commodities of oil and gas are subject to the price maker principles. If the commodities were price takers the following would not have happened. And to suggest that managing the producer operation in a profitable manner is collusion is more of a reflection, five years after the publication of the Preliminary Specification, of the obstinance and turf-protection by the producers bureaucrats. Either that or they’re completely idiotic. From the March 14, 2019 EIA Natural Gas Weekly Update.

Pacific Northwest sees highest-recorded natural gas spot prices in the United States since 2014

Natural gas spot prices at the Sumas trading point on the Canada-Washington border averaged $161.33 per million British thermal units (MMBtu) on Friday, March 1, the highest daily spot price recorded by Natural Gas Intelligence anywhere in the United States in at least five years. The price spike comes amid supply constraints and unseasonably cold temperatures, which drove up demand.

Limited supply deliverability coincided with unusually high demand when part of the polar vortex moved into the Northwest and Midwest during the beginning of March. Temperatures in Washington averaged 33 degrees Fahrenheit (°F) from March 1–4, 10°F lower than normal. These temperatures led to high heating demand in the Pacific Northwest and in the regions from which the Pacific Northwest imports its natural gas (the Rockies and Western Canada). Combined with supply constraints, the widespread cold weather led to the $161.33/MMBtu spot price going into the weekend.

Last October’s explosion on Westcoast Energy’s BC Pipeline—which transports natural gas through British Columbia, Canada, and into the United States at Sumas—has led to reduced flows and higher prices at Sumas all winter. From November—the beginning of the winter storage season—to the end of February, Genscape data shows daily flows through Sumas onto the BC Pipeline averaged about 610 million cubic feet per day (MMcf/d), compared to 940 MMcf/d during the same period a year ago. Sumas prices averaged $10.56 per million British thermal units (MMBtu) during that time period compared to $2.62/MMBtu a year earlier.

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.

Software Development Companies

Producers of all types are now claiming they’ve found the value in the deployment of software in order to generate the financial value that’s been missing in their organizations. At the CERA conference a few weeks ago Shell proclaimed they had completed 2 - 3 years of research into this and were now setting out in the software development world. It wasn’t clear to me what role the software would be taking, if it was in the field to enhance operations or organizational. It’s just good to see that our target market have begun to realize that software is beginning to play an outsized role in the business world. We’ve expected this action for a number of years, we anticipate it will be several false starts before there is any success. We’ve already incurred our initial false start with our failed September 2017 development start. I personally am at a bit of a loss of how an oil and gas producer becomes a software developer but I’m sure it will be a smooth transition. I have many concerns about this trend, as it is a trend that is beginning to look like the new SAGD / Heavy Oil / Shale / Software progression of what producers will be claiming to be the next best thing and spending like drunken sailors on. We’ve seen this game before. Everyone runs from one trend to the next as they try to be the “belle of the ball” for their current and prospective investors. Only to find that in March 2019 what we’ve generated in the industry here in 2019.

It’ll be interesting to see what solutions they build considering they don’t know what the issues are. As much as People, Ideas & Objects have screamed about the Preliminary Specification for the past five years, producers have fought us at every turn. During 2013 when we published the final version we provided immense comic relief to the producers as the industry was still viable financially, that is investors were still investing, and only natural gas had collapsed from overproduction. It’s interesting that since the publication the points we made that are the cornerstones of the Preliminary Specification, how each module works in an integrated manner to solve the main issues and subsequent supporting issues that are all playing out in essence just as we propose to solve them. This has met with nothing but obstinance from the bureaucrats in these producers because the one thing that we do very effectively is we disintermediate the industry and send the bureaucrats packing. That is the sole reason for the industry push back. So now the bureaucrats are going to design and build software that will solve the issues that they feign not to understand and will most certainly not eliminate the redundant and wasteful bureaucracy.

Timing is a key part of business. I think we’ve found ours here at People, Ideas & Objects, can’t say too much about the oil and gas producers. The number of people that have read the Preliminary Specification is immense. Five years will do that. And it is five years ago now that the industry should have acted. That would have been efficient and effective management. Now the industry has lost complete control of the financial framework of the industry. No one is making any money. The fourth quarter of 2018 saw our sample of 23 producers collectively lose $591 million. Those are losses based on the specious accounting that we’ve discussed here many times before. When we recalculate their earnings based on our recommended retirement of the outstanding property, plant and equipment account over 30 months. Which would enable producers to capture the cash that has been lying dormant in the producers. We have a loss for the 2018 year of $104.9 billion. Which to me captures more accurately the state of affairs in the industry, and most specifically in our sample of 23 producers. In addition to losing the financial framework they’ve also lost control over the political and operational frameworks of the industry. The loss of revenues due to differentials is all the rage in the industry. It is the pipeline companies, mother goose, the Alberta or Canadian governments or OPEC’s fault that have made these revenue losses so material. Never, ever is it the responsibility of the bureaucrats for the producers loss of revenue. The fact that they express no responsibility or interest in these revenues, why should anyone else? And that is where People, Ideas & Objects comes in. Our ICO will generate these revenues through our decentralized production models price maker strategy. And our coin holders will negotiate with the producers for a share of the increase in the extrinsic value or revenues that are brought about as a result. Then the coin holders will hand the producers their share of the incremental revenues. Think of it, producers being paid free money by the coin holders just for using the Preliminary Specification.

People, Ideas & Objects are user community based software developments. Any software development that is undertaken today has to be based on its users involvement. And not superficial involvement. It is the only methodology that exists to generate quality and usable systems. We have been in development of our user community since the publication of the Preliminary Specification in December 2013. How long have each of these producers software initiatives user communities been under development? Will they have a broad and diverse user community such as ours with representation from the entire industry? Will the users have the power necessary to ensure that the software is built to do the job correctly, or will the bureaucracy step-in and circumvent the users work to ensure their legacy? Or will it be like their grandfathers user community where users “become blind sleepwalking agents of whomever will feed them?” I really shouldn’t be so negative, after all look at what the bureaucrats have been able to accomplish in the oil and gas industry here in 2019!

We do wish the producers the best of luck in transitioning to the software developer organizations that we know they can be. Transitioning is a big thing these days. After all oil and gas isn’t working for them is it? Clearly we are nowhere near the threshold of pain necessary for change. That is the bureaucrats threshold of pain for change, whereas everyone else’s threshold of pain was exceeded long ago. I’ll leave the bureaucrats to ensure that none of the Intellectual Property that is represented here in the many areas of People, Ideas & Objects is used by them in any manner. We would really hate to have to raise this point again. What we do know is that bureaucrats can’t, won’t and will not ever change their ways, their organization or their desire to take others property. So how do these software developments that are being undertaken by producers help in any way? The most obvious to me is that it gives them an excuse to be doing nothing otherwise. “We’re writing code.” No one will be able to evaluate their internal progress. And therefore it achieves the one thing that bureaucrats always seek, and that is it buys them time.

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.

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.