Turtle's Don't Lie

 I was thinking about the legacy our good friends the oil and gas bureaucrats have provided us in terms of excuses, blaming and viable scapegoats. Now that these people have turtled, in my world you can take one of two postures, you can stand and fight or turtle. This doesn’t indicate what they’ll do in the long run, however it has been many decades since we’ve seen any positive action from them. I thought why not go back and review some of the reasons we’ve been provided with in these desperate economic times. Looking at these, with many being created over a decade ago, we see the futility of these reasons that were raised and offered as what were asserted to be valid solutions to the issues at hand. We’ll finish with where I think these bureaucrats are in terms of their ability and capability to deal with the situation. We’ve been discussing the cash situation for years now and it doesn’t seem like any of them have any. The commodity they’ve run out of now is time.

Waiting for a cold winter

Before the oil price collapse we had the natural gas price collapse approximately five years earlier, 2010. The issue we were told is that storage was building rapidly and we just needed a cold winter in order to reduce the inventory and reestablish the pricing fundamentals in the North American market. A decade later and natural gas inventories are heading toward record territories. And this year possibly exceeding the storage capacity of the continent. Do the bureaucrats think the price of natural gas will go negative at that point? The issue however has become more prevalent than just North America. With the advent of some substantial export capacity through the development of LNG facilities, natural gas abundance has destroyed prices on a global basis. Maybe the bureaucrats should have looked closer at the situation and determined what the real issues were. “The fact is today that natural gas is a byproduct.” So they now say, or is that just another excuse.

Waiting for markets to rebalance

A close relative to waiting for a cold winter, the rebalancing of the markets is a phenomenon that I was never aware of. Upon further research there is no conceptual rebalancing of markets. Markets are what we’ve all been taught at university. They provide one and only one thing, their price based on the commodities supply and demand. Knowing and understanding all of the elements of the supply and demand, markets are able to determine what price reflects the market. I’d like to see the bureaucrats rebalance that, whatever that means. Within the Preliminary Specification we look at the commodities price and determine if it’s adequate to produce a profit based on an actual, factual, detailed accounting of the property. If it’s profitable then the property should continue to produce, if it’s not profitable, it should be shut-in to ensure the producer firm maximizes their profits by not diluting their profitable properties with unprofitable ones. Those shut-in reserves can be saved for a time when they can be produced profitably. Those reserves won’t have to carry the incremental losses that would have been incurred if it continued to produce. And removing the unprofitable production from the commodity markets would allow them to find the marginal price. I think we can now state unequivocally that markets don’t rebalance because a decade certainly appears to me to have been an adequate amount of time for the bureaucrats to have been waiting. 

We’re profitable

Ok then where’s the money. And don’t count that investor or banker money. Don’t count the remaining credit available on your line of credit. We’ve destroyed this profitability myth many times by calling the producers accounting specious and designed to serve as ponzi schemes. All costs, no matter what kind of cost, will be capitalized on the balance sheet as property, plant and equipment. Which bloats those big, bold, beautiful balance sheets all those CEO’s are building in order to strut down mainstreet with. Can’t remember ever learning about the corporate objective of building balance sheets either. And hence bloating earnings and cash flow numbers until such time as the investors in these producers said they’d had enough and left. Who would have thought? Producers like Husky are canceling projects left, right and center in order to “maintain balance sheet liquidity.” Which is pretty honest really. They just don’t have the money anymore to do what it was they thought they could do with their big, bold, beautiful balance sheets. 

Capital discipline

This excuse was used a number of times when the bureaucrats caught their fingers in the door when their investors slammed it on them. “We’ll employ capital discipline to turn the ship around.” Or something along those lines. This myth seems to be passing into something more real and tangible as the investors / banks / working capital all vanished and real capital discipline is currently being enforced. Who would have thought? 

Have to ensure alternatives don’t become viable. 

This excuse is the evil twin sister of “we’re profitable.” It is for all intents and purposes an admission that they’ve lost money and did so to “ensure alternatives don’t become viable.” This is their moral high road and taking the long term view that they’ll eliminate the competition now before they gain a foothold in order to compete with oil and gas. See how smart they are! Or maybe they just don’t understand the business they’re in. 

Reducing costs through innovation

This is the sickly grandfather of capital discipline. Service industry representatives were initially faced with reductions in producer activity levels of dramatic scale. For the purpose of this discussion we’ll put the number at 50% activity reductions. Then when the producers realized that the service industry was essentially starving and borderline homeless, for all intents and purposes let's call this couch surfing at friends. The producers decided they wanted 50% discounts, again the number is 50 just for the ease of calculations. Overnight the field service costs for any activity dropped 75%. This was heralded as the innovations that were discovered by our good friends the bureaucrats. I on the other hand thought that it was a bit of a stretch. It was either beating up your suppliers unnecessarily. Or, these producers had found another new innovation with respect to historical accounting. 

Can’t shut-in production, the formation will fold over on itself...

Amongst many other superfluous claims. The Preliminary Specification was based on research done in the prior decade. Since 2007 I had been promoting the decentralized production model where unprofitable production would be shut-in as we discussed above. This provided nothing but comic enjoyment for my audience, the oil and gas bureaucrats. They came up with every excuse why they couldn’t shut-in production. My favorite is “the formation will fold over on itself.” Possibly in some huff and puff heavy oil projects this could be the case. In general, no. As evidence of that I would point to the number of times that OPEC has cut production over the past decades in order to remove excess supply. Have their formations been damaged? And what about all those wells that Saddam Hussein lit on fire when he exited Kuwait and were subsequently shut-in? The myth lingered until 2020 when pipelines and refineries said they couldn’t take any more production due to the virus affecting demand. As a result millions of barrels / day were removed from the North American production profile for a period of months. What’s amazing is that all of those producers who did shut-in production are out saying that they now expect to have achieved full production once again as a result of turning the wells back on. This should be Exhibit 2 in the case against the bureaucrats for their destruction of the industry. They obviously knew, as did I, that shutting-in production was not damaging to the formations. They just needed an excuse not to act. When asked by investors as to “why don’t you use People, Ideas & Objects Preliminary Specification?” The answer was “if we shut-in the property the damage to the formation would be too extensive and unrecoverable.” Can you smell the guilt and culpability on this one?

It’s OPEC’s fault, It’s the pipeline companies fault, the government’s fault, the virus… 

These are the viable scapegoats, an oxymoron developed to reflect how the bureaucrats would shift the blame for their misdeeds. That it was OPEC’s fault is a bold face lie. As evidenced in the Calgary Herald article from July 26, 1986 (newspapers.com) OPEC was extending an olive branch to the North American producers. Just as they’ve done every year since and in the “war” that was started earlier this year. Bureaucrats don’t listen to anyone however. 

Pipeline companies have the enviable position of having the producers commission a new pipeline and then they disappear. While producer bureaucrats cut checks to GreenPeace and whoever else that threatened to protest outside their building, pipeline companies began the onerous process of pushing the new pipeline through the gauntlet of regulation, environmental and government approvals by themselves. What producers do is actually nothing. They sit back, hand their difficult developments to a bureaucracy in the form of the pipeline utility and expect them to get approvals from the ultimate bureaucracy, the governments, that’s always plural. Leaving the producers to gripe and complain that there’s never enough pipeline capacity. Well, other than chronic overproduction what is it that you did about it? Now that pipeline companies are actively shutting down and cancelling their projects, how long do the producers think this process will run in the future? What involvement of the producers will be necessary in that process? Or, will they now have to do it themselves? What pipeline company is going to be the first to believe the producers have the wherewithal to make it through to the end and pay the bills?

“The government isn’t doing enough to support the industry.” Whether it’s subsidies, tariffs or other actions the rabid free enterprise proponents dispose of their principles and beg. Thankfully they received nothing.

Who would have thought that one virus would cause so much harm and difficulty to the oil and gas industry in just six months? I have to say this virus is maybe the most convenient, viable scapegoat to cross the bureaucrats desk yet. That may be a new oxymoronic statement, “convenient, viable scapegoat.”

Notice here at no point did we discuss the incomprehensibly difficult future this industry faces or the demands of what a successful industry requires. Contrast that to the preparedness and capabilities that are necessary in which to begin approaching that and you see the utter failure the industry has become in the hands of these bureaucrats.

Bureaucrats now realize the legal jeopardy that they’re in. Increasing their officers and directors liability insurance coverage shows they’ve received the message. The overproduction and oversupply issue has been prevalent in the market for 34 years. The solution was being developed by People, Ideas & Objects for the last 29 years and was completed in its preliminary, workable form in December 2013. Bureaucrats have a record of abuse that is documented in this blog towards that solution. The solution warned repeatedly that if things didn’t change within the industry the precise disaster and destruction we’re experiencing today would occur. Bureaucratic excuses did not identify anything close to the issues at hand. The oil and gas industry followed their script to the letter and in comprehensive harmony in order to reap their bounty. The innovative executive compensation that developed and flourished in the industry these past decades is well known. Realizing the full extent of the risk that they’ve now incurred as officers and directors of these producer firms. They’ve ceased issuing any excuses or new viable scapegoats. They’ve indeed turtled and we are unaware of their next action. The probability is that producer officers and directors in the process of increasing their insurance coverage have provided others with a heightened motivation for increased litigation. Therefore the personal demands on their time will become significant, exactly when time is of the essence for the producers. No one’s left to help and there are no resources available. What to 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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Yes, Of Course. Not...

 I find it miraculous that the recommendation in oil and gas is that producers dictate to their software vendors how to prepare their technologies in this or that method. That API’s are the method producers will access the functionality they need. That OpenSource software will be the tools that software developers are to use. Yes of course, I can see their point clearly. Producer bureaucrats want to maintain price as the basis of competition and control the software vendors that buy into this foolishness. That is until we come to the method that the Preliminary Specification will be presented to the oil and gas producers. It will be presented and delivered to them in a browser or equivalent, and each of the users that are based within the producer firms will have access to the Preliminary Specification through a username and password. What could be simpler. (A note here to state that our first module was the Security & Access Control module in order to provide the highest levels of corporate and Joint Operating Committee security. But we’re not discussing this complex subject at this point.) The requirements of having software vendors use API’s and OpenSource software may be valid in most industries, I don’t know. But for oil and gas, or at least from the point of view of People, Ideas & Objects these are moot arguments and will never be under consideration. Review of our Intellectual Property and the means in which it’s being used to provide the most profitable means of oil and gas operations is the only way in which the industry is going to achieve profitability from this point. The use of our Intellectual Property is best understood by reading our user community vision. It is our Intellectual Property that we use to raise our budget, maintain the collaborations in the user community and provide a new foundation of competitive advantages for the user communities service provider organizations. All of these would be unavailable under the methods being dictated here. These service provider competitive advantages do not include price however they do include specialization, the division of labor, quality, automation, innovation, leadership, integration, efficiency and effectiveness as just the highlights. There are a number of our competitors in the market today providing solutions to the producers, however we would assert that their software has failed when their clients are failing too. But I would also like to assert the quote from General Eric Shinseki, “If you don’t like change, you’re going to like irrelevance even more.” The days when producers could dictate how they’ll access software has passed. I would also suggest that they have other business issues to attend to.

I have expressed here many times that People, Ideas & Objects Preliminary Specification is the means in which to ensure producers attain the most profitable means of oil and gas operations. Going as far as to state that the 21st century is the software century and that all businesses will be software businesses. All software is derivative of Intellectual Property therefore the value in any industry falls within the Intellectual Property that is used by that industry. Encapsulating this by stating it’s not enough to own the oil and gas asset anymore, it’s also necessary to have access to the software that makes the oil and gas asset profitable. The question therefore is, will the industry be capable of making themselves profitable in this century without software? I think we have our answer in today’s economically depressed era. I’ve been publishing my ideas that make up the Preliminary Specification since December 2005. I published the Preliminary Specification in its entirety in December 2013. And the issue we address in our product is the same issue that is destroying the North American producers. We’ve recently documented that this has also been the same issue that was in the industry throughout the period as far back as at least July 1986. If these genius bureaucrats were able to develop software on their own, if they were able to solve their business problems, the writing on how to do that has been on the Internet for decades. It’s not that they didn’t try to use the Intellectual Property we developed, it’s just that they were caught and I stopped them. So, is it possible for the existing producers to find their way out of this malaise? Is it possible for them to do so without the software to define and support the necessary changes that will ensure profitability? Is it possible for them to develop their own Intellectual Property to secure the rights of that software? Can they do that in the next quarter before they completely run out of cash? Is it possible for them to copy the Preliminary Specification? These are the types of questions that producer bureaucrats should be asking themselves. They should also ask why they think their credibility over four decades of losing money is more valid than the work that People, Ideas & Objects have been doing these past 29 years? We’ve always been focused on profits, what have they been focused on?

What OpenSource software and API’s provide the producer bureaucrats is the ability to circumvent the need for any Intellectual Property claims by their software developers and to continue to control them. These are outside of People, Ideas & Objects because as you may be able to tell here today, I’m not biting. This is the way producers will be able to cobble together the solutions necessary to continue losing money on behalf of the entire industry and all of its sub-industries. Making sure that this cobbling of hundreds of applications together is replicated by the bureaucrats within each and every producer in order to achieve the same regulatory and business non-performance. The unshared and unshareable nature of the high overhead costs in oil and gas are contributors to the systemic lack of profitability in the industry. It is however as I stated recently, that credibility once lost is never regained. What I can assure the producers is that the methods of use of our Intellectual Property is what and how the Preliminary Specification and the user community and service providers need and will have. Control is something that slipped from their fingertips at some point recently and I’m not the one to stand here and point out the obvious to them. Maybe it was when Warren Buffett bailed out of his very large contrarian bet in Occidental after only one year. 

Nonetheless, why is it that producers have all the rights and privileges of the P&NG leases, while People, Ideas & Objects our user community and their service provider organizations have to renounce all of our rights and privileges to our Intellectual Property through the producers chosen method of access? Clear thinking about Intellectual Property and P&NG leases would indicate that the two work very well in harmony. Two separated by persistent bull headedness, to the point of total destruction, and I’m talking about the bureaucrats here, render both to be more or less useless in terms of economic value. Here’s another suggestion. Quit trying to control everyone else’s business. The service industry is taking things into their own hands now and won’t be doing anything close to what producers asked of them before. The use and abuse they’ve suffered at the producers hands is atrocious and yet, here they are still trying to define how other businesses will be forced to work with them. OpenSource and API’s are great technologies, we may even use some to build the Preliminary Specification. Twisting the purpose of those technologies to dictate to others was what occurred during the bygone days. Take a look at any producer firm's working capital, that era has expired. 

People, Ideas & Objects budget will be raised before any development work will be done. That is zero work is going to be done by anyone until the full budget is funded. We have declared repeatedly that “we will not be blind sleepwalking agents of whomever will feed us.” We are not going to have our organization, and specifically our user community members, subject to industry withholding financial resources half way through the process because they're not getting all the compromises they want, or the price of oil was up $3 one day. We have a difficult job to do and we will be successful at it. This implies that we are not going to be doing business the old way anymore. We are aware of how the industry has been run and the bureaucrats expectations of other businesses. It’s time for them to either slink out the back door and hide from the process servers for the rest of their miserable lives, or stand and face the music in terms of the lawsuits that are coming their way. If they put as much energy into thinking how they could mitigate the damages of those that will be litigating. Funding the Preliminary Specification should be the first thing that comes to their minds. In terms of People, Ideas & Objects we will use our Intellectual Property to raise our budget. This will support our developers and user community members throughout our development to its successful completion. Without our Intellectual Property we wouldn’t have the rights to be able to assert the ability to do what it is that we are doing. Solving the industries issues and establishing the basis of a dynamic, innovative, accountable and profitable oil and gas industry. 

It is frustrating to have not been able to move forward with this initiative. I can thankfully blame the bureaucrats legitimately as they’ve left an existential issue lingering for at least 34 years. I’ve been working to solve this for 29 years and the majority of this work has been fighting the bureaucrats and their dirty deeds. With the Preliminary Specification being available for the past 7 years. It is the Preliminary Specification that eliminates the bureaucracy just as disintermediation does in every industry. This case of chronic inaction in exchange for excessive personal financial benefit has established the legal framework necessary for the litigation of the culpable and guilty bureaucrats who should have done something to avoid this. Instead all they did was increase their executive compensation, and when it was clear that others had been informed of their legal jeopardy, increased their directors and officers liability insurance. We learned of that overall increase in the industry from Reuters on June 9, 2020 which was more than three months ago and nothing else has been done except for the turtling of the bureaucrats. The good news is that if you’ve incurred a loss from one of these producers they’ve plenty of insurance to pay for it. So you might as well all jump in. 

Relying on Open Source software and API’s to solve the industries difficulties will not resolve anything. What is needed is the plan in order to get there, such as the Preliminary Specification, and the financial resources to show the commitment and resolve of industry to those that are dedicated to getting it done. Relying on Open Source software is tapping into the community that supports the software that they’ve developed as a result of their personal interests and passions for better technology tools and features. They were not motivated by money, that’s not why they joined the Open Source project. If they did want to be involved in resolving the industries issues they would want to see the commitment of the financial resources in order to successfully complete the work just as People, Ideas & Objects have done. The producer bureaucrats are only attempting to circumvent the Intellectual Property rights of People, Ideas & Objects that have been established and need them to do our job. And for the producers to acquire this software on a free basis. 

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Oh Jeeve's, Bring the Ferrari Around Please

 It would seem like just yesterday I was harping about the risk of diminishing capacities and capabilities that producers might face if they continued down this road. Actually it was last Tuesday. Things are happening quickly in oil and gas, it may not be fun, but it’s certainly interesting. News last week put in perspective the scope of what is being lost, and I would suggest on a semi-permanent basis in oil and gas today. When I say semi-permanent it would be difficult for me to see how the existing producers could rally and inspire a crew to make mini-donuts. They’ve lost credibility with so many people I can’t think of who would be interested in dealing with them. I’m sure the guy at the Ferrari dealership will always talk to them, and the Jeweler just loves their wives. But in terms of the business of the oil and gas business it’s difficult to suggest that they have any credibility at all. What we do know is that credibility once lost is never regained. The news began with Husky reviewing their otherwise 60% complete West White Rose Project in the east coast offshore of Canada. Stating that “our priority of maintaining the strength of our balance sheet with ample liquidity,” said CEO Rob Peabody. Which I of course interpret as they don’t have the money anymore. Which is true, at the end of the second quarter Husky had a working capital shortage of $223 million. Then came news about Enterprise Products Partners LLP cancelled a 450,000 barrel / day pipeline in the Permian basin. I do wish one of the bureaucrats would comment on this post and give us a reason, excuse, or viable scapegoat as to who is responsible for these dastardly acts. 

It was in that commentary last Tuesday that I noted how the Preliminary Specification dealt with the development of the service industry and others. One that was more constructive than calling them greedy and lazy, or forcing them to accept terms of 18 month payments for accounts payable. And then I found this in the Wall Street Journal’s September 11, 2020 publication of their CFO Journal. It documents how other industries are approaching their suppliers during this time of economic difficulties. 

To help shield themselves from the economic damage caused by the coronavirus pandemic, some big U.S. manufactures are trying something different; They are paying their bills early. Businesses such as Lockheed Martin and Micron Technology that depend on complex global networks for parts and services are worried that prolonged economic slowdown could disrupt their supply chains. Looking to deepen ties with their suppliers, reduce risks or grab market share, the companies are pumping money to smaller businesses that could fail otherwise.

These statements by other industries only reinforce for me that what I stated in the Preliminary Specification is reasonable and logical. And that what has happened in oil and gas is exceptional and unacceptable. Maybe those people who want to leave oil and gas could find some security in those industries. Just a thought.

Global oil and gas prices are depressed due to the continued overproduction and oversupply that has been created in the North American marketplace for the past number of decades. Overproduction and oversupply are created when producers produce oil and gas unprofitably. People, Ideas & Objects assert that all North American production has been unprofitable based on the producers' specious accounting. An accounting that doesn’t recognize the appropriate amount of capital costs necessary for the exploration and production of energy that is sold to consumers. Producing below the breakeven point is where unprofitability begins. Producing below the breakeven point for one producer, in an industry who’s commodities are price makers, has the effect where the price of the commodities will fall below the breakeven price for all producers. When all producers continue to produce below the breakeven price for four decades you have an exhaustion of all of the value from the industry on an annual and wholesale basis. Times were only “good” when investors were willing, which is certainly the case in oil and gas today. No one is making any money in the industry and this is evidenced by the fact that investors left in 2015, banks are in the process of leaving and everyone has washed their hands of the industry. 

Yet here we are in a suspended period of economic depression watching the oil and gas prices deteriorate further each month. Managements of the producer firms have done nothing to mitigate any of the underlying issues created by their chronic overproduction other than to blame, excuse and create viable scapegoats regarding the source and disposition of any of their issues. There is a sense of entitlement and knowing what’s best to do by the management of these producers. There is no sense of urgency regarding the further deterioration in the financial, operational and political frameworks the producers once enjoyed. There is no sense of concern regarding the abandonment of the support and resources of the financial institutions that have refused to entertain any of these producers' desperate financial needs. There is no search for solutions or remedies to what ails the producers and industry. There is little care or concern expressed to those that committed their careers, businesses and investment to the industry. People, Ideas & Objects Preliminary Specification has been rejected since its inception in December 2013 and despite the consistent promotion of it since that time. A solution that deals with the specific issues that are prevalent today and were accurately predicted on this blog since its inception in December 2005. The principles behind it are based on sound business policies focused on real profitability and building the industry necessary to meet the consumers needs for energy over the next 25 years. The alternative that was chosen by the management during the period we were promoting the Preliminary Specification was to run the industry into the ground. 

The principle that People, Ideas & Objects has relied on to make the necessary transition, deal with its issues and to structure the industry so that we provide the most profitable means of oil and gas operations, everywhere and always. Is that creative destruction will be used to regenerate the industry into the new structures necessary to deal with its issues. This is also supported from the Information Technology point of view in the sense that disintermediation is contributing to its own form of creative destruction. One in which most other industries appear affected and not immune from the consequences of. The anomaly or the impediment to creative destruction in oil and gas is that the producers are a primary industry which enables bureaucrats to sit on revenues that are generated as a result of the cumulative activities of the producers and all the subsequent tiers of supporting industries. Such as the service industry and others. And that diverts and obstructs any process of change from ever taking hold. 

This is my issue. I’m not making any headway in terms of progressing towards the solution due to the ability of the producer bureaucrats to rely on this somewhat reliable and controllable revenue stream. It is not a revenue stream that has much capability beyond keeping them, the bureaucrats, in the comfort and style of which they’ve become accustomed. Everyone else will have to do without. This is not a new issue for me. This has always been the case for People, Ideas & Objects with respect to the ability to have the Preliminary Specification adopted. A chronic lack of action on behalf of everyone who has had the responsibility and authority to do anything positive for the industry. I realized soon after the publication of the Preliminary Research Report in May 2004 that I had provided these producers with the solution to their permanence atop their organizations. Suggesting that if they wanted to change their organizations, it was necessary to first change the software. The 21st century sees software defining and supporting the organization therefore without the software changing first, no change will be permanent. This was systemically interpreted by the bureaucrats as; if they never changed the software they’d never be challenged in their franchise. Which has certainly been proven the case here in 2020. Note too as we documented in our White Paper on page 19 that it was during 2005 that IBM was the last premier ERP software vendor to leave oil and gas out of frustration regarding the industries lack of support. 

Since this time I’ve been chasing my tail trying to corner the producers into dealing with their issues. Noting the value proposition was in their favor and would be a benefit to all associated with the industry. This has been anything but motivating for them. Their current systems of personal enrichment were not in jeopardy from us due to their learning that software defines and supports organizations. And their systems were operating fine, why would they address that? When times are difficult and you're waiting for times to improve, that’s when the subsequent storms begin to rage. Also known as bad luck. Bureaucrats thought that muddling through would be the solution as it had been for them so many times before. Shale aggravates this situation tremendously and makes the fallout from overproduction and oversupply permanent. This virus has knocked demand down temporarily and OPEC+ are willing to reduce production to match the temporary drop in demand, however OPEC+ have also been expressing their concerns consistently these past 34 years that this chronic overproduction and oversupply from North America has existed. Before the virus they were actively pursuing another price war with the high costs producers. That’s one issue with three aggravating factors. What will happen next? Clearly anything could happen. What will be done? Nothing, the revenues will continue to pay the bureaucrats their innovative and creative executive compensation until the last day they have control of them. In other words someone will have to take them away from them. 

What we know at this point is that the budget for the Preliminary Specification is nothing like what the producers have faced before. They’ve been critical of the methods of how we operate and the costs of that budget being predominantly Intellectual Property royalties and profits. Yet in the process of rejecting the Preliminary Specification our sample of 19 producers have incurred losses of market capitalization of $44.3 billion since the 30th of June 2020. Our sample size accounts for approximately one third of the deliverability in North America therefore it’s reasonable to assume that the total loss in market capitalization has been $133 billion since June 30, 2020. It’s easier for them to dismiss losing more than $1 billion / day of investors money than realizing the issue exists and the solution is at hand. Since their most recent high in terms of market capitalization at the end of the second quarter of 2018 these same producers have lost $387 billion of their investors' value. That would be $1.173 trillion lost based on our assumption of their deliverability vs. the rest of the North American producers. I think we can all see the point of the bureaucrats regarding the budget of People, Ideas & Objects. 

As I’ve indicated I’ve been putting up the good fight and will continue to do so. The issues I face are somewhat the same issues that I’ve been dealing with for well over a decade now. Bureaucratic luxury is being realized on the basis of a continuous revenue stream the producers enjoy. A revenue stream that was earned by the efforts of all of those that are associated within the oil and gas industry, and who are now seeking employment, opportunities and business elsewhere due to the lack of business in oil and gas and the support of its producers. There is no money for them. All I can say is to come back in a few more decades, I’m sure I will have solved my issues by then. That falls in the category of “maybe.” What I do know for sure is that your enemy is the most dangerous just before their demise. Be cautious out there.

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Defining Implementation Costs

 Sticking with the topic of our priority, that being our user community, we need to discuss the topic of and definition of our software’s implementation. It is the role and responsibility for the planning, organizing and completion of the implementation of the Preliminary Specification by our user community members. Many of these tasks will be undertaken by them as the principles of their service provider organizations. It will therefore be the role and responsibility of the user community member to determine what is necessary in the development of our software, just as it will be for them to determine what the implementation requirements are. Defining this further as either Joint Operating Committee facing or producer facing types of work. The sources of revenues that support these Joint Operating Committee facing activities of the user community and service providers needs to be clarified and that is the purpose of this blog post. The software development activities fall under the People, Ideas & Objects budget. However, the existing producers are never going to fund the budget of People, Ideas & Objects. I don’t know where the money for our development will come from at this time. But it certainly is not going to come from the current producers themselves. They would have done it by now, well before the point where they lost control of the industry, and now that they’ve achieved that level of destruction, what's their motivation to do anything? 

There was never any intention that the costs of implementation, or these Joint Operating Committee facing costs, were to be incurred as part of the budget of People, Ideas & Objects. The determination of the costs of our user community were based on a 1 to 1 basis with the developers. For each dollar of cost of the user community member to conduct their research, determine the appropriate solution, communicate with the developer and ensure that the solution is built appropriately is mirrored by the developer communicating with the user community member, writing, testing and confirming the code with the user community members and deploying the feature to the build. Our budget covers these development facing costs. It would be at this point that the user community member would turn to the Joint Operating Committees, communicate the needs of the application, ensure that the producers data is being aggregated and organized into the defined processes of the application, etc. Or in other words, the commencement of the implementation of the software application within the Joint Operating Committees and their associated producers. It will be the cost of the user community member, their service provider organization and any costs associated with these implementation activities within the producer firms and Joint Operating Committees themselves that will be billed by the user community member or service provider directly to the Joint Operating Committee to be paid by their respective producer firms.

It’s important to note the Joint Operating Committee is the key organizational construct of the Preliminary Specification and therefore is the point in which implementation occurs. Therefore, implementation via the Joint Operating Committee is the appropriate approach and will reduce the overall costs of implementation when the data are distributed to each of the producer participants of the property. The point that I am making here is that the costs of the implementation is borne by the owners of the Joint Operating Committee directly through billings by the user community members and their service providers organizations. It is these costs that were never considered as part of the development of the Preliminary Specification. I am writing this to clarify any confusion I may have caused when discussing in this blog about both the development and implementation of the Preliminary Specification. Simply one does not occur without consideration of the other. It did not imply that our budget handled the costs of both development and implementation of our solution.

Whether the user community member conducts these implementation services out of their own “user community” based organization or through the service provider organization that they need to build in order to accommodate that requirement when implementation and production, or the software going live occurs, is purely up to them as independent businesses. The part time revenues for the development work would become less involved in their day to day as we proceeded forward, implementation based revenues would begin and then production revenues would commence. Until finally once we are in production with the software and services in the oil and gas industry the user community members will have begun to earn many revenue streams from the Joint Operating Committees. First, or initially the user communities part time revenues from their participation in the development work will continue to be assessed by People, Ideas & Objects and billed to the Joint Operating Committees. And these user community development revenues would continue throughout the life of the softwares expected 25 year life. Implementation revenues will commence at some point and also continue throughout the life cycle of the application. And finally the revenues of the user community members service provider operation will begin for the remainder of the softwares usable and operational life. These service provider revenues will be very substantial as the service providers will be establishing the competitive alternative to what the administrative and accounting capabilities of each of the producers in the industry are providing today. 

Some may feel these assertions and points of view are ludicrous and would never come to be. As they have regarding every aspect of what I have been writing about since December 2005. Today the industry is in a state of collapse. Resurrecting it in the vision of the past doesn’t inspire anyone. The service providers are the key to making the administrative and accounting costs, the overhead of the industry, an industry based capability that is variable, based on production. Replacing the fixed capability that is unshared and unshareable in each and every producer firm. Where each producer has replicated the non competitive attributes of administration and accounting in the same way as each of their neighbor producers. I’m sure there are a variety of alternative solutions to the issues that the industry is faced with. And those may be available as soon as the next decade or so. Today, what options does the industry have? The Preliminary Specification is a workable model that solves each and every issue that has caused the collapse of the North American producer and industry. It is timely and provides a value proposition that is needed desperately to offset the cumulative losses that have been incurred these past decades. It’s easy to point at one or two elements here and there and suggest it’s therefore unworkable. We don’t have that option now and we must make the Preliminary Specification a success.

What won’t happen is that the industry will never have someone bring the solution to them on a silver platter on a speculative cost basis. I suggest nothing will be done anywhere in the North American oil and gas economy on spec for at least a decade. The bureaucrats have destroyed the good faith of the industry. As any service based organization, the opportunity to make any money in providing for the oil and gas industry on a speculative basis is offset by risks associated with just being paid. The need to have this done on a voluntary basis by the developers and users is also something that producer bureaucrats would love to see. And would never happen. Everyone will be compensated for all of their time. The successful delivery of the Preliminary Specification can only be achieved successfully by people fully committing to the project and getting it done. Financial risk doesn’t play into that need, on the contrary it destroys it. We have also stated on many occasions in this blog and Preliminary Specification that we are not going to be “blind sleepwalking agents of whomever will feed us.” We must have the financial resources secured prior to the commencement of any work in order to ensure that we’re not controlled by any group that seeks to compromise or confuse us between the old ways and the need to rebuild the industry in the vision of the Preliminary Specification. We’ve been betrayed by the methods that are in use today, we need to start by rebuilding the industry brick by brick, and stick by stick.

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

A Loss of Capacities and Capabilities, Part II

 We have more news on the service industries difficulties and the actions being taken there. News that Liberty’s acquisition of Schlumberger’s shale assets are to be put in storage were of little surprise to anyone in either oil and gas or the service industries. Surplus capacity of these shale assets are depressing the prices of these services. What was surprising was the expectation that Liberty would be archiving 1 million horsepower currently derived from diesel fuel and replacing it with electric horsepower. Chris Wright the CEO of Liberty notes.

But Wright said building new electric pumps in a market already oversupplied with diesel-powered frac gear won’t be easy. His company already has plans to scrap about 1 million horsepower of frac pumps it just bought from Schlumberger.

“We’ll only build new, next-generation fleets with partnerships with customers,” he said. “I’m pretty confident we will have that out next year.”

Mr. Wright is far more diplomatic than I, suggesting “partnerships” would be the method that he would use to replace this equipment. That is certainly one way to look at it and as I had mentioned in last Thursday’s post. The method that People, Ideas & Objects chose for industry to acquire the Preliminary Specification was for them to pay up front. This is and will be the new reality of how producers and their industry will have to be operated for the foreseeable future. No one is buying the “if you build it, we will come” scam anymore. It’ll be if you want that xyz capability or an increase in capacity, producers will have to pay cash in advance. If producers want to have a financial interest in the xyz capacity or capability then they should build it, own and operate it themselves. However they are not entitled to any of the Intellectual Property of those who have developed their legacy in their businesses, producers will need to have developed their own unique Intellectual Property in which to build, own and operate their fleet of frac facilities or whatever capacity appeals to them. In terms of the bigger picture there is one clear change taking place in the service industry that conversely has been stalled in oil and gas. Liberty is in its ninth year of business and three years ago it was not listed in the top ten of North America's fracers. They’ve established themselves as a specialist in the frac field and as of today are listed as the number two in terms of capacity, second to Halliburton. The change that is taking place is clear to me. And that is creative destruction is creating opportunities for new leadership based on providing new thinking, specialization and the division of labor, and new business models.

In terms of the position you can take your firm, there are three general methods in which to do so. You can lead, follow or get out of the way. Liberty has clearly chosen to lead, Schlumberger has clearly chosen to get out of the way in terms of their shale operations in North America. When we look at these methods and apply them to what the oil and gas industry has been doing these last four decades we see they’ve adopted none of the three constructive possibilities. They certainly haven’t led, they may have followed the book “The Bernie Madoff guide to Building Your Own Ponzi Scheme.” But other than that they’ve just been obstinate in terms of doing anything productive when they should have got out of the way. And as they sit there entering their fifth decade of unproductivity and personal profitability they don’t seem to budge to anyone or anything. Current working capital balances imply that there is some cash remaining, it’s just that it's already spent, and as soon as that cash has been siphoned off in terms of innovative, executive compensation these bureaucrats will be gone. Their exit may not be too much longer based on the current state of financial affairs. A number of key points that I wish to reiterate about these state of affairs in the industry.

• We noted the issues that are present in the industry today, and have been present throughout each of the past 34 years. These were supported with documentation that we noted from July 26, 1986 that detailed exactly what the problems have been throughout these 34 years. You would have thought that doing absolutely nothing would have worked within this time!

• People, Ideas & Objects Preliminary Specification has been available since December 2013 and we’ve been writing about the development of and research we undertook regarding the Joint Operating Committee since December 2005 based on a proposal we made to industry in May 2004. The Preliminary Specification, the research we undertook and all of the 3 million words contained in this blog are about these issues in oil and gas and how we propose to solve them with a comprehensive and workable business model. There is nothing normal about any of this. It is abnormal and I am unfamiliar with any other instance of business being abused to such an extent.

Businesses don’t operate on the basis of accounting deception for four decades. The luxury of having the SEC define the capitalization policies of the oil and gas producers is what made the bureaucrats efforts to deceive appear normal. In fact these SEC regulations were used and abused systemically and this abuse has now become culturally ingrained in every corner of the oil and gas industry. This is represented in the call to “build balance sheets” and the current calling to “protect balance sheets.” Business principles that mean nothing in the rest of the universe. What we do know is that producers have “built balance sheets” and hence fake profits to stratospheric heights. The most competitive producer would have sought to recognize their capital costs as quickly as possible in order to remain competitive in the market for capital. Now all that they have are long term assets which we classify as the unrecognized capital costs of past production and extensive liabilities to show for it. In terms of liquidity and cash flow, not so much and declining precipitously this past decade. The sum total of the industries productive capacity is nothing as it consumes cash in order just to produce. A negative present value. This is all that they’ve done in the forty years since the SEC put the regulations into play. As long as the investors and bankers were never the wiser, the “good times” kept their party going. 

As I’ve preached throughout this period, it is possible to build the Preliminary Specification and turn the industry into a dynamic, innovative, accountable and profitable set of producers and industry. People, Ideas & Objects provide the most profitable means of oil and gas operations and what we were perceived to be doing was spoiling their party. Whether I had that effect is unknown, what I do know is that the situation that we’re in today was inevitable and completely unnecessary. It is standard fare that you over report assets and profits in a ponzi scheme, while also hiding the amount of the “take” being pilfered. Exactly what has been done here. Now faced with the ultimate reality of what it is they were seeking to achieve. Producers are unable to function at basic levels and their capacities and capabilities are declining as quickly as their cash balance. The vision of the industry's future becomes clearer each day and it is not pleasant. Oil and gas prices are barely adequate to cover the costs of production. The world is awash in oil and gas productive capacity and inventories. North America by far is the most expensive producer when we understand that most of what is recorded as assets is nothing more than the unrecognized capital costs of past production. We are now in a period where the volumes produced will continue to deteriorate year after year. And what have our good friends the producer bureaucrats done? They appear to me to have turtled and are hiding under their desks. Waiting for the signal to start the mass exodus which they’ll hide their exit in. I’ve been concerned about this for almost three decades now. I’ve taken nothing but abuse from these producer bureaucrats. I’ve never received a penny in support. If this is not a scam, a fraud and deliberately done, someone needs to explain to me how things such as this can “mysteriously” evolve. Please understand I’m not complaining about my situation. I’m the luckiest guy there is. I truly enjoy this work and will one day get it done. I only raise these points to show the contrast of the actions taken over this history in order to prove that all is not “accidental” as they would allege, that producer bureaucrats were fully aware of the issues and of the solutions that were at hand for many decades.

Sourcing development funds from the producers is the last thing on their minds and is beyond what they’re capable of anyway. Both financially and mentally apparently. Their concern as always will be personal and they thank you for asking about them. When I started this project it was quite amazing to me as I had no idea what it was specifically that I would be doing. All there was to do was to march off in this general direction. Each morning I’d wake up and see a giant black hole that had become my life. I now want to welcome everyone to this giant black hole and offer to take a seat, kick back and enjoy. It’s going to get real rough.  

People, Ideas & Objects claim that it’s not enough to own the oil and gas asset, it’s also necessary to have access to the software that makes the oil and gas asset profitable. Welcome to the 21st century, the software century. Firms aren’t prepared to make the kind of radical changes that are contained within the Preliminary Specification. They mind their business and ensure that no mistakes are made. The producers however did none of that. They made mistakes, big mistakes. It wasn’t just me who saw this issue, the recording of depletion, depreciation and amortization are some of the most critical decisions made in the business world. You have to ensure that the costs of the products you’re selling are priced appropriately not only for today, but for everyday. Producers ensured that they “built their balance sheets” and kept their asset values as high as possible. Making them look profitable and prosperous when they were losing their shirts. If it wasn’t for the investors bailing them out with more cash each year they would have been out of business many decades ago. This is not rocket science, it’s generally understood in the basic accounting courses. Apart from what I would call these deliberate mistakes, I don’t think there has ever been an industry that has faced the type of difficulties that the oil and gas industry is now facing as a result of this fraud. Bureaucrats won’t be happy with these charges. Any claim of innocence by these bureaucrats should be discussed with the judge assigned to their case. If the industry was lucky and had everything go its way, it would take at least a decade to recover from this. A very serious and comprehensive problem that can only be solved through creative destruction such as what the Preliminary Specification prescribes. 

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

A Loss of Capacities and Capabilities

 Producers generated a shrug of the shoulders and a yawn when hearing the January 17, 2020 Wall Street Journal’s report of Schlumberger’s plans to exit the North American shale market. Producers think that petro dollars would always have them back barking and begging for more. Schlumberger’s move wasn’t anything to be concerned about, in fact it was just noise. Then on September 1, 2020 the sale of Schlumberger’s North American shale business to Liberty Oilfield Service was announced. Certainly the assets of Liberty will remain and they are in the fracing business. However, the loss of faith by an International leader of the market is a serious comment about the future of the oil and gas industry and shale particularly. Throughout the Preliminary Specification, and specifically in the Resource Marketplace, Research & Capabilities and the Knowledge & Learning modules the rebuilding of the capacities and capabilities of the producers and most particularly the service industry is one of the key objectives. When an industry loses control of the financial, operational and political frameworks of its domain, that includes the capacities and capabilities of the industry and sub-industries in which they had come to rely upon. We’ve discussed this many times here and in the Preliminary Specification. It is one of the permanent and lasting effects of not taking care of business. The only thing that producers could parrot was that I was crazy. Well if I’m crazy I’m still able to see the brick wall you’re driving towards, and producers feign not to be able to see or listen to anyone telling them anything other than the approved talking points. I’ve stated many times before when the world considers you crazy you need to do two things. First you don’t argue with them. Second you find liberation in the fact you’ve got nothing to lose and you never gave a damn what people thought anyways. 

We noted a few weeks ago how the academic world is scaling down their engineering and geology faculties due to a lack of demand for graduates. Even Texas A&M saw just one third of their graduates able to find positions in oil and gas. However the following graph did show this to be a temporary blip in terms of geological time. That by 2060 everything should be pretty much back to the way they were before things became so messed up. 

Our Resource Marketplace module looks to rebuild the service industry on a fundamentally different basis. The abuse that producers have orchestrated these past decades over all of their vendors has been unacceptable and was needing to be changed. This abuse is represented in the facts of today where Schlumberger may be leading the charge out of the market. Two particular activities of the producers' abusive behavior are of concern. They both stem from the facts that oil and gas is a primary industry and the producers generate revenue from the commodities sale. That is considered the “producer's money” and they’ll ensure that they’ll never have to spend it on anything other than creative, innovative and excessive executive compensation. The two abusive behaviors are the abuse of others Intellectual Property and the use of “their money” to keep everyone else on a starvation diet. In the case of Schlumberger, as with all service industry operators, they are not primary industries and do not have any secondary industries in which to use their fracing equipment. The producers inherently know this and during any of their orchestrated downturns, immediately expect 50 - 75% discounts from the service industry representatives. Leaving few alternatives for the service industry other than to take the money. In addition to this scaling back of their prices, producers cut their activity levels in the industry 50 - 75%. Making the decline in revenues realized by the service industry particularly acute, where the best they could hope for would be to maintain 25% of their prior periods. The Resource Marketplace module rebuilds and supports the service industry on the basis that it’s an extension of the producer firms. One where the service industry is established on a fair and equitable basis that considers the primary industry revenues the producers enjoy were not solely generated without the service industry. 

The second activity the producers conduct that circumvents their capacities and capabilities in the long run is regarding Intellectual Property. IP is the foundation of any business that would claim itself to be innovative. Such as the producers claim themselves to be. However what it is they’re claiming are the innovations of the service industry. The innovations from the producers themselves haven’t been seen for many years and decades. One could argue that a highly innovative oil and gas industry would not find themselves in the pickle that the producers find themselves in today, would it? If someone should happen to stumble upon an innovation that would be useful to industry then the following process would be invoked by the producers. They would agree that it was useful, however would not use it until such time as the principles behind the technology were released to them. This would include everything necessary for the producers to understand the tool, process or widget. If the developer refused to hand over the information they would be shut out of the industry for the better part of at least a decade. If the information was handed over they would find a willing group of producers able to use it as intended for what would seem to be about a year. Then, suddenly, many competitors would appear with the same product, process and widget of the innovator. Oddly, some of the vendors' competitors have directors and shareholders that are members of the oil and gas producer firms they initially met. Establishing price competition from the information that is handed to them by the innovator is the first order of business for the producers. Although the service industry has been very successful from an innovative point of view, it's always been on the backs of providers who held on to their technologies and eventually had the producers come to them. Companies such as the developers of coil tubing and Packers Plus. What more evidence do you need than the disregard they’ve shown to People, Ideas & Objects Preliminary Specification. Unwilling to provide them with the IP I was locked out of the business. What producers were unaware of was how obstinate I can be and how badly mismanaged they were. 

What we always hear from producers is their zeal to cut costs further. That is the business of the oil and gas business. Spending money at a blistering rate and beating up their vendors. Encana, now Ovintiv, went as far as to call the service industry greedy and lazy on many occasions during the better periods this century. It would seem I’m the only one calling the bureaucrats greedy and lazy now. Maybe I’m too harsh towards those responsible for the damage and destruction in the industry. I should maybe understand they’re doing their best. No they’re not, they’ve helped themselves the best they can but that’s it. If it doesn’t boil everyone’s blood outside of these producer bureaucrats for the damage they’ve done then you should check your pulse. This was unnecessary with the specific solution to the problem available in a timely manner. It just happens to also destroy the bureaucrats party time and cash flow. If you can forgive those that have done this damage to all of us then you're a far better person than I. I can’t accept it and we’re not finished yet. The extent of the damage is still hidden from most. No one airs their dirty laundry. And it will take a significant amount of time to just turn this around and get it moving in the right direction. I’m afraid the loss of capabilities and capacities has only begun which leads to the next, inevitable consequence of the bureaucrats party time, the loss of deliverability on the continent. That’s the big pickle, but everyone understands that now.

What the Resource Marketplace module of the Preliminary Specification does is establish the ability for the producers and service industry representatives to communicate in ways that will help the service industry to secure the Intellectual Property of their new products and services. Establish a market within the service industry where these producers can have some direct impact on how those innovations are developed. The two other aspects of this communication process is that the producers would be able to call out to the service industry what it is they’ll want, need and the overall direction they’re moving. Alerting the service industry to changes. It would also provide an opportunity for the service industry to have some of their ideas sponsored and financially supported by the producers in the initial stages of development. The purpose here is to make the service industry and oil and gas industry responsive to one another's needs. Making for a dynamic and innovative environment where the fostering of new ideas would be the premier way in which costs are controlled. Considering the decentralized production models price maker strategy would also be operational, the oil and gas industry enabling it to operate at a steady state of real profitability. Therefore the service industry will grow to ensure that the needs of the producers are their primary concern everywhere and always. And not just how to survive the next downturn. 

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Standardized Data Model

 We’ve come across an opportunity in terms of implementing the Preliminary Specification in oil and gas. The opportunity is presented to us through the work that Oracle has done with their products, services and offerings. Moving to the cloud has enabled them to bring about enhancements to their offerings, but most importantly it’s the changes that we’ve seen to the Oracle Database. We’ll get into more detail as we proceed however my research has determined that what is attainable and desirable is that we standardize the data within the business model’s and markets of the Preliminary Specification into a data model. The objective being to standardize all the elements of the administrative and accounting processes and management of the greater People, Ideas & Objects community and the greater oil and gas economy onto Oracle’s Database offering. In order to achieve this otherwise unattainable objective, an industry would need to be undertaking a comprehensive, industry wide “rip and replace” development and implementation of their ERP systems. An industry that has been determined to have comprehensively failed and one that has no plans or vision for its future or what to do about the current crisis it finds itself in. Granted our use of the Oracle Database in this manner is at the forefront in terms of technological demands, however I see no issue with the maturity of their technologies undertaking these tasks. I do see unnecessary complexity and confusion being introduced through non-standard data elements being included within the Preliminary Specification due to prior preferences, convenience and time constraints. Convenience and time constraints for the people that are imposing the constraints not for the implementation of the Preliminary Specification. I see my role in the development of the Preliminary Specification as a need to ensure that its development and implementation is successful. I believe that the North American oil and gas industry is unable to resolve its issues without the timely solution of People, Ideas & Objects and our user communities Preliminary Specification. What are the alternatives? The more time that is spent developing the solution the many more hundreds of billions of dollars that are being lost each year in the greater energy economy. This should be evident to everyone at this point. I would ask therefore, what would the data elements of an ERP system be in the year 2030? When and how would that standardization of the data have been established? Is the incidental cost of standardized data offset by People, Ideas & Objects value proposition?

I have spoken many times of the superiority of the Oracle Database technologies. Their development over the past decade has been breathtaking to me in terms of the performance and all other attributes of the product. Interestingly the competitive markets response to their superiority has been to break down database services into unique disparate database offerings. The most obvious of this is Amazon’s offerings of relational databases that include Amazon Aurora, Amazon RDS and Amazon Redshift. Each with a distinct purpose and use. These are the premier database products of Amazon’s eleven databases offered. Oracle uses just one database for all purposes. Therefore no matter what the data, the type of performance that is needed, or the structure of the data, Oracle handles it within the same database. Which presents us with this unforeseen opportunity to standardize the data model for the decentralized production model, overall business model, which includes the three market models of the Preliminary Specification and application user groups. I see this as an opportunity that will enhance the quality of our offering, reduce the need for standardization in the future, reduce the time required to develop and implement the solution and increase the usability and understandability of the applications, and therefore bring the Preliminary Specification to market quicker and with greater efficiency than otherwise would be available. 

The comprehensive scope and scale of the Oracle database in the oil and gas industry once the Preliminary Specification is implemented is comprehensive. The more that we make the data standard the more secure, reliable and capable it will be able to meet our performance expectations. We are using a micro-services architecture to implement the data processing and process management from the expected 3,000 service providers. The application itself will run much of the industry on Oracle ERP Cloud through the People, Ideas & Objects applications. Some producers will use the proprietary cloud offering that Oracle provides which moves Oracle's Cloud physically inside their shop. And then there will be a variety of People, Ideas & Objects applications that are used within the oil and gas producers themselves in order to understand and operate their businesses and operations. This can all be done far easier with the standardized data being managed within the Oracle Database as opposed to accessing it from here and there in various formats that are not incompatible, but introduce complexity and risk to our development and implementation and to what we are seeking to achieve. That being our $25.7 to $45.7 trillion value proposition over the next 25 years. 

It’s important to note here that what I'm talking about is the data model, not the database. The database requirements in this post can all be handled by Oracle's Cloud Autonomous Database offerings. The fact that each service provider will possibly be operating their own Oracle Database, a shard or through shared tenancy is unknown at this time. The same would apply to each of the producers, however having access to the database through shared tenancy would more than likely be the method used there. The use of one tool, the Oracle Database across the entire People, Ideas & Objects application domain, using a standardized data model provides real value for all concerned and a step closer to everyone realizing our value proposition.

I want to reiterate what my personal plans are for the development and implementation of the Preliminary Specification. I have stated here many times that these developments are derivative of the Intellectual Property that I’ve developed over the past number of decades. It’s unknown how much longer it will take before these developments begin however we can all see that the industry is accelerating the steepness of its downward trajectory. The key for me is to watch the actions of OPEC+ as they have attempted for the past 34 years to deal with the North American producer in what I feel is a reasonable way. A way in which the North American producers' best interests reside. North American producers fighting everyone has not done anything for them and now their business is more or less finished. And as we’ve noted in June and July the only thing left to do would be to litigate the losses that have been created over these past decades and secure some of the benefits of the enhanced officers and directors insurance. 

As the budget for the Preliminary Specification denotes there is a big payday for myself personally once we’re funded. However, I’ve also stated I would sell People, Ideas & Objects to the industry upon successful completion of the development and implementation. What I have referred to as my second big payday. Included in that would have been the operating company and all of the Intellectual Property associated with these developments. I’m now changing that as I feel it does not reflect the necessary situation that the user community will need to be placed in once the industry is in the position of owning both of these assets. Therefore, upon reflection and discussion with user community members, I’ll be granting 51% of the Intellectual Property to our user community and selling 49% to the producer purchasers in the sale contract. It is in that way the future of the user community is not in question and will be within their own control. Something that I feel more comfortable with and assured that the direction of the software will be the appropriate direction for the needs of the greater oil and gas economy. Please note this has also been changed in the user community vision. 

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Odds and Ends

 As I recall, and I can’t verify through google, rolling blackouts began as a new phenomenon on the east coast in the late 1980’s and early 1990’s. The electrical grid is always going through changes with one of these being the reliance on natural gas beginning to fuel the supply of electricity down the east coast. The issue as I recall was that much of the natural gas pipeline infrastructure at the time was dependent on electrical power for the distribution of the natural gas it consumed. A catch-22 situation. Therefore when New York or other highly populated areas of the North East experienced high demand for electricity they would cause a blackout in the following local region. Where some of the electricity used to power the natural gas distribution in that region was then stopped, suddenly causing blackouts to cascade down the east coast towards Florida. As I recall, this was becoming a relatively common occurrence which was eventually resolved through the electrical infrastructure taking into consideration this new phenomenon and designing around it. Again this is all from my memory and I have no facts to verify this. Google doesn’t cover this time frame well and I don’t have the time to search every Newspaper that was in publication at the time. 

Rolling blackouts are coming back into fashion in California this summer due to a new phenomenon. The progressive politicians who have managed the state for many years have now legislated the move away from carbon and replaced it with clean energy in order to attain the high percentage of their energy based on non-carbon sources. As we noted in our White Paper “Profitable North American Energy Independence -- Through the Commercialization of Shale” both solar and wind power are poor replacements for hydrocarbons. What the Californians are finding is that peak power is achieved during the four hours of peak sunlight and for the rest of the day, the power is not that reliable. Keen to legislate and regulate every difficulty out of existence they’re now looking to put in place the requirement that adequate battery storage be built to make up the difference. Therefore the four hours of solar and wind power that is generated, that is proving to be inadequate, will also be used to charge the batteries so that power will be available for the other 20 hours of the day. Always remember that 2 + 2 = 5. The decommissioning of hydrocarbon based power facilities will continue based on targets established to meet their carbon free objectives. 

I guess I see why oil and gas producers are now transitioning to clean power as they’ve stated they are. Telling government bureaucrats and legislators that they can do this job gives the politicians the motivation to foolishly continue in their foolish ways. Please read the section in our White Paper entitled “An Inconvenient Set of Facts” which reviews The Manhattan Institutes Mark Mills paper “The New Energy Economy: An Exercise in Magical Thinking” to understand the impossibility of all of this. With the difficulties that California is having in transitioning to clean energy. It may hold the key to understanding the interests of the oil and gas producers transition to clean energy. Seeing that there is failure already they could not be blamed for its cause at a later date. And the transition is driven by legislative requirements and not market conditions therefore the performance criteria they’ll be evaluated on is subjective and based on their political lobbying of governments that would be, or could be, considered their key customers. Maybe this transition isn’t such a bad idea for the oil and gas bureaucrat. 

“Well thank god for the Saudis and the rest of OPEC.” That may become the sentiment here in the next few years based on the initiatives that are currently in play. Inadequate volumes of drilling are taking place, producers are financially destitute and the governments want to defy logic and physics at the encouragement of the oil and gas industry as it transitions to clean energy. If this makes any sense to you please call me and explain it to me. From time to time you see people moving off in the wrong direction and pursuing goals and objectives that are questionable in terms of their value and contribution to society. We seem to be in one of these periods, however it's becoming more of an era than a short term diversion. Usually people snap out of it when they realize it’s not going in the right direction but we’re not that lucky in oil and gas. 

The other trend that I wanted to discuss was the work from home trend that has been happening as a result of the virus. It’s become somewhat of a project for me to catch what people think of the trend and what is it that will happen once we’re all healthy again. I’ve talked to many people over the course of the past four months and although it was very difficult for most in the beginning, due primarily to the lockdown and lack of mobility and things to do. Today it seems that the economic activity level is returning quickly to 100% with the consideration that masks are worn and everyone is careful. The attitude regarding working from home was never negative however now I think it is turning positive as people are also able to get out and about. Will the trend become permanent and is it more productive and easier to manage in their personal lives? The initiative also seems contrary to what the producers may want and desire. 

It would be my guess that producers will be moving to suppress the work from home movement as soon as they possibly can. You can’t count heads if they never show up for work. This would be short sighted and a refusal to learn from today’s environment. Working from home is more productive first of all. Secondly, no one wants to go back to fully working in an office environment. Third, it would be short term thinking for an organization to think that the type of disruptions that we’re dealing with are a single event. There may be more and the capacity to deal with these events and the resilience of the organization to deal with them will have to be purpose built from this point forward. The Preliminary Specification does this, however, since we will be commencing development, we would be able to build on this capability during that development and enhance it to make it more productive and efficient. Development of the Preliminary Specification should be seen as an opportunity in terms of realizing the full benefits of the work from home trend for both employees and producers. 

The development of the Preliminary Specification always contained elements of the work from home trend. However we are now embracing it on a wholesale and permanent basis. Individuals within the user community were always somewhat detached from our organization and were maintaining their individual service provider organizations. What they do and how they do that will be up to them. Oracle will be doing the development work and a very large percentage of development work is now done virtually. Many software applications have employees that have never physically met any other employee. Imposition of the North American time zones will be one of the requirements. This work from home trend will be a net benefit to People, Ideas & Objects due to the time that will be saved in having our product completed. A key issue of mine that I’m always concerned about. The time that we are developing software is time that the producers are not maximizing their revenues and realizing our value proposition. We therefore need to ensure that time is optimized in this fashion. 

Most of the research and development of the Preliminary Specification that I did from August 2003 onward was done in the work from home manner. I would point to that as evidence of the productive nature of working from home. Bureaucrats would point to the possibility that this wasn’t that productive. I’ve never experienced any of the difficulties with motivation or what are alleged to be the downsides that adversaries of the work from home trend note. Nothing is absolute. Having an office that people are able to go to will still be necessary in most instances. Maybe the employer will be able to reduce their square footage by 80% in order to accommodate the needs of the few that might experience the need each day. What I think we know here in late August 2020 is that it’s probably too soon to make any conclusions, and the working from home as a result of lockdown hasn’t been a positive experience for anyone. 

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

These Are Not the Earnings We're Looking For, Part LIV

 I found this quote from General Eric Shinseki that the bureaucrats should take note of.

The process of innovation is initially generated as a result of issue identification and resolution. It’s also dependent on the organizational and industry structure that defines and supports the continuous development of innovation. Apple has this, oil and gas doesn’t. Which proves that the oil and gas producers are anything but innovative. They’ve not touched or identified an issue in the administration, accounting or business model area since July 1986, which was the beginning of their chronic overproduction and oversupply. Accountants, lawyers and regulatory requirements only reduce the amount of available cash for the drilling budget. Therefore it’s best not to spend anything in those areas so that more wells can be drilled. When the budget for administration and accounting barely covers the minimum costs of what is required the ability to consider issues and opportunities doesn’t exist. No one other than People, Ideas & Objects has looked at what the industry could be doing to build value and profits through re-organizations and new business models, but also to build the necessary components of innovation into the producers and industry. And we’ve done that on our own dime, otherwise it would never have been done. The prize in this transaction is the Intellectual Property which will now be used to provide the industry, and all those people associated with it, with the most profitable means of oil and gas operations, everywhere and always. This Intellectual Property also establishes our user community and their service provider organizations with the means in which to compete and prosper based on new and lasting dynamics. When the industry is in the state that it’s in, these new attributes are valuable. In this our last post on the second quarter earnings of 2020 I’ll be looking to provide evidence that the existing producer bureaucrats can’t, won’t and will not ever change any of their behaviors no matter how difficult the results and consequences to everyone else will be. It’s been 34 years since the destruction they’ve authored began, therefore I feel this prediction has a high probability of being valid. 

There are three phases of an organization's life cycle. There are many different names for these phases but for this case let’s use building, maintenance and harvesting. Bureaucrats believed they needed to build the business in order to provide the momentum and critical mass necessary to implement their strategy. This has been the phase that they believed for at least the past four decades. And I’m not criticizing where it is we stand in the process of the life cycle, I’m just noting what the producers believe today. As a result of the building phase being undertaken, the producers thought they needed to have outside investment provided as the means in which to attain critical mass in order to implement their strategy. Then they would profit during the maintenance phase of the life cycle. The problem was that the maintenance cycle never arrived and the profitability that they’ve reported during the building phase wasn’t real. Producers only recognized a small portion of the capital costs that were incurred to explore and produce each barrel of oil equivalent. Leading to their catchphrase “building balance sheets.” If all your costs are capitalized, and few are ever depleted, assets grow quickly and hence profits are tremendous. Just don’t pay any attention to the cash balances that are diminishing each and every month. The only solution to the cash flow and cash balance problems is to conduct an annual stock issue for the subsequent years capital budget. This is a modified ponzi scheme where performance was never the criteria of evaluating any producer. Their financial statements are all generic in nature and only differentiated in terms of size. You can’t tell who are the heroes and who are the zeros because the performance is homogenized out through their ponzi schemes accounting methodology. Any time investors expressed an interest in having a change implemented, such as wanting more earnings next year, it was done through the creative accounting of said bureaucrats.

At no time through the life cycle of an organisation should there be the demand for so much investment each and every year. This should have been a warning sign that things were not operating effectively. An organization that is well managed and focused on performance will only perform. Performance is the key to growth. Growth is the benefit that shareholders earn. What shareholders earned in oil and gas was chronic dilution of their interests through the subsequent annual share offerings. Particularly when any growth that the producer did achieve was the result of the capitalization policies that were employed accumulating any and all costs that were incurred. Part of that growth was the addition of overhead and administration in property, plant and equipment. Most if not all producers capitalize 85% of their overhead and administrative costs to property, plant and equipment. What are these costs in terms of the total? No one knows as it’s been decades since the actual numbers have been reported publicly. The next question should be asked, but never is to my dismay, what is included in those costs? Massive executive compensation for one thing, but then that’s not for me to prove otherwise, is it. Consider for a moment, the majority of the executive compensation that was not share based, is sitting in property, plant and equipment. Hence the motivation for bureaucrats to do nothing for so long that the industry now needs to be purposefully rebuilt from the scraps of these organizations. 

The question should be asked, would a profitable industry generate more cash than investors were able to provide? Unequivocally yes. Profitability in the industry should have been the focus as it was worth substantially more than what was raised from investors in the history of this industry. If we look at the devastation within the industry, the sub industries and the greater oil and gas economy there is now a critical shortage of business and cash. The capabilities of this greater oil and gas economy are breaking down and the capacities and capabilities of the producers themselves are regressing rapidly. As is everything else. The ability to stop this trend and reverse it is not a concern of the bureaucrats, they’re fine and they thank you for asking. The point is the amount of capital that will be required to recapitalize all of this and return the industry to prosperity, or to the point where its future can be addressed productively and constructively, is well beyond the capital that is available from investors or bankers. Severe damage has occurred. The generation of profitability as a result of higher commodity prices is the only source of finance that will be able to return the industry back to the point of prosperity. This is the plan and vision of the Preliminary Specification with its decentralized production models price maker strategy.

Instead of pursuing anything constructive we’ve almost hit the bureaucratic triple header in oil and gas. Also known as the three C’s. Corruption, crisis and chaos. If bureaucrats continue to ride their positions out they’ll be able to sow the kind of chaos that only ANTIFA could appreciate. Tell me what it is they’re doing if it’s not this? Will this continue, and will we continue to see no concern or sense of urgency expressed anywhere in the oil and gas producers? What would we see if these bureaucrats were managing for the appropriate purposes? What we have is no performance, no responsibility, no accountability, no competitiveness (always blaming others for what ails the industry), diminishing capabilities (staffing and field operations are deteriorating.) Oil and gas bureaucrats are corrupt to the core.

People, Ideas & Objects are offering a strategy and vision for the next 25 years in the form of the Preliminary Specification. The price of oil reacted positively to the news of the drop in U.S. inventory levels a few Wednesdays ago. Moving up more than 8% from the start of the week. We saw the response of the producers was a collective sigh, and any pressure they were feeling to make changes evaporate immediately. This has been happening consistently for the past 34 years. We’re dealing with the attention spans which are able to focus for 10 seconds into the future. Unless of course there’s a bright shiny object that appears before that ten seconds has expired. However the destruction across the industry remains and continues. Irrelevance has a special feel to it doesn’t it.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.