Attention: Boards of Directors

 I would encourage those members of any producer's Boards of Directors, both past and present, to ensure they read this blog post. Please note too that I am not a lawyer and am not dispensing any legal advice. 

As background there is this World Oil article that was published yesterday detailing a possible investigation of the shale producers by the SEC. It has been People, Ideas & Objects contention that the source of their issue is one that all organizations in all industries need to confront. The valuation of their assets, understanding that over reported assets beget over reported profits which beget overinvestment which in turn beget overproduction or unprofitable production as we describe it. For further clarification talk to your CFO, or research Bernie Madoff. 

Today we’ll be discussing what it is that we’ll be learning, understanding and appreciating about the bureaucratic mind, bureaucrats being our categorization of the officers and directors of the producers, that keeps oil and gas so fresh, dynamic and innovative. Commodity prices offer us the best opportunity to fully analyze what the North American producer bureaucrats behavior is and will be in the future regarding oil and natural gas prices. Their first priority is that the excessive executive compensation must be paid first and foremost. These people have destroyed the value of their holdings and stock options therefore the daily take is the only reason they’re still around. Now that Chesapeake has defined clearly the bankruptcy process, or wash cycle as we call it, and its effectiveness, expect 2021 to be a record year for such declarations, a year of renewal the bureaucrats will believe. We already see in 2021 the same behaviors that have been present in the marketplace since at least July 1986 when OPEC declared its first price war on North American producers. Welcome to the new oil and gas, same as the old, they hope you enjoy playing. 

The game is played this way. You place your bet on the price of oil or natural gas, the producer's stock price reacts to that. That’s all you need to know. The effect of management, the role of management and the responsibility of management to “manage” the business is not expected or understood to be valid in this game of chance. Why manage when you can muddle? Management takes effort and that is not what’s done here. All the money that is used in the drilling, completion and equipping of new and spectacular shale wells will be flushed through the process of bankruptcy where the service industry, investors and bankers will ultimately pay for those costs because they too believe in the big science experiment, it's just they didn’t know that when they signed on. You’ll note too that since Chesapeake has a new, much smaller value of property, plant and equipment account on their balance sheet. Yet the same assets in the form of petroleum reserves that have been handed back to the same management through the process of the bankruptcy, they can begin to spend like drunken sailors once again and get back to the point where those “assets” are the same size of their reserves value. This makes Chesapeake uniquely cost competitive in the industry, better able to focus on “building their balance sheet,” which of course will precipitate the higher cost North American producers to immediately enter their own bankruptcy wash cycles. Once again I ask who is the bigger fool for supporting this financially? 

In addition to this revised cost competitiveness, post bankrupt North American based producers will be able to increase their production of oil and gas and take market share from those who have not entered or fully completed their bankruptcy wash cycles. This will further aggravate the commodity prices and as a result you're missing the main point of the exercise here, it’s all about the science experiment. There are reserves out there that must be captured. Chronic overproduction and oversupply is the issue that some allege but that will be hard for People, Ideas & Objects to prove when new investors rush in to capture some of those “windfall” profits of Chesapeake and other bankruptees. Profits they’ll be able to “earn” on just “$20 a barrel oil prices!” It is key to remember at this point that Chesapeake once had a market capitalization of $27.5 billion, just 50% higher than the $18.5 billion they raised and a $331 million pre bankruptcy market capitalization. Banks lost $2 billion in the bankruptcy process, $2.2 billion in accounts payable was never paid, primarily to the service industry. And the last point, which I think is the most important point, they even reported losses based on their ludicrous and specious accounting methods of over $22 billion in their lifetime. I would point out that as of today this organization hasn’t changed, will not change and has no incentive to change if each decade plays out according to this script across the North American producer population. The only change that has been made is to the Board of Directors which, for the past board, may be a problem. Which actually makes it a problem for all Directors on all Boards of all producers that are pre, post or currently in their own wash cycles. 

The need to augment my “Issue Mitigated, Nothing Litigated” blog post, which can be reviewed as it is the Featured Post on top of the left column. Corporate bankruptcy doesn’t eliminate the risk, culpability or guilt of the individual officers and directors of the producers when it was the corporation that was bankrupt as a result, in these cases, of their inactions. And they should note, of which I’m including the reconfigured Chesapeake, that the risks associated from overproduction and oversupply have been and are still present since at least July 1986, of which absolutely nothing but the declaration of muddle through was done, and the solution in the form of the Preliminary Specification has been present since December 2013. And dare I say the chronic abuse, ostracisation and difficulties People, Ideas & Objects experienced only proved that they were well aware of our solution. If they continue to choose to ignore their risk, culpability and guilt regarding the overproduction issue and our solution they should ensure their insurance policies are up to date. In other words nothing legally was changed or will change through the bankruptcy process in terms of these personal obligations or risks. Directors and Officers remain susceptible to being sued by any of these people who now don’t just have quantifiable losses, but losses that are real in the case of former Chesapeake shareholders, banks and service industry participants. Let the litigation begin is what I say. 

Interestingly though is the possibility that through the bankruptcy process the insurance for officers and directors liability coverage can be seen as an asset by the court and subsequently seized. Leaving the former directors holding the bag as they are eliminated from the company the moment they declare bankruptcy, and not that they care but just like its past shareholders were. Hence past directors at that point have no power in the form of their former corporations backing them up to deal with any litigation other than their personal fortune. Officers that survive the bankruptcy process will just, I assume renew under the new corporations such as Chesapeake, deem there is value (cash) to be had and use that as a new and much more creative form of enhanced executive compensation. One of the conclusions of that “Issue Mitigated, Nothing Litigated” blog post. After decades of attempting to appeal to the morally correct action to take in the form of developing the Preliminary Specification. People, Ideas & Objects only found proverbial gold when we raised the personal risk of the officers and directors as a result of their above noted (in)actions. Bureaucrats only respond to incentives that provide enhanced compensation, which obviously doesn’t amount to much in terms of action, or risks that put their personal fortunes in jeopardy. Therefore this is the key to motivating an oil and gas bureaucrat. Existing directors in all producers may want to verify these points with their lawyer and / or insurance broker. I then think they need to make the decision to mitigate the issue by funding the Preliminary Specification and therefore uphold their fiduciary duty. Or just retire from their boards prior to the difficulties becoming acute, which I admit sounds awfully risky as your overall risk of being sued remains.

In contrast to this lunacy we have those who have been forced at many times since July 1986 to declare oil price wars on the North American producers. Whether this is rational behavior or not is best determined by beginning at the start of this post once again. It appears to me that OPEC+ are operating a business and not completely enthralled with the science experiment. Chronic overproduction, or as we’ve described it here, the chronic unprofitable production is the virus that cripples the price of oil and natural gas. It does not take much more than one incremental, unprofitable barrel in which to do so. North American producers produce 100% of their capacity 100% of their time and assume that the market is a magical and mythical place where all production is taken away to its rightful and honorable place. I had included the following WSJ graph from @soberlook in our White Paper “Profitable North American Energy Independence -- Through the Commercialization of Shale” and on this blog many times. Here is the description I placed in the White Paper. 

What People, Ideas & Objects provide in our Preliminary Specification, if we could assume the accuracy of this graph's numbers, is the point at which the property would be shut-in would be at the breakeven point and below. The reason for this being the production discipline gained through knowing that producing any property unprofitably only dilutes the producers corporate profits. Producing below the breakeven point is the point where unprofitability begins. Producing below the breakeven point for one producer, in an industry who’s commodities are price makers, will have the effect where the price of the commodities will be dropped 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 the value from the industry on an annual and wholesale basis. Times were only “good” when investors were willing.

Production discipline is the key to the prosperity of the oil and gas industry, particularly in the era of abundance or shale era. They could attain that through the allocation of production quotas, government mandates or many other methods. The difficulty with those is that they’re arbitrary and no one is ever happy with their allocation. People, Ideas & Objects have chosen in the Preliminary Specification to use the most fair and equitable method of production allocation. That is if the property can be proven to be profitable, based on an industry standard, actual, factual accounting then the producer will produce the property. Doing so provides immense benefits to all concerned as profits become the determining factor of how the producer is performing. Corporate profits will always be the highest when the unprofitable properties are shut-in and are no longer permitted to dilute the profitable properties profits. The reserves of the shut-in properties will be saved for a time in which they’ll be produced profitably. And those reserves will no longer have to carry the additional costs of any incremental losses that would have occurred if they had continued to produce. But most importantly, the commodity market will have the marginal production removed from the market allowing it to find the marginal price. Producers will have a ready inventory of shut-in production in order to turn their innovative ideas toward. Profits are what an industry operates on. These are passed down to the secondary and tertiary industries as they are as much involved in the success of the industry as the producers are. With the economic downturn that has been precipitated by the oil and natural gas price collapse these past decades, does anyone doubt the need for real profitability throughout the production profile? This is the logic that People, Ideas & Objects have been selling for well over a decade. Highly unsuccessfully I might add. However as noted above we’ve now found the secret sauce of the bureaucrats motivation is appealing to the associated risks to their personal compensation and financial empires. 

Certainly the virus has had a once in a lifetime impact on the markets. As a result producers have globally cooperated with each other to maintain prices that are palatable to them. OPEC+, initially at war with North American producers, began holding back over 9 mm boe / day and are still holding off 7.7 mm boe / day. They had scheduled to begin releasing an additional 500 thousand boe / day each month. However with the second installment of the virus, demand is fluctuating and OPEC+ have now agreed they will withhold the January and February increases totalling 1 mm boe /day. This caused the price of oil to rally markedly which is a characteristic of products that fall under the price maker definition. The prices of the North American producers shares were similarly affected. Spurring the increase in drilling and enthusiasm on how they could fill that 1mm boe / day that OPEC+ just removed. We know the “market is magic, mystical and marvelous.” And bureaucrats behavior and culture is fixed, unchangeable. Incapable of learning from past mistakes or adapting their understanding or appreciation of their great science experiment. We should remember that it is the North American producer that accuses OPEC+ of destroying the price of oil. Just as OPEC had done in natural gas over a decade ago! Wait a minute, is that right? A friendly reminder that the only source of capital for the science experiment was and is new investors, banks and the service industry, therefore more dilution of existing shareholders, and so on, exciting isn’t it? This is how the ultimate science experiment is achieved. Take my advice and hang onto your wallet when you're in the presence of these bureaucrats. The Preliminary Specification provides them with an abundant source of cash for their future capital expenditures. Their difficulty with us is they’ll have to work for it.

Finally with respect to that World Oil article and the potential SEC investigation of shale producers asset valuation. I've been arguing that this is an issue for more than a decade now. I've argued that although the SEC requirements were fulfilled by the producer bureaucrats it was done in bad faith. It has been done in bad faith for so many decades now that the culture of the oil and gas producers does not understand the point of the issue. Yes, the SEC allows the asset value to equal the reserves value if the producers performance should be so abysmal. The reserves limit however was never intended to be a target for all producers to seek each and every year. The business logic should have been: the most competitive producer would seek to have the lowest value of property, plant and equipment as possible. Instead the CEO's have been strutting about town with their "well built balance sheets" for decades now trying to prove they have the biggest and the best in the business. Foolish, unconscionable actions by people who knew better. The directors of these producers are now holding the proverbial "bag" and need to think to themselves how it is they can achieve what People, Ideas & Objects suggest is "issue mitigated, nothing litigated." Their fiduciary duty can only be achieved now by funding the Preliminary Specification. 

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 Parler or Gab @piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Hope, Anger and Courage

 A quick note to say we saw yesterday the bureaucrats' vision come full circle when the Judge released Chesapeake from bankruptcy by approving their plan. Of note shareholders and $2.2 billion in accounts payable are eliminated and the former banks now make up the new shareholders. Let's wish them the best in the next bankruptcy wash cycle. Banks granted $2.5 billion in new loans and the company is seeking $600 million in a new equity rights offering. Management, who were sustained through the trauma of the bankruptcy process by their “bankruptcy bonuses,” will no doubt feel this will be time for a new and more prosperous period of excessive executive compensation. That’s correct, the new management is the same as the old management. In an environment where failure demands change, changing the ownership rights of the shareholders and the service industry is the solution. The Judge assessed the value of the assets of Chesapeake at $5.1 billion which was their book value just prior to bankruptcy. However, this was only after Chesapeake wrote down property, plant and equipment from $14.7 billion just prior to entering the wheel of fortune. Providing further evidence of People, Ideas & Objects assertion of the bloated nature of assets on the balance sheets of all producers. In this case they were three times their value. And once again, accounting is about performance not assessing value. There’s no word yet on the profitability of the firm or how management will seek to increase its prosperity. I think it would be wise, since Chesapeake is predominantly natural gas, to short natural gas. The company's legacy of losing, which also was restored by the Judge. In its lifetime Chesapeake raised $18.5 billion in now completely disgruntled shareholder capital and lost $22.5 billion for a negative shareholder capital of $3.945 billion. Only in oil and gas can you achieve such success. A number of others were left out of the courtroom during this process. Their names are creative destruction, serendipity as this was always management's plan, disintermediation and disruptive innovation. If you haven’t caught on to the bureaucrats theme and rhythm of their methods, there's nothing here for you.

The scene is set for the future of the oil and gas industry. Is anyone interested in the bureaucrats' version? I didn’t think so. What we need to do is map out how we approach this future, both individually and from an industry point of view, and begin to deal with the situation at hand as we find it. We have a job to do, and fortunately the continent is being provided with an ample supply of oil and gas at this time which fulfills our primary role. This may not be the case in the very near future and we would be seen as failures by the consumers if their dreams of clean energy turn to nightmares and expensive imported oil becomes reality. To see how these clean dreams may turn to nightmares read our White Paper, “Profitable, North American Energy Independence -- Through the Commercialization of Shale” on page 91 for our review of Mark P. Mills paper “The New Energy Economy: An Exercise in Magical Thinking.” We need to focus on what we have at hand and deal with the opportunities and issues that preclude us from fueling our economy for the long term. An economy that will be the most powerful in the world and as a result, the largest consumer of energy in all its forms. If we set aside the next four years in which to organize ourselves and prepare for this future, then we’ll realize it. Our good friends the bureaucrats are proposing that we just muddle through. Which is how we’ve arrived where we are today. Assigning responsibility to them is impossible as they’re inert. That doesn’t indemnify us from undertaking our responsibility to fix it now. Let’s not fall into their trap of excuses, blaming and viable scapegoats as to why we didn’t take action ourselves.

Something we have to do is to define the geographic area of our concern. That way we’ll be able to focus on the scope of our approach. I suggest we have the skill, capability and capacity to recapture the North American productive aspects of onshore and offshore exploration and production within that four year time frame and stop any further deterioration of our industry. Focusing just on North America will be attainable in the short to mid-term and be capable of fully providing for all of our energy needs. There will always be global markets that will price commodities, we'll operate within those constraints, but focus on what we can do in terms of productive capacity here at home in a dynamic, innovative, accountable and profitable oil and gas producers and industries. Where all production is produced profitably everywhere and always. 

We need to source the funding of the Preliminary Specifications budget and begin development. It is this critical step that needs to be done as soon as possible. The Preliminary Specification has been published since December 2013. Our White Paper has been published for over 19 months. I have never been involved in anything with such broad distribution that our White Paper achieved. The point I’m making is the proliferation of these ideas in our documents throughout the oil and gas industry has been building. Radiating a cognitive dissonance across the industry. As a result we’re not going to have to develop a workable model on how the future will play out. We have that defined in the Preliminary Specification and it is well known throughout the North American oil and gas market space. And that’s not all. If someone wants to find out about our model for a dynamic, innovative, accountable and profitable energy industry, there’s nothing stopping them from getting up to speed and on board with everyone that’s already here. We’ve got the fire started. Now’s the time for the accelerant, being our budget's funding, to be thrown on the kindling to ensure that the industry is consumed by the fire of these changes. 

Taken in the context of what we’ll have to do in the next four years otherwise is where we find our justification for a revised approach. Muddle through and wait for investors to finally see the brilliance of the bureaucrats vision will never happen. They have no vision. They’ll enjoy themselves immensely in a bureaucratic nightmare of increased regulations, continually frustrated initiatives and new viable scapegoats appearing by the minute. This is not the future of the United States and is no one's vision of productivity. For us to be fighting it in the short term will be futile, instead we can take that time and focus on what we need to be doing to ensure that our energy future is attained.

The proposed organization of the industry in North America is the vision as laid out in People, Ideas & Objects Preliminary Specification. There are only two models today, ours or the bureaucracies. The vision we propose makes the industry dynamic, innovative, accountable and profitable. Where everyone is involved in the struggle to rebuild and recapture that which has been lost, turn the ship around and start sailing in the right direction. Then build on that and move the industry forward based on a shared consensus of real profitability to ensure that all within the industry are financially compensated for their courage, skill and dedication. A future where it would be interesting to get out of bed in the morning. One where your ability would be constrained by what it is that you can do to fix and build for tomorrow. A future that can begin for anyone as soon as tomorrow! One in which the first thing we’ll have to do is cast off the bureaucratic darkness that’s imposed through the “muddle through'' that we’re told is the reason no, we can’t do that, or laughed at for even thinking. One where if they’re not moving then we just walk right by them and start laughing ourselves. The industry is severely broken. It will fail catastrophically if something’s not done. Competing countries and cartels in the oil market have declared war on several occasions, surrendering is not an option. Action is what is required. We won’t always be right in the actions that we take, but that’s the point. We have to find the way through and that means we’ll be making mistakes. And when it’s all added up in the end it will actually be a lot of mistakes made by everyone. But no one, or even all of us, will have caused the kind of difficulties that our good friends the bureaucrats have caused and which they refuse to admit to today. In the end we’ll all look like geniuses in comparison to the bureaucrats' four decade run of destruction. Does this take courage? Yes indeed it does. From every individual involved in the rebuild. Here are some interesting quotes about courage.

St. Augustine

Hope has two beautiful daughters, their names are anger and courage, anger at the way things are and courage to see they do not remain as they are. 

Sir Winston Churchill

Courage is the first of human qualities because it is the quality that guarantees all the others.

A whole new attitude needs to be adopted from the safe environment that the bureaucrats have provided, at the cost of everything. I always approached this job with a different attitude that made the journey more of an adventure than a burden. And believe me it has been an adventure that I wouldn’t trade a second of. It was by looking at People, Ideas & Objects from the historical perspective of what has gone on before us. This is nothing. It will be consequential if we don’t act as I think we can all agree. My attitude at People, Ideas & Objects has been as long as no one was shooting at me, and I wasn't shooting at anyone, it was all good. We stand on the shoulders of many people who fought for our countries who did not have that choice, ours in comparison is a menial, albeit exciting task. If you ever thought you could dedicate yourself to something much larger, more challenging and far more exciting, consider what needs to be done to rebuild oil and gas. Think continental, act locally. But most of all enjoy the roller coaster, admission is free. 

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 Parler or Gab@piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Reality, Accountability, Myths and Chester Too

 We’ll be starting 2021 off with a sharper tone than what we left 2020 with. The state of affairs in oil and gas and the greater energy economic structure demands such. We will be increasing the pressure throughout the year as the producer bureaucrats find fewer places left to hide. These allegations that I’ve made are easily refutable through the accounting that the producers prepare and report in the statutory and compliance requirements that govern them. We have been making these same allegations for many, many years and have heard no response from the producers. On January 5, 2021 OPEC+ agreed to hold steady production volumes until March 2021. Having a strong impact on the price of oil. Proving once again that oil and gas commodities are subject to the principle of price makers. I note this due to the fact that the damage and destruction in oil and gas has been a result of the bureaucrats unwillingness to accept this principle for the past four decades. Why? And maybe we should ask why we should allow these same bureaucrats to continue in their current role?

If a producer was secure in their reporting, that their accounting procedures would ensure good compliance and their systems were what were necessary would they have allowed such claims to stand at the same time their financial position deteriorated so markedly? I would not have allowed it. The predominant system used in oil and gas is P2 which claims to have 1,700 clients. Their Qbyte offering has been in the market since the 1980s, and has been subject to the same lack of attention that all producer bureaucrats show towards accounting and systems. If Qbyte were adequately addressing the needs in the market would the producers, industry and service industry be in the financial condition that they’re in today? In fact it is People, Ideas & Objects contention that producers seek to remain as obscure as possible in terms of the accounting and systems that are used to ensure that they have a viable scapegoat when the time comes that they’re questioned vigorously. Would a dynamic, innovative, accountable and profitable oil and gas producer obscure their actions or performance? 

IBM offered to rewrite their Qbyte application in the early 2000s which was the opportunity these producers were granted. As a result of the lack of support for this initiative IBM sold Qbyte to P2 and left the ERP marketspace. A market they dominated with their Qbyte product. Oracle with their Oracle Energy did the same around 2000 when they were unable to source the necessary financial support to build the appropriate systems for the industry. Why was it that the producers were unwilling to better account for the activities in the industry with world class systems built by tier 1 providers? People, Ideas & Objects therefore felt that the door was open for our efforts to complete our research into what the producer and industry would need in order to fully utilize the Joint Operating Committee as the key organizational construct. Why did producer bureaucrats not participate in this endeavour? Since the time that I’ve been in this business I’ve seen the industry go from approximately 20 ERP providers down to P2 and SAP. There are a few others, however they’re unable to gain much momentum from the dominance of P2 and therefore struggle. Why would an industry atrophy the key accountability, compliance and governance capability in the industry during an era which can only be described as an Information Technology revolution?

We’ve heard nothing but the difficulty, complexity and scientific basis of the oil and gas business to justify the C suites executive compensation. Even today the industry scores number four in North American executive compensation. I guess there just wasn’t any money left over for accounting. If you were running a business on the basis of providing good governance would there be such contrast between the accounting and Information Technologies vs the executive compensation, or would they be more balanced? Information Technology has not been the productivity enhancing tool that is expected of it, yet. Granted, however there is a larger compliance and governance issue that is not being fully undertaken and the IT components maturity has been achieved as of 2015, I believe. It would be difficult to understand why there hasn’t been an embrace of this IT maturity, implementation of that along with the People, Ideas & Objects oil and gas business driven perspective and value proposition towards systems development. With its focus on innovation and profitability which is exactly what is necessary for the industry to be pursuing for the next quarter century by any measure. Instead the waiting and expectation that investors will return continues undeterred. We’ve been told that the business is difficult. We know that the bureaucrats are handsomely compensated. Even after a dismal decade has passed in natural gas and six years in oil. Yet nothing has been done for decades about the quality of the accounting that’s conducted?

Well how bad can it be? How much is the gross overhead of the industry? No one knows and no one publishes the amount of gross overhead that’s incurred. We assert that 85% of overhead is capitalized and therefore what is reported is not the reality of the situation. We’ve also documented this as the primary reason there is dramatic cash leakage in each and every producer. We also argued that interest was capitalized at material percentages and it still is. Since we began making these claims over a decade ago, slowly the demand to know what interest has been capitalized has been detailed in the financial statements of most producers. Odd then why this revised disclosure treatment has not been applied to the capitalization of overhead as well? And does this lack of overhead accounting transparency reflect the amount of total executive compensation that’s been capitalized? It is here that I think we find the answer to our questions as to why these numbers are unknown. There is also not one property under the administration of any producer that can tell you if it is profitable or not. None of the producers have the ability to determine the amount of actual overhead, but also the actual amount of depletion, recorded in any specific Joint Operating Committee. They more or less are flying blind on all aspects of where they’re making money, losing money, or wasting money. If you can just declare your organization is profitable and that’s accepted, why prove your wrong? In the Preliminary Specification we’ll be using computer systems, maybe bureaucrats have heard of them, to determine the properties profitability down to the well level on a standardized, actual, factual basis. Standardized in the sense that the service providers affiliated with People, Ideas & Objects will be applying their processes across the industry in a standardized manner. That way producer (a) knows that their unprofitability was determined on the same standard basis as producer (g’s) profitability and producer (a) will accept that they have to shut-in that unprofitable production as it’s in their best interests. As you can imagine this would involve mountains of data that would need to be processed. Computers are able to do this type of work, and in fact are quite good at it. It’s not that the mountains of data don't exist, that is the odd part, they do and are just aggregated for the purposes of accounting and reporting. The question that needs to be asked in a situation like this is. During a period of very low interest rates do you invest in labor saving devices or do you invest in labor? 

Let me clarify one point about that last argument. You can employ people in the task of completing spreadsheets and making them balance. Aggregating very large data sets and applying basic mathematical operations on them. Or as the Preliminary Specification chooses to do, which is to leave these menial tasks to the computers which are very good at processing, storing data and math. Allowing human resources to pursue the higher level tasks of leadership, issue identification and resolution, decision making, creativity, collaboration, research, ideas, design, planning, thinking, negotiation, compromise, innovation and financing. You know, accounting more or less. These are just a few of the ones I’ve come up with. As a bureaucrat rolling in fat compensation, which is your choice of the preferred method? Keeping people occupied in menial tasks providing information that is limited in its use and application? Or people thinking about how to enhance performance and innovation, and indirectly seeing what it is the executives are upto for those fancy paychecks and other innovative executive compensation they “earn?”

Which leads to the question of the accounting firms. “Yep, everything looks good over here!” They need to give up their “Chester” routine in the “Chester and Spike” cartoon and start asking some deep troubling questions. First, why is it that investors turn their backs on an industry? Is that the reason that investors turned their back on producers? And here is the first truly troubling question. What is it that you’ve done since the time that the investors turned their back on oil and gas producers? Yes, you’ve collected a lot of fees but that isn’t necessarily the answer that I was looking for. As producers stand today, do they have any deficiencies in their reporting? Is the big bad well built balance sheet accurately represented through the company's capitalization policies? Are the debtors at risk of default if those assets are materially overstated? How has shareholders equity held up since the exit of the investors? Were the investors presumptuous in their exit? Are the current shareholders at risk of a debtor action against the firm? Let’s assume a scenario that is valid in many, many producers today. You have massive property, plant and equipment and negative working capital. Bank debt is all that supports those assets as shareholder equity has been wiped out by retained losses. Makes “balance” in the balance sheet oxymoronic doesn’t it. Does that mean, understanding that property, plant and equipment is limited by the ceiling test to the value of the reserves, that the bank debt is higher than the reserves value? Does this “unbalanced” scenario rest on the assumption that those reserves can be produced profitably, when throughout their history we now know they never did? Is the producer a viable going concern based on these facts and the outlook of the industry? Do your assumptions consider OPEC’s current 8 mm boe or greater surplus capacity? Do you expect to audit these producers in 2022 or is your bankruptcy operation fully operational? You’d be correct in stating this doesn’t apply to all producers, this year. Would this preclude you from starting to fulfill your role?

Pointed questions that should never have to be asked. The time for niceties has passed as the tragic consequences of the bureaucrats inaction takes on serious momentum in 2021 that will be beyond any force capable of getting in front of it, and surviving. The bureaucrats have not accounted for their actions for four decades and the state of the industry now reflects that. Other than well built balance sheets and significant cash being put in the ground there is nothing anywhere for anyone. It is a comprehensive and total wasteland. The financial condition of the producers will have deteriorated markedly in the fourth quarter of 2020 and the year will stand as testament to the dirty tricks these bureaucrats have conducted. Many in the industry still don’t understand my points or my arguments. The culture of the industry has been severely distorted by the twisted nature of the bureaucrats that people have been in the industry for up to 30 years and don’t understand the difference or the substance of the issue. The bureaucrats do and they’ll be held to account in 2021 and they know it. Their officers and directors liability insurance is up to date and their exits are within arms reach. They’re very jittery, standing at the ready and the slightest noise will see them disappear. 

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 Parler @piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Issue Mitigated, Nothing Litigated

 The need for the Preliminary Specification is unquestionable. The industry must change and do so within the time frame that it has left for itself. It’s financial position is untenable and demands that action be taken quickly to stop the further escalation of the destruction of its and the service industries capacities and capabilities. These are critical issues as of this moment, which are generating further momentum, sending the trajectory of the producers performance into an irreversible velocity. Let us all be clear about the insipid and ridiculous nature of the “muddle through” and “do nothing” strategy and operating procedure. They are the deliberate, permanent destruction of the productive capacity of the North American production profile. This fact makes up the bureaucrats foundation of “muddle through.” That by doing nothing the productive capacity will remain as it is or decline while consumption of the commodities increases. Therefore prices will eventually rise. This has provided for what we believe to be five profitable years in the industry out of the past thirty five. In the shale era this has proven to be toxic. Our White Paper “Profitable North American Energy Independence -- Through the Commercialization of Shale” addresses how the Preliminary Specification deals specifically with these difficulties in the oil and gas industry.

The past few years has seen People, Ideas & Objects escalate our budget costs on the basis of the methods that we’ve discovered to increase our organizational throughput and cut our development and implementation time. For each year that we’ve been able to reduce our timeline we were able to save the industry well in excess of a quarter of one trillion dollars in additional opportunity costs being irretrievably lost. Therefore these efforts of ours to reduce our timeline have brought about material benefits. The number of these methods are significant and form the plans we have in place. We can’t define what time frame we can complete our task as there are too many variables that we can’t control. Variables such as how long will industry take to raise the money from all of the producers in industry? As I’ve discussed before, I do not herd cats. It will be far easier for industry to organize themselves than what I can do in this regard. Besides, I prefer to eat. How long will it take for us to recruit the full complement of user community members? Will having skin in the game motivate producer bureaucrats to do the necessary work that we need from them? This includes the motivation to solve their issues, the commitment, dedication and resolve to follow through. These alone could take many years and we still would not have started our softwares development. All that we have is the history of the bureaucrats and their mosquito-like attention spans. Commitment, dedication and fortitude are not their game. Theirs is blaming, excuses and viable scapegoats. Taking the revenues of a primary industry and using them for their own personal benefit and power tripping. I challenge the bureaucrats to put up an argument about my budget. What will they argue, that it’s too much money? After all the damage and the trillions of dollars they’ve wasted? The financial jeopardy they’ve placed everyone and everything in the greater oil and gas economic structure? When these producer bureaucrats don’t invest in their own organizations profitability then why are they asking others to invest in them? If they don’t like these comments that I'm making then stop arguing with me and start establishing new precedents. They should look around, outside of their own little world and ask themselves why no one is coming to their aid anymore. Their reputation isn’t much worse than what I’ve described here. 

People, Ideas & Objects budget provides our developers and user community with the resources necessary to begin the development of the software and complete it successfully. We understand that there will be little to no opportunity for us to go back and raise additional financial resources. Therefore the need to convert these initial development funds into a revenue generating organization, or to have completed the development of the Preliminary Specification in its first commercial iteration as a necessary requirement to a) ensure that the development is not open ended and therefore never completed and b) attain the independence we need from the bureaucrats. Meaning we can never become “blind sleepwalking agents of whomever will feed us.” To break from the culture of the industry demands our complete financial independence and that is what is designed and delivered in our budget. I believe that what President Donald Trump has proven is that you can not change the culture of an organization from within. The amount of energy needed doesn’t exist and the bureaucratic inertia will consume anyone who tries. 

What has become evident to me in the past six months is the depth of the myopic focus of the bureaucrats. It is only concerned with their personal compensation at the expense of everything else. To be candid as far as they’re concerned there is nothing else. After decades of screaming at the top of my lungs about the looming, and now, actual damages being done to the industry, and all those associated with it in the greater oil and gas economic structure. It didn’t matter to the bureaucrats. Only when I struck proverbial gold last summer in my June 2, 2020 blog post and set off the panic about the liability bureaucrats were individually exposed to as a result of their chronic inactivity. There was never any concern before then. And since then, the only action taken has been to increase their officers and directors liability insurance by, at that time 70%, who knows how much they’ve increased their coverage since. The risk they’ve incurred has the potential to devastate them in terms of their personal asset value and only at that time did they perk up and start paying attention, but only to their personal risk. Then I noted the timing of the overproduction and oversupply issue had been in the oil market since at least July 1986. Nothing at all has been done about this issue for 35 years. I published the Preliminary Specification after completing ten years of the necessary research in December 2013. Again nothing has been done about it. Other than the fact that the chronic overproduction and oversupply issue, in both oil and natural gas commodities, have become the most prominent issue the industry has faced, ever. Going on 35 years of avoiding the biggest issue ever. And seven years of ignoring the solution, in fact the only solution in the market after their abuse of all the ERP vendors. Is it any wonder that the insurance coverage needed to be increased? I also questioned, if the fact that coverage was raised but only after these facts were raised, does that make these insurance changes a fraud?

In a court of law this is what is called evidence. Evidence that they were not doing their job and only working for themselves. But why sue the producers when there's no value left? That’s a good question, however I hear the insurance coverage is spectacular! This enhances one’s motivation doesn’t it. From what I’ve known and experienced over these past decades, I would find it difficult to accept that bureaucrats were working for anyone but themselves. I wonder if I could find a career as an expert witness?

First of all let me clarify that I’ve never seen the oil and gas bureaucrats as my clients. On the contrary when I started this it was with the expressed purpose of removing them. They are redundant in any economy and certainly in the 21st century. People, Ideas & Objects are disintermediating the oil and gas industry. Late last year I asked who would be the bigger fool ten years from now. Would that be the bureaucrats for their actions in creating such a mess. Or would it be us for allowing ourselves to believe, one more time, that they had it all in hand. We’ve been deceived, are we willing to be deceived again? I’m not of the belief that either side in this transaction has to bear any shame over these next 10 years. If we hold the feet of these bureaucrats to the fire today and have them provide the financial resources for our budget, we’ll take it from there. By providing our budget bureaucrats can redeem themselves in the eyes of everyone who is currently looking at them in disbelief. The important people that I want to point out here are the Judges that bureaucrats may face if the losses that shareholders, banks and others continue to experience and therefore choose to litigate. As an alternative they could say “However, your Honor, we took steps in early 2021 to make the changes to turn the industry around, remediate the losses and make oil and gas great again.” If a bureaucrat uttered that to the judge then there would be no reason for the bureaucrat to be in front of the judge. As they would have launched the development of the Preliminary Specification and set in place the resolution to their issues. Issue mitigated, nothing litigated. Their fiduciary duty has been met.

Action therefore involves the following. Producers will share the burden of our budget on an equitable basis. As noted they can organize themselves in one thousands of the time that I can herd cats. Each barrel of oil produced by the producer as of December 31, 2019 is assessed the $315 per boe necessary to fully fund People, Ideas & Objects budget. This is based on the North American production reported of 38.09 mm boe at the end of 2019. I’m finding “issue mitigated, nothing litigated” to be rather catchy and as a result will be using it extensively from now on. Bureaucrats should know now what it is they need to do to save their souls. You see I’ve discovered their motivation and their drive, I’ve always just assumed, wrongly, that they were concerned about the business as we are. I guess my naivety over the past decades of thinking the bureaucrats were morally motivated is now its own form of evidence too.

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 Parler @piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

A Finer Point

 I’ve realized that I’ve made an assumption in the Preliminary Specification that may not be evident to everyone. When we’ve discussed the profitability of the Joint Operating Committee it has mostly been from the perspective of the producer corporation. Noting that shutting-in the unprofitable properties production would cause the producers corporate profits to rise as a result. Losses would no longer be diluting the earnings of the producers other profitable properties. We see this in most businesses where they shut-in or stop producing products or services that can no longer be produced profitably until such time as the market provides different opportunities. What I haven’t realized is that we’ve never discussed this from the point of view of just the single, stand alone Joint Operating Committee. A Joint Operating Committee can consist of a single well, just land, a gas plant or a unitized facility. Any asset(s) managed by a Joint Venture agreement establishes a Joint Operating Committee. Therefore it is also possible that we can treat the assets and facilities within a Joint Operating Committee as its own unique reporting entity as that is exactly what the Preliminary Specification does. Therefore, assuming a property consisted of fifty wells held through the Joint Venture agreement that would include the interests of, for purposes of this example, four producers. 

Within the Preliminary Specification we will be breaking the data down to the finest levels possible. Which means the well data at a minimum. Each well will then have its own fully identified financial statements available for each of the four producer owners to review, as well as the financial performance of the well as a whole. These will detail the capital, operating and overhead costs of each well. Note each of the producers will have a different set of financials that are unique to their share of assets characteristics and costs. For example one of the producers may have purchased an interest in the property and therefore will have far different performance criteria in which to evaluate the property. Alternatively a producer may have custom processing or an interest in the processing facilities that other producers don’t. The Preliminary Specification takes the Joint Venture Agreements determination of production allocation and applies that at each location. This technical flexibility is enabled through the highly engineered process we will be undertaking in the software development of the Material Balance Report. Each of these four producers would therefore be aggregating their specific revenues for each commodity based on the distribution defined in the Joint Venture agreement. 

Each producer's financial performance may vary materially from the point of view of profit or loss. Therefore the decision to shut-in the individual well to enhance the Joint Operating Committees performance may be conflicted. Within the Preliminary Specification we have dealt with this conflict from the Joint Operating Committee by way of the following. The Joint Operating Committee is the legal, financial, operational decision making, cultural, communication and strategic framework on an industry wide basis, and is its standard. In the Research & Capabilities module, as it is throughout the Preliminary Specification we have moved the knowledge to where the decision rights reside. As Professor Richard Langlois pointed out.

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

It will therefore be within the Joint Operating Committee, where the knowledge of the financial situation at each of the producers, their abilities and capabilities and their rights to make their decisions in their best interests come into play. These are detailed in the Research & Capabilities and Knowledge & Learning modules. Within the Joint Venture Agreement it has been established within the Operating Procedure what the necessary criteria are and how decisions are to be made. The voting rights of each producer and the percentage ownership necessary to pass a decision will dictate the outcome of these decisions. As it is with the corporate decisions to shut-in an entire unprofitable property, People, Ideas & Objects believe it would be in the best interests of those producers to take the global, or gross working interest, perspective of the wells ownership interests financial performance in determining the outcome of these decisions. 

Producer bureaucrats may be jumping up and down at this point saying that this is exactly what it is that they do. Which may be correct except for three distinct differences that the Preliminary Specification implements. Until recently producers have refused and objected to shutting in any and all production. Prior to the virus they were adamant that formation damage would cause production losses to be material for the long term. This they now admit will not be the case. Secondly, the financial statement granularity that is provided by having the service providers re-engineering all of the processes of the producer to ensure they’re optimal and the data is captured at the lowest possible level. This provides for the direct overhead costs to be charged directly to the Joint Operating Committee enabling the decentralized production models price maker strategy. This can only occur with complete financial statements that detail all of the costs of exploration and production. Currently all of the overhead, however much is incurred, is recorded at the corporate level in property, plant and equipment of the producer. And woefully inadequate overhead allowances are charged to the properties. Actual, detailed and accurate financial statements are not currently prepared on any asset in North American oil and gas. If any decisions are currently made in this manner they would be woefully inadequate as they’ve left the major costs of overhead and depletion out of the decision. Lastly, the Preliminary Specification has eliminated the operator designation and replaced it with the pooling concept at the Joint Operating Committee. Decisions being made by one producer as operator introduced the conflict. Moving the decision making to where decisions are authorized removes the conflict the operator has had with the Joint Operating Committee. 

Bureaucrats always jump up and down at this point and suggest that neither the way the Preliminary Specification operates or what is suggested here is viable due to the fact that there are contracts of various kinds that need to be considered. Which of course there are. However, for the sake of a contract they’ll terminate discussion and destroy the industry on a wholesale basis. Contracts are written and rewritten everyday. If the producers do not engage any lawyers now might be a good time to begin a review of these self imposed constraints their contracts are having. Having their operations so severely constrained by a series of contracts might be considered foolish in the oil and gas industry that People, Ideas & Objects, our user community and their service provider organizations are building. A greater flexibility needs to be built into the industry and that is one of the benefits of the Preliminary Specification. 

Nonetheless there may be some wells within a specific Joint Operating Committee where the performance is not adequate to continue with its production. Within the Preliminary Specification there are two specific modules that will assist in the review and analysis of all of a producers Joint Operating Committees and the individual assets within these. They are the Analytics & Statistics module which provides analysis of the producer and the Performance Evaluation module for the analysis of the Joint Operating Committee. Let's look at two aspects of how People, Ideas & Objects enable different performance trajectories over what is available today. First, the Security & Access Control module seeks to provide the right people with the right access to the right information with the right authority at the right time and at the right place. We know the need for this access in the market is much greater today than just last year. It is not that I’m hedging on this ambitious goal set out in the Preliminary Specification. I know that Oracle has the technologies to provide this. I know that we’ve budgeted the right amount of financial resources to engineer the solution. I know that user driven software development such as People, Ideas & Objects Preliminary Specification demands that significant input from the sponsored community needs to be provided to our user community in order to achieve what is possible. This input or support has not yet been evident. And indeed it has been woefully inadequate. Having our budget funded may have producers change their minds on how to get involved by “having some skin in the game.” The commitment of the industry is the missing ingredient at this point. With the amount of losses being incurred at this point, and the history of losses we would assume this is satisfactory to the bureaucrats and this may not change until such time as their removal. 

The second aspect of how these modules provide a different performance trajectory is, we provide a division of labor between computers and people that is in stark contrast to what is implemented in the industry today. Computers will be used to store and process data. People will be employed in the efficiency and effectiveness of their organizations, quality, specialization, division of labor, automation, innovation, leadership, integration, issue identification and resolution, creativity, collaboration, research, ideas, design, planning, thinking, negotiating, compromising and financing to name just a few of the key points. Analyzing and accessing the data and information in the Joint Operating Committees and producer firms will enable new perspectives and understanding of how these financial statements can be used to generate new forms of value. A tool set that will be a blank slate that is provided to each of the producers in the form of advanced capabilities that have not been available before. Rendering a means of distinct competitive advantage that has not been available within the industry to date. 

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 Parler or Twitter @piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

My Last Kick at This Dead Horse, For the Year That Is

 People, Ideas & Objects Preliminary Specification provides oil and gas producers with the most profitable means of oil and gas operations, everywhere and always. Who would have thought focusing on profitability would make us pariahs?

Our White Paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale” documents the state of affairs in the oil and gas ERP market. A summary of that discussion would reflect that Qbyte, which is owned by P2, and SAP have the largest market shares in the industry. Qbyte began life in the 1980’s and its life cycle has been extended repeatedly due to the lack of any serious competition being fostered in the market. SAP, as I suggest in the white paper, sells an ERP solution in the oil and gas industry however do not have an oil and gas solution. Their market is the multi-tiered manufacturing concerns where revenues from one of those implementations dwarf what they earn from oil and gas. We note that IBM, the prior owner of Qbyte left as a result of a lack of support from producers in 2005, and Oracle with their Oracle Energy solution did the same in 2000. It needs to be asked if P2 and SAP were adequate for the oil and gas industry, would the industry be in the disastrous condition that it currently finds itself? I don’t blame these software vendors, they like People, Ideas & Objects have been used and abused by their alleged “customers” and it is the starvation diet they’re provided by producer bureaucrats that keeps their offering as lean as they are. My point is, if you were responsible for what People, Ideas & Objects has alleged as a scam and a fraud you might be able to argue the difference if you had pristine accounting and systems in which to argue the point. Oil and gas, as I’ve commented here many times, does not have pristine accounting and systems. The question that none of the producer bureaucrats can answer is, using actual revenues, depletion, operation and overhead at the property level, which are their most profitable properties? Or here is another good question, what is the corporation's gross overhead costs? Therefore, why would you accept any of the major vendors like Oracle or those such as ourselves who are offering solutions focusing on real profitability and standardized, actual, factual accounting to provide the facts to offset People, Ideas & Objects allegations? 

When I began this adventure in 2003 it was inconceivable that any business would redevelop their ERP systems from scratch. My belief in the necessity of a “rip and replace” method was a result of three factors that forced its justification. First there was the fundamental change that’s introduced in the Preliminary Specification as a result of the use of the Joint Operating Committee, the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. Secondly the pending failure of the producers as I saw it, as a result of the specious accounting methods used in the industry at that time and still used today. And finally, the quality of the systems of the producers are predominately manual, are inadequate and incapable of being rehabilitated to satisfy the needs of basic compliance and governance. Which begs the question of how did any of this financial and operational disaster we’re witnessing today pass muster with the professional accounting firms annual audits? This in no way should be taken as a criticism of my ERP competitors who I feel have done excellent work with no financial or moral support from the producers throughout their life cycle. As an ERP provider, incremental change was the only way for them to have proceeded from a financial scavenger point of view. 

Now, in 2020 “rip and replace” has become the only method for all industries to approach the development and implementation of new ERP systems. “Rip and replace” is now seen as the manner to strategically manage the enterprise and build real value. This task however does not form part of any ERP client organization's distinct competitive advantage. Development of ERP systems and their implementation are conducted on a decades long cycle. Purchases from vendors is the proven method for success, particularly in the cloud era. Producer bureaucrats criticize People, Ideas & Objects for undertaking the scope and scale of both the Preliminary Specification which is a comprehensive and integrated business model, and implementing it across the oil & gas, and service industries and our service provider organizations. Yet, they will approach the internal development and implementation of software that will undertake the same scope for their own organization with their budget, and think nothing of the viability or success of the task. We have argued consistently that the unshared and unshareable costs of the non-competitive attributes of oil and gas administration and accounting, being replicated in whole within each and every producer firm, is another reason for the lack of current and future profitability. We hear nothing but the complaints of the complexity and difficulty of managing oil and gas from the bureaucrats as an excuse to justify their excessive personal financial compensation, yet People, Ideas & Objects use of specialization and the division of labor in order to move the fixed administrative and accounting costs of the producer to the shared, variable administrative and accounting costs of the industry in order to deal with these high costs is refused to be considered.

You’ve read in this blog a number of times the time frame that I’ve personally been working on this issue of bringing appropriate oil and gas ERP systems to market. People, Ideas & Objects Preliminary Specification is a well researched and functional business model that addresses and resolves the issues that exist in the marketplace today. As a result of the behaviors of the producer bureaucrats over the past number of decades, not only have their ERP systems atrophied through a lack of financial support. The number of offerings in the market have also atrophied. To the point where the only solution that addresses the points of concern of the industry is the Preliminary Specification. This is due to the fact that we have Intellectual Property as one of our key competitive advantages, and a foundation of our organization. But also that there is and has been no money in it for any of the ERP software vendors. These software vendors have learned the oil and gas industry in North America is small in terms of outright numbers and a difficult, technical business that once again, no one makes money in. Therefore I would ask, who would be able to satisfy the need for oil and gas ERP systems if the Preliminary Specification didn’t exist? Or maybe you could ask who would want to? You could say that I’ve been persistent. Others would have other adjectives. Who would be the one to step up with a solution that provides a resolution to the issues at hand in the current North American oil and gas industry? They would have to do so without the inclusion of any of my Intellectual Property. And they would have to undertake the same onerous and difficult task of researching how a solution would operate in a functional business model. Knowing the bureaucrats in power today, that decade of research may be timely.

The producers expectation today is that oil and gas investors are just going to resume their investing. This “muddle along strategy,” is well outside the range of reasonable. The destruction that has been undertaken by their current administration is comprehensive. They feign to have no concept of what “real” profitability is or how they’ve betrayed their prior investors. Some people outside the industry have even alleged that this betrayal of the oil and gas investors was undertaken on a deliberate basis. Yet producer bureaucrats expect to be handed the investors cash once again so they can recommence the wild, uncontrolled spending in order to crash commodity prices even further? They will belittle People, Ideas & Objects budget as comical and out of context. Yet incur on behalf of the greater oil and gas economy hundreds of billions of dollars in actual losses each quarter, and hundreds of billions of dollars in opportunity costs to make their argument. We have priced the Preliminary Specification on the basis of the value that it provides industry. We believe that it holds a value proposition in the range of $25.7 to $45.7 trillion dollars over the next 25 years. Yet these bureaucrats feign once again not to understand the basic business principles that support the Preliminary Specification. The investors that would otherwise be interested in oil and gas, if not for the obtuseness of the bureaucrats, will not be investing in an industry that has no capacity or desire to invest in its own profitability. Spending is not a distinct competitive advantage outside of oil and gas, and there are many opportunities in which investors can invest profitably elsewhere. Unprofitability and the inability to address its chronic shortfalls is not changing anyone’s mind.

How many times do you see such a united, unanimous and symetrical front being put forward across an industry such as what these bureaucrats are doing at this time. Usually that’s an indication of a scam and when one of them breaks their discipline, they’ll all scatter for shelter. I think that day is near. The motivation for bureaucrats to stay has to come into question more and more each day. Which if they did leave, which has been the historical fact in these situations, it will be done as a herd so that no one remembers any of the individuals names, then all of us will be left with the issues that we know and are aware of today, but also what we’re unaware of. It’s nice to know that the bureaucrats are able to reap the past weeks benefits of oil price increases. If we review the reasons for the recent increases we see that OPEC+ has settled on a much smaller production increase than was originally scheduled. There are a number of vaccines that are coming onto the market that should be available which will remove the government imposed foolishness that has caused the decline in demand. Nonetheless we can congratulate the producer bureaucrats on doing absolutely nothing to earn any recognition for these rewards. My question is, doesn’t now look like a good time for them to execute that exit? With a mild upswing in commodity prices, end of the fiscal and calendar year, end of the virus in sight and an undecided Venezuelan style election that may set the United States down a tragic road.

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 Parler or Twitter @piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Who's Going to be the Bigger Fool?

 Further to our discussion of Monday and Wednesday. Producer bureaucrats have displayed two characteristics regarding their fiduciary duty to manage their investors money. There is never any question that the commitment made to their investors is fulfilled to the letter through their rigid “capital discipline.” However, once the cash is returned in the form of oil and gas revenues the use of that money is fair game. The WSJ was the latest to notice this in their article “Shale Companies Had Lousy Returns. Their CEO’s Got Paid Anyway.” Now that producers have set their sites on other horizons they’ll use those revenues to support a business where the performance has never been proven. And the lack of performance in oil and gas will be sloughed off as “it's a dying business.” Further evidence that we must not accept that they can continue in their unaccountable fashion. If this did happen, and we’re here again in a decade from now, who would be the bigger fool?

The producer's third quarter 2020 reports reflect there is, and should be, a sense of urgency in terms of action to resolve the industry financial and operational issues. World Oil began discussing the difficulties inherent in oil and gas as a result of the situation producer bureaucrats have placed the entire oil and gas economic system in. This article argues that OPEC+ once again assumes the “swing producer” role in the market. I have argued that the swing producer is the North American producer. This assertion has been based on my misunderstanding of what the definition of swing producer is. Wikipedia provides the definition that World Oil and others are following, however I still assert that the swing producer is the one that alters their production volume to meet the demand in the market. Whether OPEC+ is trying to punish the market, the role of the swing producer, at this time is not in question. And just as it is stated overtly in the July 1986 Calgary Herald articles that we referenced on newspapers.com. OPEC has been instituting a war in the market in order to distill some cooperation among North American producers as to the chronic overproduction and oversupply that is a result of the North American based high cost producers. Overproduction and oversupply being defined as unprofitable production that has been conducted in North America for many decades. North America is the high cost producer and therefore would fulfill what I consider the swing producer role in that they will increase or decrease production based on the profitability of their production in the market. As the high cost producer their production will become unprofitable first, with OPEC production, being the lowest cost producer, continuing at a steady state always. The swing, or high cost producer would add or subtract production based on each of the properties ability to earn a profit. This would be enabled through the implementation of People, Ideas & Objects Preliminary Specifications decentralized production model’s price maker strategy into the North American market where we provide the most profitable means of oil and gas operations, everywhere and always.  

The cyclical nature of the industry's boom and bust cycle is a bureaucratic feature, not a bug. Claims to have been profitable have contrasted the five good years that I could identify out of the past 34 years. They say it’s the nature of the business and they’ll muddle through! Most people are sick of it, as industries all across the globe have worked to eliminate the boom and bust nature of their industries. Since 2008 what car manufacturer has had a bad year? None, because what they do is manage their inventories to ensure they don’t overwhelm the market with products that will kill their auto market prices. The exact thing every other business does and what we’ve recommended in the Preliminary Specification, but these producer bureaucrats have accused People, Ideas & Objects of “collusion” when we recommend that they too begin managing their inventories. Our response to their charge of collusion has been to question them on how are the independent business decisions of a producer at the property level, based on a standardized, actual, factual accounting considered collusion? We still haven’t heard their excuse, blaming or viable scapegoat regarding our argument. 

It takes intelligence, effort and a variety of other difficult attributes to make a profit. None of which has been evident in the C suite of any of the North American producers. But why not just stuff one's pockets full of cash and sit on the couch. They’ve consistently looked down their noses towards OPEC and their suggestions of working to stabilize the market. Suggesting that North American producers were all dominant and all others would be told what to do. It is true that at one time Houston was the centre of the energy universe. It should have been incumbent upon the management to have worked these boom / bust cycles out of the business by now, as they have in most other industries. We’ve only begun to see the depths of destruction that’s been conducted by those that were responsible for building the business. 

What we know at this point is that North American based producers will never implement the definition of what real profitability is or what real profits mean. They know, as do most business people, that the difference between real profits and making fudge are the same difference between vacationing in Hawaii and working in a coal mine. One of those takes work, effort, risk and skill, the other doesn’t. Why would you fly from Hawaii to take up a forty year career in Pennsylvania coal country? People, Ideas & Objects always felt that bellowing at sunbathers on the beach in Hawaii would be a futile marketing campaign therefore we took a different approach. Our marketing has always focused on those that have been affected by the inactions of the bureaucrats and to clearly identify the damage it's causing today and in the future. Our campaign has also been to promote our solution to what ails the industry and replace the disastrous bureaucracy through disintermediation. To organize our user community, which we began doing with the publication of our user community vision in March 2014, to resolve this inevitable and consequential disaster. You can only imagine how popular I was when I was completing the Preliminary Specification and speaking of the looming demise of the industry in January 2014 when oil prices were averaging $91.17. Yet seven years later this is where the bureaucrats have taken us, so much for being visionaries, and does anyone doubt what bureaucrats see in the clean energy future?

We noted earlier this week that the bureaucrats' answer to their insurance risk, culpability and guilt they’ve incurred is that they’ll move off to other industries. Capitulation of any and all responsibility is directly in line with their genetic predisposition and moving away from that which they’ve been entrusted with but destroyed. Leaving the devastation behind, and all those that have been damaged by these individuals actions. How much delusion exists within these bureaucrats when they consider they can just “shift” to clean energy with minimal staff, those being the ones they haven’t cut, the diminished resources they have at their disposal and no support from investors or bankers? A service industry that will need to be actively rebuilt with direct producer involvement and cash. And they have sugarplums dancing in their heads about zero emissions. Leaping tall buildings in a single bound, traveling faster than a speeding bullet. Clearly bureaucrats are not tough enough to stand the heat, therefore let's get them out of the kitchen. The issue now is what do shareholders and the employees of the producers have in terms of legal rights in litigation against the bureaucratic officers and directors of the producers they’ve been involved with? In a word plenty. The standard of care necessary for these individuals is that they’ve… from Wikipedia.

Tort liability is predicated on the existence of proximate cause, which consists of both: (1) causation in fact, and (2) foreseeability. A plaintiff must prove that his or her injuries were the actual or factual result of the defendant's actions.

The cause was and is the chronic overproduction and oversupply brought about by specious accounting that I’ve documented throughout this blog. The overproduction and oversupply is also documented in the commentary of Qatar’s Oil Minister in the July 26, 1986 Calgary Herald articles. The foreseeability arrives as a result of considering that I’ve been at this for 29 years, which only proves that I’m not as bright as an oil and gas bureaucrat. Yet, I was able to foresee the issue and start working on a remedy in May 1991 and had the Preliminary Specification published in December 2013. Guilt and culpability are reflected in the bureaucrats desire to cover their risk with ever more officer and director liability insurance coverage, paid for by the producers.

And from Legal Match.

A tort is an act that results in injury, suffering, unfair loss or harm to another person. Torts are governed by tort laws and serve two basic purposes (1) to compensate the victim for any losses caused by the defendant’s violations; and, (2) to deter (discourage) the defendant from repeating the violation in the future.

I would therefore ask the following questions;

• Were they (bureaucrats as officers and directors) aware of the systemic and chronic overproduction and oversupply of oil since July 1986? If not why not?
• Were they aware of the systemic and chronic overproduction and oversupply of natural gas since 2010? If not why not?
• Were they aware of Shale's inability to generate free cash flow for the past decade? 
• Were they aware of People, Ideas & Objects Preliminary Specification as a solution?
• Why were officers and directors liability insurance coverage increased in July 2020?
• Did they know, or should they have known about these imminent financial difficulties?
• What assessment of the shift to clean energy and / or zero emissions was made?
• Why is this shift supported and subsidized through oil and gas revenues?
• What actions or inactions were taken with respect to any of the above?
• What have the organizations CFO’s commented internally about the over capitalization, over supply and over production issues? What were their concerns about clean energy and zero emissions targets?
• Conversely, what has been asked of the CFO’s about the issues regarding their financial statements, the business environment or People, Ideas & Objects Preliminary Specification?

After these discussions have been undertaken it would need to be determined if fraud or fraudulent misrepresentation was involved. For determination of that we see the legal definition from Legal Match.

5) Fraud or Fraudulent Misrepresentation

Fraud is deliberate deception to secure unfair or unlawful gain. The intent behind fraudulent misrepresentation make it the most serious of all types of misrepresentation. As a result, it carries the most severe penalties. The required elements for a tort cause of action include the following:

Intentional misrepresentation or concealment of a material fact.

The misrepresentation is made with the intent for the other party to rely on it.

The other party does rely on the material fact.

The reliance on the material fact harms the person.

Fraudulent misrepresentation need not be a positive verbal assertion. It can be any act that would deceive another including simple gestures, innuendos, half-truths, and in some instances, silence.

I’m not a lawyer and therefore I’m not going to get into the finer points here. We’ve heard the bureaucrats suggest, when asked about the destruction that has been created on their watch, “that they too had lost money.” I find this a curious comment in light of the facts presented. A) who cares that they’ve lost money, B) who was in the best position to stop the loss, and indeed had the authority and responsibility to do so, and C) is this just another excuse posing as a deliberate deception?

The sequence of these events is the issue that has been present in the market since July 1986, People, Ideas & Objects solution has existed since December 2013 and nothing has been done whatsoever to remedy the losses, damage or devastation that these officers and directors have caused. We know that there was ample time and opportunities in which to work to resolve and avoid these issues and the only producer efforts were to “shoot the messenger” People, Ideas & Objects. We know two things today. Muddle along and doing nothing, the de facto strategy throughout this time, has failed catastrophically. We detailed this risk to the officers and directors in early June, July and August of this year. Yet nothing has been done except the increase in insurance coverage and the shift to clean energy. It looks to me like we’re being played for fools again. Shame on us?

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, 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 Parler or Twitter @piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

I Say We Want a Revolution!

 Bureaucrats have been rewarded with three vaccines that have increased the prices of oil and gas, and hence the value of their shares. I was saving this gift for the bureaucrats' Christmas however since they're now in the holiday mood and are being rewarded for doing nothing, I thought I’d indulge them. The gift that I find keeps on giving is the one we documented last summer. The two Calgary Herald articles “OPEC can see Economic Destruction” and “Return to Glory Days Unlikely.” Recall these articles documented situations in the industry that mirrored the events of today, however they were written on July 26, 1986! These can be sourced from Newspaper.com (paywall) and are listed on the front page of the business section or page 33 of that day's paper. The quotes that best reflect the situation that exists today are. 

Qatar's oil minister has called on both OPEC and non-OPEC nations and industrialized countries to cooperate with OPEC to work out a policy aimed at restoring stability to the world oil market or face grave consequences. 

He said that continuation of the current situation would lead to destruction of the economies of both oil producing and oil consuming countries. 

“OPEC has no choice but to continue the current policy of capturing a fair share of the market until non-OPEC producers discern the importance of co-operating with OPEC.” Oteiba was quoted as saying. 

And

However, what those [OPEC] ministers do at the International Hotel on the shore of Lake Geneva could help decide a lot: Whether gasoline and heating oil prices will continue to drop or rebound instead, whether the devastated economies of oil producing states and provinces like Oklahoma, Texas and Alberta will continue to crumble and whether the debt problems of Mexico will get more severe. 

Only Saudi Arabia, which started the price plunge by boosting its output so it could protect its market share, has gained revenue amid the price war. That oil rich country is earning 10 to 15 percent more oil exports than last summer. 

Amid lower prices, the number of active oil rigs in the United States and Canada has plunged. 

As we noted in August these symptoms of overproduction and oversupply have been the case since at least July 1986 and have been evident each and everyday since. It is the reason I began this journey in May of 1991 to build a system where producers could just shut-in production. Something they were unable and unwilling to do in that era of the industry. And as we see since that time there has been nothing done about a critical, global, existential issue to all of those involved in oil and gas. It is only today we find the radical change of the producers moving out of the business to pursue their lofty dreams of clean energy and zero carbon emissions. As we noted in our “radical” recommendation on Monday, let them go, or have them spin off the oil and gas exploration and production to their existing shareholders. We could also just kick the bums out. That clean energy future with zero emission is what the bureaucrats have bought into, we should free them of these oil and gas assets and allow them to travel unconstrained into their new quest. This is what everyone else has been denied over the past four decades due to their bureaucratic mismanagement and let's admit it, fraud, corruption and self dealing. 

Corporations are structured so that directors and officers of that corporation are held personally accountable for any and all shortcomings that occur knowingly or unknowingly by the principles in these organizations. People, Ideas & Objects is another attempt by myself to take “another kick at the cat” after prior failures in the oil and gas ERP market. This attempt began in August 2003 with the commencement of our comprehensive research into what a dynamic, innovative, accountable and profitable producer would need in terms of using the Joint Operating Committee. This research took the better part of a decade with the result being the Preliminary Specification being published in its final form during December 2013. It's been since that time the officers and directors have been well aware of this solution in the market. Even if I was the only one that was aware of the published Preliminary Specification it doesn’t matter. There existed a published solution in the market as of December 2013 that the officers and directors should have been aware of and that fulfills the standard for shareholders to meet the demand of the courts to prove these corporations should have known. This is the law of torts and we’ll be discussing this more on Friday. 

How this particular part of our journey began was with the publication of a series of blog posts on June 2nd, July 6th and 8th of 2020, and subsequently, that detailed the manner in which insurance companies managed risk in their portfolio of officer and director liability insurance. That insurance companies will force the cancellation of coverage if the individual continues to work for the company they deem as too risky for them to continue. Forcing the individual officer or director out the door of the producer in order to maintain their insurance coverage. It’s in the July 6, 2020 blog post that I note the Reuters article stating that increasing officers and directors liability insurance coverage was a trend they’d noticed. People, Ideas & Objects asked explicitly if this is implied guilt and culpability?

After six months has passed a quick update in terms of People, Ideas & Objects activities. Shows that none of the North American based producers have contacted us in any way shape or form. And why would they, I’m just a guy behind a keyboard. The only action that we can document on the bureaucrats behalf is the wholesale exit from the oil and gas industry into clean energy and zero carbon emissions. I have stated here throughout my writing that bureaucrats can’t, won’t and will not ever do anything to resolve their issues. They’re genetically predisposed to avoid action unless it involves covering their personal compensation or risk. 

Whether we have the investors force a spin off of the oil and gas assets into new corporations or summarily fire the bureaucrats is a choice that someone needs to make. Either way let's make Christmas just as special for these individuals as they have for everyone else. It’s time for action and I’m one guy with a keyboard, but I also have the solution to what ails the industry. There is no reflection of any care or concern being expressed for the profitability of the industry, other than what it can do for these individuals' pocketbooks. Take these oil and gas revenues away from them before they declare ever larger annual bonuses for the job not done. We never want them using oil and gas revenues to support their activities in an unrelated industry which has repeatedly proven itself to be uncommercial even with substantial government subsidies. I’m now calling for a revolution within oil and gas to clear out the bureaucracy.

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 Parler or Twitter @piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.