How Will People, Ideas & Objects Achieve Success, Part III

 People, Ideas & Objects key value proposition is that we ensure that all production is produced profitably, everywhere and always. We achieve this by way of the user community and its service provider organizations. The configuration of the industries accounting and administrative resources have been organized in this manner for a number of reasons which are. First, the application of higher levels of specialization and division of labor. Organizational changes designed around these economic principles are the only source of incremental value that have been experienced over the past number of centuries. The configuration of our user community and service providers specialization and division of labor are enhanced through the mechanisms in which we’ve endowed the user community vision. The capability to change is an inherent part of our offering with the user community having the power to change the Intellectual Property underlying the People, Ideas & Objects software and services that the oil and gas industry uses. This ensures a never ending application of further specialization and division of labor will continue as the profitable production deliverability in North America increases from the same resource base. People, Ideas & Objects feel the monetary value here is material and unquantifiable. It therefore hasn’t been included in our value proposition.

The second reason for establishing the user community and service providers is to enable the producer firm to focus on their key competitive advantages of earth science and engineering capabilities, and its land and asset base. Removing the administrative and accounting resources from each of the producer firms ensures that profits will be maximized when producers stop incurring costs that are replicated within each producer firm. Costs that are unshared and unshareable in their current configuration. As we’ve noted, it is the redundant building of these non-competitive capabilities within each producer firm that is exhausting much of the industry's profitability. Overhead costs are material in nature in oil and gas. It is due to the excessive amounts of overhead that producer bureaucrats expertly conceal in their aggressive capitalization of overhead that no one is aware of what these costs total. People, Ideas & Objects have consistently argued that overhead and interest were heavily capitalized by all producers. Since then we’ve seen a change in producers reporting to detail the amounts of capitalized interest, whose interest capitalization percentages have declined markedly over the past few years. Yet to date we’ve seen nothing in terms of enhanced reporting on overhead. I find this fascinating, and representative of the guilt and culpability that bureaucrats have so rightly earned for their obtuse reporting of literally every possible cost as capital.

Service Providers

The critical reason for this reorganization of the accounting and administrative resources of the producers is to achieve what is called in the Preliminary Specification our decentralized production model’s price maker strategy. Where the fundamental issue of overproduction has been documented to exist since 1986 in oil and 2009 in natural gas. These overproduction scenarios would eventually self correct as is the basis of the “muddle through” strategy of the current industry. However shale destroys the old business model of scarcity and introduces a new industry dynamic based on abundance that demands new business models such as the Preliminary Specification to address the unique characteristics of shale based reservoirs. Characteristics that include the exposure of massive reserves through long laterals and multi-fracing. Prolific initial production with steep decline rates. These are enhanced by spectacular drilling and completion costs with significant re-work costs being undertaken within months instead of years. Under the existing business model, assigning these high costs of drilling and completion to the many, many decades of reserves that were exposed allowed bureaucrats to claim they were “commercial.” When in reality the capital markets have now deemed shale to be uncommercial, yet bureaucrats conveniently ignore that message. The current “muddle through” business model does not contain any production discipline. Everything is always produced. What is needed now is for the production discipline that would be instilled within the industry from the Preliminary Specifications price maker strategy. It ensures that only profitable production is produced everywhere and always. And therefore producers are, or at least should be, motivated to ensure that their profitability is the highest that can be attained.

What our price maker strategy provides is the following. Due to the separation of the accounting and administrative resources from the producers into the service providers. And the ERP systems of People, Ideas & Objects being prepared by the user community members who are the principles within each of the service providers. Each service provider is managing one process of the many processes that a Joint Operating Committee conducts. These individual processes are therefore conducted on an objective basis across the industry where the service provider applies the same standard accounting and management to all of the producers. Therefore the accounting will be conducted on a standard and objective basis across the North American continent. Focused on each of the Joint Operating Committees, each producer will know that if a property has been reported to be unprofitable, they’ll know it received the same accounting treatment as all other Joint Operating Committees in North America. So in order to maximize that producer's profitability, they’ll decide with their working interest owners in the Joint Operating Committee to shut-in any and all unprofitable properties and move them to an inventory of shut-in production. Once there these properties will be subject to further innovations in order to return them to profitable production as soon as possible. The standard and objective accounting will provide them with the assurance that their property is either profitable or unprofitable and accept that finding. In addition, the same criteria can be applied to wells within a unit or similar grouping. If one or two wells are unprofitable, by shutting in those individual wells the properties profitability would be enhanced in addition to the producers. 

It is at this point the service provider's value to industry kicks into high gear and delivers the $5.7 trillion in incremental value from our value proposition over the next 25 years. What the Preliminary Specification does through these changes is move the producers fixed cost administrative and accounting capabilities into the industries variable cost administrative and accounting capabilities. When a property is shut-in there is no activity occurring and hence no operational data being produced that would be transmitted through People, Ideas & Objects task and transfer network to the service providers. Therefore none of the processes for production, revenue or royalty accounting etc, as examples, are conducted and hence no billing from the service providers will be produced or rendered to that Joint Operating Committee for the administrative or accounting costs during any of the time the property is shut-in. The property incurs a null operation, no profit, but also no loss. Enabling the producer to attain their highest level of profitability when unprofitable properties losses no longer dilute other profitable properties profits. Turning the producers overhead costs variable, and indirectly controllable. Motivating them to maintain their production discipline of only producing profitable production everywhere and always in order to realize the highest level of corporate profitability. Whether that is at 500 thousand boe / day or at 100 thousand boe / day. They would always be proportionally profitable. Keeping their oil and gas reserves for a time when they can be produced profitably. Not having those reserves having to carry the incremental losses as a result of continued unprofitable operations. Those reserves can be seen as stored volumes with no storage costs associated with them. And the most important point of all, removing the unprofitable production from the commodity markets allows these markets to find their marginal price. 

Bureaucrats have argued this is collusion and fail to understand that managing inventories is a necessary part of every business. On many occasions in natural gas, and in April of 2020 producers substantially overproduced and drew down commodity prices into negative price territory. Which proves three things, oil and gas commodities are subject to the economic laws of price makers, bureaucrats believe down to their bones that to employ People, Ideas & Objects price maker strategy would be collusion and they’re good at feigning this naivety. Making independent business decisions at each Joint Operating Committee to produce or not based on actual, factual, objective and standard accounting information that determines profitability does not in any way involve collusion. It’s good business sense. We are adopting the market price theory and using it. That is, all the information that is necessary for anyone to know about a market is contained within its price. If the price is adequate to earn a profit, producers will produce. Instead bureaucrats have invented extensive Rube Goldberg devices employing redundant individuals in each producer firm to analyze through satellite imagery, employing Artificial Intelligence to determine what the shadows on the oil storage tanks were and therefore imputing what level of storage was available in each area of the world. Yet continued to produce at 100% all of the time. This information was then compiled and analyzed extensively to the point where oil prices hit negative $40 in April 2020. The only question that should be asked of the bureaucrats is at what point did they know the price was going negative $40? Whereas I can look at the price of negative $40 for oil and say unequivocally, that not one producer earned a profit at that price. And I do not have a satellite dish.

People, Ideas & Objects have mentioned the user communities service provider organizations will not be competing on the basis of price. We find the use of price competition by the oil and gas bureaucrats these past decades has done more harm than good. The license that will be provided to the service providers will give them a monopoly on their assigned processes jurisdiction. (Please review the service providers definition for details on how that assignment is determined.) What we need to be conducting is profitable production everywhere and always in North America and commercializing shale. This is not going to be achieved when everyone is being attacked on their flank by competitors that use price as their sole competitive advantage. We need to be rebuilding the industry infrastructure, capacity and capabilities and only that is what we should be focused on. That includes everyone with their shoulder to the wheel. We have substantial work ahead of us in terms of what oil and gas needs to achieve in order to provide the consumers of our products over the next 25 years, at a minimum. Otherwise the state of affairs in the industry will not be there for them when it’s most expected of us. 

It is therefore all of these reasons that we have settled on the following criteria that the service providers will form as their competitive advantages. The first and probably most important of all criteria is leadership. These will all apply to both the user community and those within the service provider organizations who work for the user community member. Leadership has been defined in a number of ways, all poorly as it's a difficult topic to qualify. Readiness, Willingness and Ability. “Fixers and troubleshooters rather than production (wo)men.” Joseph Schumpeter. Four kinds of behavior account for 89% of leadership effectiveness. 1) Be supportive, 2) Operate with a strong results orientation, 3) Seek different perspectives, 4) Solve problems effectively. They must have forgotten about price competition. The other competitive advantages I mentioned in my previous post were automation, innovation and quality. What I would like to do is add to that list with what I feel will be some of the other competitive advantages of the user community members and their service provider organizations. And at the same time I would not want to define the list as definitive and absolute, they are subject to change within that community at their discretion. Issue identification, creativity, collaboration, research, ideas, design, planning, thinking, negotiating, compromising, financing and resolving issues. These with whatever are added are what stand in stark contrast to what price competition provides, in my opinion. We can also contrast these to what computers are capable of, which amounts to storage and processing, which is little of the tools we need for where we need to be headed. 

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

How Will People, Ideas & Objects Achieve Success, Part II

 Once we’ve secured our budget, whenever that is, People, Ideas & Objects would be unconstrained in pursuing the objectives and plans that we’ve been discussing here for the dynamic, innovative, accountable and profitable oil and gas industry through to its successful conclusion. The next critical aspect to our success, once that budget is secured, is the work of our user community and its role in providing the most profitable means of oil and gas operations, everywhere and always. Undertaking the development of any quality software today demands an enhanced role of the user front and centre. People, Ideas & Objects competitive advantages are its Intellectual Property, research and user community. It is these attributes and the methods we’ve used to establish the user community that we can ensure the oil and gas industry will achieve a speed, innovativeness, profitability for it to be successful for the short, mid and long term. 

Our User Community

The configuration of our user community is unique. Consisting of 3,000 individuals who are available on a part-time basis. They will have the accounting, administrative and related understanding of the oil and gas industry and how their role with the Preliminary Specification provides value. The initial step in People, Ideas & Objects development will be the formation of the user community. Its formation will be critical to the success of our initiative in its initial commercial release and the subsequent 25 years. Focusing on this initial requirement will pay dividends throughout the projects development, implementation and life cycle. This is why we established the development of the user community as our primary focus beginning January 2014, soon after the Preliminary Specification was published. With the publication of the user community vision we began promoting these developments and soliciting user community participation consistently. Although user community development is traditionally a long process that is difficult to focus on and easy to skip through when the pressure to perform exists, we didn’t start yesterday and are fully committed to user based software developments. 

Until our budget is secured we will continue to protect user community members from the bureaucrats' vindictive ways of punishing those that would think otherwise. Power is an interesting topic when it comes to the dynamics of disintermediation, software development and change. Push back comes from all corners and from the most unexpected people. Until one is financially secure in their position it is best to be absolutely quiet. GameStop is an excellent example of this, and only the most recent instance. Upsetting the apple cart and creating a lot of damage to those that have not been playing fair is the first implication of all disintermediation. Until our user community can be assured of the completion of their efforts from a financial standpoint, there is no point in risking their careers. After the budget is secured the only jeopardy they’ll experience is the potential of the overall project's failure. Something that I feel falls within their domain of control.

I began this most recent approach with People, Ideas & Objects of developing ERP software for oil and gas with a different perspective as a result of some difficult lessons I learned in the different approaches that I made in the 1990s. The key lesson was that Intellectual Property is now the only asset worth anything, in the sense of building value in this new world. Unlike the 1990s where your ideas would easily become their ideas in what I now call the wild west of IP management. Today, IP is respected at the highest level of the law. Except now its management has absolutely nothing to do with the law and is wholly political. Once established with a strong history of its development and origin of its beginnings it is irrefutable. The Preliminary Specification is based on an idea that arose when I was doing my graduate research, which then formed the basis of my master’s thesis. This was subsequently published commercially in the form of the Preliminary Research Report. It suggests that the use of the Joint Operating Committee is the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. The Joint Operating Committee is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. By moving the compliance and governance of the hierarchy into alignment with the seven frameworks of the Joint Operating Committee we would achieve a speed, innovativeness and profitability that we seek in the industry. This was published as a research proposal to industry in August 2003 with the Preliminary Research Report published in May 2004. It was 100% funded by myself personally and therefore I earned the Intellectual Property. This “idea” had the potential of removing significant conflict that exists in the industry and bring about a framework where any and all financial, administrative and operational issues can be mitigated efficiently and effectively.

The research I then undertook was to define what the industry and producer would need to look like and how would it function if we did change to the Joint Operating Committee as the key organizational construct? What software would be required and how would it need to organize the industry and producers? This research was completed in December 2013 in the form of the Preliminary Specification. Once again all of this was funded 100% by myself and therefore became my Intellectual Property. Therefore I have the ability through contract to control the deployment of this IP and that is what I’ve chosen to do by licensing the user community. Therefore the IP necessary to conduct the work that is needed to be done to ensure the industry attains and maintains the most profitable means of oil and gas production, everywhere and always is in the hands of the user community. The three critical components of the user community's founding were provided in the March 2014 user community vision.

• Only the user community is licensed to make changes to any of the underlying Intellectual Property of the Preliminary Specification and its derivative works.
• People, Ideas & Objects licensed developers will only look to the user community. We are deaf, dumb and blind to all others. 
• The user community has their own budget. ($1.37 billion.) They are independent business people. Not “blind sleep walking agents of whomever will feed them.”

Within People, Ideas & Objects user community vision, through a licensing contract, the user community are the sole authorized individuals capable of creating derivative works from the Preliminary Specification. If any user needs a change in the People, Ideas & Objects ERP software it will be the appropriate user community participant that will research the change, verify it and implement it within the software through our developers. This will be through a structured and well defined change management process. Only the user community participants are capable of making changes to the IP and therefore providing the solution to industries needs. Our developers will be deaf, dumb and blind to everyone and anyone other than the user community for their input. Developers are authorized to take direction from no one other than from licensed users. Therefore anyone in the industry, including but most particularly the producers, only have to talk to the user community participant who has chosen to specialize in the one specific area of the producer's concern to have their needs met. That user community member will also be the principle behind one or possibly several of the approximately 3,000 service provider organizations that will be established by each of the user community participants. These service providers will be the organizations that are providing People, Ideas & Objects software and their organizations services to the oil and gas producers. Services that include the initial systems implementation through to all aspects of the producers accounting and administrative needs for the long term. Service providers deliver the implicit knowledge that they’ve captured through their development in the software, and their tacit knowledge as a service in a comprehensive solution to the producers. 

Competition within the user community and service providers is different as a result. We have discussed repeatedly that we see no value in having the service providers being subjected to unnecessary price competition. Each of the service providers will be provided with an exclusive license for the domain in which they operate. Therefore never having to watch their flank for any unauthorized service organization interfering with their solutions delivery. Focusing on providing the quality service the producers need to ensure that all production is produced profitably. Price competition has been the favorite game of producer bureaucrats to wash the IP of their service industry representatives and other vendors with that of their direct competition. Therefore sponsoring indirectly the competition that will then compete based on price. This is the focus of the bureaucrats preferred method, which has its advantages as we can all see the oil and gas industry circle the drain. The service providers are the direct replacement to the administrative and accounting resources that are currently deployed within the oil and gas producers. These people are reorganized into the service providers for reasons of the decentralized production models price maker strategy, specialization and the division of labor and more. We will be discussing these further in our next posts. 

Each service provider will focus on one specific process of the industry's needs. Let’s assume it's the payment of surface lease rentals. They would therefore be responsible for the surface lease rental process for the entire industry. Management of that one process would seem rather boring and a regression from where we are today. That would be a misunderstanding of where we’re at. The service providers would focus on providing a quality service based on their high level of specialization and division of labor. With their ready access to our developers for the next 25 years they would have the much touted “big data” to consider the use of Machine Learning and Artificial Intelligence to apply to. Automation of the process would be at a high level and would never stop due to the fact that as the principle in their organization, the user community member is the one that can make changes to the system. They’ll innovate and provide leadership to the way the producers operate and will act in response with other service providers to the overall changes in the industry. Adapt to new technologies when they provide discrete advantages among the many other advantages of the service providers. Applying their knowledge, experience, skill and ideas to what they know and understand. The only question I have is who does one go to in order to have a change in their systems being used today? 

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

How Will People, Ideas & Objects Achieve Success, Part I

 A quick comment before we begin our post today. We see in the increasing commodity prices of this past week the commensurate increase in the value of producers shares. This is also the bureaucrats “muddle through” strategies' big payoff. Actually their only payoff. Their dividend is the reduction in any pressure to act to fix the underlying overproduction or other difficulties that should be addressed in the business. The only concern at this point, as far as the bureaucrats are concerned, is how to reclaim some of the lost executive compensation of this past decade. The traditional response has also been to chase more production by drilling as many new wells as they could. That may not be the case this time. The service industry has been degraded significantly in terms of its capacity and producers, based on their fourth quarter 2020 reports, have diminishing cash and much greater demands for that cash if and when it does show up. This boom / bust cycle has been playing out consistently over the past four decades which the bureaucrats have been able to generate their great personal compensation from. For most everyone else it became boring in the early 1990s. Therefore, strike up the band, it's time for the bureaucrats to chase that cash one more time, at least for the rest of this month. 

Alternatively how everyone can achieve success throughout the industry should be the number one question going through people’s minds as they contemplate the difficulties in oil and gas today, and the contrast People, Ideas & Objects, our user community and their service providers present with the Preliminary Specification. What we’re undertaking in the development of this industry wide ERP software as we’ve defined it to date. With the establishment of the user community and their service provider organizations is unique and hasn’t been done in any other industry anywhere before. Building a permanent ERP focused software development and user community based capability and capacity. My assessment of the Information Technologies we’ll be using is that their level of maturation is more than adequate to meet the demands of our architecture and the difficulties and complexities we’re throwing at it. Our impediment to this point has been bureaucratic resistance to change. Disintermediating oil and gas in the same style that’s been experienced in many other industries over the past few decades and what will be occurring eventually to all industries. Bureaucrats have effectively resisted the inevitable elimination of these new forms of organization. To the point where today they’ve fundamentally destroyed the industry in the process of defending their turf. 

A couple of catch phrases in there, added to the mystique and magic of IT, wrapped in an air of certainty and filled with the hope that only vaporware provides. This should stand as testament to the efforts of oil and gas bureaucrats in denying any challenge to their methods of operation. You only get what you pay for and they never supported what the industry needed, it conflicted with their personal compensation. If they looked critically in the mirror the only reasonable question they could ask themselves would be “how is it that we’re still alive.” I can honestly say that People, Ideas & Objects are ascendant to contrast their steep downward trajectory. In terms of options and opportunities to deal with their future, I am biased, and unaware of anything outside of our vaporware. That is I know that our vaporware is the only vaporware that exists. My persistence over these past thirty years is due to what has taken these issues to finally manifest themselves into the wholesale melting down of all aspects of the oil and gas industry. Specious accounting has hidden the real damage for many decades which can only raise serious questions as to the quality of that accounting. Where were the audit firms? Now that these issues are here bureaucrats have three options. Two of them are incapable of solving the issue. Those being bankruptcy and the self declared movement towards clean energy. The third is they take the responsible choice of funding the Preliminary Specification in order to mitigate their responsibility in the destruction of the industry, and provide the solution to ensure that they can claim “issue mitigated, nothing litigated.” It’s the easy way out and by far the most effective way to deal with their problems. When I say their problems I mean their personal issues that are now center stage in terms of what concerns them. 

Our Budget

Let’s explore that third alternative for the bureaucrats. Although they may blame the most viable scapegoat that comes to mind that morning. The reason for the difficulties that oil and gas producers and the industry face today is due to the C suite and board of directors primarily focusing on innovative and creative solutions of how to enhance their personal executive compensation. As far as they were concerned that is what they were there for. Nonetheless their personal fortunes now stand in contrast to the value remaining in the industry and its inability to generate any value without direct outside investment from investors or bankers. Money only ever went in as they say and never came out. Or as the bureaucrats would say “you have to put cash in the ground!” The issue’s cause is a result of a lack of production discipline and chronic overproduction. We can trace the origins of this issue back to at least July 1986 and it has been ever present in oil since that time, and in natural gas since late 2009. Shale makes overproduction a permanent and tragic consequence of the bureaucrats “muddle along” strategy and business model. This is the point in which the directors and officers should have begun seeking a solution to the overproduction issue, in late 1986. In December 2013 publication of the Preliminary Specification occured. Our product deals specifically with the overproduction issue by applying common business principles. It was at this point that the producer bureaucrats redoubled our beatings and increased their overall efforts to silence us. We therefore have the established historical points where the issue is well defined, and the only viable solution that exists for the overproduction issue has been available. Yet nothing was done by said bureaucrats but to raise superfluous claims, outright lies, blaming of others and viable scapegoats. They were too busy “putting cash in the ground” and “building balance sheets” to concern themselves with the business of the business. Besides investors and bankers were buying the producers specious financial statements the producers were issuing. “See the accounting firm signed it too,” the bureaucrat states. 

Therefore the scene was set for today’s decline in the North American oil and gas industry. The personal fortunes of the officers and directors were untouched as they knew not to eat where they were working. I pointed out to them last summer that their officers and directors liability insurance was an issue at which point they promptly increased their coverage at that time by 75%. How much has their coverage gone up since then? And who says these people can’t act quickly? When I pointed out their liability and obligations the first thing they did was increase their coverage. Which I thought was an innovative idea. I then asked if I moved everything I owned into my house and set it on fire, would it provide me with a liquidity that I could appreciate? I still haven’t received an answer from them on that last question. We have however received a number of fourth quarter 2020 reports and they certainly support that cash continues to be put in the ground, and be firmly in place there. The SEC has allegedly launched an investigation into Exxon for the valuation of their assets in property, plant and equipment. This investigation may also extend to shale producers in general. An issue that we feel is directly attributable to the overproduction issue. When you overreport your assets, as a consequence you overreport your profits, which causes investors to pile in to chase the high profits which causes overinvestment leading to what has turned out to be chronic overproduction in North American oil and gas. What we should have all now learned from that is the middle man, our very good friends the bureaucrats, were personally benefiting financially throughout each one of those stages of creating the overproduction. Therefore why would they recognize the issue in 1986 or the solution in 2013?

Bureaucrats are supposed to be the responsible ones, they are also the culprits, they were the ones that were authorized to ensure these types of things didn’t happen, and if they did correct them. And most importantly of all, they have signed their John Hancock in order to commit themselves as personally responsible if anything should go wrong during their watch. In the process they have subjected their personal fortunes as a remedy to resolve any losses for those that they’ve betrayed by any of these (in)actions that caused damages to their stakeholders. Therefore let's discuss the third option that they have outside of bankruptcy and bailing on oil and gas for clean energy.

In order to prove they undertook their fiduciary duties towards their stakeholders. Officers and directors will need to show what it is and how it is they sought to deal with the decline in their organization. I challenge anyone to think of any activity that has been taken by any of these producers bureaucrats? We began a decade ago with the remedial action in the natural gas side of the business by “praying for a cold winter,” stating “we’re profitable,” and suggesting mythical theories of “market rebalancing,” how their accounting was irrelevant “now all of these losses are just accounting! And it deals with the sunk costs of the past!,” and a recent favorite “we can’t shut in production.” These top a very long list of excuses that were used to provide time in which bureaucrats didn’t have to do anything. Blaming everyone from OPEC+, to their own employees, the “service industry is lazy and greedy,” to the most recent, virus induced, “the government has to save us with direct support or tariffs'' or… That is their pathetic and culpable record of their fiduciary duty these past four decades. And now in order to avoid losing their personal fortunes in the process of chronic personal litigation from the producers stakeholders. Stakeholders that have claims that survive the bankruptcy process. The bankruptcy process that may deem the officers redundant just as the directors are on the street immediately upon the declaration of bankruptcy. Where they may have to fight stakeholders with their own resources if… The bankruptcy judge deems the officers and directors liability insurance coverage to be an asset of the corporation and therefore seize it. Where the officers and directors will be on the outside looking in with nothing but their personal asset exposure to protect them. Avoidance of risk should maybe be seen as the first rule to its exposure.

I thought this was about funding People, Ideas & Objects budget, and more importantly how we’re all going to achieve success as a result of the implementation of the Preliminary Specification? And you’d be correct which is why this has turned into a comprehensive series. The budget is the first aspect of our success. As ridiculous as our task is, the cost is among the most significant ERP implementations ever undertaken. Our costs stand at $3.7 billion U.S. dollars. People, Ideas & Objects are a business and businesses are profitable. We are in the Intellectual Property, research and user community business as our key competitive advantages and therefore these have costs that are associated with these attributes. As a result our entire budget comes in for the North American based oil and gas industry at $12 billion U.S. dollars. This is assessed on the basis of North American production per barrel of oil equivalent for the year 2019. This assessment stands at the one time cost of $315 / barrel. Which the bureaucrats might see as the deal of the century due to the fact that they’ve destroyed trillions of dollars in the process of raiding the industry. Personal guilt can be a great motivator. People, Ideas & Objects and I myself justify this budget on the basis of our value proposition that we present to the industry. It is determined to be $25.7 to $45.7 trillion dollars over the next 25 years as a result of making the North American sector profitable, in the real sense of profitability, everywhere and always. Bureaucrats have always scoffed at our budget as comical. I would ask what their value proposition has been?

This budget has to be secured in whole prior to any work being conducted. People will not commit to a project that will be subject to the financing whims of the bureaucrats mosquito like attention spans. Cancellation would terminate the project and nothing would ever be resurrected in its place. It would be an effective method for the bureaucracy to permanently continue. In addition those that have committed to the project would be left unemployed and most importantly tagged with a scarlet letter from the bureaucrats in terms of their career contributions in the industry. All for working to make things better. We need to begin the task of building and implementing the Preliminary Specification and finish it in uninterrupted fashion to ensure that those that participate are not subject to the consequences of their participation being an issue should bureaucrats be given any means in which to reassert control. We will not be “blind sleepwalking agents of whomever will feed us.” People, Ideas & Objects are offering an out for the bureaucrats to mitigate the personal financial risks they’ve created for themselves. Risks that have the potential to establish a miserable life for them that consists of court and legal issues. One of defending the ill gotten gains they pride themselves on today. We are offering them the opportunity to set in place the solution to their lack of fiduciary duty, manage the business in the interim while we build the alternative and then exit into their previously planned, peaceful and prosperous retirement. The best deal they’ve ever been offered. 

Since I’m in such an inquisitive mood today I thought I’d ask a few more somewhat related questions. Is it irresponsible for producers to assume that they can walk away from the oil and gas industry, allowing their production volumes to atrophy and leave the market without any production, chasing dreams of clean energy? This is in fact what they’re doing with their move to clean energy, abandoning the oil and gas industry because it’s in such disarray and so damaged by their bureaucratic destruction. Why don’t they take People, Ideas & Objects offer and leave oil and gas in the hands of new leadership? Are using the revenues from oil and gas to fuel dreams of clean energy, a radical change done in the classic stampede style mindlessness that has become the expectation in oil and gas, and without authorization from shareholders, a new low for these bureaucrats? Understanding all that is discussed on this blog, bureaucrats also need to ask themselves the following questions. Hasn’t enough damage been caused, if not how much more is in the plans? If these points identifying their personal risks don’t motivate them to act, what will? Knowing the general direction and trajectory of the industry. How many more careers need to be destroyed, money lost and how much longer will it take for bureaucrats to achieve these extra destructive attributes they need before they will be motivated to act? Asking for a friend.

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

Some Tough Love, From a Friend!

 Two quick points before we get into our actual post today. The first is I’ve made a mistake. I misstated that the SEC was allegedly investigating Exxon for their asset valuation. I should have stated that the SEC was investigating Exxon for their alleged asset valuation misleading investors. Clarified now. The second is in reference to any investors that may be looking for witnesses to testify against the officers and directors of the producer firms they lost their money in. Or anyone else that’s incurred a loss for that matter. When these litigants need witnesses for their litigation against the producer bureaucrats. A lucrative resource for their cause might be any of the accounting people that would have worked in oil and gas over the past number of decades. They could testify that bureaucrats' attitude toward accounting has been to pay the bills. At any point in time when the needs of the business were asserted it was literally “shut up and pay the bills.” There was never any opportunity to say otherwise when they would assert, as we noted in our White Paper “Profitable North American Energy Independence -- Through the Commercialization of Shale.” On page 10 “The release of reserves value through further drilling is the business and the only business as far as the culture of the industry is concerned. The nuance of recording and reporting the accurate timing and recognition of capital costs of exploration and production are not a topic of discussion when “everyone” is following the SEC’s regulated requirements and are “building their balance sheets” faster than “we” are. What we do know is overreported profits begets overinvestment, and overinvestment begets overproduction. Especially when no production discipline exists.” And on page 26 how producers “were able to miraculously and retroactively reduce their production costs by reinventing the ‘historical’ aspect of historical accounting.” 

Now onto the post.

The coronavirus may be less of an issue at some point in 2021 and as a result less impactful as a viable scapegoat to our good friends the oil and gas bureaucrats. OPEC+ will feel less obligated to deal with the demand issues and resume their focus on earning back their market share. The strength of the North American producers has been well documented through our ongoing series of blog posts “These Are Not the Earnings We’re Looking For.” The six other crises that we recently listed which producers are facing are imminent and well in play. These collectively form an existential crisis to the North American energy industry. From the producer bureaucrats we hear that all is well as far as the great science experiment is concerned. The business of the business is in shambles but that is what they need to say in order to cover off and continue the scam that they’ve been perpetuating. 

The value represented in a barrel of oil is not being appreciated or considered by its consumers. In order to avoid the development of alternative sources of energy, producers have discounted the price of oil by not recognizing its total capital costs of exploration and production “to ensure that alternatives are not developed.” This capital cost discount had been financed by the producers' investors until they became wise to the bureaucrats' methods, and were at the expense of the financial health and sustainability of all the North American industries involved in its supply. Future generations will look to the fact that decades went by where oil and gas was sold substantially below the costs of exploration and production. In fact, little more than the operating costs were being captured appropriately. Unprofitability has been chronic and is now clearly represented in the financial statements of the current producers in their disproportionate and obscene bloating of their balance sheets. All oil and gas in North America should always be produced profitably to ensure that it is not wasted and a financially healthy industry is passed onto future generations. Neither of those two responsible actions have been undertaken by these bureaucrats. Consumers gain the benefit of 23,200 man hours of mechanical leverage from each barrel of oil. Which costs them substantially less than the equivalent cost of bottled water. Where is the logic and where are our priorities? It will be the most prosperous and powerful economy that consumes the most energy from all of its sources. Who will be the first to eliminate the use of fossil fuels in their life by moving to the mountains to replicate the caveman era? As that is what we’ll be faced with should the capacity and capabilities of the industry and service industry continue to erode and take on a steeper trajectory and greater momentum. These graphs from the Wall Street Journal should clarify the efficiency and effectiveness of clean energy. It appears to me that the lack of recognition of the cost of capital in the production of energy may not be just an oil and gas bureaucrats issue. 

These graphs reflect the effectiveness of energy investment in alternatives is unquestionably a farce. Making the argument that bureaucrats have been making that they must ensure that alternative energy sources do not become competitive appears to me to be self-serving and only a veiled justification for their poor management. Or as I prefer to call it, one more in a long list of viable scapegoats. It also brings into question the motivation and cause of the producers, when People, Ideas & Objects raised the point of their culpability, liability and guilt last summer. How they ignored the issue of overproduction since at least July 1986 and the solution to that in the form of the Preliminary Specification since December 2013. In which we saw their only actions to our claims were to first increase their insurance coverage of officers and directors liability and then to reconfigure their “strategies” to be “clean energy” and “zero emissions.” I would question if clean energy’s substantial demand for capital is not just a new method to fleece investors for additional investment dollars? Either way if they’ve chosen to pursue clean energy they should not be using oil and gas revenues to finance these changes? Please recall too that the “Noncarbon” sources indicated in the graph above include hydro and nuclear power. On the oil and gas side of the equation, it would only be fair and reasonable for me to point out that the North American producers have been active in identifying new drilling sites.

Back to the issue at hand, which is the comprehensive financial collapse and loss of control of any aspect of the industry in North America. Bureaucrats' only concern is what I’ve learned to appeal to, their personal financial compensation and risk, as these are the only concerns that motivate them into action. For the past four decades this motivation has been nothing other than the creative and innovative ways in which they’ve been able to feather their nests. The business of the business could only atrophy to such an extent when no one cared or was distracted while watching other things. This has been at great cost to the industry as they’ve done so at the expense of any productive action and some vigorous accounting sleight of hand. Instead of taking their life long siesta in their well compensated nests, they’re stuck in these creations of their own demise. If they leave the producer firms they’ve so destroyed, they’ll lose their ability to control the resources necessary to manage their destiny if things do spin out of control in terms of litigation from the damage they’ve done of which they’re solely responsible for. So they sit and wait for what we’ve documented in terms of the oncoming industry difficulties. As the crises multiply and “muddle along” provides less and less of a covering excuse. The next two months could see any number of triggering events that sets their personal downfall into motion. 

At this time the 2020 financial statements have been prepared by the management based on their activities. This being the first in a litany of really bad years where things only get much worse each and every day. Their audit firm, or as we like to call them Chesters, are beginning to realize they too need to recognize their role in the demise of the North American producers. Rubber stamping financial statements has been a great business for the purposes of feathering one's nest. The accounting firm's concern now is that the SEC is allegedly investigating Exxon and the shale producers for their asset valuations. The issue that we believe triggered the destruction of the North American oil and gas industry. What was Chester’s role in the enabling of the industry to pursue “building balance sheets” as the only justification of its existence? Just as it was the over capitalization issue that triggered the demise of Bernie Maddoff, Bernie Ebbers and Jeffrey Skilling. Therefore we may see these accounting firms seeking to regain their lost credibility in the form of forcing large write downs and issuing a heightened number of “going concern” comments. 

Capabilities and capacities were what I warned about and began research in how to enhance the Joint Operating Committees involvement in the broadening of those capabilities and capacities as early as January 22, 2007. That blog post discusses the work of Professors Richard N. Langlois and Nicholas J. Foss in their paper “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.” However, that 2007 blog post of mine did not address the security and augmentation of the bureaucrats personal executive compensation and therefore was deemed to be irrelevant. I raise the capabilities and capacities as it is one of the crises on our list. An interesting turn of events has begun in 2021 for the North American oil and gas industry. It is noted in this World Oil article that others have lost interest. Again this is not a big deal for the bureaucrats as they’ve become used to it. Back on August 26, 2020 we posted the quote from General Shinseki which I’m glady providing again today. 

It’s not for me to suggest that the North American oil and gas producers have become irrelevant. They’ll be the ones that are in the best position in order to make that determination. I only cite this as the level of deterioration in the industry has hit somewhat of a record low, I would say. I am also unaware of any other industry that was able to attain this level of irrelevance and yet produce a product that is so critical to the way of life for everyone in society. Buggy whips made a transition to this level of irrelevance but everyone could see that they did in fact lose the ability to provide value to anyone. That is not the case today. The need for oil and gas for at least the next century is a guarantee. Oil and gas may not be as resilient as coal but could be! The point of the argument is that the irrelevance is solely the responsibility, accountability and inaction of the bureaucrats. In this case the exclusive club that consists of the C-suite as they are known and the Boards of Directors who have prospered so handsomely. It’s not just their irrelevance it’s also their lack of credibility, that no one trusts them anymore and after the litany of excuses, blaming and viable scapegoats, no one believes anything either. What they’ve done is fundamentally betrayed everyone of their stakeholders through the lack of real profitability. Which is what every primary industry needs to sustain itself and those secondary and tertiary industries need in order to maintain their capabilities and capacities 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 Telegram, Parler or Gab @piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

New Cost Structures, Part IV

I just have to include this Tim Cook CEO of Apple quote in Inc. magazine. It captures for me where we are in society and why things are collapsing everywhere we look. Collapsing yes, but in a good way. Being cleared away so that we can rebuild anew. 

The path of least resistance is rarely the path of wisdom. We're here today because the path of least resistance is rarely the path of wisdom.

Tim Cook

Producer bureaucrats may have a point. The argument that People, Ideas & Objects have overstated the severity of their crisis is a possibility. Therefore let's look at the facts. Since 2015 investors have steadily withdrawn from their interests and investments in oil and gas. Bankers took a while longer and are finding the producers current difficulties leading to their loans being put at risk. The lack of any structural financial support may be a non-issue, as the producers assert, however the follow on consequences of diminishing working capital and exposure of their chronic overproduction, unprofitability and specious accounting were exposed as the cause of the industries demise. They managed to keep things quiet, except for one annoying blogger, for decades prior to this slip up. The long term effects of ignoring the need to remove the unprofitable production from the market, since at least July 1986, has been systemic and tragic throughout North America. Let's be reasonable, simply managing the oil and gas business as all other industries and businesses do, by managing the unprofitable overproduction and excess inventories would have seen OPEC’s repeated declarations of war never occur. Here’s a few questions: would OPEC’s declarations of war affect North American producers if they produced profitably everywhere and always? When bureaucrats are happy with their take of $1 to $2 per boe coming off the top, do they really care if the full price realized is $40 or $140 or where the rest of that money goes! 

The legacy of non-performance is a bureaucratic asset that provides an ease and comfort to them. To suggest that People, Ideas & Objects have a plan, a strategy, a business model and hope for the future of the industry, fails to pass as interests to those in the rarified air of the C suites and Boards. We know that oil and gas is subject to a never ending increase in the underlying cost of exploration and production. This cost increase affects not only the pursuit of new supplies in technically challenging areas but also the recovery of the remaining resources in place. The escalating costs are a result of the ever increasing technical difficulty of earth science and engineering effort involved in each incremental barrel of oil equivalent produced. Which is translated in the service industry with increased effort and time necessary to release the resource. With People, Ideas & Objects Preliminary Specification ensuring that all production is produced profitably everywhere and always. These escalating costs of oil and gas are captured and covered on a day to day basis as an inherent part of our business model. Everywhere and always. Note too that the $1 to $2 bureaucratic burden we just discussed would be removed from the equation.

What we know is the petroleum reserves are there. Today they are worthless as they require cash in order to be produced. They are a drain on society. They’ll need a new approach in order to build the value that will be necessary for the industry to move forward. The rest of the infrastructure has been designed and built in an era when, metaphorically, the America’s Cup was generating speeds just above the speed of the wind. We can do much better. We certainly won’t be getting to that higher performance trajectory on the “muddle through” and “do nothing” strategy of the current bureaucrats. That should be obvious. We also know the retirement of the unrecognized capital costs of past production, the reclamation costs and the costs of rebuilding and refurbishing the infrastructure need to be done nonetheless, these will not be financed by investors or banks. They’ve already paid for them, and they would be foolish to pay a second time. When an investor invests in a business it’s generally understood that their investment would generate a number of “things.” Those include dividends, reductions in debt and the funding of future capital expenditures. After they collapsed the commodity prices, these aspects of the oil and gas “business” were diverted to feed the hungry bureaucrats with their “innovative,” excessive, executive compensation. Investors would be interested in knowing how their oil and gas reserves are going to pay for the recapture of unrecognized capital costs of past production, reclamation, rebuilding and refurbishing of their infrastructure. We do not need this rebuilding process to be short changed by the bureaucrats diversion into clean energy. It is here that we can begin to see the real cost of the management failures and the absolute capitulation of responsibility with the bureaucrats viable scapegoat of moving to clean energy as a diversionary fraud. This loss of faith, trust and credibility in the bureaucrats is maybe what we should call the producers' sixth crisis. It’s not that I’m numbering these in any particular order, it's just as they’re mentioned they take the next number in the series. These crises were documented in 2020 and are summarized as follows. 

Crisis # 1,

The chronic overproduction and oversupply of oil came home to roost. Since July 1986 we’ve documented that the same issue has plagued the industry with no response or recognition from said bureaucrats. It was the financial crisis in late 2009 that saw the natural gas prices follow the same footsteps of chronic overproduction and oversupply that collapsed the North American oil prices. 

Crisis # 2

The second crisis was the effect that the virus created. Who would have thought that a pandemic would affect the most vulnerable industry? Certainly not the always unprepared bureaucrats.

Crisis # 3

The third crisis was the prediction of mine that there was going to be a looming debt crisis about to play out as soon as the October 2020 bank reviews were completed. Producers are heavily indebted. That’s based on their published financial statements. If we accept People, Ideas & Objects arguments that most of the costs in property, plant and equipment are in fact the unrecognized capital costs of past production, adjust for this with a pro-forma adjustment of 65% of property, plant and equipment to depletion. These producers are in a debt situation that will be terminal to many and action will be precipitated by the banks review. I see the consolidation trend playing out as a defensive strategy to offset the bank risk.

Crisis # 4

The bureaucrats fourth crisis is nothing other than the virus induced OPEC+ reductions in oil production of around 8 mm boe / day. This surplus capacity, with the unknown surplus capacity they had prior to their declaration of war on the North American producers is a dead weight on the price of oil for at least a decade. This of course does not consider the doubling or tripling down of the praying that has been done recently by the bureaucrats. We saw towards the end of 2020 Russia begin to assert their desire to increase their production. Strategically and tactically if they were in a war with the North American producers, their sense of timing is good.

Crisis # 5

A fifth crisis will come about when the capacities and capabilities of the industry, and what the producer once enjoyed, are no longer available. The retirement of the knowledge base of the industry has been undergoing for the past five years has been at an accelerated basis. The service industry has been cannibalizing their equipment and the people who once worked for them have found stable work in other industries. The reputation of the industry is the money is good at times, the stability however is unable to support a mortgage or family. Recently we heard the identification and utterance of a new viable scapegoat that went like. “Current employees have been poorly trained, this new generation is not as good as the old.” There is no depth to the bureaucrats capacity to point fingers.

Crisis # 6

We also identified that the risk to bureaucrats accelerated when we noted in our June 2, 2020 post the potential scenario in which their insurance providers may trigger the future withholding of coverage of the directors and officers liability policies. We then noted in a Reuters article that this knowledge was taken as fact by bureaucrats and they immediately increased their coverage by 70%. Implying a guilt and culpability in the bureaucrats documented actions. Triggering what I believe to be a systemic and complete lack of faith, trust and credibility in management by their investors. If the overproduction issue has been documented to be in existence since at least July 1986. And the Preliminary Specification has been available since December 2013. Why have the bureaucrats not undertaken their fiduciary duties?

Crisis # 7

Joe Biden. This will become the producer bureaucrats new, favorite viable scapegoat for the next four years. Nothing will be able to be done due to the bureaucratic nightmare they're being exposed to. There is nothing more that a bureaucracy loves than facing a government bureaucracy. If the industry is unable to progress in the next four years. I suggest we develop some software and organize ourselves as proposed in the Preliminary Specification for the desperately needed work that will follow Joe Biden. 

It was recently announced that 26 Republican Senators wrote a letter to ask for a meeting about the White House's Executive Orders regarding oil and gas. Seventy five percent of the deplorables believe that the presidential election was stolen. Evidence exists of severe Chinese government influence in the Biden family. The Democratic party is seeking to silence any opposition and deprogram these "white supremacists." And Republican Senators sent a letter!

When you don’t tend to your garden the weeds tend to steal the nutrients from what you expect to eat. The culling of the weeds in the industry would be the prompt removal of the bureaucrats. In light of these current and looming crises. A weed infested garden is an excellent analogy of the situation. The capital costs that investors have already paid for and are essentially resisting the bureaucrats request that they fund for a second time. Assets should generate a return that would have the capacity to maintain them in commercial condition. Secondly there are the reclamation of the assets that have been in service for their entire useful life. These costs are accelerating and are being monitored closely by the governments, environmentalists and John Q. Public. They will be hard for the producers to ignore. It will also be difficult to convince any investor or banker that producers will have any capacity to generate a return that will support further investment into their organization after reclamation costs are considered. And lastly those rebuilding and refurbishment costs will be done on someone else’s dime, not the investors and bankers. With new issues such as aging of the assets, rebuilding capacity increases and new technologies the producer bureaucrats can also view the landscape of devastation they’ve caused throughout the greater oil and gas economic structure. Bringing industry giants like Schlumberger and Baker Hughes back will be a task that will not happen serendipitously no matter how much praying is done. Bringing in new talent and training them over the long term…

Oh wait a bureaucratic just called, (facetiously of course) they’ve found even more drilling locations!

The Preliminary Specification seeks these funds from the price of the commodity. The consumer is the only source of funds large enough to approach these needs as we’ve identified them. Our value proposition is broken down into two components. The first is the demand for future capital, reclamation, rebuilding and refurbishment costs and are estimated to be in the range of $20 to $40 trillion. The second component is the $5.7 trillion in pure, incremental, and real profit, the kind that you can take to the bank. These funds can only come about with a mechanism that allows for a fair and reasonable method of production allocation across the continent. That is our decentralized production models price maker strategy. If these costs don’t get passed on to the consumer the industry will continue to operate as a charity with no donors. That’s opposed to what they’ve been these past four decades, a charity with fraudulently deceived donors. 

It’s alway good to look on the bright side and there’ll be plenty of work for everyone. Even the bureaucrats. They’ll be busy defending themselves in litigation from those that they deceived, aka as their prior investors. But as we noted last summer, there could also be a new class of litigation for them. Their insurance providers may have felt deceived when the industry began increasing their coverage by 70% after I had detailed the issue was present since July 1986 and our solution, the Preliminary Specification has been available since December 2013. Insurance companies may want to know why producers increased their coverage in July 2020 after I pointed out their lack of fiduciary duty and risk on June 2, 2020?

As for the rest of us it may seem like an impossible job, but that’s the fun part. Instead of walking around in the mindless sludge of “muddle through” for another bad year in an endless string of bad years in oil and gas. We’ll be focused on performance in order to provide the rebuilding of the industry to what we all know oil and gas could and should be. A bit of a different vision. Negative prices in April 2020 will be last year's news and we can all laugh at how bureaucrats had their satellite based Rube Goldberg machines analyzing shadows of floating tanks and crunching out paper that predicted absolutely nothing. Such an elaborate system, employing how many, that could not foresee negative $40 oil! Very effective. Bureaucrats will never take responsibility, they’ll never act in anyone’s interest but their own. They’re conflicted and compromised as all bureaucrats are focused on themselves. We should not expect anything from them other than the few words they’ll get in edgewise when we toss them out. We’d be fools not to and they certainly don’t deserve any more chances.

What we know is that we face great difficulties in this industry. We are standing on financially unstable ground. Our capabilities and capacities are diminished and the leadership of the industry hasn’t been seen in over four decades. The three costs that we’ve identified, the recovery of the unrecognized capital costs of past production, reclamation, rebuilding and refurbishment costs will swamp the demand for capital for productive operations. Productive operations being new business. What should be clear in this series is that our solution provides the resources necessary to cover all of these costs from the only source large enough to provide that scale of financial resources, the consumer. By invoking our decentralized production models price maker strategy the industry can insure that all production is produced profitably everywhere and always based on a standardized, actual, factual accounting. That these costs will be returned to the producer firm in the form of cash to be redeployed again and again. Bureaucrats believe investors will provide the capital for these costs and their unauthorized use of oil and gas revenues to fund their diversions into clean energy. People, Ideas & Objects ensure there is no longer any need, and certainly no ability, for the investment community to expand, or is it “build the balance sheets” or “put cash in the ground” totaling $20 to $40 trillion dollars and wait for the day when… 

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

New Cost Structures, Part III

 When reviewing the Preliminary Specification some producers claim they have all those noted aspects of our software in operation within their organizations. And I’m sure that they do. Just as they use landlines to conduct all of their communications. That revolutionary communications with new forms that are superior and more effective exist in the market doesn’t matter, they have it all covered. With new methods in the form of email and smartphones, producers are essentially claiming they have corporate communications covered with their switchboard operators. This is to go along with their manual and spreadsheet based accounting processes. What we know that producers do not have in 2021 is they don’t have any money, they don’t earn any money, they don’t know how to make money and no one will give them any money. A viable business model doesn’t exist. Other than the Preliminary Specification they have no prospects of making any money. The bureaucrats, the C suite and directors, are fine however and they thank you for asking.

In addition to our business model finally recognizing the unrecognized capital costs of prior production and reclamation costs, there is also the rebuilding and refurbishing costs that will need to be done across the North American continent. As with much of the infrastructure that will be retiring which is leading to the reclamation costs, there are many facilities and assets that will be falling into the category of requiring significant capital investments in order to be upgraded, repaired and refurbished. Facilities and production that will remain operational for a decade or more, but must be brought up to code, to standard and to deal with the reality of the configuration of the oil and gas industry as it presents itself in the very near future. The area of electrical and electronic equipment upgrades has been a constant in the industry. These costs will take on a new urgency as the possibilities of the Internet of Things and other IT initiatives become viable, profitable additions to the asset mix. 

This will not be done on the basis of the spending frenzy that has driven the industry for the past four decades. Long term profitability will be the objective and that will invoke new dynamics, such as innovation. Today is the end of the working month of January, a time which also saw the start of the America’s Cup Challenger Selection Series in New Zealand. This year they’ll be racing the new AC75 specification which is truly an innovation that must be seen. Capable of exceeding the speed of the wind by up to four times, these yachts are impressive for their technology and their application. A key to this year's America’s Cup specification is the somewhat loosening of the regulations in terms of what teams were able to bring to their boats. On the one hand the Preliminary Specification provides the oil and gas industry with the capacity to produce oil and gas profitably everywhere and always. To my way of thinking it also provides the ability to metaphorically move the industry from sailing at a little over the speed of the wind to today’s innovative four fold performance. Providing assurance to the consumer that innovation in the earth science, engineering and elsewhere are the core of the producer organizations and industry at large. Innovations that provide for a secure, profitable, domestic supply and innovations that ensure consumers energy consumption is achieved at the lowest consumer prices. Innovation is not a happenstance occurrence. In racing, innovation is the source of winning. What People, Ideas & Objects learned in our research into the Preliminary Specification was that innovation was as much about the structure of organizations and industries as it was about anything else. The application of the necessary ingredients to facilitate innovation within the producer organizations and throughout the industry was purpose built into the 12 modules of the Preliminary Specification. It is these organizational constructs that will enable producers to innovate on the scientific basis of the oil and gas business and expand the performance and productive capacity of their organizations and the industry. Then again however, People, Ideas & Objects are the pariahs of the industry for thinking of profits and innovations.

Much of this innovation, as it always has, will be conducted outside of the producer firms themselves. Producer bureaucrats spin stories of how they’ve innovated. Yet we have strong evidence that their ability to get up off the couch and do something regarding an existential threat to their organization is not a motivating force even after decades and decades. The innovations will come from the service industry once it’s purposely rebuilt with the financial resources that producers will have generated and provided for the rebuilding of the service industries capacities and capabilities, which are currently atrophying at remarkable rates. In addition to proving to the rest of the world that oil and gas is now responsible for its own business and can take care of itself, by itself, they’ll be able to show solid profitability on top of the rebuilding exercise. Therefore the rebuilding and refurbishment of the industry doesn’t take into account just the physical infrastructure involved in the production process. It also involves the rebuilding of the service industry and the credibility within its own domain of operation. Such as geology and engineering, field operations and head office staff. Recognizing the scope and scale of the issues that have been caused and the fallout consequences of the bureaucrats' greed and ignorance, I’ll stop describing them there, it is going to take much effort for those that have this rebuilding and refurbishing process to undertake. 

And therefore that’s the opportunity. Using the assets and revenues that exist today we can turn them profitable by building and implementing the Preliminary Specification, generate the cash that is necessary to undertake these noted tasks with the previously invested “cash that had to be put in the ground” to “build bureaucrats balance sheets” and realize these capital costs for what they are, the unrecognized capital costs of past production. Use this cash for the purpose of rebuilding and refurbishing the industry infrastructure, the service industry and everything else that has been thoroughly damaged and to do so in a way that provides real value to all concerned. 

But that’s not all. The service industry are the real innovators who have brought the technologies to the field. We’ll need them to also bring with them the application of Information Technology to what it is they do and build out the Internet of Things as it applies to oil and gas. People, Ideas & Objects uses specialization and the division of labor at high levels to move the performance trajectory of the industry to a higher level. This can also be brought to the forefront of the service industry with their addition of IT. We are bringing about the means to innovate and set in place the foundation in which automation of the business processes in oil and gas can be conducted. These will also be done with the service industry as we’ve spelled out predominantly in the Resource Marketplace module of the Preliminary Specification but also in the Research & Capabilities and Knowledge & Learning modules. 

Doing this in the next quarter is not the plan. People, Ideas & Objects looks at the long term horizon of 25 years in which we can realize the full potential of our value proposition of $25.7 to $45.7 trillion. There isn’t much argument these days about these numbers. They’re easily calculated today when one sees just the current devastation that has occurred in natural gas this past decade. If it's not clear today, wait a year or two and it will be. All one has to do is extrapolate the bureaucrats business model out 25 years vs. what the Preliminary Specification provides. Today I feel it contrasts the dearth of the bureaucrats' understanding of the business that they’re in, but also their lack of a basic understanding of business. 

It’s easy for me to sit and cherry pick the advantages of our model over the business model of the bureaucrats. So let me elaborate. It was on July 26, 1986 The Calgary Herald had two articles entitled “OPEC Minister Can See Economic Destruction” and “Return to Glory Days Unlikely” were published. (Paywall, newspapers.com) They document the difficulties in the industry at the time. They show that what ailed the industry then is the exact same as what has ailed the industry for every day since. That which has fundamentally destroyed both oil and gas. It has been 35 years of pious bureaucratic mismanagement that has refused to accept reality due to it being against their own personal vested interests. Not to add further insult to injury though, it was over seven years ago in December 2013 the Preliminary Specification was published in its final form. There have been some additions here and there, but nothing material, nothing has changed with respect to the subject matter of dealing with the issue that was present since at least July 1986. I did point out the facts regarding these two dates to the bureaucrats last summer at which point they jumped into action by increasing the value of their officers and directors liability insurance coverage by 70%. Implying a guilt and culpability in their actions, and for anyone thinking that they were incapable of action, we see in this that they are as long as it involves them. 

What is and should be abundantly clear is the oil and gas business has fallen on hard times as a result of the self serving and misguided adventures of the producer bureaucrats. They have lost control and are unable to see the situation in a clear context or what is necessary to remediate the issues causing their difficulties. They’re in over their heads and they’ve been exposed in terms of the scam and the fraud that they’ve perpetrated for the past four decades. Moving away from the industry into the “clean energy” and “zero emissions” industry is a continuation of the scam for their personal benefit. Unaccountable and irresponsible in oil and gas they’ll capitulate there to move to an industry that has not performed at any point in its existence. Even with abundant government subsidy and support. That won’t be their concern as they’ll have the oil and gas revenues to fall back on and prop up the failing businesses they’re pursuing and to continue to leech off the shareholders that provided their funds for oil and gas in good faith. This is unacceptable and without a whisper of authorization these decisions were made in the dark of night without the shareholders knowledge or approval. Bureaucrats may feign that they’re operating on the basis of the demands of the shareholders that expect this transition to clean energy. Generating fake news to support their claims, however, never before has such a hijack of an industries prosperity, as reflected in its revenue stream, been diverted at the whim of a CEO who feels the quarterly report needs to have some distraction to cover for the abysmal financial performance and scam these bureaucrats have orchestrated. 

We’ve now documented three key expenditures that are massive in scale which contain the implication that they’re unable to support a future return on investment of the producer firm. In fact they’ll have to, in the case of the bloated property, plant and equipment, be required to perform in order to pay past shareholders what they are entitled to. In other words they’ll be a drain on the producers profitability in the future to pay for past promises. These three costs will rob them of the cash that they’ll be required to use to build out the industry in the vision of Preliminary Specification, therefore making their plans in clean energy untenable. In other words the cupboards are bare and they’ll be bare for the next decade. Any cash that does show up will be needed for seven different reasons just in the oil and gas business. My only recommendation is to cut the high costs of overhead immediately by disposing of these bureaucrats who have proven they have no wherewithal to deal with the issues they’ve caused. Issues that were well quantified in July 1986 and have been present every day since. And the solution as represented in the Preliminary Specification as it has stood for the past seven years. When we lose these bureaucrats, we gain the ability to begin rebuilding the business, stop the diversion of monies to industries that are of no interest to oil and gas and cease the leakage of cash out the back door. 

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

New Cost Structures, Part II

 I want to start this second post of our cost structure series with a comment that needs clarification. I’ve repeatedly noted the amount of time that I’ve been working on bringing a solution to the industry and the zero support that I’ve received from industry. Maybe I’m wrong in my approach, I don’t know, I’ll know in the future. Why I raise these points is to highlight the opportunities and timeliness that producer bureaucrats have forsaken. And to contrast their lack of action. I’ve been motivated to do this work and am very satisfied with what I think I’ve accomplished, the timeliness of the solution, the opportunity to resolve what can only be described as the largest issue in oil and gas, ever, and set the industry on a path to profitability. Altruistic and deluded, probably, but I enjoy what I do to the extreme. Lately, it has taken on an even greater appeal to me and I’m having found what feels like a new approach to this work. 

Our second major cost category that People, Ideas & Objects sees escalating uncontrollably in the very near future is none other than the reclamation costs looming on the horizon. We expect these costs to escalate and make up a noticeable portion of our value proposition which we’ve valued in the $25.7 to $45.7 trillion range over the next 25 years. These are somewhat new costs as the fields where oil and gas production began are beginning to be retired and the volume of retirement of these fields will increase as time passes. Producers have been forced to account and to set aside provisions for reclamation costs by the various regulators of the areas in which they operate. However, as we all know and understand, these provisions would be classified as inadequate to fulfill their purpose. Methods have been employed by the producers to try and avoid these upcoming costs and some of the various governing jurisdictions are beginning to deal with the producers who are developing such “innovations.” The key here is that these costs are going to be significant. The point that I want to make is that the material nature of them is one area of concern. The second is that these cost’s capability to attract a return on investment is zero, they are a drag on the producers activities and will become more evident to everyone as time goes on. Especially evident to any prospective, future investors that today’s bureaucrats may have thought they might be able to rope in. 

Without the capacity to deal with these costs in their high throughput production model. Today’s oil and gas producers will incur them at the expense of their alleged “profitability” however specious that number may be. The only alternative is the Preliminary Specifications decentralized production models price maker strategy that will have profitable production produced everywhere and always. Profitable from the point of a view of a reasonable accounting for capital, operations which would include reclamation costs, and overhead. Although it would be reasonable to suggest that the producer has benefited from the production of these fields that need to be reclaimed, it is also the consumer that has benefited the most from the oil and gas they have been able to consume. Therefore passing these costs on to the consumer as they’re incurred is the only reasonable method for the producers to maintain their “real” profitability as People, Ideas & Objects define it, and to deal with these escalating reclamation costs. It will be the consumer that will demand that the land be reclaimed to pristine condition and consumers will support the environmentalists in these endeavours. It is therefore reasonable to assume that the costs of reclamation and the environmentalists requirements will be passed on to the consumers as they’re incurred. Investors are not going to bite in the current bureaucratic business model that sees investors being annually called for this cash, and exposed for the liability and litigation of reclamations non-performance.

With the high throughput production model, which producers currently use, they produce at 100% everywhere and always. This is in order to cover as much of the high overhead that is necessary and incurred in order to produce at full capacity. With the introduction of shale based reserves to an already decades old toxic model of chronic overproduction and oversupply, or as we define it unprofitable production, global markets for oil and gas commodity prices have collapsed beyond what will remedy themselves. Any discussion of higher commodity prices with this model in place is as specious as the producers financial statements. Hoping and praying for higher prices has to be doubled or tripled down on or alternative solutions need to be deployed. OPEC+ have reduced their production by 7 million barrels per day due to the virus. We are unaware what surplus capacity they had, and importantly could now have, prior to this covid induced reduction. Of note and significance is that crude oil futures are $52.80 for April 2030. Natural gas prices on a global scale will not be remediated without deliberate and sustained effort within the United States over the course of many years. According to the commodity futures market, natural gas prices, primarily due to U.S. shale gas production, has obliterated any hope of commercial gas prices for at least the next decade. Without active intervention to remediate the market and return it to profitable pricing this situation in natural gas will not change. Depressed pricing in North America was the issue a few years ago. The world’s prices for natural gas remained profitable. This prompted the LNG buildout on the Gulf Coast. The oversupply in North America then spread across the globe to where the natural gas prices for LNG are at times inadequate to pay the shipping costs. Who would sit and do nothing in the face of such destruction and dismal future prospects when the Preliminary Specification offers the alternative? We’ve seen through the obstinance of the bureaucrats that they will not change. This bureaucratic obstinance is now into its second decade, or maybe that is better expressed as it's second decayed. 

The Preliminary Specifications decentralized production models price maker strategy enables this oil and gas price remediation to occur through use of the commodity market mechanisms. By realizing that oil and gas are subject to price maker characteristics and that by only producing what can be produced profitability, ensuring that all costs are included in a fair, objective, standardized and reasonable accounting, can producers begin to generate the financial resources necessary to operate the industry as needed, but also remediate the commodity markets and stabilize them by removing the boom / bust cycle and pay for the looming reclamation and other costs we’re detailing here. Managing product inventories to ensure that overproduction does not destroy prices in business is about as American as apple pie. Yet the producer bureaucrats believe it to be something evil. Or, it’s just they’ve personally never had it so good under their current method. They also assume that the “market” will take all the production they can give it, which sort of defines the ridiculous nature of this issue and my discussion. For them “markets” are magical.

As we documented last summer OPEC have been attempting to work with North American producers since at least July 1986. Their inability to do so has led them to employ their last resort of declaring a number of price wars. Their last declaration of war occurred just before the virus. Inaction through the muddle along strategy has been the de facto, unanimous procedure that has solved all of the North American producers problems since 1986. However any of the issues bureaucrats may have felt were resolved by their inaction were only deferred, and assuaged by investor cash and now those issues cumulatively stand as an existential threat to their organizations and the greater oil and gas economy at large. A threat that they refuse to acknowledge or deal with. And now with these previously ignored and unidentified reclamation costs building, as just one of many aspects of this threat, their business model is unable to proceed without the structural capital support of their investors and bankers due to the critical loss of faith, trust and credibility that would otherwise be needed. It’s good to recall however the bureaucrats are fine, and they thank you for asking.

To address this requires the type of plan and strategy that the Preliminary Specification provides with profitable production everywhere and always. Alternatively and finally, bureaucrats announced their own plans and strategies during the fourth quarter of 2020. We haven’t heard from everyone yet, however, eventually we will as they begin to see the effectiveness of the plan and strategy as laid out by BP, Shell, Total, and to a lesser extent Exxon being welcomed in the media and John Q. Public. These plans include nothing other than the permanent movement away from dirty hydrocarbons to clean energy and zero emissions. Which kind of solves all these bureaucrats problems doesn’t it? I suggest we suspend their administration post haste and ensure that they achieve their objectives immediately. That is we take the oil and gas revenues and assets away from the bureaucrats and spin them off to the shareholders who paid for them. That way bureaucrats can approach their new business plans with a clean slate and start anew. Feel the fire of the entrepreneurial spirit burn as their ideas are met with the reality of the bleak revenues they generate.

One of the methods that we’ve seen used throughout the years to deal with the reclamation costs here in Canada has not been that innovative. Although it ultimately proved unsuccessful in this transaction, it also seems to have awoken the administrative state to the inherent risks of oil and gas reclamation costs to society. The method was used by Shell regarding their Jumping Pound, Waterton and Caroline natural gas facilities. Caroline being in the high 90%’s of H2S. Jumping Pound was developed in the early 1950s, Waterton in the 1960s and Caroline in the 1980s. My father worked in the engineering department for Shell and I remember tagging along on some of his trips to Waterton while it was being built. Gathering lines were being welded and the place was abuzz with activity. To cross the trenches that were dug for the lines I was too young to jump across so I was just picked up and tossed across from one adult to the other. It was very interesting to me and a much different time than it is today. Selling these properties in a package to a very small oil and gas producer that the regulators didn’t think had the wherewithal to be able to operate them. Secondly, this may have been an attempt to avoid the reclamation costs that the Alberta government assessed at many hundreds of million dollars, and in this article regarding the transaction, some are speculating that Alberta may be currently facing $.5 trillion in reclamation costs. In this sense I guess it’s been fortunate that Alberta was nowhere near as productive as the United States. A review of the referenced document will provide a better understanding of the scope and scale of the problem just in Alberta. 

The story says a lot about where the world’s fossil fuel industry finds itself at this precarious moment, as it struggles to balance falling revenues against mounting environmental liabilities.

And

It’s not known whether Sorensen mentioned to O’Regan the findings of a 2018 analysis on the economics of exporting LNG from Canada. The Canadian Energy Research Institute, which is partly funded by the government, concluded any project would need at least a $100 oil price or $11.6 per million British thermal units over the life of the project to be viable. (The European Union natural gas import price is currently $2.12, a nearly 60 per cent drop from last year’s $4.90 per million British thermal units.)

Of interest is the article's noted distribution of risk of the reclamation costs to the various funding units involved in the transaction. If there was a failure of the producer these costs would fall to the remaining producers in the industry, based on the current model. Or society in general. It is the funding risk that one party experienced in this transaction that producers should analyze to determine if this will further disable their capital structures from being rebuilt in the future, if they should continue to muddle through without an answer on how their businesses will operate?

We noted the high throughput production model that producers currently use. Another aspect of that business model is cost control. Which is an engineering discipline derived from the efficiency objective. Oil and gas has become a science project with the dominance of the earth science and engineering people dominating the principal positions in the industry. This has become the culture for the past three decades with the business types taking a back seat behind the main receptionist, huddled in with the mail boy and switchboard operators. Cost control has been the only area of concern. That oil and gas is a business, and businesses are profitable are foreign concepts. Passing the costs of oil and gas exploration and production on to the consumers is considered abhorrent and the talk of the devil by the scientific culture of the industry. To paraphrase “there are investors who will help them build the business in whatever direction and to whatever size that no one knows or understands.” It’s an adventure and “you have to put cash in the ground.” To suggest that the costs be passed on to the consumer in a timely and accurate manner, and particularly the capital costs of a capital intensive industry, invokes shock and fear, but to those who suggest such hearsay, persecution.

Who benefits from oil and gas is a question that’s never asked. On a barrel of oil equivalent basis, society leverages that barrel into 23,200 man hours of labor. This is a phenomenal, unbelievable achievement that represents the brilliance of all those that have come before us throughout history. On a personal consumption basis the costs are lower than bottled water. It is therefore disrespected, abused and wasted without regard to its value or scarcity. If the prices were to triple or quadruple from today they would still provide the greatest value proposition of all time. Then they may even come to be appreciated as commodities of value and appreciate the work that is done to provide for them. Lunacy I know, but that’s why I like this job. Our movement away from hydrocarbons will be the death of our standard of living in a rapid manner. It is the most powerful economy that consumes the most energy, which today is China. Oil and gas is here to stay as our primary source of energy for the remainder of this century and any thoughts otherwise is highly regressive to our standard of living. This naval gazing about the future energy makeup is an academic exercise which distracts and doesn’t belong in the industry. Our role is to provide the economy with the most cost effective, yet profitable oil and gas production to ensure that North America reaches its full potential. 

Producer bureaucrats believe that the capital costs of oil and gas exploration and production have to be funded by investors. As these costs increase and the environmental costs escalate exponentially, lets search for those naive and stupid investors willing to pay the trillions of dollars for reclamation costs? No, lets first get rid of the bureaucrats, implement the Preliminary Specification, and start fueling the North American economy profitably. 

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.