Culture, Change, Failure

 It wouldn’t take too much to convince those last few people in oil and gas that the pace of business has far outstripped today’s organizational capacity of the producer firms and industry. It may seem as though our listing of producers current seven crises in our February 2, 2021 post, the overall existential issue the producers face as a result, the wall of costs we recently identified in our “New Cost Structures” series are all symptomatic of the speed of their organization. They’re unable to see, diagnose and deal with the issues and opportunities as they present themselves in today’s marketplace. The acceleration of business in 2021 vs. 2000 is quite remarkable and is wholly attributable to the capabilities and capacities of people’s productivity which has been enhanced by the maturation of Information Technology. The cultural, bureaucratic processes that functioned before are breaking down due to competing alternatives for the producer investors that are seeking “real” returns in other industries, people to find steady, rewarding work capable of supporting a family and a mortgage, etc. What used to work doesn’t pass muster anymore. When the world turns its back on you it’s not the time in which to radically change to new business interests such as clean energy. It’s time to focus.

It was in our May 2004 Preliminary Research report that we noted the work of Professor Anthony Giddens theories of Structuration. And Professor Wanda Orlikowski’s Model of Structuration. Structuration states that society, people and organizations progress together or there is conflict leading to failure. This conflict is evident in the failure of the North American based oil and gas producer organizations. Orlikowski’s Model of Structuration suggests that Information Technology is an element of society, that IT both defines and constrains an organization in terms of its capacity to change. People, Ideas & Objects suggested at that time the ability of the oil and gas industry to seek the changes that are necessary, it needs to develop new ERP systems such as the Preliminary Specification to enable their organizations change and acquire a software development capability for the future. To ensure that changes instituted by management hold they need to be made in the software first or the organization would regress back to the methods defined in the existing software. Bureaucrats rightly interpreted this to mean that if they never implemented the Preliminary Specification, or changed their ERP systems in any way, they would never be challenged in their bureaucratic methods of organization. It was late 2004 when they gleefully pointed out their analysis to me. Seventeen years later they’re finding once again it’s validity with their runaway crises management.

Information Technology (IT) is taking a front seat, and literally the driver seat, in terms of its role in society. As much as many people had suspected, it is both positive and negative with its power being exercised at will and in ways that were not what were contemplated or considered. Just as People, Ideas & Objects assert that it’s not enough to own the oil and gas asset anymore, producers need to have access to the software that makes the oil and gas asset profitable. The role bureaucrats have played in allowing this to happen is absolute. The damage and destruction they’ve caused is comprehensive, they’re responsible, were the authorized individuals that needed to act, and therefore must be held accountable. The outsized role that IT is taking in all industries and all organizations is comprehensive and probably more powerful than what the old guard, the bureaucracy are familiar with and used to. Since the bureaucrats haven’t made any of the necessary changes I don’t think they have much of a chance to make the transition now. Their culture is well established and would be more of a difficulty and obstruction to what we need to do. This is why organizational disintermediation is necessary, rip and replace has become the method of implementation and requirement for ERP systems. And to a greater extent the economic principle of creative destruction has been an effective tool in dealing with societal change. These are all revolutionary powers that don’t respect those that obstruct, or attempt to obstruct their path.

We’ve had a variety of boom / bust cycles in the IT environment. Economic fallout from the belief that this time IT was fulfilling its promise. This was best reflected in the dot.com fiasco that I think was triggered by the belief that Y2K was an issue. When it was proven to be a dud, people stopped listening to IT and the money for any initiative evaporated. Is this time different? Who knows. What I have done is sought to solve oil and gas business related issues as a result of their organizational deficiencies. That means ERP systems need to change. I also now believe that IT has had an overall maturation of the inherent technologies that the commercial enterprise employs. This has to do with the Internet and its implications, FaceBook was not what was considered to be part of the Internet revolution. As a result, it is time to embrace and extend what is commonly being discussed today as the Fourth Industrial revolution.

Aptitude and depth of knowledge necessary to fully comprehend the IT marketplace is more difficult than ever. This is possibly one of the difficulties that the bureaucrats are faced with. They don’t know or understand the technological implications and solutions that are available. At some point very soon the demands for specialization in IT, as well as the earth science and engineering demands in their own industry, will outstrip the capacities and capabilities that a producer can house within their own organization on a commercial basis. The scattering and dilution of the producers IT budgets within their organizations lead to redundant costs being incurred and replicated at each producer across the industry. Demanding producers fill out capabilities and capacities that are beyond the scope of what a commercial enterprise can achieve. Or maybe that is stated more effectively as beyond the reasonable cost that a producer should incur. People, Ideas & Objects have consistently criticized this as another of the reasons that the producers are systemically unprofitable. Their overhead costs in their current organizational configuration are unshared and unshareable. Each producer is building their own empires of accounting, IT and administrative purity without consideration of the costs or the redundant nature of each producer spending to build all of these same non-competitive capabilities. Recall too that all of these overhead costs are capitalized on the average of 85% to property, plant and equipment and do not diminish profit or cash flow until they’re depleted over the course of the next few decades. They are however one of the primary reasons for the producers chronic, massive and otherwise “mysterious” monthly cash drainage. Producers do not have these very high overhead costs included in the price of oil or natural gas and as a result are not recovered when products are sold and hence provide them with what is commonly referred to as a cash float. Money only goes one way, out. What is desperately needed is a new more effective and efficient way of organizing IT resources. A similar reorganization is one of the primary reasons for the success of cloud computing. People, Ideas & Objects have inserted themselves, our user community and their service providers as a sub-industry that sits between oil & gas and the IT suppliers. A sub-industry capable of communicating the needs of ERP systems to producers and the pure technological providers who have both proven their inability to know or understand one another.  

Two years ago bureaucrats were telling people who were interested in People, Ideas & Objects Preliminary Specification that they’d never implement the system as it was too radical of a change for them to consider. Which it was, their bureaucratic culture could never survive our implementation's transition and certainly nothing in that sense has changed in terms of their survivability. Unfortunately, their business has in addition not weathered the storm that the Preliminary Specification is designed to solve and their options have diminished substantially. What bureaucrats propose is to move off into clean energy and zero emissions which is the most radical business change they could have contemplated. Getting out of oil and gas to invest in windmills and solar arrays is not too radical of a direction just two years after suggesting that our oil and gas solution to today’s issues was? They can’t afford to do so. Having an industry subject to the chronic boom / bust is one thing, I am unable to think of another industry that claims this as a feature. Having the continental standard strategy of “muddle along” to deal with the “bad years” is another. If we use July 1986 as the point at which overproduction became a serious issue. It was certainly the point where OPEC had declared war. We are then in what I believe to be our thirtieth bad year out of the last thirty five. And the only thing that’s being considered is for two thirds of the producers to move into clean energy?

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. 

Bureaucrats Legacy, History and Reputation

 For all the years that I was focused on providing this solution in the form of the Preliminary Specification our user community and their service provider organizations, the bureaucrats could not have cared less due to the fact that they could not have cared less about the business. It wasn’t for them to determine its outcome, they were there for the money. Not until I pointed out the risk and cost to them personally of their past actions did they begin to act. As of last Monday February 22, 2021, the lawsuits began. They first went after Exxon with far too many actions to count. And then on Thursday Apache was the target, once again with far too many actions to count. I would ask these bureaucrats to remember that People, Ideas & Objects et al are the best friends they ever had as we have the solution to their problem. To remember our “issue mitigated, nothing litigated” (our January 11, 2021 blog post) as the strategy they can employ to avoid the risk to their personal fortunes they worked so hard to… I’ll work on that description for later. I see these lawsuits as the imminent possibility that they’re headed your way, whichever company you work for. You don’t have to wait for the knock at the door, they’ve arrived and there are literally an army of them. 

The bureaucrats' vision is and has always been cost control. In a way People, Ideas & Objects agrees with them that the reduction of overhead by eliminating their excessive executive compensation is a worthwhile pursuit. Many of these producers argue with me that they’ll be paying higher taxes as a result of the changes in the Preliminary Specification and it is here we agree again. What they’re saying is in order to avoid the payment of any incremental taxes their motivation was to destroy their organizations and anyone else's in the process of alleged prudence and cost control. We hear cost control echoed in perfect harmony across the continent and that it is the key to the oil and gas industries future. Cost control is not a comprehensive business model. It is a component of a sound organization and all organizations need to have that capability inherent in their internal controls and governance. However cost control is not and never will be a business model. A key element of the bureaucrats cost control business model was, and still is, to recognize every cost as an asset in property, plant and equipment and deplete those costs over the course of the next few decades. In other words defer the recognition of the capital costs of a capital intensive industry. People, Ideas & Objects believe that the capital intensive nature of an oil and gas exploration and production operation would also be reflected in the price of the commodity used by the consumer, not just operating costs. 

The producer's financial statements don’t reflect functioning companies in a functional industry. Producers carry the history, legacy and reputation of their actions over these past four decades and those are eloquently on display for all to see. The progression and steepening of the trajectory of their demise is also clearly displayed since their investors became wise to the bureaucrats' specious accounting methods and began refusing to fund them further. In “good times,” those years when investors didn’t understand they were the mark, investors were only disappointed to see the chronic dilution that they experienced, with each successive funding round reducing their interests. The verbal and written messages that bureaucrats sent to investors over the past number of decades is that “we are massively profitable, we just have a working capital shortage, please send cash!” “We’re building the business!” and my all time favorite which also happens to be the dumbest thing to say “you have to put cash in the ground!” These are the foundations on which the industry has been built, the legacy and reputation that the bureaucrats have rightly earned. The one in which the future of the industry will be all that it can be as soon as the investors realize their brilliance and return to provide the spigate of cash once again. Except, even with the methods of full cost accounting, the claims that were made when taking those financial resources from the investors are not reflected in the financial statements that are presented today. They are worlds apart from a successful, profitable organization that would have existed today if what was claimed then had proceeded to today. Where is the cash, where are the profits?

What are the issues? The bureaucrats believe that everything is fine. They don’t understand why they have no support from the investment and banking communities. “Don’t these investors understand there are reserves out there?” Yes they do. And they know that the industry has been incapable of generating the value necessary to support itself independently. The need for outside capital is not for growth or investment, it's primarily for the excessive executive compensation that is now legendary throughout the business community. They know that profits don’t mean what they understand the word means. To investors oil and gas profits are just a number based on an opinion of what best reflects the CEO’s sincerity that year. What investors do know is that outside influences who are attempting to identify and resolve the industries issues have been shunned and ostracized. That self reflection by the bureaucrats is not a characteristic that is present and it appears they can only reflect the high and mighty, pious opinion of themselves. 

The common complaint I get is these are all accounting issues. And yes indeed they are. They are also the bureaucratic legacy and reputation that reflects the performance of the organizations over their lifetime. So instead of getting into the nuances of the social science of accounting, something that is a regulatory requirement of all organizations in North America I’ll deal in facts instead. The overall business objective of the bureaucrats has been what? I can only assume it has been to build the greatest science experiments known to mankind. Again I could be wrong, but let's stick to the facts. 

We’ve now documented in our recent four part New Cost Structures series the “costs” that bureaucrats will be unable to control in their future. These are the unrecognized capital costs of past production recorded as property plant and equipment, rebuilding of the physical infrastructure across North America, refurbishment costs, the need to fund the rebuild of the service industries capacities and capabilities and the unknown costs of reclamation. All which produce zero return on investment and therefore will need to be “borne by the producer” as they will say. Let's be honest, that means passed on to the consumer. This being one of the key features of the Preliminary Specifications decentralized production models price maker strategy. If the costs of exploration and production are not passed onto the consumers then the consumers are receiving a direct subsidy from the investors who invested in oil and gas. Those investor subsidies accurately reflected on each and every one of the producers balance sheets as property, plant and equipment. Investors paid for them and they’ve never been accurately passed on to the consumers. If the culture, the business model, the remedial effort of the producer bureaucrats since the investors left won't appreciate or understand the need for any change, or to make the industry a commercial enterprise, why would investors return? Muddling through is very effective when you have the continuous cash flow from a capital intensive industry. The ability to “earn” that excessive executive compensation each and every day is as simple as never getting up off the couch or answering the phone. And whatever you do, just don’t pay for anything or anyone else. This more than anything is the culture and meaning of “muddle along” in oil and gas.

Other than the further pursuit of the ultimate science experiment what is it that producers are offering anyone in the industry. From the investors point of view we have to bring up the banks. Leverage was well understood and fully utilized in the industry throughout the past three decades. Build up the debt as high as possible and when the stock is worth much, much more, use the new equity to service the debt. Either through the payment of the debt or to just offset the leverage. For the larger part of the last two decades the interest rates have been menial and the ability to increase the indebtedness has far exceeded the scope of reasonableness. On this basis alone the oil and gas producers are heavily indebted and over leveraged. Shale has also expanded significantly the amount of oil and gas reserves that a producer can book as proven reserves, the basis of the banks evaluation of debt worthiness. Three aggravating factors have been on top of these once in a lifetime anomalies that have seen leverage expand to excessive levels. These are, 1) the losses that have been incurred even under the specious full cost accounting methodology, 2) the lack of access to equity capital has disabled the continued deleveraging that would have occured and 3) banks continued to lend until most recently. As we noted the other day, with the expansion of debt and losses, some producer shareholders equity has been eliminated by these losses. Leaving the situation where bank debt is now higher than what the reserves value as reflected in property, plant and equipment is. People, Ideas & Objects, on top of all these aggravating issues, recommend a pro-forma adjustment be done prior to the evaluation of any of the producers financial statements. Understanding our argument regarding property, plant and equipment is best described as the unrecognized capital costs of prior production. The pro-forma adjustment sees 65% of property, plant and equipment retired to depletion. This will better reflect the producers past performance and what the organization has in terms of a formidable future and the prospects of its performance. 

Banks have recently publicly expressed their disappointment with the producers actions and we are currently unaware what the results of their October 2020 reviews are. The declaration of excessive executive compensation in the form of bonuses minutes before the declaration of bankruptcy is unique and disconcerting to them. The inclusion of the unused portion of the line of credit as part of the working capital available or cash on hand is a stretch of reality and a distortion of the health of the producer. Seemingly a continuation of the methods used to bring us to the imminent financial collapse of the industry.

The preceding shows that from a new investment perspective this would be a no go zone for the remainder of these producers' existence. If they could deal with the issues around their past financial performance, something the bureaucrats have feigned no knowledge or understanding of, the debt would need to be serviced. Any one of the six crises that we mentioned in our last post would further skew the risk of any investment beyond the tolerable level of the capital market. A market that is currently quite satisfied with the continued exceptional performance of other industries that are now defining what the expectations of these producers' performance needs to be. 

This level of performance is not the legacy, history or reputation of the bureaucrats. Theirs is one where they’ve personally feasted at the trough to create their own personal dynasties that will provide them with the healthy alternative when all is gone. Profits were inflated through specious accounting since the late 1970s. The producer as it stands today is an empty vessel at the absolute very best. The industry has been hollowed out of any and all value after four decades of mismanagement. A management that does not understand its issues, the meaning of profits or damage and destruction from its muddle along culture. Facing a stack of trillion dollar costs that have been unaddressed and are escalating uncontrollably. A business model that expects new investors to pay for them, only to be washed away, initially through dilution and then through their well designed bankruptcy wash cycle. It is indebted in a way that leaves nothing for anyone but the banks, and even the banks won’t care for it. Buying the producer firms shares means that you get to “share” in this misery with billions of others who wait, for what is unknown that no one in command cares to utter or define. Metaphorically this is the car at the side of the road in the middle of nowhere, the engine smoking with oil that has been trailing from the engine for the past several miles. The seriousness of the situation I can not express. 

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Parler or Gab @piobiz, anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

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

 We’ve covered some good ground in this brief series on how we’ll be successful. Profitability is what brought western society to the level that it has and is the only mechanism that can provide for our prosperous future. Diversions from that objective are the constant that has caused us difficulties throughout our history. Once profitability is gone however we generally and quite quickly find our way back. The investors' role in triggering that change in North American oil and gas began in 2015. The difficulties that producers are experiencing are due to the investors lack of financial support that they became wholly dependent upon due to their chronic unprofitability. Six years is an abundant amount of time to proceed without the support of the investment community. It usually doesn’t take that long for an industry to realize its off balance and needs immediate action to remedy their issues. Oil and gas is different due to its capital intensive nature which creates large cash flows from its prior investments. Allowing those in control to conveniently ignore these messages for the short term. We’re now moving into the mid-term and the immunity that was being enjoyed to this point has waned significantly. There is serious financial distress that’s been aggravated by this period of expanded inaction. What the producer firms officers and directors are experiencing at this point is not what they signed up for or pledged their personal assets to. The aggravating factor for them is that too much time has passed for them to have not acted and the damage has become more extensive. Attaching a culpability and guilt to the fact that they didn’t act. It will be of no difficulty for People, Ideas & Objects et al to express the need for profitability everywhere and always in North American oil and gas for at least the next generation. Everyone will now be able to relate to what life was like when profitability was ignored and falsified through specious financial statements.

No one’s going to participate in any upswing from what’s currently happening, thanks to our good friends the bureaucrats. Ignoring the overproduction issue since at least July 1986 and covering it over with any number of excuses, blaming and viable scapegoats has been taken to the level of an art. All with the magic of specious interpretations of SEC regulations that were never intended to state what was alleged and published in the homogenized financial statements of North American producers. These being enthusiastically cheered on by their sycophantic “chesters” as I refer to the audit firms who were supposed to be there to stop such lunacy. Creating the overall culture in the industry that became so obscene as to parrot in absolute harmony that “building balance sheets” and “you have to put cash in the ground” as the organizational objectives. Are these the organizations we want to put our money down on and risk the future with? However, on a more objective basis what do they offer. Deteriorating working capital with most producers reporting chronic negative working capital. Retained earnings that haven’t been seen for decades, replaced by retained losses that exceed at times the total shareholder value and in some cases the liabilities too. But look at those accounts of property, plant and equipment! Every cost that was ever incurred, that is except royalties and operating expenses after the SEC caught onto that charade with PennWest, has been added to that account to blow that up as fast as possible. We recommend a 65% Pro-Forma reduction in property, plant and equipment to be written off to depletion to better reflect the proper performance of the management of these assets. Therefore making the debt outstanding achieve stratospheric proportions in terms of leverage. Alternatively you could line up behind the billions of other shareholders that were signed up during “the good days” in the industry and make out like a bandit with that alleged upside and your 0.0000000001% of the company. There is an abundance of riches for everybody who wants to participate in oil and gas. It’s just I don't know where you can today. 

As we’ve noted in this series. We offer a reconfigured industry, based on new ownership, new business opportunities, in new producer organizations. The way the producers are configured today, their banks readily see the process of bankruptcy has become a critical part of the bureaucrats business model. Where the officers are reinstated each and every time. Where the prior organizations money that was loaned is washed into shares of the new organization which are then consumed in losses that create a subsequent bankruptcy. A bankruptcy based on the new money the banks loaned the new producer. Banks are being offered an alternative to stop this nonsense where they just seize the assets and manage them in the interim while People, Ideas & Objects et al build the Preliminary Specification. After all, how could they manage them any worse than they currently are? Then they can find a ready market of investors who are willing to buy the assets and manage them profitably from a real profit perspective. Something they’ll be able to do with the focus and drive of profits throughout our software and its user community. 

Granted, the sample of producers that we analyze have been able to draw down their bank debt from $150.0 billion in December 2016 to $151.3 billion in the third quarter of 2020. That $1.3 billion increase is nothing to sneeze at. However that was with the risk profile that was present in 2016, what’s that risk profile today? Will the banks ever see any of this money? And what are those assets worth in these bureaucrats' hands? Those debt values quoted are the amounts of the People, Ideas & Objects sample of producers which represent approximately 9 mm boe / day. With the North American production deliverability making the total bank exposure as much as $650 billion dollars, would this be a material issue to the banks? This chronic unprofitability of the producers is an issue that’s putting these banks in jeopardy. Banks should also review our prior series entitled “New Cost Structures'' where we identify four categories of new costs that will swamp the producers in the next decades. None of these trillions of dollars in costs are able to command a return on investment and as such will “need to be absorbed by the producer.” As they say on the street. Without the Preliminary Specification these producers have traditionally stored their costs on the balance sheet in property, plant and equipment and have never passed any of their costs on to the consumers as it is.

Motivating the bureaucrats to act to rectify these issues through the identification of their personal risk and the potential costs to their personal fortunes as a result of their inactions may spur some into action. I doubt it though. How People, Ideas & Objects will have our budget funded is just as difficult a question as it was decades ago. That doesn’t make its pursuit wrong. My pursuit of this has benefited the industry by providing a timely solution to the issues that I believe it faces today. Issues that are terminal to the industry's health. Issues that the bureaucrats have proven time and again, and I’m giving them the benefit of the doubt here when I say this, don’t know of and can’t understand. 

To summarize briefly what it is we’re offering the industry and what it is we’ve pointed out in this series. People, Ideas & Objects competitive advantages are its research, Intellectual Property and our user community. The user community is our primary focus and is the means in which we’ll deliver quality software. There is no possible method of delivering quality software today without the direct and significant involvement of the user community. Our user community will be the ones that expand and fill out the Preliminary Specification in its first commercial release and iteratively build on those developments over the next few decades. We are providing the oil and gas industry a permanent ERP software development capability. Each of these user community members will also be the principal in separate organizations and be licensed as service providers who will provide the People, Ideas & Objects software and services to the industry. Service providers will deliver their tacit knowledge as services to the producers along with the People, Ideas & Objects softwares explicit knowledge. It is the unique competitive advantages of the user community and their service provider organizations that will make a marked difference in the performance of the oil and gas producers. First they are focused on providing oil and gas producers with profitable production everywhere and always. Their competitive advantages are comprehensive and fit in with the manner in which work will be done in the next few decades. The competitive advantages that include their administrative and accounting expertise, analytical tools of conflict and contradiction, continuous application of specialization and the division of labor, leadership, issue identification and resolution, creativity, collaboration, instill quality, automation, research, ideas, design, planning, thinking, negotiating, compromising, innovating, financing, implementation and integration to highlight some of them. Key to these competitive advantages is the unique means in which they have to implement them. Please see the user community vision for how we enable that.

We noted the issues producers face in the marketplace today. We’ve noted the definition of our software solution in the Preliminary Specification and the configuration of the user community and service providers. There are also external forces related to Information Technology, Intellectual Property and disintermediation playing out in the greater marketplace today. As they are or have played out in all industries. The message from these is that there are new business models based on the Internet that are being formulated and built that will wipe out the inefficiencies of the bureaucracies that brought us to this point. Standing in the way of disintermediation has been unsuccessful to this point for any of the industries that have been faced with the power of its bureaucratically destructive force. However, with each victory over the inefficiencies the industries that have not been disintermediated learn and grow smarter in how to resist the forces of disintermediation for longer and more effectively. Opposition to disintermediation is now far more sophisticated than what the record store manager faced with Napster and the recording industry realized from Steve Jobs iTunes. 

Throughout this series I’ve been able to touch on the reasons why the industry we’re building out of the ruins of oil and gas producers will be successful. The processes that we are implementing, the people that we will be needing and what they’ll be doing. And more than anything how the industry can begin the pursuit of profits everywhere and always as its primary responsibility. A responsibility that looks to provide a return to the investors as shareholders of the producers. But as we can all see and now know intuitively that without profits, and without satisfied investors nothing positive comes about anywhere else in the industry. Disaster and destruction are the consequences we’re all faced with whether that is a shareholder, as someone who has selected oil and gas as their career choice to pursue, or have established a business in any of the industries in the greater oil and gas economic structure. Producer profits are what drive the success of it all. The dependence on shareholders and investor money eventually always runs out due to the fact that it is very limited. And that investor money is always open to direct competition from other industries that everyone has to compete to profitably win and succeed against. 

I’ve now spelt out briefly the means and processes of successful change by People, Ideas & Objects, our user community and their service provider organizations. It’s now the bureaucrats' turn to do the same. Or have we already heard it in their litany of excuses, blaming and viable scapegoats of the past decade. In the fake performance they’ve told us in their financial statements. The financial statements that “were in full compliance with the regulations” and that the “auditors signed off on.” Nonetheless, what is the plan and where are the bureaucrats taking us too in this enlightened world of theirs?

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 VII

 People, Ideas & Objects have frequently identified the competitive advantages of our user community and their service provider organizations. They form a unique advantage that has been unavailable, in my opinion, in the industry up to this point. One in which a dynamic nature of how the oil and gas industry is managed is the method that we proceed for the next few decades. Speed, complexity and the pace of decision making have become critical issues in producer organizations due to the incapacity of those organizations to cope with the needs of these demands. A top down, bureaucratic, unintegrated and siloed throwback to the 1960s, based on systems architectures and developments of the 1980s are not going to cut it in the future, just as they’ve comprehensively failed today. Organizations based on new business models that offer methods that enhance competition, innovation, profitability, accountability and speed are the necessities. Industries throughout the western world are being subject to the forces of disintermediation to remedy these issues and oil and gas is no different nor are they exempt. This industry's performance trajectory, financial destruction and lack of responsiveness to its critical issues makes wholesale changes necessary. Change that must take place quickly, effectively and successfully in order to avoid the greater consequences of additional societal damage. Energy is the life blood of our economies. It will be the most powerful economy that consumes the most energy. Oil and gas’ failure to meet that demand will be seen as catastrophic and unforgivable. 

People, Ideas & Objects Preliminary Specification is based on Oracle technologies. Oracle Fusion Middleware and Oracle Fusion Applications form the base of their financial applications, and the key structure that we’re building the Preliminary Specification from. Oracle Fusion has been rebranded by Oracle as their Oracle ERP Cloud offering. These provide producers with significant value. Recently Oracle founder, Chairman and CTO Larry Ellison participated in a short 9:00 minute presentation on the Oracle Fusion applications and what they mean to organizations that use them. Watching this YouTube video is highly recommended. His commentary regarding speed should be seen as a direct threat to the pace of the bureaucracy and their way of management and its existence. It was only a few years ago that change based models were on five year schedules, whereas three months is now the delivery of changes to Oracle ERP Cloud systems. Having systems that haven’t changed fundamentally since the mid 1980s have to be unique and a challenge in themselves. Would it be possible to draw a straight line from the disaster that is oil and gas to the fact their systems are as archaic as they are? 

Conflict and contradiction are the methods that our user community and service providers will use and exploit their competitive advantages in the environment where they operate. We recently identified their competitive advantages as leadership, issue identification and resolution, creativity, collaboration, research, the generation of ideas, design, planning, thinking, negotiating, compromising, innovating and financing. Conflict and contradiction have always been the two tools that have been the source of how issues are identified and resolved. They form part of the base of the socratic method.

The Socratic Method (named after Socrates 470-399 BC) is a dialectical method of inquiry that uses questions to clarify and unpack one’s beliefs, to understand the assumptions, evidence and reasons used to support them, and to expose any contradictions, inconsistencies and fallacies in one’s thinking.

In addition, today the role of conflict has to be considered as a more prominent aspect of what it is that we are doing, and most particularly where we’re heading for the next 25 years, both within People, Ideas & Objects et al and the greater oil and gas economic structure. The logic underlying the solutions that will be needed are to be determined based on many conflicting ideas and points of view. What’s the right answer? What’s the best direction? It’s here that we need to analyze the solution that has to be pursued in order to ensure that the oil and gas industry is provided with the most profitable means of oil and gas operations everywhere and always. In the hands of the user community and service providers this will be achieved. The area of conflict they’ll be operating within has become quite pronounced. Since Thomas C. Schelling wrote his book, first published in 1963, The Strategy of Conflict which earned him the 2005 Nobel Prize in Economics. It has gone on to form one of the foundations of game theory. What game theory has to do with the business of oil and gas is not a question that should be asked. At this point it has everything to do with where we are heading into this new, complex and dynamic world. Thinking based on these principles will be necessary to extract the value that needs to be built throughout. Alternatively, oil and gas producers will continue to be subject to those, such as People, Ideas & Objects, that will come along and use Intellectual Property to their advantage and suggest that it’s no longer adequate to just own the oil and gas asset. Producers will also have to have access to the software that makes the oil and gas asset profitable. The choice is clear for our user community and service providers. They can choose to participate in this future through the rebuilding of oil and gas, and specifically these administrative, accounting and systems development. Or alternatively continue to fool around with what the bureaucrats might come up with. Assuming they ever admit they have a problem. 

The licensing of the user community and it’s related service provider organization both contain, however this pertains more to the service providers, a clause that provides them with the exclusive right over their process domain in their service provider organization. They won’t have other service providers or other groups from outside our community able to provide a similar service based on People, Ideas & Objects software. The Intellectual Property in this community is operated in a way in which the user community has exclusive use and right to the IP of the Preliminary Specification and its derivative works. This includes their service provider organizations which will be governed through a separate user license. We’ve discussed some of the advantages of this in our prior posts which is detailed in our user community vision. A key objective in the establishment of these criteria is to ensure the community is wholly focused at all times on the iterative development of the producers profitability, everywhere and always. This is the theme in the competitive advantages, our IP, licensing and elsewhere. Service providers have the listed distinct competitive advantages that enable that focus without the need to watch their flank for those organizations that offer nothing to the producers other than the constant attack on the service providers on the price for their service. 

What People, Ideas & Objects are demanding in return is that the user community and service providers will work exclusively in the greater People, Ideas & Objects community and its producer clientele domains. Their primary and only focus must be on the concerns of the industry through the lens of the Preliminary Specification. This will also be necessary to ensure that everything being done for the producers is our only concern, the Preliminary Specification and its derivative works are the only solution we are providing. Therefore user community participants and their service provider organizations are being licensed to preclude all other software vendors products, industries and clients outside of those in the People, Ideas & Objects domain. This is also provided for through a Non-Disclosure Agreement (NDA) as well as the specific user community and service provider license agreements.

Why? One reason is we need to ensure that the Intellectual Property that is sourced and built from the user community is uncontaminated in any way. Working with other software vendors, those within the greater oil and gas industry, and the producers outside of People, Ideas & Objects et al may contaminate the IP of the greater People, Ideas & Objects environment. We must maintain that the IP we are using is pristine at all times and no leakage occurred or was possible. To rectify any contamination if it were to happen, we would need to remove the IP and those that brought it in from the community. All of the software and services provided to the producers must be directly sourced and derivative of the IP of the Preliminary Specification and its user community. We need to protect ourselves from claims that service provider A or user community member B has used the IP they learned about from some other company, industry, software vendor while on contract to them, and therefore People, Ideas & Objects et al are legally precluded from using it as a result of subsequent litigation. 

As we detail elsewhere in this blog and the Preliminary Specification it is now an Intellectual Property world. The world operates on software and software is derived from Intellectual Property. You either own some form of Intellectual Property, have licensed some Intellectual Property or work for someone with their own IP or have a license to. We are at the very beginnings of this new world. The ability to maintain this IP is necessary and we can’t have questions raised as to who owns it and where it came from. This will demand the focus and direction of all those working within the greater People, Ideas & Objects community to respect that and understand it is to their benefit as they are the direct benefactor. The risk of not doing so is the suspension of their licenses. The value that you are building in your service provider organization is nothing outside of its exclusive use of the underlying Intellectual Property which you as a user community member assisted in building. This IP is not something that we can afford to have any leakage or contamination of. The service providers will have collectively built an organization of employees that are able to achieve all that they could ever set out to do. From an outside the community point of view, it would be worthwhile for others to want to have access to and attempt to compromise what we all have built for their benefit. We’ll need to be wiser and ensure that any contamination or leakage is dealt with quickly and appropriately. That is why it is expected that the user community will administer these licensing requirements. They have a vested interest and they’ll have their eyes and ears on the ground at all times. This is where people will be working for the foreseeable future in administration, accounting and ERP systems in oil and gas. Which is a very large domain we’re operating within, one that is the same approximate size that is currently employed in industry within the producers accounting, administrative and systems areas. This will be where the possibilities are endless and there will be no end of what we’ll be able to achieve successfully based on these requirements. 

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 VI

 Was the horrible crisis in Texas, where over thirty people have died, a reflection of the societal concerns that we should carry with us in oil and gas? The one thing that we should also learn regarding the outcome from this storm is that we’re all alone. The finger pointing by the State government was entertaining, and the Biden administration was eventually shamed on Friday to provide the necessary aid to a critical situation, Jen Psaki says he may also visit this week. Nonetheless without energy we have significant issues. Leaving it in the hands of the producer bureaucrats isn’t working. People working together within their communities is how things were resolved in this crisis. The government has become too involved in our lives and that is becoming more and more obvious each day. How we'll get back to what was even normal at this time last year seems difficult to even imagine. If Texas is at this level of deprecated capacities and capabilities, where else will be safe? 

What we are undertaking in the development of the Preliminary Specification will be difficult for all concerned. People who share a concern for the industry and its future need to work together to resolve what ails the industry today, and for tomorrow. We also need to ensure that we base the industry on a footing that will enable it to be innovative and maximize the value of all of its opportunities. Success can be defined as profitability everywhere and always for now due to the damage that chronic unprofitability has caused oil and gas almost everywhere and always. I say almost as we don’t hear the bureaucrats concerned about their take do we. As tempting and engaging as that sounds we will be learning to crawl before we can walk. We are focusing on building the Preliminary Specification successfully. We are not iterating on that design beyond the filling out of the whole of the Preliminary Specification by the user community. When we talk about the production accounting which is included in the Preliminary Specification, it is the user community that will research the requirements of those many processes throughout the industry. Learn the detailed needs of the producers and all others in order to implement them in an innovative configuration under the Preliminary Specification. We need to recall the competitive advantages of the user community and service providers that include quality, specialization, division of labor, automation, innovation, leadership, integration, issue identification, deciding what’s relevant, solving issues, creativity, collaboration, research, ideas, design, planning, thinking, negotiating, compromising and financing to start with. I am in no way diminishing these competitive advantages being used or asking them to be suspended in this initial phase of the development. They’ll all be critical necessities from the first day of work of the user communities efforts. What I am seeking to do is to limit the scope of the work to that which is contained in the Preliminary Specification. There is much that can be added to it, however, that is a much different process of integration and ensuring that one part does not interfere with the nature of the whole. Something that will be better understood and can be dealt with once the commercial release of the Preliminary Specification is completed and user community and service providers efforts are operational. 

The establishment of the process of Intellectual Property(IP) development used by this community, as defined in the user community vision, will be critical from this point forward. It will be necessary to achieve success through the user community and their service provider organizations. What is important is to have an approach where there is one base of IP that every member of the user community can work from and that base is available at all times, anywhere and always. At hand when it’s needed immediately without the need for authority or permission, just there. This is provided through the user community license. There is no cross licensing necessary or possible and the licensed user community and developers can access the IP freely that no one else can. These people will be licensed to access the entire works, to prepare derivative works with only the user community license necessary to do so. The user community member is directly compensated for their efforts for their part time work on the development and enhancement of the Preliminary Specification and all of the derivative work that’s completed. Whether that work ultimately makes it past the cutting room floor or not. Innovation is not just about the successes. It is about the failures and the many, many attempts that lead to the success. We will be compensating for these failures and attempts just as much for the works that make it into the software. I am using the IP that I own and have licensed to generate the revenue needed from the producer firms to establish the developers and user communities budget. These resources are then spent on supporting the user community and developers by paying for their Intellectual Property contributions. It is in the process of paying for the user community participants time that I am purchasing their IP from them, consolidating it under one license. This IP is therefore held in its entirety as one, and as a result, available to everyone in the licensed user community to freely prepare derivative works. No one would be able to generate any feature set separate from the Preliminary Specification that would require cross licensing from user community members, or importantly producer firms. One established set of IP always. 

How do the producers achieve the systems capabilities and capacities necessary to deal with today’s environment and accommodate the future? Is this an important question in today’s working environment? Will it be an important question in tomorrow's working environment? How will any industry be provided with any solution without addressing the management of Intellectual Property? Let’s assume for purposes of this example that a producer finds a bug in an area of today’s system that occurs at times on one of their properties. This error affects the cost distribution of charges to other working interest owners in Joint Operating Committees where they are conducting some unique activities. A consideration that was not included in the system to date, as it is a result of a unique and accepted interpretation of new regulations. Who do they call? In the systems world of today, in my opinion, no one is going to volunteer to take on this task of correcting the system. You would need authorization of the CFO, in all probability, and the people who were responsible for the Joint Operating Committees within operations. If ultimately approved, the software vendor would want to know how many people needed the changes and approval from them too. They would also need, and here is the killer feature of this process, who will be paying for this upgrade? Which none of the prior bureaucrats considered and certainly did not include in their initial request. At this point, the slightly disheartened volunteer enters the second iteration of chasing their tail. And this is why bureaucrats call their systems development iterative too.

To provide a contrast to the bureaucrats' change disabled process of today. The user community that we’re creating will be lightning fast and blindingly simple! Some poetic license. Out of the 3,000 service providers it would be relatively easy to contact the associated people that are listed on the Processes Contact Sheet. There, just innovated that feature into the vaporware world! The service provider who is established by the user community has established a billing process where the work of the users staff can be charged back to People, Ideas & Objects. Therefore the subsequent research and process amendments, if any, will all be captured and paid for through the annual levy that People, Ideas & Objects assess the producer firms. It turns out that the regulation did change and it was missed by the service provider as the characteristic was unique and not known to occur. It was resolved simply by writing additional code at the database level that watched for a certain type of data element, if it occurred then it would be processed by a different subclass within that service provider's process management. All of this would be done in this lightning fast and blindingly simple vaporware world where things always turn out just as I suggest they do, and before the next month-end. 

Humor aside my point is it doesn’t need to be so complicated, slow and cumbersome. My analysis in the process of researching the Preliminary Specification and seeking to resolve why this became so difficult. Was that software vendors were constrained, ultimately, by their code and customers. The more customers they acquired, the greater volume of support related issues were needed to be dealt with. Annual contracts based on the price of the software were not creating a large enough pool of financial resources to cover both support and feature enhancements. The larger the code became, the more difficult changes for many of the vendors who were not object based, and properly architected for today’s demands. How we constructed People, Ideas & Objects Preliminary Specification, user community and service providers was to create a change based organization and community. Our revenues are based on the changes that are made by the user community. Each year People, Ideas & Objects budgets what the next year's costs will be based on past behavior and the anticipated level of future changes. We then assess the producers on the basis of their share of these costs on a $ / boe. An equalization payment / credit for prior years would be included in that assessment. These costs would also include the licensing of Oracle products, support and operating costs of hosting People, Ideas & Objects software. Please note the individual service providers are responsible for their revenues and the generation of those from the producer firms. People, Ideas & Objects only pay for the IP generated by the user community. It is in this way that these communities will be able to respond to the needs and changes of the producer and industry. Ensuring that all production is produced profitably everywhere and always. 

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 People, Ideas & Objects Will Achieve Success, Part V

 People can intuitively understand and appreciate the need for profitability in oil and gas. The lack of profits has had a devastating effect on producers, the quality of life of all of the people who work there and each of the many industries that are directly employed in the service of oil and gas. This difficulty may be somewhat hidden as a result of the initial and current virus related lockdowns. The need for profit is well understood through its absence. Therefore adopting profits as our purpose, which has been our focus from the beginning, by industry, its people, the producer firms, service industry, its investors and bankers is something that everyone can resonate with. We’re unable to survive without the profitability that we seek. The role of the investors is not to fund the bureaucrats insatiable addiction to spend money. Investors will never have that much money. Investors play a critical role in making decisions as to what happens, where, when and why. They’ve decided that the lack of profitability is unacceptable. The capital needs of producers is beyond what they’re capable and willing to provide. Particularly those trillions of dollars we’ve identified in the categories of rebuilding, refurbishing and reclamation costs. Costs that have no capacity to provide a return on investment. Investor action of withholding their financial support should have triggered the remedial actions necessary to avoid the protracted depression we’ve found ourselves in. However, bureaucrats are obstinate. And it would appear that the potential increases in oil and natural gas prices could lead to the success that bureaucrats have always found in the industry. It's just that no one else ever gets to share in their success. If we continue on in this destructive, bureaucratic direction for the next decade, who’ll be the biggest fool of them all?

An easily expressed purpose of profitability is relatively easy to define. You know when you see a profitable activity and what is not. Wholesale changes to the organization to pursue objectives in other industries such as clean energy with zero emissions targets will never create profitable operations in oil and gas. Why are bureaucrats doing it? Is it the opportunity to fleece an entire new class of “willing and enthusiastic” investors? If People, Ideas & Objects, the user community and service providers accounting are reporting that an oil and gas property is unprofitable that’s a drain on the organizations profitability. The need to cease the drainage of value should be seen as an immediate necessity with actions taken to figure out what to do with the specific unprofitable investment. What opportunities are available?  The Preliminary Specifications price maker strategy ensures that all production is produced profitably. It also establishes the necessary organizational infrastructure throughout the industry to enable and encourage innovation. Can costs be innovatively reduced or reserves expanded, deliverability may be enhanced or should the property be sold to a partner or adjoining facility? Innovation is used to ensure that the consumers are provided with the lowest costs. Sitting idly by while value is flushed from everywhere in oil and gas, stating that you're profitable, you just need more cash, isn’t working. Will the move to “clean energy and zero emissions” be 2021s viable scapegoat just as “waiting for a cold winter” was in 2010? Implying a new sophistication in the creation of excuses, blaming and viable scapegoats, after all it has been a decade, and bureaucrats must have developed and evolved in some aspect of their lives. Recently Shell announced (additional?) 9,000 layoffs for the next 2 years with no salary increases or bonuses for anyone. Their transition to clean energy is their focus and to be honest I never thought Shell would be one of the first to just give up. Another alternative route being offered is Chesapeakes who gloat they now have 85% less engineers and geologists post bankruptcy. Exciting times in oil and gas! 

Our White Paper was entitled “Profitable, North American Energy Independence -- Through the Commercialization of Shale” for a reason. The bureaucrats have lost the script and don’t know what business they're in. Shale has disrupted the oil and gas business model. Changed the industry from scarcity to abundance and there has been no change in how the industry approaches the business. Investors believe that shale is not commercial and have seen no response or reaction from industry otherwise. Claiming profitability and earning profitability are two fundamentally different approaches and demands. Spelling out the future of the industry in the Shell or Chesapeake world only demands a high tolerance to pain. People, Ideas & Objects, our user community and service providers invoke a vision throughout the industry where the future is established in a way that is secure for those that choose to pursue oil and gas. Those interested in clean energy can choose that field to move to. Our vision has a demand where everyone needs to concern themselves with the justification of what they’re doing is profitable. And if not, how to constructively remedy that. A dynamic world of thinking constantly about what you're doing and interacting with your environment to ensure that everyone remains moving forward, dare I say profitably building value. As we know with this objective and purpose in mind, if that isn’t evident to the individual today, it can be easily learned with the appropriate feedback that some call accounting, and a sense of profitably building value can replace the daily grind of daily attendance and participation in the bureaucratic malaise of “muddle through.” 

Speaking of accounting and real profitability. We need to separate the reporting of property, plant and equipment from its determination of the value of the firm. This has become the cultural means of what is done in oil and gas. Any cost that is incurred, except for royalties and operating expenses are capitalized to property, plant and equipment at high percentage values in order to attempt to replicate the value of the reserves on the balance sheet. The reserves can be detailed in the Management Discussion & Analysis of the Annual and Quarterly reports. They are a clear reflection of the value of the firm based on how the producer has conducted their operations and the success they’ve achieved, or not, in the form of oil and gas exploration and development. These are a subjective science and the methods used to report these numbers are by independent third parties who use the same criteria somewhat consistently across the industry. They are reconciled and updated on a biennial basis and provide worthwhile and valuable information. When the value of the firm is thousands of feet below the surface it’s the reasonable method of reflecting what the organization is worth. 

Accounting is no such animal. It has nothing to do with value or what the outcome of the management has been. That value is to be determined based on the reserves and the equity markets based on the investors perception of that value. Accounting doesn’t come into that part of the equation. Oil and gas needs to move away from the perception that accounting must reflect value. What accounting does is evaluate the management on the basis of how they performed from a financial perspective. Did they perform financially, were they profitable in a financial sense. Have they been accountable for the money they’ve spent etc. It is quite possible that the situation occurs on some basis of reasonableness that the producer built significant value in terms of the exploration and development of oil and gas reserves, but could never report a profit. What is the purpose or value of those reserves if they can’t be produced profitably? Conversely, a producer may be abysmal at exploration and development of their reserves base, yet are a wildly profitable producer, in the real sense of the word profit. What is the value of these two producers? How do any of the producers fall within the scale of both reserves value and financial performance? We don’t know and will never know due to the culture seeking to have the property, plant and equipment account achieve what their reserves value is. CEO’s running around town flashing their balance sheets off as to who “built” theirs bigger and better than the others and how much “cash they put in the ground” that year. These are what the industries objectives and culture have developed into and become. The industry does not have a commercial basis of its measurement in today’s environment. The homogenization of the producers financial statements shows they’re all in serious financial jeopardy, yet they all have spectacular property, plant and equipment balances. 

This discussion essentially seeks to balance the science reflected in the reserves value with the commercial environment that the industry must operate within. What the investors have been telling the producers for five years now. When accounting is seeking to replicate the same scientific outcome, increasing property, plant and equipment as quickly and as high as the reserves value, the commercial objective is lost. “Build balance sheets,” “put cash in the ground” become the guiding objectives that are pursued by the bureaucrats. The Preliminary Specification seeks to make the commercial assessment of the industry based upon each of the Joint Operating Committees. Where their accounting assessments will be done on an independent, standard, objective, variable cost and industry based capability delivered to the Joint Operating Committees by the service providers. Where producers will know and trust the outcome of those assessments and where their costs of capital, in a capital intensive industry, will be reflected in the cost of the commodity sold to the consumer. So the invested capital of the investors can be retrieved by the consumers' use of the commodity and that capital is used again repeatedly to maintain and expand the assets, pay down debt and send dividends back to the investors. What can we say about stuffing the ground with cash? I have to say producer bureaucrats were effective in deferring any early interest in the Preliminary Specification by claiming it was crazy. Turn around is fair play.

Recording of capital assets in oil and gas has been an issue since the SEC passed their regulations in 1978. The cultural distortions that have been generated as a result of those had become obscene, in my opinion, in the 1980s. Today they’ve destroyed the industry. It is not as a result of what the SEC published in 1978 that I would place the blame, it was how they were immediately interpreted throughout the industry. The difficulties grew from what I feel is a misinterpretation of these regulations and how they’ve formed the culture of the industry today. The quote that I find the most clarifying as to what is and should be, is the following from Investopedia.

According to the Securities Exchange and Commission (SEC), oil companies are required to report these reserves to investors through supplemental information to the financial statements.2 It is important to note oil still in the ground is not considered an asset until it is extracted and produced. Once the oil is produced, oil companies generally list what isn't sold as products and merchandise inventory.

I would suggest that bureaucrats may have also misinterpreted this statement when they say in absolute harmony. “We are in compliance with all the regulations.” And they’ll state this unequivocally due to the fact that they’re not claiming the “oil is still in the ground” it’s that “you have to put cash in the ground.” See they’re in compliance when they refer only to the cash! It’s not just the oil that’s slick. Here are the governing SEC regulations for your reading and sleeping enjoyment. 

Prior to the earnings season I suggested that the haunting message that may be coming from the producers audit firm may be the going concern opinion. This may have been some overreach or just prescience on my behalf. Of the few producers of our sample that have reported only two have reported their audited financial statements. The remainder will be issuing their audited statements in April and May as part of their Annual Reports. Of these two, both are Canadian companies, do not file 10Q or 10K reports and I can’t tell if it is exclusively a Canadian issue at this time. But in both audit instances, as with most of the companies in the industry, 2020 realized significant impairments to the property, plant and equipment account. And as a result one of the firms produced a Critical Audit Matter (CAM) and the other a Key Audit Matter (KAM) regarding these writedowns. In both instances the CAM and KAM did not render an audit opinion on the specifics of the issue, but were part of the overall audit opinion that the financial statements represented fairly the financial situation within the producer firms. KAM’s and CAM’s are assessed based on Cash Generating Units (CGU’s) ability to generate cash returns. How do these audit firms account for the change when prior years audits accepted these results? It is uncertain and unclear who triggered the CAM and KAM in these instances. Justifications that these writedowns were triggered due to the effects on the business by the virus or climate change are viable scapegoats as far as I’m concerned. If the cash generating units no longer support the assets recorded value in property, plant and equipment that is more than a virus. As I was apparently premature in raising the issue of over capitalization and its implied, inverse over reporting of profits, which is obviously not a CAM or KAM as reported by the auditors in prior years, maybe I’m just premature in my comment regarding the audit opinion including the dreaded going concern kiss of death. I always asserted that overreporting of assets and profits are what ultimately led to the demise of Bernie Madoff, Bernie Ebbers and Jeffrey Skilling. That is because it’s outright fraud and each was sentenced in excess of 20 years of prison, 150 years for Bernie Madoff. Let’s see how 2021 play’s out.

Understanding that during the summer of 2020 we documented that the overproduction issue has been present in the industry since at least July 1986. The Preliminary Specification has been available since December 2013. The identification of these points in time motivated the only known action from the oil and gas bureaucrats in the past ten years. That action consisted of having the producer firms increasing the coverage of officers and directors insurance. I asserted at that time the actions of these bureaucrats in increasing the insurance coverage implied guilt and culpability. However as we sit here in early 2021 with no resolution, we still see no evident conscience. Could I apply the same logic and assert a guilt and culpability to the audit firms in documenting their Critical Audit Matter and Key Audit Matter of 2020? Especially when they know the timing and accuracy of recording capital assets is a key issue and primary purpose in Accounting? 

What we should all be asking the bureaucrats when they stand up in their Annual General Meetings this spring are the following questions. Why is it that only the personal compensation and risk to the officers and directors motivate any action? Explain to your shareholders why it is that you're not concerned with producers' real profitability for these past 35 years? Why is reorganizing to ensure profitability everywhere and always considered crazy and too radical, yet transitioning to clean energy and zero emissions is not? Why is it that just punching a clock day after day is acceptable? Where is the requisite focus necessary for success within the producer firms beyond “building balance sheets,” “putting cash in the ground” and why has the industry become such a drain on society during their watch? Will this continuous display of weakness by these bureaucrats continue the decades long losing streak that the industry is experiencing? I’d ask what the plan is, but I think any direct admission of guilt by them in a public forum would be contrary to the bureaucrats best interest. The last question would have to go along the lines of; if now is not the time for change and action, when would be?

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 IV

Environmental scientists have yet to determine the cause of the approximate 1.5 million Texans without power at 3:00 on Monday morning. Their commitment to return the planet to its pristine condition is unshaken even at the long term risk of people starving and freezing to death. It’s science! And yes they are blind to it. In related news Vladimir Putin has choked off gas deliverability into Europe as they experience similar “winter weather.” Sending natural gas prices in Europe to >$20.00. For those bureaucrats who may still be listening this may be called collusion. Artificially and unjustifiably holding back deliverability will never be accepted, that is collusion and not the answer. Managing inventories of products based on profitability as provided by People, Ideas & Objects Preliminary Specifications price maker strategy, our user community and service providers is just good business. The fact that our good friends the bureaucrats are unable to discern the difference between the two is only evidence of their corruption, in my opinion. At least their prayers for a cold winter have been heard.

The discussion to this point has focused on the areas that we will have somewhat under our control. The success of this initiative, once our budget has been secured will be a difficult task and we are not belittling the scale of difficulty that needs to be undertaken by our user community and service providers. We however do not in any way question their motivation, skill or desire to succeed in doing so. What appears to motivate people the most is taking the industry away from the chronic boom / bust cycle that is assumed to be a “necessary” part of the industry and why they have to sacrifice so much to work in the industry. Not everyone maintains a tolerance for risk throughout their career and over time they learn that the bad times are what define your career and management philosophy. “Muddle through” begins to make sense and becomes accepted for survival. Unnecessary but you need to survive. How is a decades long, steep, downward trajectory ever acceptable? The vision of the Preliminary Specification and the opportunities for the user community and service providers allow people to see a different vision for the industry. One where “muddle through” is not necessary and a dynamic, innovative, accountable and profitable industry needs to be rebuilt from what exists today. The need to do so is evident due to the level of damage that has been experienced and the lack of any action bureaucrats have conducted over the past dozen years of accelerating decline. This new industry vision sees people being the critical resource in making things happen in order to ensure that real profitability is achieved everywhere and always, and it is they who’ll make the difference. A complete inverse of the industry's culture as it exists today. One in which people will be able to seek out a worthwhile career, family and mortgage without the inherent risk of bad management subjecting them to the chronic waste of “muddle through.”

My concern here falls in the area regarding the producer firms. Their behavior and participation in the development of the Preliminary Specification must change as much as the people who are moving to the user community, and those who will eventually move to their service provider organizations. We know as a fact that organizations do not change, people do. Therefore the people mentioned in the first paragraph will be successful and the unsuccessful producer organizations will? More than likely continue on with the same culture. Although we should be relying on disintermediation, creative destruction, serendipity, spontaneous order and other economic principles that have renewed and refreshed the North American economy when the old just isn’t doing it anymore. Our two key difficulties in seeing any of these take effect are the capital intensive nature of the oil and gas industry, and the bankruptcy process being adopted as key to the foundation of the “muddle through” business model of the North American producers. These two attributes of the bureaucrats' toolkit have enabled them to continue through the past decade with business as usual and have never forced a day of reckoning. The exit of the investment community is well past five years and there have been no remedial actions contemplated or conducted to deal with the producers issues. What issues, bureaucrats would ask? This has become an untenable situation for everyone in the oil and gas industry. However it is much worse than that. Oil and gas is a primary industry that depends on the secondary and tertiary industries who in turn are solely dependent upon it. It is those primary industry revenues that the bureaucrats have diverted, the cash flow from the previous high levels of capital investment, into their own pockets. Destroying everything else associated with oil and gas. As long as there will be enough cash to fund the personal desires of the C suite and board needs, that’s all that matters. The culture of the industry as a result of this “muddle through” is to do nothing. 

I could have just quoted the definition of “bureaucracy” and provided just as much information. My concern is this culture that has been evident to me since the mid 1980’s. That was when the capitalization of high levels of overhead had become accepted as the status quo. This was therefore applied to the horrendously high interest payments due to the high interest rates that were present in the marketplace as at that time. I began this adventure in 1991 due to the inappropriate culture of doing nothing and the inability of producers to shut-in production to deal with the overproduction in the market. Overproduction that we’ve documented began at least as early as July 1986. How does one deal with this culture? Moving the administrative and accounting people into their own service providers will be an effective means of change. However the culture in the organizations of the producers is otherwise fixed and I am unaware how that changes without other wholesale changes in the makeup of the industry. 

I’ve proposed the reason the way things are the way they are is also a result of the adoption of computers in the 1960s. When producers began acquiring them the question was asked what can be done. Accounting was one of the first constructive attributes, tax, compliance and process management came soon after. Eventually the corporate perspective became filing the right form at the right time to the right regulator on the right colored paper and the Joint Operating Committee which is the business of the business faded into the background. The Joint Operating Committee provides the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the industry. The Preliminary Specification moves the compliance and governance frameworks of the hierarchy to be in alignment with the seven frameworks of the Joint Operating Committee which provides the producer firm, or however we want to describe the working interest owners, into an alignment of all of its frameworks. Generating a speed, innovativeness and profitability that we seek in the industry.

The answer to the question of how we overcome the culture may come about as a result of the Preliminary Specifications change from the corporate focus, as I call it, to the direct support and definition of the Joint Operating Committee. What I’m getting at here is that we can now look in a comprehensive way at the oil and gas industry differently. That it now consists of a decentralized pool of working interest owners involved in the direct ownership of their interest in the Joint Operating Committee. Organized, managed and provided through their use of the Preliminary Specification. Where the approach within the industry is that a property is a property, is a property. Where the accounting and administration are handled in a standard, objective manner whose costs are included in the Joint Operating Committee that is either always profitable, or shut-in creating a null operation. Where their earth science and engineering capabilities, if they desire to build that competitive advantage, are pooled with the other Joint Operating Committees working interest owners to manage the properties technical production and future development. Where the Work Order system of the Preliminary Specification ensures that the costs of these earth science and engineering efforts are charged directly to the Joint Operating Committees, and therefore reduce their corporate overhead burden, or should be seen as a second source of revenue for the producer who provides these services to their working interest partners or to other Joint Operating Committees on a consulting basis. 

What People, Ideas & Objects have objectively done is written a letter to the producer bureaucrats that would have gone as follows. “Dear Mr. Bureaucrat, you are disintermediated and redundant.” And that is rightly how they’ve interpreted the 200,000 words of the Preliminary Specification. The reason that I’ve effectively sent that letter is they’re unable and incapable of dealing with the speed of business today. They are unable in a comprehensive fashion to deal with the issues they’ve created which is causing the terminal demise of their organization and the industry itself. Solving these issues is why the Preliminary Specification has earned the push back that we’ve experienced. 

Parsing the producer down to its properties is the natural process of destruction of the culturally constrained, bureaucratic producer. Decentralization of business is an element of disintermediation. Consolidation is an element of the bureaucrats' survival. With the Preliminary Specification we have decentralized the industry down to the Joint Operating Committee of which there certainly are many of. Many contain only one well. Some would say correctly that we’ve decentralized the industry down to the individual. Which I think is valid and concur. However bureaucrats argue that the level of sophistication and organization necessary to do what is suggested in the Preliminary Specification is beyond what can be achieved. Which in the context of a bureaucracy is true, however for software it’ll be its purpose. 

To consider there is nothing of value left to reclaim in the producer firms is not what People, Ideas & Objects are asserting. What we are saying is that we can rebuild it from here without the bureaucratic culture that exists today. These organizations are cleared of their value, incapable of recovery for the reasons I’ll point out next in this post, a drag on society and through the process of repeated bankruptcy, only continue to serve the bureaucrats who are directly responsible for the destruction. Facing a steep wall of escalating rebuilding, refurbishing and reclamation costs without a plan or understanding of the issues. We don’t need and we certainly do not want to constrain ourselves with the culture, bureaucracy or organizational constraints that exist today in the process of rebuilding the industry. There is a better way which fits appropriately within the successful manner we propose and are detailing here. Oil prices are rallying as a result of the vaccines and the efforts of OPEC+. I’d caution bureaucrats to not get too excited as there are 7 mm boe / day in surplus capacity that exists within the domain of OPEC+. They had actively declared a price war on North American producers at this time last year. Any over zealous drilling response by bureaucrats may provoke a similar declaration.

Looking critically at the financial statements of any producer we see a number of attributes that are systemic throughout the industry. The systemic nature of these are a result of the cultural influences that began in the late 1970s and took hold in the 1980s. We have bloated balance sheets of property, plant and equipment that achieved their lofty heights as a result of the desire to “build balance sheets” and “you have to put cash in the ground.” There was also an assumption that financial statements emulated the value of the firm. Therefore bloating began and has never diminished. These assets are contrasted to the lack of anything else on the asset side of the balance sheet. Working capital if it exists is minimal and on a downward trend that began when the investors and now bankers began withholding their support. The liability side of the balance sheet are riddled with two very negative attributes. The massive debts that are a result of excessive spending on capital assets, and the very low interest rate environment that has existed for the better part of the last two decades. People, Ideas & Objects have repeatedly suggested that property, plant and equipment should be seen predominantly as the unrecognized capital costs of past production. And therefore 65% of property, plant and equipment should be depleted in the current year to establish a more accurate pro-forma understanding of the leverage of these producers. The banks hold the title to all the properties of producers and have expressed shock and surprise at the methods of management they’ve been displaying recently. I would suggest that an end to the bankruptcy process begins with the banks just seizing the properties instead of continuing the merry go round of biennial bankruptcy proceedings. Once seized they could then sell the properties to new owners operating under the Preliminary Specification, user community and service providers. The other attribute on the right side of the balance sheet of course is the many billions of shares that have been issued across the industry. Producer bureaucrats have shown no real level of concern or accountability to those shareholders in the past five years, as none of the remedial actions that are necessary at times like this have been taken. Who will be the first to buy in to the next round of funding and provide a year's worth of excess drilling that will collapse the commodity price for .001% of the company? The point is what is there for anyone left in these companies. The value has been exhausted and the only thing left is those that have rightful claims that will stand miles in front of you in the bankruptcy process. Bankruptcy being a defacto part of the bureaucrats business model. But let's not discuss trajectory and momentum or the need to reverse these. I’m an ambitious man however I don’t find anyone encouraged by this vision other than bureaucrats who know they can reap their personal rewards.

Speaking of rightful claims. We’ve documented how the bureaucrats will be busy for the next number of years, or will it be decades, defending themselves from those bankers and shareholders litigation regarding their lack of fiduciary duty. And lets not forget that not all litigation is about money. There will be those that are entitled to their litigation for the sole purpose of ensuring that the bureaucrats finally earn some skin in the game. No one ever sues over an unsuccessful venture that's true. However, when the producer firms have upped their officers and directors liability insurance as they did last summer, less than a month after I identified their risks, people are now “finding gold in them thar hills.” That’s on top of the personal financial empires these officers and directors pledged to those they’ve betrayed. These have sometimes been known as Class Action lawsuits. In addition, subsequent to that event in the summer, I was able to document that the overproduction of oil was occurring as early as July 1986. That the Preliminary Specification that deals specifically with that issue was published in December 2013. And that absolutely no action has been taken while the bureaucrats cleaned out the safes and set the place on fire. Sounds to me like the bureaucrats feelings of guilt and culpability are rightly earned.

Changing the existing culture and performance of the industry is difficult for me to see. Then I’m biased. Sales of properties out of the banks and existing producers could be the means in which a new industry based on the Preliminary Specification comes about. Our budget for the development of the Preliminary Specification may seem like an issue in this scenario. However, I believe that the cozy retirement getaway that beckons the bureaucrats won’t come about if they don’t do their fiduciary duty. Which if they funded the budget of the Preliminary Specification they would mitigate the issue of overproduction, and implement the solution to what they’ve created and are responsible for. Therefore they can fund the budget and live happily ever after or risk their last few decades in hell. And as I’ve stated before, the “issue mitigated, nothing litigated” is catching on more and more these days.

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.