The Preliminary Specifications 13th Module, Artificial Intelligence (AI)

 With People, Ideas & Objects, our user community and their service provider organizations we have a powerful combination of proposed capacities and capabilities available for the dynamic, innovative, accountable and profitable oil and gas industry and producers. Assuming our budget is financed at some point in the future. Which I can only conclude at this time will occur as long as the associated difficulties in oil and gas persist. And therefore our funding is a certainty. When we add to this the incomprehensible list of capacities and capabilities of the products and services of Oracle Corporation. Add to these the models and markets that are built upon the use of the Joint Operating Committee in the Preliminary Specification. We will have a strong foundation in which to begin the resolution of industry issues and ensure that real profitability is earned everywhere and always throughout North America. I dare ask what the bureaucrats are offering? And will the cost of their option be any less than the trillions of dollars irretrievably lost so far?

People, Ideas & Objects have chosen our distinct competitive advantages to be our user community, Intellectual Property and research as the three areas of our domain to focus upon. These are how we earn our profits. We are a commercial operation and we will always be one as we’ve learned, as has everyone else in oil and gas, what the meaning and value of real profitability is. Without real profitability there is nothing. Within the Preliminary Specification there is the Security & Access Control module that sets out the necessary security and data access to those in the industry. Providing access to the right information at the right time to the right people with the right authority at the right location. Two other modules are the Performance Evaluation for the Joint Operating Committee and the Analytics & Statistics module for the producer firm. These modules are tools that build upon the basic data within the greater Preliminary Specification and Oracle applications in order to provide value to users. Organizing this data in an integrated matter and permitting two different perspectives of that same data. One perspective from the point of view of the Joint Operating Committee, accessible by each of the members of that committee. And the other perspective of the producer overseeing their entire proprietary accounting and administrative data. 

Recently we announced that People, Ideas & Objects would be developing as part of the Preliminary Specification, our own data model as a core part of our Intellectual Property. Our data model will be unique to our user communities needs and accommodate the data models used within the Oracle ERP Cloud products. In addition, another aspect of People, Ideas & Objects is the Technological Vision we set out on August 26, 2006 of this blog. It has four components that are in place today, and we feel they provide us with significant differentiation of our product and service offering and will provide real value to the oil and gas industry and producers, enhancing their profitability once implemented. These four technologies consist of Java, Wireless Networks, IPv6 and the application of what we describe as Asynchronous Process Management. A term that we developed that we won’t be getting into today, but will soon. We are wirelessly capable today with both WiFi and Cellular networks. Soon we’ll have the addition of space based networks such as Elon Musk's SpaceX StarLink network. As background these four technologies enable the Internet of Things (IoT) in an industry that is based on the earth sciences and the applied science of engineering. Where the chemical components of oil and gas are measured and monitored in terms of pressure and temperature. The capacity and capability to monitor and control an unlimited means of devices throughout the producers domain. Java and IPv6 enable the addressing capabilities to ensure that the device that is being sought to monitor and control, is the precise device that is being accessed. Java is a typed language which doesn’t confuse itself as to which variable is which, etc. IPv6 networks may appear as if they’ve not been implemented, but that is not the case. They are available through Oracle’s ERP Cloud offering. And the most significant IPv6 implementation to date has to be the cellular phone networks since 4G or LTE. Cellular phones such as Apple and Android devices are IPv6 based devices accessing network voice and data over an IPv6 network.

Therefore it is here we will have the total data set of the historical and proprietary data for the producer firm. The historical data of each Joint Operating Committee. Analytical tools to enhance the meaning of that data and generate the necessary ad-hoc information that the producer may find of value for their unique competitive advantages of their land and asset base, earth science and engineering capabilities. Although these will be used in ways that are unique and value generating in each of the producer firms. And within each of the members of the Joint Operating Committee. There will be a base infrastructure that’ll be prepared and provided to each of the producers on a continuous basis through the People, Ideas & Objects et al infrastructure that I’ve defined here. 

Let's talk about that data. The reason there is no production discipline in the oil and gas industry is that every producer is a spending machine focused on the “great science experiment” as I call it. Therefore it’s not a business and never will be a business with business objectives as long as the bureaucrats remain in place. Production discipline could be imposed by forming a North American cartel, (illegal) government production mandates where no one is ever satisfied with their allocation or implementing the Preliminary Specification. Only the Preliminary Specifications method of production allocation based on “real” profitability provides for fair and equitable means of production discipline. If the property continues to produce a profit then it continues to produce. Otherwise why would you continue to produce if a properties loss reduces the overall profitability of the producer firm, effectively destroying the value of the properties reserves, adding the cost of the ongoing incremental losses to the costs of the reserves and removing the marginal, or unprofitable, production from the commodities market so that they may find their marginal prices. Marginal prices not just for the unprofitable property but all properties across the North American continent. Markets provide one thing and only one thing, their price and bureaucrats refuse to listen to prices even when it's negative $40. They claim our method of production allocation is collusion which is laughable. If making independent business decisions based on detailed, actual, factual accounting that determines the state of the properties profitability is collusion, then bureaucrats belong back in the former Soviet Union. 

It is our user communities service provider organizations that provide the means to instill the production discipline across the North American oil and gas producers. Service providers are a reallocation of the existing producers administrative and accounting resources into approximately 3,000 individual companies. There the service provider will focus on one process and apply that process across the entire industry's data set. It will be at each of the service providers where the application of the individual process will be conducted on a standard, objective, actual and factual basis across the industry. This will be done as a result of each of these processes will be highly engineered during the development of the Preliminary Specification and continuously improved by the user community members in order to meet the requirements of the industry, regulators and all other stakeholders. And of course the producers and Joint Operating Committees needs. Therefore when the time comes to review the Joint Operating Committees individual, complete and comprehensive financial statements for the month, a feature of the Preliminary Specification. And they find that a property, for whatever reason, is no longer profitable they can confidently conclude the property needs to be shut-in. They’ll know that every other property in the industry has been assessed on the same objective, standard, actual and factual accounting basis and as a result each producer can accept that the accounting treatment they received on that property was no different in terms of being better or worse than any other property of theirs or any other producers. And therefore knowing that the focus of the producer is to maximize profits everywhere and always, any unprofitable properties only dilute their overall corporate profitability as well as collapse the commodity prices across their production profile and therefore will appreciate the value of this objective accounting information. They will be able to move the property to their inventory of shut-in properties where their earth science and engineering capabilities can be innovatively applied to rehabilitate the property in some manner to bring it back to profitability. All net positives for the producer and industry overall. 

In summary once again this infrastructure we’re building is to provide the North American oil and gas industry with the most profitable means of oil and gas production, everywhere and always. As discussed, on top of this data we have two modules, the Performance Evaluation, and Analytics & Statistics modules that will provide enhanced tools to analyze this framework for their competitive advantage. The Preliminary Specifications thirteenth module that we’re announcing today is to simply enhance this ERP framework with Artificial Intelligence and that is the name we will be applying to our thirteenth module. Why would producers and the industry be satisfied to continue with low grade and failing ERP systems and specious accounting practices? Each producer as a single entity has nowhere near the resources, capabilities or capacity in which they need to be able to begin developing the automation of their business processes, specialization and demands of this environment. An environment that will be a given from a technological architecture point of view. However, we do know bureaucrats are more than capable of muddling through these technical changes. Maintaining poor quality systems and specious accounting have fulfilled their purpose in oil and gas. Allowing the bureaucrats to continue with their charade will only take the industry into further jeopardy.

The structure of our user community is the means in which the producer firms enhance their ERP software. If they want or need changes to their existing systems, who do they go to in today’s environment, who has authority at the producer, who has authority at the software vendor? Good luck with that question. In the Preliminary Specification people will only need to speak to the relevant user community member(s). Only the user community is licensed to make changes and prepare derivative works of the Intellectual Property of the Preliminary Specification and any additions. Our developers are licensed to take directions only from user community members in terms of what to develop. They are blind, deaf and dumb to all others. User community members population is approximately the same as the service provider organizations they lead. They are focused on their area of expertise and are applying their specialization, division of labor, quality, automation, innovation, integration, leadership, issue identification and resolution, creativity, collaboration, ideas, design, planning, thinking, negotiating, compromising and using conflict and contradictions to get to the source of the issues as their key competitive advantages throughout their organization. User community members are the principles of the service providers whose role it is to provide their tacit knowledge as a service, in addition to the explicit knowledge that is captured in the People, Ideas & Objects Preliminary Specifications software, by the user community member, of which their service providers are using and providing to the industry.

This user community and their service provider organizations are the intellectual framework of the oil and gas industry in terms of accounting and administration. It would be my hope, my anticipation and expectation that one day this would provide the industry with the software and services that anticipated the needs, issues and opportunities that oil and gas would face. The Preliminary Specifications software would be dealing with what it is that’s concerning the industry. Taking a leadership role in the development of the administrative and accounting of the industry. Therefore leveraging this framework as I described it earlier would be a natural extension of what it could, but most importantly should be doing. Moving the Artificial Intelligence for ERP domain within the user community and service provider domain therefore is a natural and necessary fit. My thinking on this began as a result of the announcement by Mr. Thomas Siebel and his Artificial Intelligence firm C3.ai Inc. Thomas Siebel sold Siebel Systems to Oracle Corporation a number of years ago. The purpose behind C3.ai Inc is consistent with the theme that is present in the ERP marketplace. Individual companies can spend vast amounts of money and time internally on ERP systems or Artificial Intelligence with no benefit, wasted investment and unnecessary demand on critical AI and ERP resources. Mr. Siebel suggests that there is a 99% failure rate of internal corporate AI initiatives. We’ve seen this in oil and gas with their announced AI initiatives of a number of years ago being applied at the time to their chronic lack of profitability. The results of those initiatives are forthcoming, I guess. 

Centralizing the resources of the industry into Artificial Intelligence based ERP developments which will be developed and deployed through the People, Ideas & Objects et al framework that I’ve described in this post. Is an efficiency that is consistent with the theme of ERP developments. The demands of software development are no longer a capability that can be attained in-house in order to ensure the full scope of the organizations needs are covered. The same applies to AI. Therefore the Preliminary Specifications consolidation of the industries resources on one focused development in an objective, standard and compliant manner offers better functionality and capability at considerably less cost. Oracle has AI initiatives with their Oracle ERP Cloud, the base of our solution, and we will therefore be adopting those tools. I believe that the addition of the thirteenth modules AI capabilities is a natural extension of our user community and their service provider organizations and an efficient use of industry resources. Enabling producers to focus on their key competitive advantages of their land and asset base, earth science and engineering capabilities profitably. Incurring the time and energy to build the capacity and capability of ERP based AI once, and sharing the cost and this initiatives success across the industry. But there's more, the demand on the AI resources in terms of the practitioners would be too high to ensure that any producer was able to attain any level of AI competitive advantage or even competency in the industry in ERP based AI. It would also be duplicating the capability of the user community in this area. Just asking for a friend, why is there that 99% failure rate? What’s that saying; garbage in, garbage out. 

One of the aspects of the Preliminary Specification is that the administrative and accounting burden of each individual producer is substantially reduced as a result of the changes we will be instituting. These changes are a result of the burden of the producers' fixed, unshared and unshareable, administrative and accounting capabilities are reallocated to the variable and shared administrative and accounting capabilities of the industry. Variable based on production. Another key attribute that we’re using to reduce the costs of administrative and accounting, yet increase the performance and quality of our offering is by using specialization and the division of labor to be distributed across our service providers. These two elements of the Preliminary Specification will work to enhance the cost performance of the producers as we believe that overhead costs are substantial, and are one of the reasons responsible for their chronic unprofitability. Specialization increases the performance trajectory of the service providers administrative and accounting resources by increasing their capacity with the same or even fewer resources. We also apply this principle in the area of software development. More importantly is the unshared nature of the current, bureaucratic and redundant spending of the same overhead costs within each siloed producer organization in areas that are not distinct competitive advantages of the producers.

A key difference between what People, Ideas & Objects have proposed is the Artificial Intelligence module is properly constructed after the models, markets, architecture, infrastructure, functionality, organization and data is assembled. Bureaucrats have been using Artificial Intelligence to enhance their thinking for the past number of years. It has provided no results that we can see or are aware of. In fact it seems to People, Ideas & Objects that AI may have just been another viable scapegoat at the time to ensure their investors knew the bureaucrats were on the job. Except they haven’t any data that is usable. Without that data being organized and managed appropriately what purpose is AI? Oracle has recently stated that IoT may increase the volumes of data five fold by the year 2025. It may be a good time for the industry to start concerning themselves with such petty and annoying things like data and profits, but then I’m biased. Secondly each producer running around spending money on a new initiative that is the next great thing is consistent with the phenomenon we’ve seen repeatedly in the industry and have tagged with the “Keystone Cops” label. 

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. 

People, Ideas & Objects Tactical and Strategic Changes, Part III

 The stink coming out of oil and gas indicates that the situation is ripe. It’s my belief that People, Ideas & Objects have put forward a viable and credible solution to the issues that are more than evident to everyone now. I have and will continue to be patient however, the time necessary for me to act definitely is upon us. The industry can’t afford any further time wasted. Our case has also been made as to what the contrast would be between an industry operated under the Preliminary Specification, our user community and service providers vs the current bureaucracy. We see today in the inactions of the bureaucrats nothing has changed. Their pursuit of consolidations, increased drilling activity, unauthorized clean energy transitions and the always hilarious “capital discipline” lasting for about a week is just more of the same. For the life of me I'll never understand why they consider that we're the bad guys for focusing on their profitability. As bad as it is, nothing will ever change. Therefore we’re changing it for them. From Forbes

The risk is that the surge in private shale activity overtakes the “restrained growth” narrative that has defined public operators since last year. Larger-than-expected production growth could depress WTI prices and hurt producers and oil services companies. 

Much of what the Preliminary Specification does is define and support the oil and gas producer firm, industry and service industry around the use of the Joint Operating Committee. The legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the oil and gas industry. Joint Operating Committees begin at conception, to represent the partnerships that are systemic throughout the industry for the variety of reasons they’re created. All of the actions involving engineering and earth science of the producer firm actively recognize the Joint Operating Committee. It is the administrative and accounting that has deviated from this business to focus on the accounting, tax, regulatory and compliance issues of the corporation. It is here that the communication between these two silos, the business of the Joint Operating Committee vs the administrative and accounting within the producer firms, ceased to effectively communicate. I believe the aggravating factor in this separation was the introduction of computers in the 1960s. When they arrived it was asked what would / should / could be done with them. The answer was accounting, tax, regulation and compliance for the corporation. And the producers' two silo's separated further each year from there. The adoption of the cultural means of the industry, the Joint Operating Committee, within the Preliminary Specification provides us with an extensive and productive opportunity to redefine the future work that is done throughout the industry and to do so profitably, and in the real sense of profits.

Since the late 1700s the source of all value creation has been a result of the further specialization and division of labor. The efficiencies are endless and therefore the Preliminary Specification has implemented high levels of specialization and division of labor, particularly in our user community and their service provider organizations. We have also developed an enhanced industry wide ERP software development capability and capacity in People, Ideas & Objects. These capabilities and capacities will be able to further iterate on the subsequent expansion of specialization and division of labor to cure the gaps that are discovered in the course of the day to day of the user community and their service providers work, and fill them with new roles and processes. Filling gaps is the method in which specialization is enhanced, this is simply done when the gaps that are identified are subsequently filled with new processes and resources. However without a purpose built software development capability, driven by an active user community and an enabling user community vision in which to enhance the software, no changes can or will take place. The software must be changed first in order for any organizational change to be lasting through to the next change or iteration. When people seek to change the organization without the changes to the software first, they’ll fail and regress back to the methods defined in the current software process. This is one of the many reasons that oil and gas has failed to change and progress. Producer bureaucrats have failed to sponsor any activity in the ERP marketplace for at least the past three decades. Therefore the status quo bureaucracy remains unchallenged in their methods of management and incapable of dealing with the issues and opportunities that stand before it. The speed and performance of their organizations are incapable of dealing with their environment and are represented in the financial statements which accurately predict the producers imminent demise. If producers were using successful ERP systems would their businesses be so unsuccessful? People, Ideas & Objects suggest that it’s not enough to own the oil and gas asset anymore. Access to the software that makes the oil and gas asset profitable will be the critical value generating element of the oil and gas industry. 

Another aspect of our Preliminary Specification is that the overhead burden of each individual producer will be substantially reduced as a result of the changes we’re instituting. These changes are a result of the burden of the producers' fixed-cost, unshared and unshareable, administrative and accounting capacities and capabilities are reallocated to the variable-cost, shared administrative and accounting capacities and capabilities of the service provider organizations. Providing an industry based administrative and accounting capability that is variable in its cost, variable based on production. The other attribute we’re using to reduce the costs of administrative and accounting, yet increase the performance and quality of our offering, is to use specialization and the division of labor to do more with less. These two elements of the Preliminary Specification work to enhance the cost performance of the producers. We believe that overhead costs are substantial, and are another one of the reasons for the producers chronic unprofitability. We also apply the inverse logic of this principle in the area of software development. When each producer approaches the need to develop their own software the demand on the markets IT resources outstrips supply, escalating the costs of the resource. More importantly it is the unshared nature of this redundant spending on these costs within each siloed organization in areas which are not distinct oil and gas competitive advantages. The demands of highly specialized software developments are no longer a capability that can be attained in-house, we believe, by a commercially viable oil and gas producer. Therefore the Preliminary Specifications consolidation of the industries resources on one focused ERP software development in an objective, standard and compliant manner offers better functionality and capability at considerably less cost and higher quality to each producer.

There is a fundamental principle within the Preliminary Specification that governs how the producer will operate in the future. Essentially oil and gas will be operated as a profitable business. Novel concept I know. Bilking investors had a good run but Bernie Madoff is no longer with us. The legacy of his thinking remains in the industry and there will be no future investments made by any investors capable of funding the capital demands of the North American producers. Simply for the reason that there isn’t enough capital on the planet. The blog series in which we identified four new categories of incremental trillion dollar costs of paying for the unrecognized capital costs of past production, rebuilding, refurbishment and reclamation also need to be considered. The producers will need to prove they can be profitable in the real sense for at least a decade, and compete on the capital markets with all other industries before they can reclaim any renewed reputation with investors. Therefore People, Ideas & Objects believe the only source of cash large enough to satisfy the needs of the dynamic, innovative, accountable and profitable oil and gas producer and industry are the consumers who will have to begin paying for the full cost of capital, operations, royalties and overhead costs of oil and gas exploration and production with an element of real profitability. The bureaucrats have rightly interpreted this not only as the demise of their franchise but also as really hard work.

All overhead costs should be passed on to the consumer in the current period. Not stored in property, plant and equipment for a generation as it is today. If oil and gas is a capital intensive industry, does that not imply that the majority of the costs that will be passed on to the consumers will also be capital in nature? Currently all of the costs including overhead and interest of the producer are capitalized and stored in property, plant and equipment for as long as possible by the bureaucrats. This enables the CEO’s to compare who has the biggest balance sheet among their peers. “Building balance sheets” and “putting cash in the ground” have become the talking points throughout the industry. These reflect the disconnect between those that are operating the industry and reality. It is lunacy and they should look critically at why these ever became the objectives they each parroted to one another in perfect harmony for many decades.  

Cash is the hypercritical resource that never stays in one place for long in oil and gas. This is also the reason the investors were annually fleeced for another round of dilution of their prior years investments. The reason for the chronic demand for cash throughout the industry is easily understood if anyone were to apply basic cash management principles. Oil and gas bureaucrats operate a spending machine, money only goes out. The cash that comes in from the sales of oil and gas has to pay for everything each month. Nothing is ever returned. Producers are seeking to build balance sheets and put cash in the ground. Therefore none of these costs are being recognized in the commodity prices that are passed on to the consumers. Therefore these overhead monies are not replaced each month in the form of a “cash float” as it is known in business. For example overhead is capitalized to the tune of 85% on average across the industry. (Still waiting for evidence to the contrary.) Therefore none of these overhead costs, which include rent, salaries, Post-It-Notes, telephones, etc are ever recovered in the current period from the price of the commodity to cover next month's charges. These overhead costs represent the ever expanding, bigger, better, bloated balance sheet of the CEO. That’s their job! Therefore each and every producer has to start anew each month with the fresh challenge of finding cash to pay the light bill etc. Secondly when producers seek to capitalize everything to property, plant and equipment in order to emulate the value of the firms reserves, they’re not passing these capital costs on to the consumers. Therefore they are storing the cash literally in the ground. But then that is what they’ve been telling us. Cash goes into the spending machine. Needs to be reloaded with fresh cash from an outside source each and every month. I’m beginning to see why the bureaucrats have fought so hard to keep me quiet all this time. They either don’t understand what I’m saying, they don’t want to air their dirty laundry or they don’t want to get caught. I guess then I have one question. Why is it that we never see any details regarding the breakdown of overhead incurred in producers. Is there something in there they don’t want us to see?

While the investor watches the behavior of the oil and gas bureaucrat, causing them to nervously shuffle their papers about and begin sweating from simple questions such as what is it they're hiding? They may want to drop another quick question or two on them and ask. Why is it that they don’t use a first tiered ERP systems provider such as Oracle? Why have they stuck with the same systems that began in the 1980s and why is the Preliminary Specification, which is an Oracle based solution, the only solution being offered in the market? Where and what are the existing competitors proposing? Where are their solutions to the industry issues? A question for the vendors might be, since their product was being used in the market how is it, and why is it that the industry failed while using your product? Would the industry have failed if it had appropriate systems in place? And why is it that the industry does not have any tier one ERP systems provider implemented? Why would the bureaucrats, who I’ve alleged are operating a Bernie Madoff style of operation, want to have systems that have failed to make the industry successful? Why are they so satisfied with low quality systems and poor accounting practices? (Again this is not a comment on the high quality of the people who work within oil and gas.) Credibility is what the bureaucracy lost. People, Ideas & Objects provided a means in which they could re-establish their credibility in terms of real profitability. They’ve slammed that door shut on themselves. It’s now time to deal with that and that is what People, Ideas & Objects, our user community and service providers have done. 

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. 

People, Ideas & Objects Tactical and Strategic Changes, Part II

 In this the second part of a series defining the revised tactics and strategies for People, Ideas & Objects to ensure that the oil and gas industry will transition to the dynamic, innovative, accountable and profitable producer and industry we all need it to be. Patience has been applied, we’ve attempted to work with the bureaucrats, we might have said some things that offended them but so what, and even held out that we could be their best friend in light of the fact that they’re now in such legal jeopardy by not upholding their fiduciary duties. Using our car analogy to reflect the difficulties in oil and gas. The analogy being the car that was trailing oil for the past few miles, began steaming and then lost power. Parked at the side of the road, the owner tried to resurrect the forward momentum by using the battery to turn it over, which lasted about an hour. For purposes of this analogy that was approximately equivalent to the year 2015 in the oil and gas industry. It’s been seven days since the vehicle's breakdown and the owner's family are finding it more and more difficult to find the food and water they need to survive. They have the viable scapegoats of it being too hot and too far to travel to the next town and of course there is no reception. An aggravating factor is they’ve all had the flu this past week. Cars continue to pass on the highway but no one stops and even tow trucks looking for people to save, just pass them by. This family is hopeless and helpless and no one will stop or anything! This no doubt was OPEC’s fault. Other than muddle through there doesn’t seem all that much to do?

I could continue as the analogy to our good friends the bureaucrats never breaks down. “Muddling through” is a lifestyle choice that demands commitment. Just stay with the vehicle until someone rescues them. Conversely what do the producers expect to happen now? What’s their plan and will it work? 

The good news for the producers is that their share values have been rallying handsomely over the past six months. The reason why is an interesting question that we’ll no doubt learn in a short period of time. The week of March 8, 2021 established itself as the high point for our sample of producer firms. Covid has had a detrimental impact on the industry and for that there is no doubt. With the vaccines distribution, relief from the lockdowns and the resumption of “normal'' coming back into focus. This however doesn’t create any benefit for the producers. And just as the impact of the virus is waning across the globe, relief from the flu provided the same effect for our family over the past week they’ve been stranded at the side of the road. It didn’t solve their problem. 

Two of the kids in the back seat of the car decided they might be able to help their parents solve their problem and get them back on the road. One grabbed the playing cards while the other got hold of the checkbook. The first one, thinking that consolidation of assets was a good strategy, started distributing the cards in exchange for “assets” of the car. Representing each card as a share he started by buying the front seats and quickly moved on from there. The daughter began scribbling in the checkbook which caused a “feeding frenzy” between the kids as to who could consolidate the most assets the quickest. It soon turned out that the parents had acquired all the shares and junk bonds the kids distributed and ended up owning each part of the car that was sold. This provided the occupants of the vehicle with ample activity for the better part of each morning they were stranded. Eventually, in frustration the baby threw the cards and checks out the window on a windy day. Which began the kids' consideration of their next move in terms of financial engineering. 

What to do next in oil and gas? It doesn’t seem to be a question that is being asked across the industry today. Drilling is picking up and that is consistent with the actions of the great science experiment that involves acquiring land, drilling and producing, rinse and repeat. Bureaucrats will argue that this is the business and belittle the argument that accounting performance has nothing to do with the reality of the value they produce once they access those valuable oil and gas reserves. It is here that the cultural standoff begins between those that are running the oil and gas producers and the “accountants,” as we’re called. “Accountants should do their job, pay the bills and get on the bus with everyone else.” We are told. That those involved in the science experiment have not conducted any activity in the past four decades on the basis of a competitive operation, where financial performance was a necessary and primary criteria, is not relevant to them. When accountants bring in depletion costs and impairments they’re “non-cash attributes.” Allowing bureaucrats to convince themselves they’re not real costs, “they’re history.” That these costs were incurred as a result of the money handed to them from their investors is not understood or appreciated, and to account for that spending is something they have not done and will never do as far as they’re concerned. That was never part of the plan and they foresee no reason to change any of this. Eventually, as far as they’re concerned, investors will return and the industry will resume its way’s once more. Comprehension that the reserves that are revealed are useless and valueless if they’re consistently produced unprofitably is something that will not, and can not be heard or understood by bureaucrats. 

Let’s have a look at that plan and see how things are in terms of supporting it financially. During times of crisis it is considered prudent to survive in the extreme short term and to do so by not considering the cost of capital in the thinking of what is “financial performance.” The issue with oil and gas is that this is how the industry has been operated for the past four decades. Capitalizing every possible cost that is incurred by the producer and only recognizing the share of capital costs of production in relation to an allocation to the entire reserves base. Leaving as People, Ideas & Objects suggests an inordinate amount of property, plant and equipment on the balance sheet. This amount is in stark contrast to all other aspects of the financial statements and appears as a distorted figure that is not representative of the firm. We believe that it should be regarded as the unrecognized capital costs of past production. Therefore the industry has been operating in somewhat of a crisis mode by never recognizing the appropriate level of capital cost in the commodity prices it passes on to consumers. Instead storing these capital costs on the balance sheet on the basis of “building balance sheets” and “putting cash in the ground” as key corporate objectives. Producers now stand with distorted balance sheets that have become representative of the major issue in oil and gas. That being over reported assets beget equal amounts of over reported profits. Which attracts a disproportionate amount of investors creating over investment in the industry and subsequently suffering as a result of overcapacity and overproduction. In commodities that are price makers, such as oil and gas this overproduction has led to unprofitable prices being realized for 28 of the past 35 years. 

The overhang of assets on property, plant and equipment became a critical audit issue in 2020 for the producers across the industry. Will it be the same for 2021, or how about 2022. How does the industry deal with the legacy of this past that distorts their performance and is more representative of a culture that feigns it doesn’t know or understand the difference? Does it continue to accelerate the depletion and impairment of its capital costs to bring it in line with the market's understanding of what property, plant and equipment is? Or should they await the results of the SEC investigation into Exxon’s overreported asset allegation and potential shale producer review. If they do finally recognize these capital costs of past production the account of property, plant and equipment will come into line with the expectations of reality and can be relied upon as a reliable gage of the producers performance. It however will also eliminate retained earnings in every existing producer, if there are any retained earnings remaining today, and in most cases create a negative equity situation where the debt of the producer is higher than the value represented in total assets. Which begs the question what do the banks think of this situation? 

The majority of the producers would fall into the category of having debts larger than their assets once their unrecognized capital costs of past production are recognized appropriately. This alarms the banks and the regulators for two reasons. First the banks have clients whose leverage exceeds their lending criteria and demand that efforts be taken to remediate the accounts, write down the loans and seize their bank accounts in the most severe situations. More or less business as usual these past five years, only with a desperate sense of urgency on the banks behalf. The debts would then, and in some cases do so today, exceed the value of the reserves that are booked by the producer. Indicating to the bank their exposure exceeds what it is the producer would ever be able to generate and contribute towards the loan. I’m not a banker, but this may be a limit they’ll stop to think twice about crossing. When asked about these issues the bureaucrats will no doubt once again state that these are accounting issues and only represent “history.” Bureaucrats are correct about that however instead of calling it historical, I would suggest they think of it maybe in terms of legacy.

When questioned on the disproportionate valuation of property, plant and equipment the producer can make themselves a candidate for consolidation with another larger producer. This will restore the asset valuation as paper in the form of shares and Junk Bonds are passed about the oil and gas tycoons, much as the kids in the back seat did with the playing cards and checkbook. If they value the transaction for more than what the assets are listed at on the balance sheet, then those values will be what they’re recorded at in the consolidation process. Thankfully no one else in the world is interested in these assets otherwise the premium producers would have to pay would be so much higher. And to take the bureaucrats point of view this is all just accounting jibber jabber. The fact they’re spudding two wells next week in the Permian will be spectasmogorical. 

Performance is the purpose of accounting. The timing and accuracy of all costs incurred is what is sought by accountants. Performance based on falsehoods such as the over capitalization of costs will provide substantial value to an organization in its early years. They will be attractive to investors and appear to be doing well. The reality is that they’re poorly managed and the representations being made are lies and falsehoods, much as the situation we have today in oil and gas. A misrepresentation built upon earlier misrepresentations that are attempted to be concealed by further misrepresentations in the form of consolidations, as the current flavor of the day. Oil and gas overproduction in North America has been with us since at least July 1986. People, Ideas & Objects Preliminary Specification has been available since December 2013. The alternative answer to these is consolidation? Just as our family that’ve been stranded at the side of the road are unaware why they have no help. They’re heading into another day and see their shortages of food and water coming to an end. What will they have to do, abandon their strategy of “muddle along” and get out of the car? Or will someone finally save them? 

We should all thank OPEC. Recently they increased their productive output by 2 million barrels and have 5 - 6 million barrels of oil remaining to provide for our needs in the future. Relying on North American based producers for that deliverability in the long run is not going to be possible. Bureaucrats are unaware of the situation they’ve caused and are causing. They only concern themselves with their personal financial position. We can also thank OPEC for the stern warning in the article of The Calgary Herald of July 26, 1986. The one entitled “OPEC Minister Can See Economic Destruction” and “Return to Glory Days Unlikely.” They knew the results of what was being pursued in 1986 was not going to be productive and were concerned about it. It’s probably a good thing that North American producers were always so much “smarter and better than the OPEC Ministers” were in 1986 isn’t it? Is it that bureaucrats don’t listen, don’t do anything or both?

The issues are evident to most people that have an interest in oil and gas. The investors left in 2015 and I began gripping on this blog a decade before that. What is it that I know now, what is it that the investors are thinking and what do most people have to learn about the level of destruction that has been caused by these bureaucrats? I think one of the key takeaways has to be that shale will eliminate any opportunity for any boom or upside in oil and gas again. When prices begin rising the rapid increase from shale production is the immediate response. This has now become a market signal that soon additional production will be on the market and the price adjusts accordingly. Limiting any upside in the price of the commodities. This is known as an inherent part of the producers business model which is assumed not to be changing. Distractions in the form of bright shiny objects to occupy time, such as consolidation and the pursuit of clean energy will satisfy the media and environmentalists. No one will stand up and say anything to contrast the bureaucrats logic, only to be publicly persecuted, therefore nothing will change in terms of the bureaucrats actions. 

The level of devastation that I see within oil and gas is more than what has been experienced in any other industry that I am aware of. It has been made possible by the large cash flows from being a capital intensive industry. These cash flows have enabled the bureaucrats to continue their methods of “management” and have proven they’re only interested in their own personal financial compensation. Diversion of these cash flows towards clean energy is only the most recent viable scapegoat that draws attention away from their performance. These diversions are not consistent with the oil and gas investors original intent in establishing these producers. I believe they should be stopped and let the bureaucrats pursue their clean energy dreams as startups and feel the rush of having no revenues to rely upon. People, Ideas & Objects will continue to hold them personally accountable for these actions and ensure that it is known that this issue was prevalent since 1986 or earlier, that our solution was available in the marketplace in December 2013 and producers have done everything in their power to avoid addressing either the issue or the solution, but also the continued destruction of the industry under their watch. If it appears as if this is a design feature of their system of self aggrandizement, you’d be 100% correct. 

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. 

People, Ideas & Objects Tactical and Strategic Changes, Part I

 In a recent eight part series we documented how People, Ideas & Objects, our user community and service providers were structured to achieve success in oil and gas across North America. This may have been mistitled as I was not so much documenting how People, Ideas & Objects et al were planning on being successful, but how it was that we were structured to ensure success in terms of profitable oil and gas exploration and production. This new series is taking that thinking to the next level to discuss how we have amended our strategies and tactics to deliver that success to an industry that is in desperate need of real profitability. That’s currently managed by a handful of self interested and conflicted bureaucrats who have proven they’ll do nothing about anything, except their enhanced executive compensation. Why are we doing this, what’s changed and is today any different than any of the past decades these bureaucrats have been in control? Yes, things have changed dramatically, and this post will document the situation. This series will also document what People, Ideas & Objects are doing as a result of these changes, and we are now making recommendations to others to begin their own personal processes of change and begin the transition to the environment we are building.  

In granting the bureaucrats the honor of proceeding with the development of the Preliminary Specification People, Ideas & Objects were able to provide them with the credibility they needed to move forward with their operations. Many may feel I’m overstating my case here, that I’ve inflated my self worth. I don’t think so and it is not my intention. What I’ve done is patiently waited for them to act and it is through their inaction that the Preliminary Specification as a solution to today’s issues came into clearer focus. The contrast is evident, dramatic and obscene due to their inaction. Bureaucratic resistance to our solution only increased and there was never any consideration otherwise. Their issues have now fallen well outside the domain of anyone’s control. 

Thucydides’s ancient warning that “It is the habit of mankind to entrust to careless hope what they long for, and to use sovereign reason to thrust aside what they do not desire”

Victor Davis Hanson

I am looking at the landscape of the oil and gas industry from the point of view of the destruction that has been caused by the inaction of these self serving bureaucrats. Profitability in an industry is the only worthwhile pursuit in business and anyone associated with oil and gas over the past number of decades will understand that principle intuitively from this point forward. We should thank the bureaucrats for their real life lesson on such an important topic. Without profitability within the producer firms everyone suffers. The shareholders pursuit of earnings is the reason the North American economy is the strongest ever and has the resilience and effectiveness that it does. It may appear selfish and narrowly focused on those with capital however it works out very well for all concerned. And when it is corrupted as it has been in oil and gas it is an ongoing tragedy of unending misery. It is not me who is overstating my case; it’s the bureaucrats that have abused their position to the greatest extent seen in North America. If I speak of granting the honor and credibility to the bureaucrats that they need, I am only representing all of those that have been affected by bureaucratic inaction and their corruption. Every opportunity has been granted to bureaucrats since I published the Preliminary Specification in December 2013. And they have abused them all. This last opportunity was an overt calling to proceed with the Preliminary Specification under the “issue mitigated, nothing litigated” expression. This began on June 2, 2020 and has been a constant theme on this blog. Seeking to provide the bureaucrats with a means in which to avoid their personal risk of being sued for their inaction regarding the July 1986 documentation of overproduction, or unprofitable production, by North American producers that OPEC had sought to resolve. This issue has so destroyed the industry and has been present each and every day since at least July 1986. And the fact that the Preliminary Specification was published in December 2013 as the solution to that issue. Our good friends, the bureaucrats who are the members of the Boards of Directors and Officers of the producer firms, have sworn to uphold their fiduciary duties and are therefore culpable and guilty. 

I still have not spoken of the change that I see causing the revised strategic and tactical changes People, Ideas & Objects are implementing. And it’s not to keep you in suspense but there are many things happening and we will get to the triggering event in this post. However, there will be more posts in this series that reflect the other changes that have been made. First I want to start by stating the conclusion of these changes and then get on to the triggering event. 

The first change People, Ideas & Objects are conducting is that we are cancelling our program of “issue mitigated, nothing litigated.” Bureaucrats are no longer welcome here to proceed with the development of the Preliminary Specification. They have done nothing, and the fact is they will do nothing so there is no loss here on their behalf. Their pursuit of consolidation, drilling, their unauthorized diversion into clean energy and “capital discipline” are evidence of their plans for the future. This was their choice to maintain the status quo. Therefore it will from now on be known as “nothing mitigated, issue litigated.” There are consequences to inaction, all of us who are associated with oil and gas are experiencing that. It’s now time for those who are actively engaged in inaction to feel it too. Our December 4, 2020 blog post asked “Who’s Going to be the Bigger Fool” in the future? Will we be sitting here in five, or ten years with the same set of circumstances and the same viable scapegoats being parotted by these bureaucrats? There is no question in my mind that the question stung and the answer was and is a resounding “not me.” The game is up for the bureaucrats and no one is being taken for a fool anymore. It’s also at this time that I’m reminded of a Winston Churchill quote. 

You can always count on Americans to do the right thing - after they've tried everything else.

Who will proceed with funding the Preliminary Specification? To quote a famous politician “At this point, what difference does it make.” What People, Ideas & Objects, our user community and their service provider organizations need is access to the oil and gas revenues of the industry. Producers need to have some skin in the game. Otherwise we will fail as a result of a lack of their willing and necessary participation in the user community. They can not hand a critical aspect of their business off to someone else and expect it to be done appropriately. We also have no capacity whatsoever to provide any investor of ours with any means of a reasonable return or expectation of a return due to the destruction that has been caused in the oil and gas ERP market space as a result of past malicious actions by bureaucrats. 

In 2015 we saw the beginning of an investors strike that has continued and become a protracted issue for oil and gas. Producers had grown to depend on the annual stock offering as a means to literally pay the light bill throughout the entire calendar year. Dilution of last year's investors, and all their other investors, fell into the memory hole known affectionately as “history” by these bureaucrats, saying “don’t worry about it.” There is nothing more critical than investors abandoning management by walking out on them. The reason People, Ideas & Objects have had to be patient is due to the virus providing a viable scapegoat for the past year. But prior to that, a few years ago private equity and Warren Buffet saw an industry that was in pretty rough shape, in desperate need of some capital and rehabilitation. Warren Buffet made his “ultimate contrarian bet” as he called it into Occidental Petroleum and then promptly saw what obviously scared him to the point of quickly selling out of all his Occidental holdings. Private equity hung in there a little longer and have now exited the industry as well. Banks have extended themselves in the industry to the highest level they can tolerate. Producers working capital continues to evaporate. It is for the lack of a better saying, the end of the road for our good friends the bureaucrats. Maybe the Biden administration will help? From Forbes.

The demand for shale producers to become self-sufficient with less reliance on outside capital is intensifying.

The withdrawal of private equity, long a crucial investor in the shale sector, will take a significant toll on many shale companies, particularly smaller producers that lack strong balance sheets.

Why is it that People, Ideas & Objects, our user community and their service provider organizations are standing there, at the ready, hat in hand, offering our services in hopes that the bureaucrats who caused all this damage, do the right thing and fund the Preliminary Specification to save the bureaucrats personal empires for them? I can’t find a reason why we’re the last ones here in support of these despicable people. By supporting the bureaucrats and offering them the Preliminary Specification we are working at cross purposes to those who are the shareholders of the producers. It is the investors that we have supported and identified as the critical resource that the industry needs to guide it through these difficult times. Their actions, and their ultimate action of leaving the industry is fully supportive of what we needed to happen for our Preliminary Specification to become a reality. Profitability is the only criteria that is going to resurrect the industry and provide the financial resources for all those that have been so betrayed by the despicable self dealing bureaucrats. Why is it now that People, Ideas & Objects, our user community and service providers are actively betraying those that we’ve needed, wanted and indirectly participated with us in removing the bureaucracy. Our olive branch to the bureaucrats would have given them a life line that may have instilled another generation of their franchise with the caveat that they would have been able to “muddle through” more easily, and enjoyed the bounty of a truly profitable industry at the expense of those shareholders. 

What needs to be done is a purge of these people from their lofty positions and away from the producers check books. It’s time to choose sides in America, are you with the shareholders, which after all are John Q. and Jane P. Public, or are you with the bureaucrats? Corporate America who recently came out in favor of political initiatives that have nothing to do with their products or services profitability. Who’s corporate objectives have morphed into the Democratic Parties key issues of race and climate. To suggest they’ve lost the script is undeniable. It’s time for change.

The long and short of all of this is the declaration of total, irredeemable failure of the North American producers at the hands of the bureaucratic mismanagement. People in the industry who want to stay with the status quo are able to do so, and participate in the development of the Preliminary Specification as their long term career transition away from these failed organizations. Please follow the application process defined here and understand that the user community has always been considered to be part-time positions. The source of user community members long term value and day to day compensation is designed to be fulfilled through the service provider organizations you’ll need to develop. Don’t let the bureaucrats' disease of inaction infect you. 

We’re setting out the framework of two different types of producers in the oil and gas industry. The first type will be bureaucrat free and as a result successful and profitable oil and gas producer by using People, Ideas & Objects, our user community and their service provider organizations. The second will be an extension of what exists today in the slow process of chronic destruction. I see the bureaucrats as the chaos and we’re the opportunity. When bureaucrats find themselves alone, and not just alone but wrong on so many fronts, I’m not going to be their last good friend that’ll help them out. 

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. 

You Can't Buy Time

 Abundant volumes of time that producers had at their disposal to deal with what has been clearly identified as an issue have been frittered and wasted. That issue being chronic overproduction, or unprofitable production, that overwhelmed the commodity markets causing oil prices to collapse. Last summer we documented with two articles from The Calgary Herald entitled “OPEC Minister can see Economic Destruction” and “Return to Glory Days Unlikely” from July 26, 1986. (newspapers.com paywall.) Where OPEC had commenced a price war with North American producers in an attempt to deal with the global overproduction of oil and seek some cooperation in the future allocation of production. Prices collapsed at that time to $10 / barrel as a result of the overproduction and declared war. This also began the phenomenon of the bureaucratic blaming, excuses and scapegoating. Proof that nothing changes when bureaucrats have implemented their “muddle through” strategy. An issue that has been ever present in the oil markets for at least 35 years, which has to be a record for any industry. With the proliferation of shale gas wells in the early part of this century. The same business model has been applied to the natural gas side of the industry. This first destroyed the natural gas price on a continental basis. Which then brought about the spending boom in reversing and building LNG facilities for export. We’ve now seen the North American producers apply their magic elixir to the global natural gas market with collapsed natural gas prices at times barely paying for the LNG shipping costs. One attribute of the “muddle through” business model is that nothing is ever the fault of any bureaucrats, and this therefore demands that no actions ever be taken by them. 

What I felt in 1991 was necessary, was for North American based producers to curtail some of their production in order to have the price of the commodities return to the point where they were profitable. Looking at the makeup of the industry, the methods used to account for operations and what would be needed in order to shut-in production it became obvious quite quickly that this would be destructive to the producer firm. New methods of organization were going to be necessary to configure the industry and producer firms in order to enable the producer to continue to prosper at whatever level of their production profile. This was in May of 1991 and I completed this work in the form of the published Preliminary Specification in December 2013. Our solution allocates production on the basis of profitability. If the property can produce a profit based on a standard, objective accounting then it will continue to produce. Otherwise it would be shut-in which provides the dynamic, innovative, accountable and profitable oil and gas producer with the ability to ensure their business is always profitable everywhere and always, just as all businesses in other industries do. The determination of profitability is based on actual, factual accounting at the Joint Operating Committee level providing producers with the means in which to allocate production fairly, equitably and objectively. 

In addition to the demands for the reorganization to allow the producers to be profitable everywhere and always, disintermediation is a natural consequence of the development of the Internet. All businesses and industries will be subject to the forces of disintermediation and it will only be a matter of time that the bureaucracy is worked out of the North American economy. The Preliminary Specification never set out to do this but it is a decided benefit. Hence the pushback that we’ve seen to People, Ideas & Objects initiative. 

I could be accused of solving this problem on a glacial time frame. The key point however is that I acted and the business model is complete. Due to my actions the industry has had a solution in hand to deal with these issues and implement them on a cost effective basis. Most people in the industry today can see our value proposition is significant in that the current environment is not sustainable and will end quickly and poorly for all concerned. If industry would have acted to build the Preliminary Specification in a timely manner, at a time when it was first available they would have avoided most of the destruction that has occurred from the oil and gas price collapse, and the subsequent investor strike that has seemingly yet to catch the attention of the bureaucrats. It is the period of time since December 2013 that has been irretrievably lost by their inactions. In many ways they’ve wasted this time in defense of their own personal financial aggrandizement. A time in which they’ve lost control of the financial and operational frameworks of the oil and gas industry. 

That the time necessary to maintain control has slipped away and the destruction has been comprehensive and unnecessary. With a clearly defined issue destroying the industry, since at least 1986, which will continue to destroy the industry until it’s resolved. With a solution provided since December 2013 that was subject to ten years of research, ignored and belittled. Granted it is not the solution that the bureaucrats want or need to support their personal take, it is however, the only workable solution available. We can conclude that time is not a concern when it comes to other people’s money, careers or business interests for an oil and gas bureaucrat. 

It has been since December 2013 that I’ve worked in a number of ways to secure time on behalf of the industry. These have been significant steps taken to reduce the time of our development in order to both increase the quality of our offering and reduce the time required to deliver our product. This has had a material impact on our budget, and may continue to severely impact our budget as time is the critical cost the industry is facing. I consider these costs strategic spending to increase our capacities and capabilities. Each year the revenues of the producers are inadequate to cover the costs of oil and gas exploration and production. Investors are refusing to continue to make up that difference. Banks are beginning to reign in producers' prolific spending by reducing access to debt. There is little that can be done now to offset the disrespect and lack of regard that bureaucrats hold for their existing shareholders. Issuing shares to consolidate their operations based on valuations that are significantly below the values that investors paid (commonly referred to as a downround) is usually a sign that the firm is not headed in the right direction. However investors knew that in 2015, therefore the bureaucrats consider that history and are realizing they have nothing to lose. We know organizations have turned to the Junk Bond markets for financing over the past forty years, yet have not moved on to dominate their industries or for that matter survived. What is the justification for oil and gas bureaucrats using the Junk Bond market for debt refinancing and other financial services?

In the first quarter of 2014 we made our first critical step towards the development of the Preliminary Specification in the publication of the user community vision. In combination with the Preliminary Specification people within the industry have been sought out to join our user community and participate in its developments once we’re funded. People, Ideas & Objects are user community based ERP software based developments. User based involvement in the development of software is the only method which People, Ideas & Objects will be involved in. It is the only method in which to develop quality software. In past ERP developments, the declaration of their user base was without an overall product vision, and the key elements that we’ve established within our user community vision. Soon after the commencement of those developments the lack of either vision, the time based realities of formulating them and the cost of user based developments quickly eliminates the users involvement from that development. People, Ideas & Objects user community has been under development since the first quarter of 2014. Based on the overall vision of the Preliminary Specification. With the user community vision as their guide as to how these developments will be developed and delivered. What their involvement will be in the short term, and the long term through their service provider organizations. What is it that these people have been thinking about since that time?

Our user community is budgeted at 3,000 part-time participants. This is due to the scope and scale of the Preliminary Specification handling the administrative and accounting, including the ERP systems related attributes of the oil and gas applications needs. User community development is a significant aggravating factor to the People, Ideas & Objects development time and budget. Our commitment to the user community is that we will have the user community in place before the development of software. They will have prepared their first derivative works of the Preliminary Specification before development is undertaken. Although these are impediments to the time in which we’ll be able to deliver our product, they are necessary to maintain the quality we expect and the industry will need. We have been working on our user communities development since the first quarter of 2014, the long lead times in user community development are due to the development and distribution of the “vision” of what and how the users will be developing. These are well behind us with much of these visions creating permanent cognitive dissonance, as well as cognitive and motivational paradoxes being dealt with by the expenditure of time. In the Knowledge & Learning module of the Preliminary Specification I noted.

As background, the motivational paradox arises from the production bias. That is, “users lack the time to learn new applications due to the overwhelming concern for throughput. Their work is hampered by this lack of learning and consequently productivity suffers.” The cognitive paradox has its root in the assimilation bias. People tend to apply “what they already know in coping with new situations, and can be bound by the irrelevant and misleading similarities between the old and new situations.” This can prevent people from learning and applying new and more effective solutions.

The time for industry to have been involved to mitigate their losses is something that we provided and we are not responsible for their inaction and subsequent loss of time. We anticipate further disruption from the bureaucracy in attempts to secure their franchise as the only effective means of oil and gas management. A primary reason for our budget being funded fully before any work is done. Quality will not be sacrificed as a result of bureaucratic and other pressures. We are not seeking perfection but striking a balance between the quality that we have at our disposal as a result of our actions over the past seven years. And the value that we provide that is close to a trillion dollars in incremental revenues for North American producers. These values are what are needed for a viable and healthy oil and gas and greater economic structure for the next generation.

Looking critically at the development of the Preliminary Specification it became clear to me that it was not something that was viably undertaken as a startup. Taking on this scope and scale of development work would demand a sophisticated organization of high quality developers in the range of 600 to 800 people. An organization that would take years to build and possibly the better part of a decade to become an effective, productive unit and if possible a high performing team. Possibly. This is inadequate for our purposes, it does not allow anyone to leverage the time that has been invested into the development of the Preliminary Specification or user community. Therefore we considered the focus of our organization had to change. We no longer would focus on software development as a competitive advantage. And instead would revert to the following three distinct competitive advantages that we can leverage what we have today to deliver our value to the industry. These are Intellectual Property, research and our user community will be the three areas of our focus. We began this revised configuration in September 2018 which brings about a number of new dynamics within the People, Ideas & Objects offering and organization. 

Oracle provides the highest quality products and services in the ERP marketplace. That is the reason that we chose them for use of their Fusion Applications and Fusion Middleware solutions as the base of the Preliminary Specification. I have worked extensively with Oracle in the past. In 1992 my firm signed a comprehensive development agreement to provide client service solutions to the Canadian oil and gas industry. This partnership ended in February 1997 and I am satisfied to continue this relationship once again. The quality of Oracle’s offerings are too great, in my opinion, to concede to my competitors. I would be unaware of how I would be able to make up for the deficiencies between Oracle products and services and its competitors. 

It was therefore natural for me to turn to Oracle at this time to contract the development of the Preliminary Specification. Please note, I have had no discussions with Oracle about this contract. I am aware of how they conduct their operation and am not interested in wasting their time while the oil and gas bureaucrats fritter and waste. I will talk to them when I have the appropriate money in my hands. Besides our first step will be the user community as we’ve noted above. There will be enough time to negotiate the comprehensive development contract we desire as our needs have been developing and are being defined and captured on a daily basis. Oracle’s development capabilities are reflected in the quality of their products. This is a reflection of their organizations capabilities and is a characteristic of their services as well. Services that include software developments that are wholly consistent with the needs of the Preliminary Specification and our user community in the role that we are discussing here. The last time I looked there were 7,000 developers in the Oracle division that provides these services and we would be able to access that without encumbering it. Since we use the Oracle stack in the subscribed and recommended manner that Oracle suggests, they will be efficient in the delivery of our software. Oracle ERP Cloud is now the service that houses all of these features and this will be how the oil and gas producers and industry, the service industry, user community and service providers will access the People, Ideas & Objects software that we develop through Oracle and Oracle database, Java Programming Language and Fusion Applications. In terms of the time vs cost differential, this change is substantial in terms of cost, initially. It reduces our delivery time, possibly in the order of as much as a decade, and increases our probability of success. These costs are incidental, once again, to the wastage that has become second nature to our very good friends the oil and gas bureaucrats. 

An area that has been particularly detrimental to the deliverables of People, Ideas & Objects Preliminary Specification is for us to continue to uphold the standard that producers must have some skin in the game. We are demanding producers financially support the development of this software and its continued use. It is far easier for me to uphold this standard, even in the face of such obstinance from the bureaucrats, due to the fact that if I was to secure funding elsewhere, build the product, I would be faced with the same obstinate behavior in attempting to make a sale, rinse and repeat. Therefore it is better to uphold this standard now than it is to waste investors money that I can never guarantee a return on. If only everyone considered these things before taking other people’s money. If the bureaucrats obstinance is stopping them from participating in funding the Preliminary Specification while the industry they so expertly manage is in such disarray. If they can’t see that an investment here is far more likely and more secure in terms of providing real returns to their organization in comparison to any oil and gas deal could ever provide, what would compel them to act in their own best interest otherwise. They are personally conflicted and compromised, they are not operating in the best interest of their organizations shareholders of which they personally pledged to do. 

It is these initiatives that we’ve focused on to provide the industry with the delivery of the Preliminary Specification as quickly as possible. There are many others, however none with the material impact these will have. In general Information Technology has matured in the ERP space. The Preliminary Specification was possibly unattainable technically in 2013. Those days are gone, the ability and capability of the IT we are using now fits with my understanding of the demands of our product. The business risk on behalf of the industry is being managed by the bureaucrats at this time. People, Ideas & Objects and our user communities business risks are being effectively managed today through the Internet. Where we are able to do our work outside the purview of the bureaucrats and their vengeful ways. This is costing many sleepless nights and curious questions being asked by users that need to be answered through the long and difficult process of conflict and contradiction. This is a collaborative environment where issues, the search for issues and the codification of their resolution is the objective and the goal. In terms of the business risk specifically to People, Ideas & Objects we continue to mitigate the time vs. cost equation that is of such extreme importance to our organizations product delivery. And financial risk to us remains the constant we all know and love. The financial risk to the industry is well past what I thought would be necessary to trigger action. We are in a new world in oil and gas, that being where shale is formally introduced to “muddle through.”

“You can’t buy time'' is generally what is understood by most people. This applies to the bureaucrats due to the fact that they’ve lost so much through their inactions, or is it a strategic choice in “muddle through.” The financial destruction they’ve incurred is permanent and the trajectory of their demise only accelerates. They’re along for the ride, until it no longer becomes profitable for them personally or their litigation gets out of control. Until then there are Junk Bonds. Thankfully time has not all been lost. The work that People, Ideas & Objects and our user community have done is substantial in terms of offsetting the commitment of time necessary to ensure a viable, quality working model is available to the industry when it dispatches the bureaucrats to the scrap heap of history. It’s true that you can never buy time, but sometimes you have to create the time necessary despite those that should have, could have or would have done the right thing, that being their job in this case. We’re not finished with our pursuit of time and the completion of this project, it may not even be the end of the beginning, but time will tell. 

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. 

Once Again, This Time With Feeling..., Part II

 We have an unusual situation in oil and gas. It was during 2015 that the producers investors were frustrated with their performance and began progressively removing themselves and their involvement in the producer organizations. Investors leaving is a unique and rare occurrence that can happen in business. It reflects their ultimate message they can send to the officers and directors of the organizations they once believed in and supported. It says they no longer trust or expect anything of value from the organization and will seek opportunities elsewhere. A loss of faith such as this can be highly detrimental to a firm, as we’ve seen every producer being subject to difficulties of accessing capital since and their subsequent, absolute financial deterioration. It’s not that the investors have left permanently. They would return once changes were made to enhance the producers performance and improve what it was that disenfranchised their investors to leave. If producers were able to compete on the basis of capital markets expectations, then investors would return.

Today the bureaucrats expectation is that investors will be racing back into the industry to participate once again. After six years of doing absolutely nothing to remediate their behavior, accept or acknowledge their deficiencies and work on their issues, the red carpet has been rolled out for investors to return. It doesn’t seem to permeate the skin of the bureaucrats that this isn’t going to sell. Why would anyone want to return? People, Ideas & Objects have documented many of the reasons that the future of the industry will be more problematic than even the past couple of years. How the producers chronic mismanagement has caused serious financial jeopardy to all concerned. With seven ongoing unaddressed crises, a fistful of New Cost Structures worth trillions of dollars over the next 25 years. “Muddling through” and doing nothing is the best way to summarize the producers attitude and behavior regarding performance. It is not in the culture of the producer firms! What we discuss in today’s blog post is that the bureaucrats' message doesn’t just dance around the topic of performance, it avoids it.

I have said in the past, though I haven’t stated it recently. Why would anyone invest in an oil and gas firm with the characteristics of a wholesale lack of performance and cultural inability to focus on profitability. People, Ideas & Objects have been looking to build the solution to resolve the industries issues since December 2013. Providing the industry with the ability to produce profitably everywhere and always. Why is this such an issue? A solution with a $25.7 to $45.7 trillion dollar value proposition over the next 25 years. Does anyone doubt this value is attainable in comparison to how the industry is managed today? And what do we see from the bureaucrats? A giant “take a hike” message. I think at times they’re trying to direct that message at me. It is in fact the investors that are receiving the message. The point is that an industry that thinks they can sit around and “muddle through” for a half decade and just wait for their investors to return. Will be disappointed when the investors see that the firms that they’ve sent the ominous message of walking out on. Can not take the time, money or effort to recognize, invest or safeguard their investment and focus on the issues that offended them in the first place. Why then would the investors just return? If producers can’t invest in their own businesses profitability, why then would anyone invest in them?

This is why the communication coming out of the industry is so problematic. It has no historical context. Less than a year ago oil prices were negative $40 and major producers such as Occidental were begging for a life line from the government. Now, after meekly participating in the global reduction of oil production, $60 oil has allowed them once more to resume their lofty positions upon their thrones. Dictating that “capital discipline” will once again be what rules their domain. This time they’ll be producing shareholder returns at rates that, well actually not one of them defines that variable do they. Not once is profitability mentioned, and never in the context of “real” profitability. Performance is not a criteria in which they consider, evaluate or measure themselves. What we do see is the return to the secondary criteria of oil and gas bureaucratic boasting. Those being the “building balance sheets” and “putting cash in the ground.” History is in a geological context for them. Change is over an era.

Evidence of the construction of balance sheets is present in the consolidation phenomenon overtaking the bureaucratic mind. When the spending machine is challenged as to its effectiveness and efficiency in building value. There is only one thing left to do, go big or go home, as Forbes describes. Therefore the consolidation theme of acquiring their peers is the “bright shiny object” that will get them through the critical phase of these early days. Don’t have the leverage, that’s ok, acquirees are so broke they’ll accept the shares that no one else finds any use for. And thank god for Michael Milken and his 1980s creation of the “Junk Bond.” These are the two tools at bureaucrats' disposal to allow them to spend like they’ve never spent before. The only difficulty is that they have to pay far more than what the assets are worth. Which isn’t an issue, it's optics. If a producer paid the market price for oil and gas assets people would see the bottom had fallen out of the market in terms of oil and gas property values. Therefore it is up to all of the producer bureaucrats to make sure that they continue to pay more than what they’re worth so that any comparison to the acquirers current holdings makes their current holdings seem effectively “built” or cheap in comparison. Doing so just requires that you ask for more Junk or issue more shares when that time arrives. 

The business of the business of oil and gas is all good in the hands of the bureaucrats now. The spending machine that we all knew and loved from the past four decades. Derived from money spent like drunken sailors to boost their capital assets in property, plant and equipment, building balance sheets and putting cash in the ground. Now that the commodity prices are in positive territory these asset values, are they assets or costs, are questionable and being evaluated as worthless due to the fact that they were never profitable and demand cash to produce. The market for oil and gas properties collapsed only a few years ago with no one interested in the business and producers desperate for cash. But now these properties are commanding premium prices due to the need to make the amounts recorded in property, plant and equipment look as if they represent a real market and for no one outside of industry to question their “true” value. The currently ordained king of oil and gas consolidation is Pioneers Scott Scheffield. Acquiring Parsley in the last quarter for $8 billion and this quarter he picked up DoublePoint Energy for $6.4 billion. Spending ridiculous amounts for “assets” that others have included ridiculous amounts of every kind of cost for, is not a good business. Including 85% of the overhead which includes the receptionists time, the Post-It-Notes and phone service costs as well as a host of other specious costs. This is happening in a capital intensive industry. If oil and gas was going to compete in the capital markets and capital is considered a cost, why would the producer overspend? Remember performance is not a criteria contemplated or understood by these people. And in this instance I would have to ask that question twice. People, Ideas & Objects assertion has always been that a pro-forma adjustment to the amounts in the property, plant and equipment account should be conducted to reclassify 35% as property, plant and equipment and the other 65% as an impairment. The justification for this treatment is that our perception is that the 65% represents an amount that is nothing more than the unrecognized capital costs of past production. Therefore, to now buy these high cost “assets” off another producer at premium prices is not good business. People, Ideas & Objects may need to look at revising our recommended allocation between property, plant and equipment and depletion now that the property, plant and equipment account of these producers is being bloated exponentially.

In our white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale” we discussed the Occidental acquisition of Anadarko. A transaction that saw Occidental pay an enterprise value of over $64 billion for Anadarko’s lifetime earnings of $695 million. Earnings that never saw a reasonable amount of capital included in the costs passed onto the consumer. Therefore the $695 million is highly overstated. Since then Occidental has begged the Federal government for direct support to save it. What the Anadarko and Pioneer acquisitions may prove is that the amounts being paid by these producers are for only one reason. To maintain the image of the value of oil and gas assets. And therefore by association endorse the well built balance sheets and the amounts of money that have been put in the ground. An endorsement of the past four decades of management's focus of “building balance sheets.” Performance, what’s that, certainly not something we’re going to be seeing from oil and gas companies. Here we have articles from Forbes and WorldOil that imply the focus of the acquisition. Land and drilling locations in the form of drilling inventory.

All the rock in the U.S. worth owning is already owned and the Permian is the only oil play with significant drilling inventory, and is therefore, the only basin that matters. To “win,” you must ‘drill your returns’ with huge scale to maximize supply chain savings, lateral length and footprint efficiencies and manage the ever growing ESG pressure.

There is no reason to exist if you are less than a $20 b company, he continued. The capital markets are closed unless it’s for debt (and it’s expensive if you are small), the cost pressures are too high to compete with OPEC when API supports carbon taxes and sooner or later, U.S. companies are going to need to focus internationally again.

And from WorldOil

Pioneer will increase its position to more than 1 million net acres through the deal, acquiring “primarily undrilled” new land.

What else has been going on? Dumb question I know. The efforts to hide the argument in enhanced spending, such as buying others at inflated asset values is their solution to an overcapitalized industry? If dilution of shareholders value through stock issuance and high interest rate bonds are what are necessary to continue the facade, that’s fine with the bureaucrats. Bureaucrats are still getting paid. We need to ask ourselves what is the issue with the development of the Preliminary Specification? Enhanced profitability throughout the industry would bring the producers to a level of performance that they’ve never attained before. The cash flow as a result of being able to retire the capital assets in a capital intensive industry on a market competitive basis would be tremendous. This would be a powerful industry with its future in hand and its destiny under its control. Instead we get the spendaholics driven by stock certificate printing machines. Why is it that crying to the government for support while prices are negative $40 is deemed acceptable to the bureaucrats as the first step after a $64 billion acquisition? The Preliminary Specification disintermediates the oil and gas industry. That means one thing and only one thing. These bureaucrats are gone, as is this nonsense. 

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.