I Thought This Was Just an Investor Problem? Part III

 Consumers throughout the world are learning the distinct advantages of the business principles used in North American oil and gas. “Muddle along,” boom / bust cycles and “market rebalancing” are all done with the bureaucrats, our name for the producers officers and directors, wallets in mind. When markets are ignored as they’ve been in the pricing of oil and gas commodities, the cycle's extremes become more dramatic with each iteration of the cycle. One year we may see negative $40 oil and the next $40 natural gas. This of course is how you operate an oil and gas concern. Real profitability has never been earned at any point in the industry at any of the North American producer firms in the past four decades. Is profitability the symptom or the cause of these commodity price fluctuations? A profitable, healthy oil and gas and service industry are of great benefit to the oil and gas consumer. With our Preliminary Specification the only cost inflation that would be seen by consumers would be the incremental costs of retrieving the additional reserves. Shale being comprehensively more difficult and costly than what was done in the 1940’s, etc. And this trend will never stop. There would be an abundance and availability of viable resources available to the consumers at the lowest possible cost, including an element of profit. These profits enable dynamic, innovative, accountable and profitable oil and gas producers. A healthy and profitable oil & gas and service industry are the only way that these are going to come about. People, Ideas & Objects hypothesis of why there is a current lack of profitability is as follows. 

The history of this issue begins with the late 1970’s SEC instituting an accounting method for the recognition of assets in oil and gas. Known as Full Cost it became the regulation for all listed producers on U.S. exchanges. Enabling the producer to claim as the outer limit of what their asset costs on their balance sheet would not exceed the present value of their reserves at the day's current commodity prices. Note the key words here of cost on the balance sheet, not value, accounting is not about valuing the company it’s about assessing performance. Over the course of the 1980’s this rule was quickly misinterpreted by the oil and gas bureaucrats to mean cash flow was the important factor of evaluation, you could include all the costs incurred by the firm as assets and they proceeded to devise ways in which to do so. Soon overhead, interest and all manner of costs were capitalized without any consideration of the impact on performance or follow on consequences. The issue is a result of the bureaucrats misinterpretation of the rule, not the rule itself. It would be the most competitive and performant producer that would seek to reduce their account of property, plant and equipment to $0.00 as quickly as possible. The real consequence of what happened is well known and understood in the business community and has been repeatedly documented as a known issue in accounting as the following. 

This description of fact was well understood by bureaucrats in oil and gas, yet they chose to do nothing for over four decades. Over capitalization of the firm's asset value leads to an equal amount of overreported profitability. If none of the costs of the firm are incurred in the current quarter, but deferred for several decades later through depletion, profitability in the current quarter will be substantially higher. However, that profitability is not representative of the performance of the firm. When companies over-report their profitability then investors overinvest into the sector in anticipation of earning higher profits. Overinvestment leads to overproduction of whatever products a firm produces, and the pricing of the commodities in the producer's case will collapse. These commodity prices collapse as a result of oil and gas as commodities following the principles of price makers, not price takers which is the assumption of the bureaucrats operating in the industry. When prices are so low as to invoke losses under the Full Cost method then bureaucrats invoke the “market rebalancing” principle of capital discipline which reduces capital investment, causing the industries productive capacity and service industry capabilities to deliberately atrophy over a two to seven year period to where the market supply and demand “rebalance.” I stated the following analysis of pricing in the oil and gas industry in our White Paper “Profitable North American Energy Independence - Through the Commercialization of Shale” on July 4, 2019. 

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

I may not have explained myself clearly to the CFO’s in the producer firms. The difference between the graphs well breakeven and shut-in prices are what’s called the contribution margin. In these cases the contribution margin is determined by taking the total cost of the well and dividing it by the producible reserves that are allocated to it. If the well cost of $5 million dollars exposed 200,000 barrels the contribution margin would be $25 of capital costs were incurred for each barrel of oil found. Therefore the only profitable operation will be beyond the well breakeven price and that is why it has to be the point in which the well would be shut-in when prices drop below it. It had become unprofitable on a performance basis and was unable to return all of its costs. The assumption that the full 200,000 barrels would be retrieved in a period of time that satisfied the capital markets is incorrect. For these purposes let's assume the wells lifetime was 20 years. A return of capital over the course of 20 years is inconsistent with the story that has been told by producers in the past decades, inconsistent within any recent commodity pricing environment and wholly inadequate by capital market standards to have the return of just the capital investment in that time frame. Shale demands heavy rework costs in order to maintain production and to capture those reserves. The $5 million is just the starting number, there will be more costs incurred as soon as two years from the commencement of production. A more accurate, actual, factual accounting of the wells performance is part of the Preliminary Specification. Today, producers quote “recycle costs,” which are the results of engineering “what if” scenarios based on current service industry quotes. These lead to their allegations that they can be profitable at $50, and when the price drops below that, $40 until the price drops below that and they become profitable at $35. This miracle is either “recycle costs” based on abused service industry provider quotes. Or some otherwise unknown development in historical cost accounting. 

“Pay no mind to those accountants over there; they don’t understand the engineering and geological brilliance of the work that we do. They’re paper pushers and we build stuff.” Allocating costs over the reserve life may have been a reasonable assumption in the 1950’s however in the capital markets of today where money demands actual returns far in excess of these in a much short period of time, these are not the points that will sell the investors to return. Note: I did not raise the integrity, trust, faith and goodwill that the bureaucrats destroyed with their investors and bankers as an issue that would preclude them from participating. The financial facts can be remedied and other issues as to the fact that people have been lied to and cheated can’t be. That’s why I didn’t discuss the fundamental lack of integrity, trust, faith and goodwill that bureaucrats acquired during my discussion in this post. But then somehow I just did! Of course officers and directors of the producer firms all know these business principles discussed here. Whether that is price maker, breakeven or performance. They chose to do nothing but ignore these and to concern themselves with their new business principles of “putting cash in the ground,” “building balance sheets,” “rebalance markets,” “capital discipline” and “we’re profitable.” I study / read Winston Churchill and have another one of his quotes, this one from his first book on WWII entitled The Gathering Storm, “Nothing was wasted that could contribute to the process of waste.” This should be put on the desk of each and every bureaucrat. For clear identification purposes that is. 

I can’t imagine anyone arguing that these bureaucrats should be kept in power for a couple of more cycles of this rollercoaster. The issue should be clear in 2021 as it was for Qatar's oil minister in that Calgary Herald, July 26, 1986 article entitled “OPEC Minister Can See Economic Destruction.” (Paywall.) And the Preliminary Specifications publication in December 2013. Removing officers and directors is a difficult question. How should it be done and by whom? I’d sure do it, but if I could it would have been done long ago. Proxy wars during annual general meetings are for losers. Besides, the majority of those meetings will be held in May 2022 and that is after the winter months and two months into spring. I think we can bring consumers into our happy little party of highly motivated investors, bankers, service industry, oil and gas employees and those in the tertiary industries that benefit from oil and gas. To have the industry operated on the basis of a more reasonable approach. One that expands the thinking beyond what it is today. The solution is in hand in the form of the Preliminary Specification. How we implement this so that we all don’t freeze in the dark or pay everything we have to these bureaucrats this winter is unknown at this time and beyond my capabilities. I’m not suggesting that I can solve it this winter, it will take a while for us to do our work, and an unknown amount of time until we can begin the process and have a better understanding. My comment only suggests that we shouldn’t let those responsible benefit from the destruction we know they chose to cause.

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

I Thought This Was Just an Investor Problem? Part II

 The number of companies that have made the decision to permanently work from home appears to be increasing, at least in the Calgary market. As a proponent of this method of organization I support the trend and find that the best of this change has not yet been experienced. During lockdown and fear mongering by dictators people haven’t been able to get out as they would normally. And once living as free individuals again they’ll begin to find that working from home has many attributes and advantages above those already experienced. The many key features of the method realized today include the ability to control your day’s effort from both a professional and personal standpoint. Higher productivity from the employers point of view. Reduction in the travel time to and from work, but also to meetings and a possibly temporary reduction in business travel. These are just a few of the highlights with the constraint of a 9 to 5 office being somewhat of an archaic idea that is seemingly limited in its purpose. Companies can experience reduced costs and an expanded number of working hours per day. Covering off all the time zones of the North American continent as the time in which they’re operational. Accepting that some people are morning people and I am not.

This is an opportunity that is embraced in the Preliminary Specification and was considered prior to the virus induced trend. Our solution provides a means in which producers are profitable everywhere and always. It also resolved the reason that producers consume cash in the horrific manner they have in the past four decades. Looking at the overhead costs incurred by the industry we see in the financial statements of our sample of producers have incurred 3.59% of revenue as of the second quarter. These are immaterial amounts and no one would be concerned about those. However they’re also not the amount of overhead that is incurred by the producer firms. People, Ideas & Objects suggest that on average 85% of the overhead in the industry is capitalized to property, plant and equipment. We’ve requested on many occasions that producers could educate us on what these amounts are, and what they consist of, however none of them have taken us up on our free audit offer. Of course we don’t want to belittle a cost of only 3.59%. I can only go on my personal experience in the industry which is what defines the 85%. What’s included in those accounts are what we believe to be material amounts of executive compensation above and beyond what may be known. But that is just a suspicion based on that same personal experience gained in decades of employment in the industry. Remember boom times are good times. Perks, once established… 

Overhead costs are recurring monthly expenses that are recaptured in the prices of the products and services a company sells. However, when a producer sells oil or gas, their defined purpose is to “build balance sheets” and “put cash in the ground.” This overhead treatment of capitalizing large portions of overhead ensures they’re meeting their defined purpose. However leaves them short of material amounts of cash that were incurred in paying the overhead costs of the firm each month. When investors were compensating for the entire year's capital budget, these overhead costs were included there and as a result were covered in their majority. And now they have to be sourced by “new” sources of money each month as they’re not included in the price of the commodity other than the sliver of depletion recognized each year. The disappearing cash issue is there is no cash float in the oil and gas producer where the majority (85%) of the overhead costs are replenished through the sale of oil or gas. Cash and working capital have diminished into a critical issue in the industry as a result of these “3.59%” overhead costs. This material and constant drain on cash has been rectified in the Preliminary Specification in a variety of ways. 

First we eliminate the overhead allowances that are used to charge the Joint Operating Committees for the approximate costs of the overhead incurred. The issue that People, Ideas & Objects have with these is they’re not adequate for the purposes of dealing with the costs of overhead in the industry. Secondly the monthly and annual value of all the overhead allowance charges incurred within the industry total nothing. Zero may also not be an accurate representation of the overhead costs in the industry. Swapping charges in the Joint Operating Committee are not representative of the true cost and avoid the reality of recording actual overhead to the property during the month in order to determine the Joint Operating Committees actual performance and spontaneous, summary and universal declarations of profitability. Other than during periods of negative $40 oil prices. The Preliminary Specification, through our decentralized production models price maker strategy, reallocates the administrative and accounting resources of the producers into the service providers that are owned and operated by our user community members. These are the individual firms that are handling the individual process of accounting and administration on behalf of the industry. They’ll charge a fee for their services directly to the Joint Operating Committee. Therefore each property will now be evaluated on the basis of its actual, factual costs and if it remains profitable it will remain producing. Returning the cash of all of these overhead costs back to the producers in what is considered a cash float. If it is shut-in due to its inability to produce profitably then no information will flow to the service providers, no services will be provided and no billing will be rendered to the Joint Operating Committee. Therefore the property would incur a null operation, no profit, but also no loss. Our decentralized production model changes the makeup of the industries overhead costs from the fixed cost, producer based accounting and administrative capacity and capability. To become industry based, variable cost, accounting and administrative capacity and capability. Variable based on production where production is only produced if it's profitable. This is only one aspect of the many changes we make in the Preliminary Specification. We need to tack back to the point of the post now.

The topic at hand is working from home in combination with these complications from the producer's overhead issues. The ability of the Preliminary Specification to convert the Joint Operating Committees overhead to the actual, factual costs that are incurred by the individual service providers. And do so on a variable basis depending on profitable production that includes the actual overhead costs. The reallocation of the administrative and accounting resources of the producers into the service providers can be done in combination with the permanent shift to the work from home of these resources. That assumes the service providers choose to work from home with their staff. That would be their decisions as to how they operate their business; however, accessing the talent pool that they need may require them to have access to a geographically diverse resource base in order to provide their most competitive offering. 

The competitive advantages that are being brought forward through the development of the Preliminary Specification and formation of the service providers are substantial. Turning overhead costs from fixed to variable nature is necessary but another key point may be missed in the transition. And that point is the secondary reason profitability is an issue in oil and gas. That is the desire of each bureaucracy to build their necessary infrastructure of administrative and accounting capabilities and capacities, which are substantial in oil and gas, into each of the oil and gas producers. None of these costs are shared or shareable in their current configuration, or form part of the producers distinct competitive advantages. Each of the producers are incurring 100% of these costs individually. These costs are not in any way different than the hundreds of other producers in the industry. People, Ideas & Objects et al standardization and building of an industry wide administrative and accounting capability and capacity eliminate the redundancies of each producer attempting to replicate these same costly non-competitive attributes within each firm. If overhead was 3.59% it would be a waste of time. With the diminishing cash and working capital consumed by the capitalized overhead it becomes a necessity. The extent of these two changes of making overhead costs variable, and an industry based shared and shareable capacity and capability are dramatic. We have discussed the development of industry based capabilities on many aspects of the producer firm to include our ERP systems, which include Oracle Cloud ERP. Oracle now has a 90 day release period that demands executive attention. These system changes have to be accommodated in the organization and need executive focus on how they’ll do so. Attributes such as these, when using an industry based capability as contemplated here, can disperse the workload across the industry on a shared and shareable basis. Implementing the solution within the service provider organizations. 

Additional competitive advantages of the service providers include and are not limited to the following. Quality, specialization, the division of labor, automation, innovation, leadership, integration, issue identification and resolution, creativity, research, ideas, design, planning, thinking, negotiating, collaboration, compromise, financing, reasoning, judgement. There is a strong division of labor between People, Ideas & Objects delivery of the software and the service providers as well. The Preliminary Specification captures the explicit knowledge within the software and the service providers use their tacit knowledge in deployment of their service in combination with our software. When CFO’s in oil and gas have had difficulty over the course of the past four decades in determining where their cash has been going. Hence the demand for repeated stock issuances. You can only imagine the difficulties that I’ve had in trying to market this kind of logic. Discussing fixed vs variable, shared and shareable, cash float by recovering overhead costs, corporate vs the Joint Operating Committee did nothing to help them “build balance sheets” or “put cash in the ground.” Or maybe, it was the director's choice not only to ignore the opportunities to adopt our initiatives, but to also mismanage their cash these past decades? Keeping their ERP systems providers on the starvation diets makes for ready excuses. After all, what is it they’ve been telling us?

The point of this series is to show why this is not just an investor problem. That it has now manifested itself into the financial destruction of the producers. Which has taken the service industry and comprehensively destroyed it. Where the capacity and capabilities of both oil & gas and the service industries are unable to meet the needs of consumers. To hire back the people with the promise of healthy compensation is met with the reasonable question, for how long? Investors in the service industry are far more jaded than the oil and gas investor. Having watched their equipment being cut up into scrap metal for cash. Natural gas is currently selling for $40 in Europe (as of Tuesday October 5, 2021), homestead of windmills where the wind never blows. Which is not all that high considering Russia has now increased its price guidance to $295 to $330 (Approximately $8.80 to $7.73 /mcf)for the winter months. It was also 9 degrees in Helsinki and 21 degrees celsius in Rome on that day. This is the road that these producers directors chose to take their firms when they decided that all of their previous decisions, made in Keystone Kops fashion, didn’t reveal the riches they promised. I can categorize the discussions I’ve had with directors over the course of the past twenty years into two different types. Paraphrasing in both instances of course. The first would be “what’s that.” Meaning what are ERP systems. The second would be “I’m not talking to the management about this, they’re doing such a great job that this would not be worth their time discussing.” As a consumer of oil and gas, and if you’ve been reading this blog for any period of time, this is the unfortunate but absolute 100% and easily determined outcome of such bureaucratic… fix your own adjective here. Officers and directors of oil and gas producers are wholly responsible for this. People, Ideas & Objects have proven the cause of this began as far back as that Calgary Herald article from July 26, 1986 “OPEC Minister Can See Economic Destruction” which eerily sounded like the difficulties over the past thirty five years and predicted today’s outcome. People, Ideas & Objects solution to this was published in the form of the Preliminary Specification in December 2013. How many more second chances should they get?

No one outside of these officers and directors received any of the financial benefits from any of the prior periods activities. Nothing has or ever will change as we’ve documented that the shareholders representatives, or directors as they call themselves, will never consider alternatives. If you think they didn’t have enough time to consider their options then please scroll down to the time I began writing about these issues. What makes anyone believe now that prices are headed to a period of unconstrained panic driven premiums will we now see any of the proceeds from these producer bureaucrats. The last thing that we will ever see happen is the investors move back into the oil and gas and service industries while these officers and directors occupy their current positions. They left in 2015 and bureaucrats' proven and absolute behavior will stand as it has for the past number of decades. To have a dynamic, innovative, accountable and profitable oil and gas industry requires these people to be purged with extreme prejudice, the investors will then return with new officers and directors in new producers to begin the development of the Preliminary Specification et al. Besides, current management can move on to their chosen direction in clean energy. Let them feel the burn as a startup clean energy company without the revenues from oil and gas making them complacent and idly biding their time. Motivate them to do the hard work while the heat is on to get it done before they run out of their personal money. Only through that risk will clean energy issues be resolved. 

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

I Thought This Was Just an Investor Problem? Part I

 The case for producers pursuing clean energy was unauthorized from the point of view that it’s not what their shareholders invested in. Approval for the diverting oil and gas revenues to other businesses was not sought or approved in any of the firms that I’ve noticed. These diversions appear to me to be designed to avoid looking at what it is they’ve been doing these past decades. The renouncement of their ability to commercially produce shale was the precursor to their shift to clean energy. The effect of these decisions have now potentially been realized in looming shortages of oil and gas this winter. Subjecting us to the whim of our offshore competitors and freezing in the dark. Who were these producer bureaucrats to have made these decisions to cut off our use of oil and gas by replacing it with unavailable and unattainable clean energy for what they deemed to be better for the planet? Did we ask for this? Was that their role and responsibility? Why are we not making these decisions for ourselves? It is these bureaucrats who I’ve been arguing destroyed the financial and operational structure of the industry for their own personal financial gain. It is they who used their power to enrich themselves at the expense of everyone else. It was they who had the opportunity to choose otherwise with the building and implementation of the Preliminary Specification as the solution and they chose not to. It’s not that I haven’t been providing them with a full understanding of what the fallout of a lack of profitability would be, as it seemed they needed to be told. It was their use of power that made the decision to move to clean energy in an unauthorized manner. And it is that power in their hands that we reap the consequences of these looming energy shortages and high energy prices. I look forward to what it is they have in store for us next. Who’s to say that next they won’t see an opening to actively compete with WalMart and Amazon? From the point of view of their responsibility to have produced profitable oil and gas everywhere and always, their shift to clean energy was just as irresponsible as an unapproved movement into retail would have been. 

With repeated and express requests from their shareholders to address their profitability, accountability and ERP systems. Producers repeatedly chose to pass. We documented the total lack of concern or desire on their behalf when on August 31, 2021 the board of directors of these producers refused to consider the necessary investment in the Preliminary Specification. An investment from the point of view that the value proposition realized would more than offset the cost. Choosing to stay with ERP systems from providers they’ve driven into the ground through a lack of financial resources. Producers efforts in maintaining their hold on power being secured through their ERP providers being kept alive on life support. They can now invest in clean energy and no one would know the details, performance or outcome of what was occurring other than the absolute failure they were experiencing. Undaunted in their quest, they would continue in their heroic effort to “save the planet” which is none other than their currently developed, innovative, business principle. We’ve seen that investors have always been the driving force of action in the industry. I have difficulty in qualifying these and can’t determine if they're an excuse, blaming or viable scapegoat, for the justification of all forms of various initiatives in the past decades. Investors demanded that Encana split into an oil firm and a gas firm. Investors demanded oil and gas producers no longer produce oil and gas. Investors demanded producers focus on clean energy. Indicating that the bureaucrats are mere serfs of their betters. Yet we’ve never seen any action in the primary role of the corporation to deal with the two driving issues that have led to their financial destruction. Profitability and accountability deficiencies have driven investors' participation to be withheld for the past seven years. Maybe there’s a long list of investor demands the bureaucrats are doing their best to get to. Or… 

Clean energy was necessary as shale was declared non commercial. Just as conventional oil and gas was declared non commercial and led to shale. Which was after the frenzy in heavy oil, which followed Steam Assisted Gravity Drainage (SAGD) which followed any other fly by night trend that struck the bureaucrats fancy. Never accepting that they were not profitable. Cash flow does not represent incremental value, necessarily. For four decades they sustained themselves on the good graces of their investors who were lied to and cheated out of their money each and every year to make up for their inevitable spendaholic shortfalls. "Building balance sheets" is not cheap. Soon we’re going to be hearing the excuse that their audit firms signed off on their financial statements! Yes they did, didn’t they. Which of course absolves them of all responsibility, guilt or culpability. Not. 

I commented recently that if prices do hit $600 / barrel it won’t be enough to fix the producer firm's issues. They're far too damaged to survive any future outcome. Which is probably their motivation in the current scenario. Just as China begins to implode on their debt bomb they’ll have many opportunities in a controlled economy to try new innovations to fix it. Shutting down payments to foreigners would be considered a possible innovation worth trying. We’ll see in about three weeks. Nonetheless financial issues have a tendency to become too big to deal with. We made it out of the 2008 financial crisis however the cost of doing so is still being tallied and it’s only getting worse. Oil and gas went through that same point in the early 1990’s, after the collapse of oil prices in 1986, and remedial efforts have yet to be acknowledged. Bureaucrats believed “putting cash in the ground” was one of their innovative business principles and I think they remain proud of the concept today. The deception that the investors were operating under, fueled by producer financial statements that literally record every cost as an asset for decades, was realized in 2015 and certainly nothing is going to change producer bureaucrats' position today. During 2021 producers have doubled down on their specious accounting methods and doubled the number of years they’ll deplete their assets. But that was the situation in the second quarter, they have the last half of the year to “build their balance sheet” further on these old tricks. The point to consider here is for every dollar of equity there was any equal or slightly larger amount of debt that was obtained by the producer firm. Over these decades the amount of debt of the producers on a relative basis is stratospheric in my opinion. Fueled by equity infusions and low interest rates for two decades, no one could spend fast enough could they. It’s my opinion that the declaration of clean energy initiatives is the realization of the music stopping in the game of musical chairs. The problem is there is no safe place and nowhere to sit. 

I’ve written before how I have a severe allergy to commodity price hedging. Even thinking about it makes me nauseous. If you want to have a performance based organization the last thing you would ever do is hedge the commodity prices. “Hey, they sold all the production forward for x years, we’re profitable (in the terms they understand), we’re a utility, no need to put any effort in now as it will make no difference other than to make a possible mistake.” And therefore hedging of commodities has always been the method that is used to hedge any profits in the industry. Producers had a special accounting trick for this too. It’s called non-GAAP reporting. GAAP requires the company to report hedging losses, non-GAAP doesn’t. If they lose on hedges no one will know as the media only quotes the press release which always quotes non-GAAP earnings. However in the fourth quarter of 2021 the reporting of non-GAAP earnings will no longer be possible if they materially misstate the producer earnings. Which I believe they do. Nonetheless the commodity prices being realized on some of the producers production is not the commodity prices that are driving the industry frenzy. Losses in the third and fourth quarter due to profit hedges will be interesting. I noted in the second quarter the profit hedges, as I call them, were material for our sample of producers at $8.1 billion. But that was more than 5 days ago!

Lets not forget they’re unable to produce the profits that are necessary to sustain their operations. If you’ve never seen a “real” profit, what does it look like, how did you earn it and can you repeat it? If your organization was built in the past four decades from a culture where “real” profitability was never understood or discussed, what can be done today? I don’t know isn’t an answer for these purposes. Destroyed and damaged organizations need excuses and diversions to pursue and obfuscate the issues they’ve caused. Only to create the larger issues for us now and the coming winter months. If only we could have contained this when it was just an investor problem. It’s only going to get better as we progress down this road with these people. They’ve created a disaster and crisis that will be one for the history books. But sure, let’s give them another chance and see how they’ll do. Count me out. When a difficulty such as oil prices collapse as in 1986 or whenever. It's time to deal with issues. Oil and gas is a capital intensive industry where the return of capital invested is done in the form of cash flow. The cash flows were initially strong enough to maintain the facade of viability. Then investors were needed to augment that. Now the capital invested is inadequate, there's no investors to cheat, the debt remains and the cash flows are too weak to maintain anything but the powers that be in the lifestyle of their choosing. Clean energy never looked so good.

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Who's Got the Script?

 A quarter century is a reasonably long period of time. We could accomplish many things in those years if we looked at oil and gas from the perspective of how we need to make North America energy independent, and most of all profitable, everywhere and always. This is not a desire but a desperate need. It will be the most powerful economy in the world that has the largest consumption of energy in all of its forms. This can not be accomplished in the unprofitable form of today’s producers. The U.S. has a balanced production / consumption of oil & gas and Canada is in surplus at this time. In 2020 the EIA states the makeup of energy in the U.S. from oil was at 24.68% with an additional 6.8% from NGLs and 36.33% in natural gas. In 2045 these values are estimated to be 23.86, 7.03 and 37.53%. The transition of the U.S. energy makeup will involve minor tinkering on the edges where coal, nuclear and hydro are replaced in part by renewables. Renewables will go from 4.58% today to 13.22% in 2045. Which is not that remarkable when we understand the volume of oil and gas revenues that will be driving the investment in renewable, clean energy. Describing and defining in full the failure being orchestrated today.

Shale is what makes profitable, energy independence possible. It provides for this opportunity and ensures these objectives are achieved. Without the support of investors, bankers and the service industry it will not happen though. Although what has been achieved is remarkable considering the economic fallout that has struck the industry. Without shale, today’s tragedy would have been surreal. Shale is now the dirty oil and gas project that is considered a commercial failure in the industry and therefore abandoned by its authors to move on to clean energy and the harvesting of algae. So we’re told. Shale’s characteristics will never fit in a business model that was conceived in an era of energy scarcity. With its significant costs, high flush production and rapid decline curve. But we should also include the high costs of additional frac’s and laterals in reworking the well. It is these costs that are attributable to the failure of the commercialization of shale. These are the costs that are on display in each of the producer's property, plant and equipment account and will remain there until at least 2045. The era of abundance that shale has brought about demands new business models in order to deal with the difficulties of chronic overproduction, unacceptable financial performance, highly competitive capital and dynamic commodity markets.

People, Ideas & Objects, our user community and the service providers are preparing that solution in the form of the vision presented in the Preliminary Specification. One that provides for profitable energy independence everywhere and always. And to do so in the shale era of abundance with the appropriate business model that deals with the specific issues presented. The only source of capital large enough to approach the demands of the industry in the next generation is to ensure that profitable operations are conducted throughout the continent always. The demand by industry for capital is too incomprehensibly large for the investment or banking communities to undertake. In a capital intensive industry it is reasonable to expect that the product costs that are passed to the consumer will also contain capital intensive costs. Such as the capital that’s listed, stored, admired and collected on today’s producers' balance sheets in property, plant and equipment. Originally producers claimed not to want to see their costs escalate to the point where renewable resources were viable. Now they actively seek to divert oil and gas revenues to develop these clean energy initiatives. And do so in an unauthorized manner. And as we see above, this diversion establishes their initiatives in clean energy will be a success from the point of view of creating unaccountable losses as part of the need to save the planet. Who could ever argue with that? 

The compelling case that Greta Thornburg has put forward has captivated the CEO’s and CFO’s of this industry. She was wise to use Biden’s favorite strawberry shampoo when she met with him. This is not our business. This is not our concern. If the consumer believes in the environmental degradation or not they can act as individuals to do their bit to resolve the issue. I feel if it should ever become a trillion dollar industry it will be resolved. And not an industry based on subsidies and passing paper around that represents value in the form of taxation or regulatory credits. Consumers are the net benefactors of each barrel of oil consumed. Each barrel is currently generating 23,200 man hours of mechanical labor equivalent. It is the source of our advanced society, standard of living and the reason we’ve advanced as we did in the past era of energy availability. We can expect that factor of man hours to probably double in the period to 2045 as it has doubled many times before. We can also expect the 21st century to be an era in which intellectual thought is leveraged on top of the mechanical leverage of the last century. So we’ll need to explain to Greta’s gang and the consumers who choose not to believe her, that by standing with the status quo clean energy focused oil and gas producers, why we're shutting this highly productive energy future and lucrative standard of living off from them. A future where the 7 - 8 billion people who depend on that mechanical leverage for their food and the like will need to be told to rationally stop fighting over it. Tell these people why these producers, who diverted oil and gas revenues to clean energy, had the right to make these decisions on behalf of the planet and to circumvent everyone's choices of how they’ll consume energy. Or we can get on with our business at hand, start making a profit so that consumers can enjoy what we produce. Or not, it’s the consumers choice. Our role is to produce profitably. These environmental issues will be resolved by the trillions of individual consumer choices based on science from real scientists, markets, prices and on the opinions and concerns of each individual consumer as it affects their own personal domain. That’s how these things are solved. Until then let's stop scaring the kids for no reason.

Producers otherwise have lost the script. How we became so convoluted, confused and conflicted is unknown to me. Amusements and distractions have certainly entertained but nothing has generated any value in the past three decades of the oil and gas industry, in my opinion. Even today it does not have a viable business model, plan or vision. If oil should reach $600.00 / barrel, I don’t see this industry being viable with its current configuration, business model or administration. Where will the trust, integrity and confidence or the reconstitution of these attributes come from? Maybe I’m wrong and the only concern is the money, which is true, but there is no money there, and won’t be in any configuration of their future. Throughout my writings I’ve established these producers are headed by those that don’t necessarily have a script that’s legible, intelligible or in existence. They’ve foolishly believed they were building balance sheets and balancing markets, along with a litany of other specious business principles. What I see now is it’s time for a decision to be made between which vision is the appropriate one. The Preliminary Specification or theirs. I believe I’ve made the case for the Preliminary Specification, our user community and their service provider organizations and am looking for the financial support necessary to build and implement our solution for the industry to execute these necessary changes. The only thing I see coming about as a result of these current producers, no matter the price of oil or gas, is that bottom feeders are getting fat and happy off these fools and their money. Or is that your money?

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Is It Really Covid and the Service Industry?

 People, Ideas & Objects are in the process of documenting the justification to decide for an industry wide transition to the vision of the Preliminary Specification, our user community and their service provider organizations. We find in this changing global business environment of today, that money is now on the table of the oil and gas industry, for the first time in probably a decade. The potential boom in the boom / bust cycle. Are we satisfied with the status quo’s performance and history? Does that provide for the future of what’s necessary, or should we make a change? Have we had enough of the lack of performance, excuses, blaming and viable scapegoats from those that have had the authority and responsibility to make these changes. Yet have always chosen to do nothing but reap the personal benefits of their position. WorldOil has an interesting article entitled “Record operating costs are slowing the U.S. shale drilling revival” that mentions the difficulties that producers are having sourcing the necessary resources, from roughnecks to engineers, to deal with their demands. They attribute the lack of the availability of these people to the covid virus. From World Oil. 

Hiring has become a big headache for oilfield service companies trying to meet increased demand from explorers. Of those reporting difficulties in attracting workers, 70% blamed it on a lack of qualified applicants. Wages are up 20%, and companies are poaching employees from competitors, according to an unidentified survey respondent.

“Labor is causing major problems,” the person said. “We are finding it difficult to increase prices to match our increase in costs.”

I don’t know about the rest of the industry, but I’ve seen enough. In terms of making the decision as to which group you would want to leave the industry's management to I choose the People, Ideas & Objects user community and their service provider organizations, these two paragraphs reflect everything we need to know. The implied and stated reasons for these difficulties is the virus and wouldn’t you know it, those dastardly service industry representatives again. Increasing the producers' costs, cutting their capacity and making their life difficult. First let's cut the excuses, blaming and viable scapegoating that we’ve heard nothing but from these bureaucrats. They obviously won’t stop doing it so let's stop them by following People, Ideas & Objects plan to implement the Preliminary Specification. Next is the virus which is only 18 months old, which I only mention as the difficulties of the producers do exceed this 18 month time frame by several decades. And I don’t understand their concern, why do they care about oil and gas, they’re in the clean energy industry now? Understanding the holistic nature of the difficulties, their approach is not preparing a solid foundation for innovation to be fostered or developed.

If we want 25 more years of this management style we’re being treated to it here today in all its glory. Nothing will change from here. The second quote above is from an “unidentified survey respondent” in the service industry. Isn’t it interesting that producer firms are once again squeezing vendors for discounts and not allowing any of the service industry's costs to be passed through. It’s as if the service industry is an enemy and not an extension of the producer firm. On the one hand they can’t get the suppliers, on the other hand they’re unwilling to pay the market rates. Sounds to me like there's more to the producer's actions here. Looking for a political scapegoat as to why they can’t increase production. Let’s not look back and review why a secondary industry, such as the service industry, suffered over the past six years and three decades when the primary oil and gas industry it operated exclusively for unilaterally slashed their capacity requirements by 75%, demanded 50% discounts and expected 18 months to pay the bills. Snapping fingers and barking out orders when there’s no one in the room is not effective. 

Back in December 2013 when the Preliminary Specification was published I was told many times that profits don’t matter. It’s cash flow. Therefore they weren’t interested in what I was selling. Profits being their excuse at that time, what they could blame and use as their scapegoat at that time. Capacities and capabilities are an inherent part of the Preliminary Specification, particularly in areas such as the Research & Capabilities module. When the financial destruction of any industry continues, it’s well known in the business community that this will quickly move to deprecate organizational and industry wide capabilities and diminish throughput capacities. In addition to the profits that were always missing as a result of specious accounting, People, Ideas & Objects discussed these topics of capabilities and capacities as a warning to the producer bureaucrats as to what would happen if things continued on their downward financial trajectory. These weren’t argued or addressed in any way. Could it be that they didn’t understand?

Now that producers are faced with the overnight existence of these issues. We should now believe, because they’ve stated the obvious, that these are in fact the difficulties they face. Do we want those that caused these minor problems to become manifest in this crisis to be the ones who resolve them? Those that possibly feigned they didn’t understand, for their own vested interests. The need for profitability is always a concern and without it leads to a decline in capabilities and capacities. Leaving the issues in the hands of those that authored this seems just as irresponsible, particularly with the new found financial resources that will be generated and diverted to at best “clean energy” initiatives and unaccounted for failures.

The issues that I see today are time. Which includes the acceleration of time in our current and future business environment. The lack of time in terms of producers pace in plodding along and muddling through by our now consolidated good friends. And finally the producers lack of preparation in terms of their plans for any oil and gas, or clean energy future. Bumping into critical issues a decade after the fact is not how the management of a primary industry of this scope and scale can be operated. Bureaucrats only actively research new excuses, reasons to blame and possible viable scapegoats to use. In our last post I asked if the producers had made changes to their strategy to adopt the economic principle of price maker in their operations. I think today we find the answer to that question in their chronic inability to manage the business. 

Of all the labor shortages that are wreaking havoc on the U.S. economy -- from cashiers to chefs -- few are as thorny or potentially as permanent as the one that has a grip on the oil sector. Thousands of roughnecks and engineers are wary of returning to jobs like the ones they lost when the pandemic sent the price of crude oil crashing last year.

The mortgage needs to be paid next year and the kids will be hungry then too. What guarantee is there that the job will exist then? None, no record of performance exists. No admission of their responsibility in the demise of the industry. And no change in behavior. Status quo begets status quo. 

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Priority One in North American Oil and Gas

 Is it possible the bureaucrats have taken the advice inherent in the Preliminary Specification to heart? Accepting oil and gas commodities are economic price makers and that North American producers' chronic overproduction has caused these prices to collapse over the past number of decades. Have they now determined that this may be the key to a new level of prosperity for them if they were to adopt their own price maker mechanism in some form as their strategy? What I stated in Tuesday’s blog post is valid and understandable by most people, “you can’t get blood from a rock.” Which is possibly the most common saying but there’s many others. No one’s interested, unless they occupy that obscure group known as auditors, in metaphorically kicking dead horses. With signs of life being evident in the price of oil and gas. I would have to say that it’s primarily driven by a renewed belief that clean energy is not going to carry the freight and we’ve all maybe misunderstood, as consumers, the real value of oil and gas. The Texas snow storm was the beginning of this realization. California is always a leader in such things and Europe, who has been one of the largest proponents of clean energy these past decades, are each experiencing their folly and consequences of their prior bad decisions. And it’s only September. I’ve quoted this specific quote of Winston Churchill’s a number of times before. It may be appropriate to review it again.

In Churchill’s speech we may be reminded of certain human characteristics which have not changed after all these years: “There is nothing new in the story….It falls into that long, dismal catalogue of the fruitlessness of experience and the confirmed unteachability of mankind. Want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusion of counsel until the emergency comes, until self-preservation strikes its jarring gong—these are the features which constitute the endless repetition of history.”

The more important point to make is that instead of being the lost cause and everybody’s second cousin that you don’t necessarily have to talk to. Oil and gas is now everyone’s favorite son. There’s value being seen again and the potential for an alleged amount of free cash flow being generated. This has two detrimental effects for our good friends, the bureaucrats. The first, which they may not have foreseen, will have them reflecting positively on the times where oil sold for negative $40. This first effect is the new level of expectations the capital markets have already placed on producers. They’re going to have to perform now. Where is the upside in investing in the firm? If a stock offering were to be prepared, who would be interested in paying these higher share prices? And they’ll need to be accountable for that performance with the expectation that they’ll meet or exceed the capital market returns available from other industries. Unfortunately they’re now on record as of August 31, 2021, just one month ago, with their decision that proves they can’t, won’t and will not ever make the changes to commence the effort to begin to account for their actions. That leaves them relying on their legacy and historical record of performance as to how they’ll manage the future of their enterprises. And their shareholders can take that to their virtual bank accounts.

The second point is the money itself. And more importantly who outside the bureaucrats will ever see it. Will oil and gas continue to provide these persistent bureaucrats with the means to continue expanding their wealth. Knowing how to avoid disintermediation has turned out to be a far more valuable business for them. Or will producer firms begin to be rebuilt by the investors in the vision of a dynamic, innovative, accountable and profitable footing as offered in the Preliminary Specification? I have documented the specious nature of the oil and gas producers earnings that were reported. With this alleged money now on the table the fight will begin in earnest. The two combatants positions are well defined and could not be in further opposition with one another. On one side is the oil and gas investor, who on a wholesale basis suspended their support of the producers starting in 2015. Banks are of a similar mind. And the producer firms themselves who have done nothing to remediate any of their past actions, performance or accountability, they’d muddle through as their holistic strategy. Who are now on record to not be seeking heightened accountability as their response to the direct request from their investors. Producers who have turned their back on oil and gas when they were no longer able to provide a future vision that was viable and commercial under their management. And in unauthorized fashion shifted the focus of their firm's to the “clean energy” industry. These are the positions of these two adversaries and the acceptance or rejection of either will be sorted in the short term. And I would suggest the resolution of this point will be the industry's first order of business. 

As background we have an industry that is operated on the basis of ERP systems that are designed, mostly through financial neglect that is deliberate on the producer bureaucrats behalf, to be part of their overall opaque accountability. Systems that are not provided by tier 1 ERP systems providers or developed within the past few decades of this century. It has been an expressed request by the investors that the producers adopt a tier 1 ERP system such as Oracle Cloud ERP, the base of the Preliminary Specification, to begin managing their operations and to make them accountable. Producers' choice to keep the existing ERP systems providers on a starvation diet since 2005 has been effective. Therefore never creating any competing capability or capacity to their franchise. Yet there has been a technological revolution that is leading to new, innovative and dynamic business models that are transforming primary and secondary industries throughout North America. Disintermediation is resisted by the status quo in all of these industries that are subject to its principles. Resistance to disintermediation can best be achieved through the budget process to solidify the ERP’s systems support of the bureaucracy. Organizational change therefore is otherwise impossible.

We have a record of performance in oil and gas that is well below sub par and wholly misrepresented in the financial statements of the producer firms. This misrepresentation continues with a cover up being obscured through the lack of appropriate systems development. My competitors have done remarkable work without even scraps being thrown their way. Now we have two well defined visions of the next generation of oil and gas. One involving continued unaccountably, poor performance and an abandonment of the primary business of oil and gas for the pursuit of a new industry in which producers have no capability or capacity. That being their commitment to clean energy. Where failure will somehow happen daily but never discourage those who are committed to saving the environment. Who will argue with that? The other being the Preliminary Specification which is designed for the commercialization of North American energy independence, which includes shale. Has a defined value proposition that deals with these issues and sets the industry on an appropriate course of action. Does anyone in the industry argue that profits are what are needed and the lack of profits are what have brought us to this disaster?

There’s going to be an ever growing stack of money being made by someone. If we expect those that have authored the damage and destruction of the industry to this point. Who have shifted their focus to clean energy in hopes of sealing a future of absolute unaccountability. Who have violently, from my perspective, resisted the opportunity to orchestrate the change voluntarily and set the industry on an appropriate trajectory. If you believe the producers, then there’s good news, you’ll no longer have to read anything that I write. If you believe the hype coming from the boom birds who’ve brought these claims to us before and then only invoked the excuse, blaming and viable scapegoats as to why it failed. That could be sooner than you think. This will be the 146th declared boom from these people in the time that I’m aware of. Theirs has worked before, I hope for everyone's sake that we don’t get fooled again.

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

What's the Definition of a Mirage?

 Something illusory and unattainable.

Synonyms include delusion, illusion and hallucination. I would suggest Merriam Webster add oil and gas profits. And so it begins again, the carnival barkers can be heard throughout the industry calling to get on the bus and don’t be late. At the time of this writing our sample of producers stock over the course of the third quarter were up 3.47%. The question that I have is. If we do have a good year in oil and gas, making for a grand total of six good years out of the past thirty six. Does that mean we're in for another run of five bad years right afterwards?

It may be the consequences of Europe’s pursuit of clean energy over the past decades. Maybe it’s the fact of the completion of the Russian / Chinese pipeline that became operational in December 2019 drawing down Russian storage volumes to critical levels this summer. Maybe it’s that Russia is more concerned about ensuring their people are supplied with natural gas during this winter. And have temporarily suspended some shipments to Europe until November 1, 2021. Leaving Europeans scrambling for natural gas supplies to meet their clean energy shortfalls in today’s relatively mild September and October weather, as opposed to cutting them off during December and January freezing conditions. I’ve read some projections of gas prices topping $100 in some areas. Oddly enough the chants that this time it’s different and prayers for a cold winter have begun. I’m not suggesting this is like the last declared booms that did or did not occur in oil and gas. Clearly, today’s date is different. Could of, would of, should of… Instead I suggest we see some financial and operational performance over a sustained period. Performance that shows its meaning has been accepted and understood by those that have refused to do so in the past. Projections of oil and gas nirvana are the mirage that they are. Without any facts or plans, relying on if, maybe, might or the next snow storm are possibly…  

Bureaucrats may have believed that the Russians, like the Saudi’s they’ve belittled over the past decades, could learn a thing or two from them. And neither have learned anything about how to “manage” an enterprise, or conduct any serious level of damage or destruction to their industries. In this latest example of the Russians we see both theirs and the Saudi’s propensity to put the horse ahead of the cart in their business approach. Establishing markets for their products. Building pipelines to those markets, filling those pipelines over a short contractual period of a few years while they develop the actual oil or gas to fill them. Ludicrous isn’t it! That’s not the way you destroy money and if they refuse to learn what good is it trying to teach them?

Producers may have believed they survived the difficulties of covid and the self-inflicted investors strike, the downturns of the past seven years in oil and twelve in natural gas. They’re unauthorized manner of diverting oil and gas revenues to clean energy “investments” is just another way to facilitate another generation of their unaccountable methods. Alternatively they may want to hold on for the real fight. It's not that People, Ideas & Objects will be offering up that fight. We’re done fighting, it’s only sport now that I point out their deficiencies. We’ve asserted our solution and user community to these difficulties and proven our case. We have our responsibilities to build the Preliminary Specification and all that has been detailed below. When there’s money on the table, or Free Cash Flow as they’re calling it today, that’s when the weapons are sharpened, bullets are loaded and the fight begins in earnest. Producers have been in the sights of those that have consistently expressed their distaste with their methods. Only to be ignored and abused further. Producers have a legacy of audited financial reports and continued accounting methods that reflect a financial performance that did not and is not occuring. They are wholesale misrepresentations. It is these same audited financial reports that reflect the past four decades of their administrations were spent destroying all of the value, faith, goodwill and trust within their organizations. It might be appropriate for me to suggest it was less than a month ago that the boards of directors, who represent the shareholders, did not consider the opportunity of implementing the Preliminary Specification to enhance their profitability and accountability. Their best plan at this point might be to think of an answer to when their shareholders' begin asking why? Their shareholders have two things they did not have before. A plan on how their solution in the form of the Preliminary Specification and associated communities can be brought to market. And the unimpeachable knowledge that producers' behavior has not, can not and will not ever change. 

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. We’ll all be helping current producers to travel faster down their chosen journey to clean energy. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Production Rights Announcement

 People, Ideas & Objects have been busy these past few months transitioning our initiative to a more sustainable foundation. One that will be more viable as a business concern and not dependent on the existing producers' good faith. We began this transition in late June 2021 with a series we carried until the end of July that documented how we would respond to an RFP (Request for Proposal) if we were ever asked for one. We of course never were expecting to receive one, however this exercise sought to differentiate our solution from the competition in the identification and support of the five primary Organizational Constructs inherent in the Preliminary Specification. In summary these consisted of the Joint Operating Committee, Markets, Intellectual Property, Information Technology and the support and expansion of Specialization and the Division of Labor. To name just the highlights. I directed the RFP at the producers Boards of Directors as they’re the ones that ultimately make such material decisions such as which ERP system the firm will use. I then placed tight deadlines on the producers knowing full well they would never comply with the logic and common sense of our RFP or the Preliminary Specification and we would then be able to disengage from them in terms of any obligation of having to work with them. Our legacy has been the thirty years of trying to do exactly that to resolve the issues that have fundamentally destroyed the financial, operational and political foundations of the industry during their watch. Issues that have been evident and present on the global stage since 1986, with our Preliminary Specification addressing them specifically and itself being published December 2013. We did not see placing strict timelines on these boards as unreasonable. In our opinion they’ve had many decades to contemplate such decisions.

Our writings then moved on to expressing the consequences of not moving forward with the Preliminary Specification from the perspective of People, Ideas & Objects. It was this perspective of mine, born of frustration and disbelief at the cumulative damage and destruction that has been caused, that possibly jaded the marketing aspect of what I was selling in those August 2021 blog posts. I then detailed our new plan, which is not fundamentally different from the old plan except for the one critical difference that was identified. It still consisted of our user community driven software development, conducting the industry wide structural changes of moving from the producers fixed cost accounting and administrative capability and capacity, to an industry based, variable cost, accounting and administrative capability and capacity. Managed by the user communities service providers through the 13 modules the Preliminary Specification. 

The change in our plan is the method these developments are funded and what those who were funding them gained in return. We first documented the beginning of the idea of “Permission Rights” in our Initial Coin Offering in an appropriately named blog post on September 11 of 2017. What the Coin was designed to do was to enable its holders the exclusive right to access the Preliminary Specification of People, Ideas & Objects and the services of the service providers to have their accounting and administration managed by the systems they were financing. The advantages of doing so were comprehensive and built value for the prospective coin holders in the following manner. The commodity price differentials between what the status quo producers have accepted throughout the past 35 years they’ve been operating their firms and what the real costs of oil and gas production are, is well documented in their published financial statements. They’re past acceptance of these is the precursor to future behaviors. Therefore we can establish a base case of what was and would be accepted by them vs. what the market prices for oil and gas will be as a result of the operational Preliminary Specifications decentralized production models price maker strategy would provide. That commodity price differential is also called People, Ideas & Objects et al value proposition that would have in turn financed a fee paid to the coin holder by the producers to access our software and services. We were attempting to monetize our value proposition through access rights to our solution. The coin holders would be granted the rights to produce x boe / day. Therefore the existing producers would need to aggregate the necessary “Processing Rights” to have access to the system and services which made them profitable. The assumption at the time was producers would not want to be asked by their shareholders why they were not profitable.

This went over like a lead balloon in the producer firms. And for reasons other than the coins viability we pulled it in March 2020 due to the crypto currency market and covid induced collapse of the producers. There is a nugget of logic contained within the basic idea that could be used to finance not only the much needed development of the software and user community. It would also enable those who acquired what we are now calling “Production Rights'' the ability to process their accounting and administration through the software and services they funded, but also manage their production and exploration processes in a dynamic, innovative, accountable and profitable way, everywhere and always. In turn earning the Production Rights holder, not just a fee from the differential, as with the former Permission Right, but the entire differential from the price of the accepted status quo producers behavior and the market price under the Preliminary Specifications price maker strategy. This may be achieved through the leverage provided by the Production Rights to exercise the movement of the existing producers' poorly performing assets to their own ownership, under substantially different financial conditions. Theirs being profitable where in essence the entire $25.7 to $45.7 trillion People, Ideas & Objects value proposition over the next 25 year period of operation would be earned by these new asset owners, the Production Rights holders that evolved into the new oil and gas producers. 

The behavior of past producers is evident today in their giddy approach to the news of their staunch efforts and the hard work they’ve undertaken to better manage their firms, or is it just the market conditions temporarily raising the price of oil and gas again. Soon we’ll also see their response, which may miraculously look much like their response was in the past. Is consolidation the workable solution for them to strengthen their self interest and enable their hold on power, or will we see something else? Nonetheless it’s on to clean energy all the time now and Shell has proven that by selling the one premium asset that drove the industry off the cliff last time. The Permian. We discussed a number of new and innovative possibilities as to how the “Production Rights” holders could begin these asset transfers in the discussion of our blog series “Oddly Enough, That’s Not Much Different Than the Old Plan” this September. Starting with non-operated participation in Joint Operating Committees. Understanding how banks are so pleased with their loans performance, what motivation would induce them to move the assets to a more profitable ownership. The sky’s the limit in terms of what’s possible to transfer these assets in my opinion. 

In terms of adding exploration and production aspects of a producer firm to the list of administrative and accounting, this isn’t anything new to anyone who may have read the Preliminary Specification in detail. There was only one change made in that blog post series that was not in the specification and that was detailed and identified. The E in ERP stands for enterprise and if you're only handling a part of a firm you’re not ERP in my opinion. The problem we discussed in that series was none other than the looming shortage of engineers and geologists that is well known and discussed throughout the industry. The only solution to this is what People, Ideas & Objects have proposed in the Preliminary Specification and is resolved through the use of the Intellectual Property construct of developing the explicit science and technological knowledge of the industry. A knowledge base that has been ignored and left to atrophy for reasons that are documented there. One in which is open to the engineers and geologists to acquire themselves and establish their own producer firms, IP operations and service organizations to deliver the tacit knowledge associated with the explicit knowledge they’ve documented that forms their IP. People, Ideas & Objects hopes to have motivated the further breakdown in the technical resource base of the existing producers. Both from the point of view of the Intellectual Property and as the motivation and commitment of the engineers and geologists to conduct these IP related activities. And therefore would form the science and technological resources of the new oil and gas industry we’re constructing. 

I believe that People, Ideas & Objects, our user community and their service provider organizations have taken a balanced approach to the industry to ensure the industry is provided with the most dynamic, innovative, accountable and profitable oil and gas operations everywhere and always. Profits are what make the industry prosperous and healthy, and profitability from a reasonable, timely and accurate accounting basis. Without these profits the greater oil and gas economy suffers unnecessarily and that only leads to greater issues. There would be no one outside of the self interested bureaucrats that would argue that “real” profitability is what has been missing and must be restored immediately. Profits are the only source of funding the industry will have to resurrect itself. The credibility, ethical nature and trust that has been destroyed over the past decades will take at least a decade of prudent management by our good friends to prove otherwise. They’ve chosen not to be concerned with profitability and they’ve not responded in any way to the demand for more accountability from their shareholders. What is it that we’re expecting? Or are we to play the fool again in two years by giving them one more chance today?

At the same time People, Ideas & Objects plays in a number of critical dialectic activities. To ensure the consumers are provided with an abundance of energy at affordable prices. Oil and gas is the reason that the mechanical leverage we prosper from is possible. It will be the most powerful economy in the world that will also be the largest consumer of energy. Therefore our obligation to ensure profitable energy independence needs to be considered as part of what we’re undertaking. This demands that innovation on the science and technology of engineering and geology be at the forefront of the activities of those involved. Structured innovation within the industry and structuring it within the firm are the critical means in which innovation comes about. To suggest that it just springs out of air is foolhardy in the extreme. Controlling and guiding it, ensuring that it isn’t pursued over and over again with the associated redundancies and cost drain. Where those that work the hardest for the biggest developments are rewarded and recognized for their achievements. Not robbed and castigated as they are by today’s bureaucrats. These are how People, Ideas & Objects Preliminary Specification, our user community and service providers are undertaking to solve the difficult issues of oil and gas. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

People, Ideas & Objects have determined that these Production Rights are sold on the basis of our revenue. The value earned is in the differential and the leverage provided. We’ve identified that the target market for those that could participate are all of those that fall outside of the current producers bureaucratic clique. Outside of these points we have not decided on anything and would need to know what it is that others see as possible. As soon as we’re able to generate revenue the quicker we’ll begin these developments. Please contact me through the means that are provided below. 

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined GETTR and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.