These Are Not the Earnings We're Looking For, Part LXXII

 Elections for the U.S. House and Senate will be held in early November 2022. The premier issue will be the price of gasoline in the United States. OPEC+ seems to have learned the detrimental lessons behind the overproduction of commodities that follow the principles of price makers. They continue to supply the market with reasonable increases each month. A more moderate approach than what has been done before. North American producers may have learned the same lesson, although the financial devastation they’ve caused their producer firms, the “hilarious” comments from the Biden regime, or clean energy being bureaucrats true calling. The lack of response to the higher commodity prices is difficult to discern why their response is as muted as it is. There is one other possibility, the lack of capacities and capabilities in the service industry. And although producer bureaucrats did so much of the hard work and effort that was needed to turn the business around and to report their specious profits in the third quarter of 2021. The same kind of profits they’ve been reporting since as early as 1983. They seem to know and understand that they’ve authored their own demise to coincide with these escalating commodity prices, the democratic party vaporizing and gasoline prices revealing the fallacies of the green agenda. It’s a different quarter but with a new twist, hedges. Those current, non-cash items that don’t appear in their “non-gaap” earnings quoted in the markets. 

It could be argued that I see the financial situation in oil and gas a bit differently than most. My bias arises as a result of opinions formed decades ago and the fact that I’ve banked everything I have on what I believed to be an existential issue that would eventually destroy the North American producers and everything, that is everything associated with it. As of a few years ago I believed we reached the point where the financial damage was so detrimental that nothing, that is absolutely nothing, could return North American producers under their current administration to prosperity, ever, and I mean for all time. 

It is through the review of our sample of producers' third quarter financial reports that I see a trend where accounts payable are ballooning by 10.46% just from the third quarter of 2021. Which I realize now is its own 20.84% increase in accounts payable for just the second quarter! A 33% increase in 6 months. Why? We saw this a few years ago when producers sought to continue their capital programs by using the good will of the service industry. Paying for their capital expenditures programs on an extended 18 month payment cycle. Capital programs producers were unable to finance in any of the more “traditional” ways. Due to their financial current position and the volume of capital expenditures that are now being undertaken we know that’s not happening again. So what is causing this bloating of accounts payable? I believe it is the inter industry trade payables and receivables associated with the joint interest billing between producers. Accounts receivable in the third quarter of 2021 is up 6.56% in the third quarter. The second quarter was also up by 14%. One would not rise without the other if it wasn’t the joint interest billings. Operators who are in some cases incurring the operating costs on behalf of the joint account are also leveraging their gas and oil contracts for all of their working interest partners' production in the property. The more production they control on behalf of their partners the better terms they can negotiate with buyers. Therefore the joint interest billings represent the net operational proceeds of the production for the property. These payments are made monthly to their partners based on the prior production months accruals. People, Ideas & Objects suspicion is that these are the reasons why these a/c payables accounts are ballooning, and why the associated accounts receivable are doing the same, somewhat in concert. In terms of materiality, accounts payable have now ballooned beyond the amounts during the abuse producers exercised against the service industry. The question therefore is why would producers, if our suspicions were true, be holding the net proceeds of their partners? The counter argument of the consolidation of producers may not hold when it is realized that production of our sample is up 0.21% in the third, and 9.45% in the second quarter.

I have argued against the use of hedging before. With People, Ideas & Objects there would be no need to have such derivatives contracts when all production is produced profitably everywhere and always. The implied guarantee of the Preliminary Specification. I see that hedging is used by bureaucrats to instill the level of mediocrity that they seek. If the producers see that the outcome of the firm is predetermined to be x profit based on a hedged price of $60. Why would they seek to outperform or enhance the producer's performance? They wouldn’t because they knew they couldn’t. The only thing they risked was making mistakes that ended up costing them and they’d be responsible. The mindset that has spawned the “muddle through” strategy. When it was learned many decades ago that specious accounting enabled profits to be whatever “management” determined them to be, they knew they could call upon any performance criteria they needed to satisfy the demands upon them. Hence the industry's cultural degradation commenced. This led to the first overproduction related oil collapse in 1986.  

Many of today’s futures contracts were entered into by the producers just after April 2020 when the price of oil dipped to negative $40.00. Spooked and looking for some solid ground the majority of the contracts are substantially below the current commodity prices. Placing the producers on the hook for paying a reasonably high differential in comparison to the current price of $82.50 for oil and $5.50 for natural gas to the hedged price. The value of these losses, both realized and unrealized, for our sample of producers in the third quarter increased from the second quarter's loss of $8.964 billion to $16.879 billion. Almost a doubling of the losses with the majority, about 80% being unrealized. Recall our sample of producers represent a diversity of the North American based producers that are responsible for 11.007 mmboe / day. Many of these contracts extend for many years, however continue almost unanimously through 2022. Causing an enhanced demand for cash, during a time when investors and bankers are not interested in helping out. Seeking financial assistance to cover the differential on these contracts is not going to draw either of those parties back to the table. The reason this is such a material issue is to the larger point of not being able to and having no capacity to increase production to meet resurgent demand. At the same time OPEC+ are slowly returning their production to market. Causing further upward pressure on prices throughout the next few years, and hence larger losses on these contracts.

As we’ll see when producers turn to cannibalizing their working interest partners we can only think it’s time. I could always be mistaken about my suspicions. However, I would put my record of accuracy in identifying issues and providing solutions such as the Preliminary Specification against the bureaucrats' lack of caring about the business and self aggrandizement over these past 30 years. Their renewed vision of clean energy and capitulation of North American oil and gas’ viability, including shale. These latter points are almost secondary or minor points in my argument. 

Please note that Conoco is a member of our producer sample. They do not hold any of these contracts. Have therefore not incurred any of these losses and their working capital represents 109% of our samples total. Their cash is approximately $10 billion and are by far the healthiest position of all the producers we sample. Interestingly their accounts payable and receivable accounts also escalated in concert with the other producers. (13.45% in the second, and 28.21 in the third quarter. Concho’s acquisition was completed on January 15, 2021 causing Conoco’s a/c payable to increase 33.88% during the first quarter.) Showing this is an industry related, possibly trade payable / receivable issue associated with their joint accounts. I doubt Conoco would want to be the only one paying their bills in the industry. For three quarters our sample of producers had revenues of $195 billion and accounts payable were $76 billion. Representing 3.5 months of the producer's annual production or 255% of 2021 capital expenditures incurred to date. At a time when some commodity prices are healthier than they’ve been for a decade. Payables and receivables are ballooning uncontrollably, cash and working capital outside of Conoco are in decline. Cash and working capital deterioration have been a constant and systemic issue we’ve been arguing here at People, Ideas & Objects. If you don’t have “real” profitability you’re not building value and investors were used until 2015 to backfill the bureaucrats' personal take. I believe this current action is the bureaucrats reading the writing on the wall and attempting to shore up some cash by feeding off their own partners. No more excuses, no more blaming and no more viable scapegoats. It's a simple matter of eat, or be eaten. 

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. 

The Neighbors Dog Ate Today's Post

 The dog somehow got in and shredded it. Was one of the best written, top 10 for sure, maybe even top 5. I'll have to recreate it and post it on Monday. Second post for the week will be on Tuesday and then will be taking the rest of the week off. 

These Are Not the Earnings We're Looking For, Part LXXI

 Producers are having their bluff called in their third quarter reports of 2021. None other than Royal Dutch Shell came under criticism from Third Point hedge fund manager Dan Loeb who has taken a position of $500 million to a $1billion in the company. What producer bureaucrats have done to themselves is quite evident in a series of articles on the subject. To start things off Mr. Loeb sent an Investor Letter that stated.

Shell has too many competing stakeholders pushing it in too many different directions, resulting in an incoherent and conflicting set of strategies attempting to appease multiple interests but satisfying none.

At this point no concrete actions are recommended by Mr. Loeb, such as new directors or proxy action. He did suggest that as many as four divisions, or separately traded entities should be the result of the breakup of Shell. I see this more as an invitation for other investors to join him. The title of the CNBC article is “Shell vs. Dan Loeb: It’s Open Season for Investors on Big Oil’s Future,” spelling out a rather interesting next few months. 

People, Ideas & Objects have been arguing that producer moves into clean energy investments are unauthorized and wholly unacceptable. If investors believed in clean energy they’d sell their oil and gas producers and buy into the clean energy industry. They don’t need bureaucrats to make those decisions for them. Nor do they ever desire to have bureaucrats make changes in the focus of the organization, whether that is a change into clean energy or to compete with WalMart. I’m still waiting for the fire proof set top boxes for Enron’s broadband Internet service. Taking revenues from oil and gas to fund other businesses is inappropriate, should never be done and certainly never without the express authorization of shareholders. Of the North American based producers, I’ve seen none of them authorized in such ways. The facade of a board of directors vote in last year's Exxon annual meeting I feel was a contrived effort to show the world that Exxon was moving into the clean energy direction at the behest of its shareholders. Again if shareholders want to invest in clean energy there’s nothing stopping them. Reflected in the CNBC article Shell’s bureaucratic attitude is on display. 

“A very significant part of this energy transition is going to be funded by the legacy businesses that we still have,” Shell CEO Ben van Beurden said on the call with reporters from multiple publications on Thursday. “If you want to exclude us from it, I don’t think it will go as fast as it would otherwise go.” Being able to replicate its strategy would be more difficult across multiple companies, he said, but the argument that the balance sheet of the legacy firm is critical to energy transition remains harder to prove in the short-term when the majority of its cash management goes back to shareholders as in the Permian deal.

The Permian deal was Shell selling all of its Permian assets to Conoco for $9 billion. $7 billion of which was a dividend and $2 billion was believed to be committed to clean energy. Later in the same article it shows the pickle that bureaucrats have put themselves in. Why People, Ideas & Objects are against the diversion of oil and gas revenues. And why it's no longer acceptable that corporations make these types of decisions on behalf of their shareholders, since at least the 1980s. 

The traditional ethos of the oil and gas investor is to hold the stock with the expectation that you will suffer through bad years in the cycle when oil prices are low but when things go back up you will be rewarded and compensated for the additional volatility risk. And because of that, “it’s hard to say we won’t be able to compensate you now, you have to be patient,” Dalman added.

Shell is the first producer to be faced with the fact that any diversion of revenues from oil and gas into clean energy is never going to fly. This Forbes article, which is as consequentially titled as the CNBC article, “One Foot on the Dock, Why Breaking Up Shell May be Just the Beginning” goes into great detail as to why Loeb’s Third Point hedge fund is acting in its best interest in suggesting the breakup of Shell. Forbes analysis is based on the history of many other such attempts in other industries and their failed outcomes. Although it does not mention Enron’s broadband investment.

Recently in congressional hearings Shell’s North American President Gretchen Watkins did her best deer in the headlights routine when a congresswoman presented her with a mason jar full of M&M’s to demonstrate Shell’s capital expenditures in clean energy vs oil and gas. Not taking the opportunity to fully explain her point about reliable energy investments, and the mortal dependence the congresswoman's constituents had on the reliability of oil and gas. This is the failure of all the producer bureaucrats and they’re therefore the product of their own undoing. As Dan Loeb indicated, their conflicting objectives make them mute and unable to utter a coherent statement. Particularly in the face of such ridiculous presentations involving M&M’s. Their past promises to oil and gas investors who built these companies with the other “stakeholders” Loeb is discussing, are not fulfilled when the fruits of their efforts are used surreptitiously by unaccountable bureaucrats. But the ultimate conflict comes about by the fact that this entire contrived clean energy initiatives were alleged to have been at the behest of their shareholders. So now they’ll either have to ignore these same shareholders who bureaucrats claimed told them to focus on clean energy? Or tell the world their shareholders are now lying and their story has changed by wanting to break up the company. 

Notably Loeb stated the oil and gas part of Shell was being valued at close to nothing. When the CEO’s hide from their job of selling what it is they’re doing, pretending to be in other businesses, why would anyone place any value on that. Bureaucrats should welcome the changes that Loeb is initiating. It provides them with their much sought after and welcome home in clean energy. A clean divorce from dirty oil. A place where they’ll be able to live in peace and harmony with the environment and save the planet. Able to continue with their well entrenched “muddle through” and “do nothing” strategy and operating procedure in their chosen clean energy business. Well not so fast, they’re now stuck in startup organizations with no revenues and little prospects of profitability or ability to generate value. Let’s wish them luck nonetheless.

This is their ultimate conflict and contradiction. Shareholders have been demanding producers build value for them where their dividends and yields are competitive in the North American capital markets. In addition, shareholders have demanded producers begin using tier 1 ERP providers, of which the Preliminary Specification uses Oracle Cloud ERP as the base of our solution. Investors are aware of the nature of the accounting related problems in the industry. Investors are fully aware of the nature of how they were treated pre 2015. Investors know that producers can’t, won’t and will not ever approach the oil and gas business constructively. Bureaucrats don’t know how to make money and the damning consequence of the long term effect of this is their culture has no understanding of why, how or what to do to make a profit. They don’t have the necessary ERP systems available to tell them to determine what’s profitable and what’s being produced at a loss. The devastation they’ve orchestrated throughout the primary, secondary and tertiary industries affiliated with oil and gas are all severely damaged. For the past four decades the only prosperous area of the industry is the innovative executive compensation that has been paid to those who never had anyone but their own interests in mind. Those who had the responsibility and authority to profitably build the industry, and those who chose to silence and eliminate anyone that raised any issues.

Will investors be successful in their desire to break up these firms between clean energy and oil & gas? The ultimate message investors can send to management is to cut off a firm's funding. Oil and gas investors began doing this in 2015. Six years of “muddle through” later we see nothing has been done to acknowledge or address the specific issues and deal with the concerns their investors raised. The only thing leadership did was declare their favored shale investment and all of oil and gas to be untenable, prompting their move to clean energy. Diverting revenues to unauthorized and unrelated businesses where they have no competitive advantages, capacities or capabilities. Industries that have been proven to be financial sinkholes. Therefore I think it’s clear what will happen. Bureaucrats will be sent packing to their preferred destination. When the alleged leadership has other ideas and a direction that is counter to the business they’re in, don't listen or act, what choices are there? None. The entire oil and gas industry in North America and its secondary and tertiary industries have been devastated and cannibalized by the lack of profitability being generated in the producer firms. Bureaucrats may think they deserve another chance, I think that opportunity passed them by many decades ago. Back when they were passing their management off as value generating, when they culturally slipped into the abyss of not knowing what profits are, where they were being made or lost or how exactly to earn them within their organizations. Instituting a culture unwilling to change for any purpose and never at the behest of their investors. Their investors they’ve refused to respect or even acknowledge their existence. All in order to ensure the bureaucrats franchise of self aggrandizement remained intact. But then I’m biased. The one thing I hope to see more than anything is the officers and directors asking for a seat at the table. And as I was told by them when I initially proposed the use of the Joint Operating Committee in August 2003, they may find they’re “persona non grata.”

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. 

User Community Clarification

 Last Thursday I detailed a summary of a broader vision of the North American oil and gas industry with the Preliminary Specification. Within that I described an extension of the Intellectual Property development of engineering and geological understanding and knowledge of oil and gas. That description was fundamentally different to what has been developed in terms of the administrative and accounting IP of oil and gas in North America. There are reasons for that and as I mentioned on Thursday, today’s post will clarify the difference between the two and why those differences exist. The way that I see the understanding and knowledge of exploration and development in oil and gas Intellectual Property is that it is the wild west. Producers, in order to compromise all the known and valuable IP that existed in the industry, could not have any of that IP documented. It would be counterproductive to their overall strategy of using whatever they liked, where and when they liked without concern for the time, money and effort taken to develop the underlying IP. With the rebuilding of the industry under the Preliminary Specification we’ve thrown the cat’s amongst the pigeons and started the free for all, wild west situation where it’s up to anyone who can document what is known and knowable to build their organization around that foundation of geological and engineering of oil and gas IP. Whether that is as a producer in the new industry we’re building for themselves or as a consulting firm delivering their tacit knowledge as a service in combination with the explicit knowledge they’ve captured in the IP. The key difference in comparison to the user community is that this work will be earned by the engineer or geologist upon its publication. 

Intellectual Property development of the subsequent specifications that use the Preliminary Specification as its base are done within a licensed environment by authorized user community members. The same applies to the software code and binaries produced. As the owner of the IP of the Preliminary Specification I am able to contract out its development through licensing in order to prepare derivative works. The application process for user community participation is here. Our user community license is the process of how this IP is aggregated, made available and the authorship and ownership of the work conducted by our user community members. This work by the user community member is not volunteer. It is paid, part-time work that provides the user community member with a source of long term income for the remainder of time that the software and their service provider organization are operational in the oil and gas industry. It is this work that defines the details of the software and their service providers services. It is therefore iterative, continuously evolving and able to be enhanced. The majority of the user community members income will be a result of their service provider organization, which the user community license grants them the exclusive right of a process domain of the developed ERP application. User community members have the power obtained in the user community vision to affect the changes to the specification and software to meet future requirements and enhancements as they require. They will work directly with their producer clients to ensure they are providing the appropriate software and services necessary to ensure profitable operations everywhere, always, and as we described on Thursday, for everyone. 

In order for the user community members to have this freedom and power demands that they have access to the entire Intellectual Property of these specifications, software etc. With payment for their time I am purchasing title to their Intellectual Property from them. This ensures that the entire specifications IP is kept whole and as one distinct and complete unit. When producers use these software and service providers they’ll have no need for any cross licensing or other requirements. That would not be the case if each user community member was to have maintained ownership of their individual contributions. An untenable situation. In turn the user community license grants access rights to this entire base of IP and enables user community members to prepare their derivative works. This is the method that has been designed to deal with the IP aspect of the administration and accounting of the new oil and gas industry in comparison to that described in the exploration and production areas. But there’s more. 

People, Ideas & Objects have been commercially licensed to manage this Intellectual Property on my behalf. I am the rightful owner of it as it stands today and will be throughout the initial development through to the successful commercial implementation of the software. I use the IP to raise the budget for the development of the software which includes the costs of the user community. Currently conducted through the Production Rights that provide the exclusive right to use the successfully implemented software and service providers. Producers will need to aggregate the appropriate volume of production rights in order to process their firms ERP needs. Production rights owners will be using the smart contract of the underlying blockchain technology to manage and maintain their rights and revenues without their day to day involvement. I have structured the budget in a way where the first payment made out of the budget is to me for the royalties and profits of the work I've done to date in the development of this IP. I receive payment up front and am not looking for anything to arise down the road. The user community license includes with it a grant of the entire IP of all of this work to be a) kept whole and b) collectively owned by the user community members themselves. The IP will be available to them to continue their work in the same manner as described above and they will be the net benefactors of the work they did from the beginning of their involvement with the associated ownership rights. This will be an incremental value in addition to their part time revenues in the user community and full time efforts in building their service provider organizations. If it’s not complicated enough for you then let's stick some spokes in the wheels.

User community member XYZ has been part of the community for six months and it is reasonable to assume one of three possibilities. They’re either in over their heads and can’t contribute, are looking for a lucrative free ride or are alternatively we could have a scenario where, if we didn’t structure the IP in this way, a user community member could come in and make a valuable contribution and, sit back and wait to cross-license and litigate as their value proposition. What I am suggesting is that in either of these, or other possible scenarios, the licensing and management of the IP in the structure of this user community ensures that the user community itself can manage who contributes, and if they’re not able, free riding or implementing a value proposition inconsistent with the overall objective, the user community, under the license provisions will have the means in which to terminate the individuals license. The right to cull the herd will be a method that the user community will be able to ensure that quality is achieved and obtained in each and every corner of the work they’re doing. Vetting is not always able to determine the best candidate. A successful implementation is necessary in order to earn the IP grant. This management will be self administered by the user community and I would imagine that the first years may see up to 25% of the community being culled each year. 

This makes membership in the user community a privilege and not a right. Those that contribute are compensated appropriately and will need to perform to ensure producers are able to rely on quality ERP systems. Members of the community themselves will be able to know reliably they will not have to tolerate the inappropriate behaviours and antics of those that haven’t fully participated. They’ll also not have to carry any “dead weight” with them. If you want to belong to a high performance community, these are the methods that have been used to establish other organizations' performances. Success must be obtained when the stakes are this high and the dependence is wholly upon this user community's performance. The mitigating strategy for the user community members is it’s part time participation. We are building upon the depth of industry knowledge necessary to ensure the full scope and scale of the application is conducted correctly and in innovative ways. There is an opportunity to determine if you qualify, can participate, if this arena is your calling where you're able to make a contribution and a difference. There are risks, and I have worked to ensure that none of these are incurred unnecessarily, but what doesn’t have any risk these days.

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. 

Our Ground Floor Vision

 People, Ideas & Objects have painted a vision of how and what the Preliminary Specification, our user community and their service providers would structure the dynamic, innovative, accountable and profitable oil and gas producers to be. Recently in Organizational Constructs we noted how the Preliminary Specification uses five major structures to define and support the industry. These include the Joint Operating Committee, markets, Intellectual Property, specialization and the division of labor and the Information Technologies that are available today, such as the Internet. Expanding on these constructs to include the reorganization of the Intellectual Property of the earth science and engineering capacities and capabilities that are undocumented in the industry today. Offering a comprehensive organizational form which provides an ERP system to support exploration, production, administration and accounting. Setting out the gold rush opportunity for the industries engineers and geologists to document, publish and earn the copyright and therefore establish a foundation for their new applied sciences firm based on that Intellectual Property. In the process breaking down the foundation of the existing producers capacities and capabilities and setting up new ways in which the engineers and geologists will operate in the industry we’re rebuilding. Supported directly through the Preliminary Specifications Work Order system that captures their time and billing needs to manage the commercial aspects of their products and services. 

But there is so much more to what we’re doing, and what everyone involved in oil and gas could be doing. The primary industry of oil and gas directly affects many other businesses and industries that are critically important to the success of a profitable, energy independent North America. That is to ask the question, what business, or how are you employed today? Does it affect our objective of ensuring that all production in North America is produced profitably and always? And profitably from the point of view of recognizing all of the costs of exploration and production in a timely and accurate manner? That competes in the North American capital markets on a competitive basis? Then you will be interested in better understanding the overall vision of rebuilding the oil and gas industry based on your involvement in the markets that are forming, and need to form, to make these objectives real for the remainder of the time that we’re dependent on oil and gas. Those wishing to save the planet will have their own plans as they move on to their clean energy startups. Ground floor opportunities for everyone in energy! Just as The Constitution assures us that all men and women are created equal. This ground floor opportunity offers the same equal treatment today. However, unlike the Biden regime it does not suggest that equality of outcome is even possible anywhere or at any time in this or any galaxy that we’re aware of. 

The role of capital in a startup operation is massively diminished in the 21st century. Particularly when the acquisition of Intellectual Property is the foundation of a firm. Add to this the soon to be standard working from home method of operation cuts the overhead of what you're doing. The other aspect of all of this is you don’t have to technically do anything in the short term. That is your new venture can exist almost exclusively in your mind and SSD. The time spent in planning, thinking, or what I’ve listed as the competitive advantages of the service providers would also be applicable here. They include quality, specialization and the division of labour, automation via software, innovation, leadership, application of Artificial Intelligence, which all use the uniquely human attributes of issue identification and resolution, creativity, collaboration, research, ideas, design, negotiating, compromising, financing, reasoning and judgement to just start the list. These form the long term competitive advantage of these businesses built upon the foundation of the Intellectual Property being developed. 

I’ve mentioned this opportunity to some people and in some cases found an interesting response that I would caution people from taking. That is they think the opportunity is too advanced for them at this time. Or too advanced for them. Maybe they’re just being kind to me and not telling me what they really think! People shouldn’t be thinking this way. Everybody has a role and a place to fit in, somewhere. Don’t preclude yourselves from this opportunity without some serious thought and consideration first. Set aside your concerns of where you are today, and think more of where you'd like to be in a decade and three decades from now. The only thing that haunts you in old age are your regrets. (And it’s not that I’m completely there yet.) Don’t let the opportunities you didn’t fully explore become one of your regrets. 

To rebuild the foundation of the oil and gas industry on profitability is the only way that the primary, secondary and tertiary industries can develop and prosper. What has happened here in the past is, and should be seen as unacceptable, is nothing short of a dictatorship run by bureaucrats for their own self serving purposes. Which is the inherent motivation of all people to do well for themselves. And that is what this opportunity provides, the opportunity to build a substantial business operation. Yet, as a result of their failure, we see now the need for a profitable oil and gas industry is necessary to make everything else real. And if everyone is not focused and pointing in the same direction at that goal and objective of profitable energy independence, we’re wasting our time, our resources and other people’s money. It’s time someone did something and that demands action from every corner of these industries and people involved. And that is us.

A few quick tips to make the process easier and safer for you. Don’t be afraid to publish your IP as soon as you can generate it. I use Google’s blogger platform for a number of reasons. At the beginning denial-of-service attacks were common and could cause time and effort to be consumed on petty server related maintenance. I’ve done none of that for any reason for the past sixteen years. It’s free and has the ability for you to earn advertising though you won’t have a strong audience in the engineering or geological related discussion of oil and gas. This is not a large market. Don’t concern yourself with bureaucrats finding out what you're doing. They're not looking and are busy with other things. If they do find you the worst they can do is blacklist your site on their file wall which is shared across the industry. Just don’t post your picture right away. In other words don’t quit your day job. Writing is the process of generating the IP and the process never ends. You’ll always be building on the base of what you've done. 

The need to spend money doesn’t exist. That is unless it’s absolutely necessary. If the pennies can’t scream any louder, don’t spend anything. Remember we can stop the log from rolling down hill at great cost. And begin rolling it back up with great effort and cost. Only to have what we had that’s caused this damage. There are better ways to do things today. Let's use those methods instead. You can start today. 

I’m now going to head off the range, even further, for a few minutes to get a point across that might be a bit of a stretch for some people. However I’m willing to risk it in terms of relating where we might be in the greater scheme of things. Whatever you may think of the argument make sure you come back. The first paragraph is a quote from Winston Churchill, and they are followed by quotes of Professor Larry Arnn in his book “Churchill’s Trial, Winston Churchill and the Salvation of Free Government.”

Mankind has never been in this position before. Without having improved appreciably in virtue or enjoying wiser guidance, it has got into its hands for the first time the tools by which it can unfailingly accomplish its own extermination. That is the point in human destinies to which all the glories and toils of men have at last led them. They would do well to pause and ponder upon their new responsibilities. Death stands at attention, obedient, expectant, ready to serve, ready to shear away the peoples en masse; ready, if called on, to pulverize, without hope of repair, what is left of civilization. He awaits only the word of command. He awaits it from a frail, bewildered being, long his victim, now—for one occasion only—his Master.

Churchill raised the hope that science itself will lead to the amelioration of these dangers but was quick to discard this hope: “The hideousness of the Explosive era will continue; and to it will surely be added the gruesome complications of Poison and of Pestilence scientifically applied.” Mankind is progressing toward destruction. Only an improvement in certain virtues of man—especially the virtue of wisdom or of “wiser guidance”— stands in the way of his elimination.

Nuclear weapons were the subject of his last major speech in the House of Commons, which he gave on March 1, 1955, shortly after the announcement of the hydrogen bomb by the United States. The hydrogen bomb was much more powerful than the atomic weapons used against Japan, and Churchill thought the change in power important, a difference in degree that amounted to a difference in kind. It revolutionized “the entire foundation of human affairs” and placed mankind “in a situation both measureless and laden with doom.” He continued: “Major war of the future will differ, therefore, from anything we have known in the past in this one significant respect, that each side, at the outset, will suffer what it dreads the most, the loss of everything that it has ever known of.”

Here then is the new situation: men can now build societies in which large populations can enjoy security, comfort, freedom, and plenty. The tools that enable them to build such societies, unknown in the ancient world, can also be used to destroy those societies. This changes the relationship between construction and destruction, between building and tearing down, between saving for the future and living for the present. It is in principle a demoralizing fact if by morals we mean the virtues that lead to peace, harmony, and plenty in a modern society.

The analogy I want to draw here is; as our tools and organizational methods become more effective, the extent of our reach becomes more consequential. The fact is there are many calculations as to the number of man hours of equivalent labor contained in each barrel of oil. For the purposes of this calculation I’ll use 10,000 man hours or 1,250 man days of labor equivalent per barrel. With approximately 130 million boe / day consumed, just today’s consumption is the equivalent man days effort of a population of 162.5 billion people, or 722.2 million man years that we gain each day through the consumption of that energy. Dare I ask what are our moral and ethical virtues have allowed these bureaucrats to destroy what is so obviously now a mortal dependence? And, if oil and gas is as valuable as represented here, why have we taken it from future generations unnecessarily and unfairly by not at least producing it profitably? Profitable from the perspective of an accurate accounting of the costs of exploration and production. We owe them at least the assurance we didn’t waste any, and that we pass a viable industry on to them so they can manage theirs. There is a history recorded on this blog that began in December 2005 that details the deficiencies of these bureaucrats' administration and what their motivation was. Have they now earned the right to continue in that role, to divert oil and gas revenues for the continuation of their own personal benefit, and “pursue” their objective of “saving the planet” with clean energy after exposing us to such dire consequences? 

I see the same behaviors and attitudes that have been ever present with these bureaucrats. In a Reuters article entitled “Canada boosts U.S. natgas exports, drills more as global prices surge” we hear the whining and sniffling of producer CEO’s telling us what we’ve known for some time. 

However, a shortage of skilled crews to operate drilling rigs in Canada could limit how much gas output climbs, and some producers remain cautious that increased supply may rein in prices.

"How do we do more even if we wanted to do more? We're at a limit on the people that we have," said Darren Gee, Chief Executive of Peyto Exploration and Development Corp.

Taking a responsible approach to oil and gas. A responsible approach could be defined however they would want to. This chronic excuse, blaming and viable scapegoating has to stop at some point and there’s only one way that I can think that’s going to happen. Start rebuilding the industry on the basis of this overall vision that People, Ideas & Objects have presented here and build the Preliminary Specification. That way these officers and directors self absorbed navel gazing can be replaced by people who are focused on the one critical aspect of what’s required of everyone. Profitability in the primary industry of oil and gas to ensure that value is being built everywhere and always, for everyone. 

Please note there is a different procedure for our user communities involvement than what is defined here. I’ll address those differences in Monday’s post and support why those differences exist. 

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. 

Why Develop Production Rights?

 The issue of funding the development of People, Ideas & Objects Preliminary Specification and our user community has been a difficulty I've been unable to resolve at this point. The budget demand is significant, as the scope and scale of the project is substantial. We are further constrained by the behavior of the oil and gas producers towards their suppliers, and most particularly their ERP software suppliers since the early 1990s. Using them to ensure that their ERP systems remain of a certain quality and that no tier 1 providers are involved. That no software developments have or are made that enhance the development of the organization outside the bureaucracy itself. These objectives were achieved simply by ensuring that their ERP suppliers were kept on starvation budgets to ensure the bureaucrats activities remained as unknown and unknowable as could be comprehended. In our White Paper “Profitable, North American Energy Independence - Through the Commercialization of Shale” we detailed on page 18 the approach producers provided to the last two tier 1 ERP providers Oracle and IBM in 2000 and 2005. They were seeking to rewrite oil and gas ERP systems to bring them up to date. Both of these providers received no financial, but also no participation from producers in these efforts. As a result they left the industry in terms of providing their tier 1 ERP systems. 

It has been expressed directly by the producers' investors for the past number of years that they need to see tier 1 ERP systems being used by the industry. This and the general call for accountability are so easily erased through the shift to clean energy investments. Investment in tier 1 ERP systems is one of the most prosperous areas in Information Technology. Although technically Oracle is leading in the market they are not a pure play with other software, services and hardware being produced. Their market cap is $268.6 billion, SAP is at $167.49 billion and Workday’s is at $69.64 billion. Workday is a startup that was founded by the individual who started PeopleSoft which was sold to Oracle. There are a number of providers such as People, Ideas & Objects that fill a secondary industry of providing specialty services. The failure orchestrated by these bureaucrats with the tier 1 providers that we are detailing here is generally well known and understood throughout our industry. ERP investors in the secondary industry providers of oil and gas producers have bowed out since around 1997 when the antics of these producers were on clear display. Although I have not been looking for any equity investment, there certainly haven’t been any that have come knocking and there has generally been no interest in this market. Elsewhere outside of oil and gas it’s booming though. 

I want to emphasize once again the role that oil and gas should play as a primary industry. It generates the oil and gas revenues which are perpetual and are as a result of the efforts of themselves and all the secondary and tertiary industries that support oil and gas. In many cases these secondary providers are dedicated exclusively to oil and gas. They have no independent revenues outside of what is generated from the oil and gas producers. Oil and gas is a capital intensive industry with a small footprint in terms of the number of people it employs directly. Indirectly they employ far greater numbers of people in these secondary and tertiary industries which are unable to generate revenues outside of their activities with the producers. I feel it is therefore incumbent upon the producers to have eliminated the boom / bust cycle from the industry. This cycle creates a far greater impact in terms of its whiplash effect in the secondary industries and creates great difficulties in securing the appropriate means of operating stable operations there. It is however easy for producers to accuse these providers of being greedy and lazy during times of high demand only to slash their field activity levels to as much as 25% and halve the pricing of the supplier. Cutting the suppliers sole revenue streams to 12.5% of what they were just months before when they were accused of being greedy. 

This pompous, unconstrained, inappropriate and damaging process does not damage the take of the bureaucrats at the producer firms. They’re fine and they thank you for asking. This is certainly not how business is operated. Extracting power out of this process is the toxic value that has fed the bureaucracy with the all conquering belief that what they said was what was to be. Creating the dictatorial methods of operation that were used when dealing with employees, vendors and the service industry. Why listen to investors, why do anything when “muddling along” and “doing nothing” have been so productive and effective, for the bureaucracy that is. 

There is an inherent conflict between People, Ideas & Objects and the bureaucracy that is a classic tension that has existed throughout the 20th century. The bureaucracy is a representative example of the socialist form of centralization and we are the contrast of decentralization as represented in this new tool called the Internet. We are natural adversaries and were never intended to work in harmony and for that I am certain that I have never deviated from my role in the relationship, and am only happy to be the one that provided and will continue with our flak directed their way. The contrast between these two alternatives' effectiveness is beginning to become clearer for all concerned as the centralized model's failures become more evident through its inevitable descent. Disintermediation is not a choice or option available to industries. It is a force that is powered by organizations that are more productive and profitable. Choices to turn to in 2021 are limited in my opinion to the Preliminary Specification, its user community and their service provider organizations. It’s success is something that I’ve worked to design the necessary ingredients into the methods and means throughout our organizations and the specification itself. It will need to be the sense of urgency and desire of the many people who are affiliated with these organizations and these developments to take it to its ultimate, successful level of achievement. Driven by the vision of the Preliminary Specification. 

People, Ideas & Objects fundamentally understand that the bureaucracy can’t, won’t and will never participate in the development of the Preliminary Specification, our user community and the service provider organizations that are conceived to displace their centralized systems. In addition to all of the above difficulties the number of producers, and particularly the majority of the production volumes, are contained within a small number of producers. Therefore suppliers are unable to gain any traction or diversity in their clientele. The service industry also has geographical areas of operations that further constrain their exposure to the number of producers they’re able to access. Granting even more power to those bureaucrats in their dealings. Vendors have also been subjected to the treatment of having their proprietary developments and Intellectual Property freely cast to the four winds and actively handed to a vendor's competitors / potential competitors to spur further price competition in the markets they’ve grown to depend upon. This is generally well known, understood and accepted as the price to pay in the industry. People, Ideas & Objects treatment of Intellectual Property is a trojan horse to this method of operations and something that can’t, won’t and will never be accepted by the bureaucracy. It is also the reason that none of the Intellectual Property of the industry has been captured anywhere and at any time. This strategy made the engineering and geological IP available to all producers without obligation or concern. Not how an industry can operate in the 21st century. And in fact illegal. Within the Preliminary Specification we have made Intellectual Property one of the organizational structures that define and support the oil and gas industry. 

It has always been generally understood by me that the source of any revenues for People, Ideas & Objects et al will have to come from the primary revenues of oil and gas production. How and where is the issue. Producers as I’ve mentioned can’t, won’t and will not ever do so. They are conflicted, it is contrary to our adversarial positions and would only diminish the means of their power and money. People, Ideas & Objects have proven this specific point through the legacy of our efforts. We put the icing on this cake when we directed the question to the boards of directors of the producers. And their choice on August 31, 2021 was to pursue clean energy. This is a major impediment to the needs of a user community that depends on a source of financial resources that will be available to complete their work. The community itself is in great career jeopardy by committing to the project by self identifying themselves to the bureaucracy while the bureaucracy still exists and dominates the landscape. Without the protection and security of an alternative that provides for their opportunity to secure that successful alternative, there’s not going to be their wholesale and necessary commitment. If they should fail in not being able to resolve the industry problems it would be detrimental to the rest of their career, wherever that may be. They’ll therefore be highly motivated and driven by success. At this point no one other than myself is aware of who is involved in this project and that will remain that way until such time as we begin with the financial resources secured. They are even unaware of each other, in case the bureaucracy should / have decided to see for themselves who’s involved. 

And then there’s that budget. Which has always been inordinately large and out of scale of reality and probably a distortion of that reality and sanity. Yes, it is. Welcome to my nightmare. As we enter the period where the industry's collapse is beginning to be seen as more and more terminal, we'll begin to see more and more of the consequences of the damage and destruction that has been caused by the financial mismanagement of the industry. Four decades of such antics will quietly erode the value from everywhere. Possibly, just possibly People, Ideas & Objects have always been aware of the problem, have provided a sound solution in the form of the Preliminary Specification et al and scoped out its needs accurately in its, out of this universe, scale of budget! And then there is that multi-trillion dollar value proposition of ours… We’re now progressing to a point where the clarity of the deficiencies of the service industries capacity and capabilities will become more apparent. Where the response of the producers will be constrained by their drive to save the planet and their lack of activity to address the real consumer demand issues of oil and gas. When even Vladimir Putin wakes in the middle of summer in a cold sweat thinking that his country's supply of natural gas is in jeopardy… We’ll review the history in two decades from here and know that that’s the point where this decline started. 

This brought about the need for a solution to the funds necessary to solve the problem. Earlier in our lifetime we considered developing an ICO, an initial coin offering, however the crypto market and the virus had other plans. Inherent in that plan however were what we called Permission Rights. The ability to sell the coin with the exclusive access rights to the software of the Preliminary Specification and the service providers for a defined volume of production. The coin rights would need to be aggregated by oil and gas producers in order to access the system and services to meet their production profile. And therefore the coin owners would generate a monthly fee for these rights of access. These rights would be managed by the smart contracts of the underlying blockchain technology of the coin. This value and leverage was determined as a result of the logic of the 21st century. Where the only thing of value is Intellectual Property. Software and services are derivative of Intellectual Property as they are with the IP of People, Ideas & Objects. Therefore, from now on it will always be not enough to own the oil and gas asset, you’ll also need access to the software and services that make the oil and gas asset profitable. This method has been what we are now calling our Production Rights. 

As a startup we are outside of the regulatory processes and unable to meet those demands for several years, at a minimum. We aspire not to do so and remain a private company focused on the solution. I’ve detailed an exit strategy for myself where the user community is granted the Intellectual Property that makes up these communities upon their successful completion. As our budget defines, I get paid as the money comes in the door. I am unable as one individual to make much of a difference in an organization that demands five thousand man years of effort to complete. Our user community needs to be the ones with the motivation and drive to succeed. They’ll be the ones who live or die, career, and business wise on the basis of their success. I see the Production Rights separate and distinct from these transactions, licenses and grants. They are unique in the environment, but wholly dependent on the success of the user community fulfilling their role.

We are passing the responsibility, accountability and the authority of this project's success to our user community. We granted them in the user community vision the power they need to make the changes to ensure the software is developed in the vision of the Preliminary Specification. I am not abdicating my responsibility and authority in this development. I am committed to ensuring the integrity of the user community is undiminished by outside forces. That is what I’m able to do on a reasonable basis to ensure the success is achieved. Professor Larry Arnn is also the president of Hillsdale College. The following quotation captures succinctly the situation we have, the important role the user community occupies and how they must approach it. 

Hard cases are hard to tell, but you can consistently make better judgments if you remember what your aim is. And what your aim is, is that people should get a chance at an effective life. And one of the elements is that you can’t do it for them. Churchill loved to say in his speeches, “remember after we’ve done all that we can do, life will still be pretty hard anyway. It’s a human life. We should be careful not to take that from people. Their achievements need to be their achievements. The richness of their life will all come from that and nothing else. So there you have to be looking to establish a society where we’ll all get a chance to face the difficulties which ultimately will never go away.”

Who is best to undertake these difficult tasks which we face? I’ve made my nomination. Our Production Rights are the fuel we need to make this happen. 

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. 

Gambler's Paradise

 With this title reference meant to apply to the characteristic of producers' share prices. I’ve suggested before that North American oil and gas producers might be seen as a haven for bottom feeders and my assertion today would be the same. Some bad news came across late last week that may not have been noticed in this fast paced blitz we live in. The Biden regime has some plans for the Federal Reserve that also doesn’t include a continuation of the capitalist system as we know or understand it. At least in terms of the oil and gas industry. Two allegedly un-Woke Federal Reserve Governors were accused by Senator Elizabeth Warren of insider trading. Under the legions of her woke mob the Governors resigned. In the “Build Back Better” line up are three Federal Reserve Governor candidates who are proponents of the belief they need to put wholesale pressure on banks to cease banking with carbon polluters. That carbon is a polluter is part of the science that began more than 5 days ago. The third candidate is a replacement for Fed Chairman Jerome Powell whose term is up in February 2022. The issue of course is you can’t refute 81 million ballots. This is additional bad news for a capital intensive industry that has destroyed its reputation with investors and bankers. With the needs to rebuild and refurbish the existing infrastructure of oil and gas, combined with its future capital demands. Capital will be hard to find in such an environment. Capital that is willing to earn next to nothing or even negative returns may be impossible to source. In any gamblers paradise, the saying is you can’t win if you don’t play, and the house never loses. 

It will be a hard run for producers these next few years anyway, with the decline in field capabilities and capacities. The resources having been scattered to the four winds. I can see the highly experienced driller on the rig who was convinced to come back having to work with recent high school graduates to teach them, on the job, the art and science of multilateral fracing. Victor Davis Hanson stated on one of his podcasts last weekend.

We’re regressing, progress is not linear, it's cyclical.

With producers' capital structure being potentially constrained in the development of oil and gas. The Preliminary Specification determined the industry's source of capital would need to be addressed. Our solution captures the common sense business logic that a capital intensive industry would have a large component of capital included in the cost of the product they pass on to their consumers. And we do so through our decentralized production models price maker strategy. Where each property is evaluated each month through full financial statements that include the direct overhead charges from the service providers affiliated with People, Ideas & Objects, eliminating the inadequate overhead allowances currently in use. There is also the need for a monthly accrual of depletion that will provide a competitive return on investment consistent with the properties remaining capital balance and the capital markets expectations. When, in the Preliminary Specifications price maker strategy, all production is profitable, the capital that was deployed to the property is being returned at a rate that is consistent with these capital market expectations. Why else would you be in business? If it wasn’t profitable then the property would be shut-in and moved to the producers inventory of innovative work-in-progress. Where it would be worked over and returned to profitable production as soon as possible. While shut-in none of the service providers are receiving any data from the property, are not conducting any activity on the properties behalf and therefore none of their overhead related billings will be rendered for the property. Turning all of the producers' costs variable. Causing the property to incur a null operation, no profit or loss. 

A producer who doesn’t have the wherewithal magic ingredients that make for a successful oil and gas producer would still have profitable production and a profitable operation. However not at 100% of their production profile. Let’s assume they’ve had to shut-in 50% of their production due to unprofitable operations. This company under the Preliminary Specification remains profitable and each producing property is achieving market returns. However the producers performance would be substandard when compared to other producers who are able to profitably produce at 100% of their production profile. Investors will know they’re carrying dead weight when their returns on investment are lower due to the low production profile compared to their invested capital base, and therefore their action would be necessary. Alternatively, if the producer were to attempt to hide their low production profile percentage and produce some of their properties at a loss, offsetting their profitable properties profits and inevitably incurring a loss in the producer firm, they would be telling the market their performance was even worse. The Preliminary Specification provides this necessary method of production discipline that North American oil and gas producers will ensure unprofitable production is kept off the market in order to achieve maximum corporate profitability. This is the discipline they’ve lost and the reason chronic overproduction has been able to destroy their business. 

In what atmosphere does a profitable oil and gas producer turn to clean energy for their future? They wouldn’t, and the shuffling noise we hear at times in oil and gas is that of bureaucrats feet, or as I’ve described their herd mentality being similar to a Keystone Kops routine. There have never been any profitable clean energy companies. Processing CO2 out of the atmosphere for soda pop companies doesn’t stand up for me. Why wouldn’t Coca Cola invest in these facilities? The fact is the most profitable environment in oil and gas today is the conventional oil and gas that was abandoned some time just after the last century. They’ve been producing for decades, have retired all of their capital costs in a capital intensive industry and do not need the excessive rehabilitation of shale. 

Compare and contrast the environment created with the Preliminary Specification to today’s environment and we see the difficulties that we’re in. Producers build balance sheets and sell their souls to the banks to keep the hamsters fed. Meanwhile their revenues atrophy in comparison to the capital deployed to the point where, although each and every producer remains handsomely “profitable,” they don't generate enough cash to keep the lights on. This homogenized, homologated means of oil and gas operations doesn’t allow for anyone to know who’s building value and who isn’t. It does however, clearly indicate who the best talkers are. 

One of the understandings of bureaucrats regarding capital costs has been correctly applied by them and we’ll continue with that activity. Excluding the recognition of capital costs during the short term where there’s a distressed market or financial difficulties is correct. In the Preliminary Specifications instance, properties wouldn’t be charged with any depletion for those months they were shut-in. The difficulty that bureaucrats have had with the implementation of this understanding is the assumption of theirs that oil and gas has been in financial distress for four decades and minimal capital was recognized during that time. This was the case under their administration and became the primary reason for the culture of “building balance sheets” and “putting cash in the ground” that took over any business logic. I always found it comical that they would, on the one hand, belittle the charge for depletion, stating “that’s just an accounting charge for stuff that happened in the past.” Which is true but caused a serious loss in the producer firm. While at the same time issuing more shares to investors to fund next year's capital budget. Never seeing them as the same thing and choosing to be accountable to those past shareholders. When they had new shareholders in the next room who were transfixed by the EBITDA (Earnings Before Interest, Taxes, Depletion and Amortization) numbers reported in the producers press releases. In the vernacular of the Vegas gambler / producer CEO it would go something like, “this table is hot.”

We’re heading into the third quarter reporting season and I don’t expect much change in the producers' performance. That’d be the real performance being reported. The losses on hedges are going to be tremendous and that has set up a particularly difficult year end reporting situation for producers. The issue of Non-GAAP earnings or EBITDA with hedging losses excluded have been what’s quoted throughout the business community in oil and gas. Fueling the culture of “building balance sheets” and “putting cash in the ground.” Among many more myths and fallacies. The SEC has put a stop to that in the fourth quarter of 2021. I’ve been wondering how many producers will bite the bullet and start reporting that way in the third quarter? Would that be a benefit to get out ahead of the bad news in the fourth quarter? Or is it best to get lost in the crowd at year end where no one knows, or will remember your name. In a world where integrity is a concern I would suggest the third quarter is the time to start. However, there would be no consequences to producers by getting lost in the crowd at year end, is there. 

In Wednesday's WSJ (Paywall) and Reuters there was an article that reviewed the decisions being made at Exxon’s board of directors. It was fascinating. They had made some significant investments in the past in a natural gas field offshore Vietnam and an LNG facility development in Mozambique. Both represent multi-billion dollar investments to date with much larger commitments to complete. The argument at the board level was whether to continue with them in light of the political and climate related difficulties. Vietnam’s offshore investment was in the disputed South China Sea and Mozambique has unrest and terrorist actions being undertaken at another company's LNG facility which is also under development. The overriding concern at Exxon’s board was the concern and the commitment for the environment by the new Engine No. 1 directors who were elected in last year's annual meeting. That being said, the question was, was Exxon going to continue to commit multi billion dollars of investment to dirty oil? The final comment of the article was the contrast between the board and CEO Darren Woods who obviously fell on the oil and gas side of the fence. The two questions that I had about these articles and Exxon were. Why was there so much indecision and lack of foresight being discussed at Exxon’s board? And not that discussion and conflict are bad, but who’s airing this dirty laundry in public and why?

Why waste time in back alleys playing three card monte when you can discern the meaning of financial statements from producers or read about Exxon’s board meetings and gamble on the potential performance outcome. To find ourselves in the situation we’re in and to now be presented with these antics in this example is surreal. The lack of leadership in the largest producer of the oil and gas business itself is disconcerting. That they should withhold investments in oil and gas to consider that it may best be deployed in unrelated industries is not what the shareholders signed up for. What is intended by the publication of these articles is unknown but I’ve been around long enough to know that they’ll be self serving for the officers and directors mentioned.

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 V

 What I find painfully obvious are the issues in oil and gas have evolved into a more dangerous and difficult period. To state there’s an overall level of unpreparedness is necessary to describe this. People, Ideas & Objects pursued these issues as persistently as we have due to the fact that businesses in the state that we felt the oil and gas industry was in and headed to, pass through three distinct phases of degradation. Each phase becomes more severe as we move through them. Financial destruction leads to difficulties that are eventually felt throughout the industry. From the investors and bankers initially, to the employees of the firms and eventually on down the line to those who are providing services in the supporting industries, whether that be companies or individuals. Oil and gas is a primary industry that can best be described as saying it’s at the top of the heap. There are not many primary industries and the privilege of obtaining primary revenues has been abused by our good friends the bureaucrats as a license to better their personal financial interests at all others’ cost. 

The extent of the financial damages are represented to be catastrophic by People, Ideas & Objects. We’ll be able to determine how far they’ve fallen when attempts are made to resurrect normalcy. The initial follow-on consequences of the financial deterioration of any industry are the subsequent loss of what an industry was once capable of doing at volume. This is only reasonable and intuitive. Producers today are not picking themselves up and leaping tall buildings. The rebuilding of capacities and capabilities that have atrophied and were deliberately destroyed through the bureaucrats “market rebalance” theory of suspending field activity for two to seven years while demand catches up to market supply. The service industry will be a necessary component of the return. The final or third phase of these financial difficulties are the impact they have on consumers. Supply constraints become the issue leading to “demand pull” inflationary pressures for consumers. Choices to either pay the difference, seek alternatives or to go without being the three consumer options. This is the issue we’re suddenly at in terms of consuming oil and gas and the one People, Ideas & Objects were working to avoid. We’ve noted these points throughout our writings and as far back as the initial Preliminary Research report (May 2004) in which we determined the Joint Operating Committee was the preferred option for the dynamic, innovative, accountable and profitable oil and gas producer and industry. These were ignored and only raised the ire of the bureaucrats as it was a serious challenge to their well established franchise of self aggrandizement. 

It is the most powerful economy that uses the most energy. Each barrel of oil provides 23,200 man hours of labor. Unquestionably the consumer's best deal of the millennium. I have stated these points repeatedly, only to have been ignored. When I said profitability in oil and gas was an issue I was laughed at and told that cash flow was the point of the exercise. When I asserted that oil and gas commodities were price makers instead of the price takers they were assumed to be by the industry, I was ignored. The warnings and concerns that I’ve expressed here are documented throughout the time of my writings. They are consistent and focused on the one issue that has now become what I believe to be a life and death issue that will be unresolved in the short term. Bureaucrats will laugh and ignore it, but there were at least 11 people who died as a result of the Texas snow storm last year. The economic consequences of that event were felt far and wide. We’re no longer talking about one snowstorm in one state. Nor are we talking about just snowstorms. 

We therefore need to ask ourselves why did this happen? I’ve always directed my anger and frustration at those who are solely responsible and accountable to ensure this didn't happen. The officers and directors of the producers themselves, or as we call them bureaucrats. They saw their role was to fill their pockets with what can only be described as innovative and excessive executive compensation. As I’ve documented throughout these writings they’ve betrayed their shareholders by lying to them about their activities and performance over the past forty years. Something I’ve detailed in terms of what and how they did so throughout these writings. Yet they ignored it. I’m not raising these points to say I told you so, I’m raising them to show that these bureaucrats were well aware that what they were doing was causing serious problems and difficulties. Which would eventually lead to their current financial damage, industry wide destruction and follow on consequences to consumers. Creating an impact far in excess of most businesses. They didn’t care and today continue not to. They’ve discovered the nirvana that they always sought in their dealings. A place where accountability and performance could never be questioned. Where their lifestyle would be sustained by oil and gas revenues while they failed consistently in their clean energy “efforts” of an unknown nature. Undeterred they would continue to work as hard as they could to “save the planet.” Claiming, as they have stated so many times before, they’re responding to the demands of their shareholders. This time for their investors' concerns for the environment. By doubling down on the myth and lying they do everything for shareholders. Yet they’ve failed to respond to their investors' 2015 protest and strike to correct for their lack of profitability and accountability. In the past few years there has been an explicit demand from investors for producers to upgrade their ERP systems to tier 1 providers, such as Oracle Cloud ERP, the base of the Preliminary Specification. I’ve chronicled their self interest and behavior in this blog since December 2005 and now we’re supposed to believe that this altruistic environmental approach is their motivation?

That we would call this anything but a tragic failure is unacceptable. There has been no discussion regarding any plans or strategies for the future. There are no concerns or consideration about their past lack of accountability, profitability or their investors' lack of support, investors who left in protest of bureaucrats' actions up to six years ago! Silence is not acceptable, yet that is all we’ve ever received under their “muddle along” method of operation. The most convenient corporate strategy to cover for an irresponsible and uncaring executive. We have a leadership that believes their future lies elsewhere and has now summarily given up on oil and gas without the least bit of effort to affect any remedy. When a remedy has been available for at least eight years, the remedy they actively ignored, abused and laughed at. Consumers are now faced with the financial costs of these past inactions and an unknown future. Complicated by a continued non response, lack of concern, caring or action. Most importantly, a time in which consumers are exposed to serious risks associated with their standard of living and quality of life due to a lack of energy and / or its high cost. How did we get here? I can’t scream any louder or swing any harder at these bureaucrats.     

What is it that we can reasonably expect to happen as a result of their continued administration? Maybe a better way to ask this question is the following. How stupid do they think we are? Now that they’ve settled into their optimal strategy of clean energy will they move back to oil and gas? We’ve seen no evidence of that and I would question the validity of their claims and opportunism if they tried. What is the financial state of affairs in oil and gas? Are they financially endowed now that prices are higher? Or are they, as People, Ideas & Objects claim, heavily indebted, financially non performant with culturally incapable organizations that move at the speed of dried cement? Many people have moved on from oil & gas, but also the service industry. Will they be convinced to return with the potential of as much as one months pay? Will the oil and gas faculties in the universities fill up based on these latest commodity price changes? Only in four years to dump their graduates into a potentially empty, vast unemployment situation? Damaging the university's reputation further? Will investors in the service industry who saw their past investments cut up for scrap metal reinvest on the basis of a newly printed purchase order? The reputation of these bureaucrats precedes them. They’ve used these and other tricks a few times before and the consequences were realized by those who believed them. In other words that was us, and would be again if we expect any reasonable change from past behaviours. 

It’s important to point out. They’ve been laughing at my arguments on this blog since 2005. They chose to do nothing about their business until it degraded to this level. Their decision to deal with it was to declare it untenable and to pursue clean energy. Are we all now going to jump up because the inevitable supply constraints have caused prices to jump and start the party with these bureaucrats all over again? Being in an abusive relationship is something that puzzles people who see the victim repeatedly return to the bully. Case in point. 

I see my job as finding the way out of these difficulties, providing an alternative and to offer a choice. I think we’re headed into very difficult times as a result of the manifestation of these problems and something needs to be done. We have always been prepared to rebuild the industry brick by brick, and stick by stick. A phrase I first stated in this blog on October 17, 2008. What I see now is my analogy of the log rolling down the hill is well advanced. Things are happening at a tremendous speed and we are seeing bureaucrats sticking to their green energy plans as a means to avoid responsibility and accountability. No vision, no plan and no strategy for oil and gas. When people see a house on fire they’ll stand around and watch it burn. No one runs into burning buildings but well trained Firemen and no one steps out into rolling logs deliberately. People, Ideas & Objects spent over thirty years working to avoid this and have failed to build the fire houses and hire the Firemen. North American oil and gas is now a tragedy, in my opinion, no one would be surprised at that. I have a greater sense of urgency to begin the rebuilding of the industry, I trust that is shared.

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.