OCI Security & Access Control, Part II

 People, Ideas & Objects and Oracle Corporation

Starting with the Security & Access Control module we find that Oracle Corporation has a comprehensive suite of applications that provide the security and access control that we are looking for falling under the Oracle Identity Management brand name. These products include tools for Access Management, Identity Administration, Directory Services and Governance. These product classifications come in a variety of different products and are configured in some specialty industry and management suites. 

Two areas in the Preliminary Specification that will be challenging to develop are the Industrial Command & Control (ICC) and the inter-relatedness of the Joint Operating Committee and service industry representatives. Early on in the specification we noted a number of research areas that needed to be conducted. These are two areas that will take research dollars to resolve. To have the ICC recognize members of different organizations will not be a challenge. To engage them and have them interact in the manner we expect them to when we expect them to, will. 

Oracle Identity Management resides within the Oracle Fusion Middleware product layer. As we indicated earlier in the Preliminary Specification this is Oracle’s Java Enterprise Server. Therefore these applications are open to tailoring to our users' needs through the process of “additions” as Oracle calls them. When we sit down with Oracle and define the Security & Access Control module based on our user needs. These needs can be accommodated by the technologies we have selected. 

And it is through our user community that we will resolve these issues. It is one of the reasons People, Ideas & Objects software developments budgets are where they are. We will have challenges to resolve in delivering these innovative systems to the industry. I would remind producers that our value proposition sees the one-time costs of these developments amortized over our producer base. Yet each producer receives the full scope of that development effort in terms of the software application. 

We now look at the Oracle product classification for Access Management. Included in the Access Management classification are the following products: Oracle Access Manager, Oracle Adaptive Access Manager, Oracle Entitlements Server, Oracle Identity Federation and Oracle Enterprise Single Sign-On Suite. Each of these products will be included in the Preliminary Specification as they have components required for day to day use by our users, service providers, producers and Joint Operating Committees.

One area Oracle had been working on was working with partners, vendors and suppliers. Within Oracle Access Manager it is noted that they provide... “Building federated user communities that span company boundaries.” These are the beginnings of both pooling and Industrial Command & Control (ICC) that are critical to resolving many of the issues that the oil & gas industry faces. 

On the heels of Oracle Access Manager is their Adaptive Access Manager which takes the concept of intra-partner interactions further with “Oracle Adaptive Access Manager makes exposing sensitive data, transactions and business processes to consumers, remote employees or partners via your intranet and extranet safer.” This is the nature of business in the future. Working with partners, as is done by the Joint Operating Committee, is an effective means of reducing costs and increasing innovation in any industry. It’s only reasonable that technologies emulate these needs. In addition Oracle Adaptive Access Manager takes security and authentication to another level. As a result, our demands regarding the pooling concept and the ICC, I feel, will be less of a technical risk for the People, Ideas & Objects Preliminary Specification and subsequent developments. 

The next application is the Oracle Entitlement Server which provides a dynamic access control element to the applications that use the server. Instead of manually wiring access control privileges into each application and user, they can be dynamically generated using the Oracle Entitlement Server. “The solution can manage complex entitlement policies with a standalone server or with a distributed approach that embeds information at the application level.” When it needs to be determined if user X has access to Joint Operating Committee Y, a decision from the entitlement server, based on criteria within the application, can be made. If this information is changed, our user would be denied access. This provides enhanced security based on policies and reduces the amount of detailed specific software development that is difficult, time consuming, and costly to maintain. 

Federated Identities are a major part of how the pooling concept and ICC are implemented in the Preliminary Specification. We have specified in many modules, such as the Resource Marketplace module, Federated Identities. Situations such as where the vendor maintains contact and other information. That information is comprehensive and includes key organizational contacts, calendars and scheduling information. Working with the partners in the Joint Operating Committee and the representatives of the service industry in this way will effectively mitigate many technical software development issues we have. These data elements are maintained by each producer / service industry company and available globally throughout the People, Ideas & Objects applications.

One area that we will continue to face a challenge is in the Work Order. Putting together a working group to study earth science or engineering research is critical to innovative oil & gas producers and the industry in general. These are ad-hoc organizations formed with partners that may have no past history to draw from. Federated Identities will provide users with some of the information they need to establish the partnership and grant application access. However, there is still the pooling of and sourcing of costs, and budgets. Costs and their contributions are traditionally what invoke the bureaucratic nightmare that mitigates and destroys the motivation for these working groups to form. We need to ensure these roadblocks do not get in the way. We have proposed to overcome these issues by developing an intuitive interface for our users involved in organizing the working group. 

We don't want our users to experience a mindless security access maze. Oracle Enterprise Single Sign-On Suite Plus promises to keep this from happening. Logging onto and off of systems as our user proceeds through the various modules and components of the applications is a must have. This product promises this level of service seamlessly and remotely. Which is needed. And considered a must have feature in today’s software offerings.

Oracle Identity Manager which will be used as the base product for role and identity management. This will be the base of the Industrial Command & Control for People, Ideas & Objects Preliminary Specification. It is part of the Oracle Fusion Middleware product offering and part of their Java Enterprise Server. Therefore we can build off the functionality existing and enhance it with our user community's needs. Building off of the functionality will be somewhat limited as many of the concepts inherent in the ICC are already captured in Oracle Identity Manager. 

Oracle Identity Manager is a highly flexible and scalable enterprise identity administration system that enhances operational and business efficiency. It provides centralized administration & complete automation of identity and user provisioning events across the enterprise and extranet applications. It manages the entire identity and role lifecycle to meet changing business and regulatory requirements and provides essential reporting and compliance functionalities. By applying business rules, roles, and audit policies, it ensures consistent enforcement of identity-based controls and reduces ongoing operational and compliance costs.

Oracle Internet Directory and Oracle Virtual Directory product offerings follow. A bit off topic but Oracle Internet Directory is a relational database-derived directory server. That Oracle is providing the marketplace with a directory server based on relational database technology speaks to the power of their relational database. They claim they have performance for two billion users. I see the advantages of using this product over their traditional directory server and have selected it for the Preliminary Specification. It will provide us with some flexibility when we ask some of the most comprehensive and demanding questions of these technologies. 

Oracle Internet Directory could be deployed as an industry wide directory server. In this case, I am referring to a directory server for the oil & gas and service industries. There it can integrate with other Oracle products, such as Oracle Identity Manager, which would be deployed at the producer firm, Joint Operating Committee and service industry representative level. This being a relational database we have some interesting opportunities here. 

Oracle Virtual Directory may be the first step toward optimizing relational databases. What we will have is a global database of names within the Oracle Internet Directory. These will relate to the information contained in Oracle Identity Manager and other applications. Oracle Virtual Directory will provide us with a seamless way to browse, and applications will see these datastores as one. 

Within the Preliminary Specification we want to access the contact information of the people or firms that provide services or products to the producers or Joint Operating Committees. Individuals and service industry members are expected to maintain their own contact and basic information. These will be maintained in the Oracle Internet Directory for each and every producer or Joint Operating Committee to access the latest and up to date information. This will save an immense amount of time for producers and Joint Operating Committees, as well as individuals and service industry providers. When looking for someone the search capabilities will be significant as we have added the “Vendor / Supplier Contact Database” and the “Actionable Information Interface” to this base data in the Resource Marketplace module. 

Now we want to look at Oracle Identity Analytics as part of the Security & Access Control module of the Preliminary Specification. This application provides governance over the access privileges granted to our users of the People, Ideas & Objects application modules. Many of the functions and processes provided in Oracle Identity Analytics are either necessary or of significant value included in the Preliminary Specification. 

A key area of our strategy is to understand the "why" and "how" our users access our services. Providing documentation of what information was accessed by what users and if any of the access violates any of the established policies. Ensuring that data access by users is compliant with corporate and application policies. This is to ensure that users are not unnecessarily abused by overtly secure systems and overall efficient corporate governance is achieved. All of the data collected during data access, that is the “why and how” of our users' access. Is compiled in a “Data Warehouse” for further analytical analysis and querying. This will help to show trends and usage patterns that will form updated policies and procedures and security provisions. 

Another useful function within the Oracle Identity Analytics application is the Segregation of Duties feature. In many areas of a corporation, certain process functions must be undertaken by specific and sometimes different individuals. This feature provides for that assurance. It is Sarbanes-Oxley compliant. This is particularly relevant when the Joint Operating Committee is small, as we mentioned the other day. And we have assigned many roles to a few people. By segregating the roles that need to be kept separate for compliance purposes, this application ensures that the appropriate governance is maintained. 

There is a comprehensive and customizable dashboard interface for our Oracle Identity Analytics users to analyze the data and particularly the data warehouse. Filled with reports and data that an effective user can use to determine where and how the People, Ideas & Objects producer client might be susceptible to access control violations. 

The last feature I want to highlight is what Oracle calls Role Lifecycle Management. This provides the Oracle Identity Analytics user with the ability to do “what if” analysis in terms of the implications for identities and roles within the People, Ideas & Objects application. It contains a role change approval process, role versioning and role rollback. These will be needed in determining and maintaining the Industrial Command & Control. 

We now step down from the Oracle Fusion Middleware layer to the actual Oracle Database for some security features. The first product in this stack is Oracle Advanced Security. It provides authentication, encryption, and encryption of database and network activity. It is possible, and I highly recommend that all the data and information used in the People, Ideas & Objects application modules be encrypted in the database and on the network. This increases the load on the systems and requires additional effort in terms of key management. However, I think the nature of the data and information and the manner in which the applications are provided as Cloud Administration & Accounting for Oil & Gas, this level of security is necessary. 

Oracle Audit Vault is another product I recommend for the Preliminary Specification. It provides central location and management of audit information for compliance purposes. The ability to manage data, information, privacy policies, and security for our users. Oracle Audit Vault is Sarbanes Oxley compliant. 

This next Oracle product adds to the Preliminary Specification. Oracle Label Security will work in many different ways within the modules however here are just two examples. The application designates specific individuals with higher security clearances. It designates specific data fields with certain security clearance. Those with high enough security clearances and appropriate authorizations can read these database fields. Within the People, Ideas & Objects application we want to ensure that the reserves, accounting information and strategy discussions of each producer firm remain confidential to a select group of individuals within that firm. With Oracle Label Security that is possible. We want to ensure that the appropriate people within the chain of command in Industrial Command & Control have access to the appropriate materials to make the appropriate decisions. This will allow those individuals to have access to these materials without making them available to everyone in the chain of command. 

Although not that pertinent to our users of the People, Ideas & Objects applications we have included Oracle Configuration Management, Oracle Database Firewall and Oracle Database Vault as part of the Preliminary Specification. These will help keep the applications and the Oracle Database running as they should. Oracle Configuration Management will determine if there is a change in the configuration, either through a patch, or if something has been done wrong it will correct itself back to the specified configuration. Ensuring that what is promised to our users of People, Ideas & Objects is provided. Oracle Database Firewall ensures no SQL statements inconsistent with our users' or applications are passed through to the database. Oracle Database Vault allows you to restrict certain IP addresses or users to running certain SQL commands. It also locks databases from having any operations conducted on them. 

Backing up data and information is two of Oracle’s strengths. Oracle Secure Backup provides excellent tools for this. Because the database is encrypted, the backup is encrypted as well. What we will need to do in the Preliminary Specification is to determine in extensive detail what precisely will be the backup strategy used for the People, Ideas & Objects application. 

Lastly there is Oracle Total Recall. A product that helps access historical data. Oracle Fusion Applications provides some interesting solutions for how they handle legacy applications. We will get into those as we proceed through the Preliminary Specification.

Conclusion

It is important to remember that here in the Security & Access Control module of the Preliminary Specification. That the role and identity-based Industrial Command & Control (ICC) as conceived here has not been implemented, developed or conceived anywhere else before. We are taking role and identity-based management to the next level with the ICC. This is done through the usage of the Joint Operating Committee, through pooling and taking advantage of specialization and the division of labor in the oil & gas industry. 

Why are we bothering with the ICC and the Joint Operating Committee pooling of resources? The issue we are resolving is the finite number of earth science & engineering resources available to the industry. With the anticipated retirement levels in the next 20 years. With the time requirements to bring on increased levels of resources. And most importantly with the demands for more energy, and the demands for more earth science & engineering in each barrel of oil equivalent produced. We face long-term shortages of critical resources. The need to organize the industry, exploit specialization and division of labor, and Professor Paul Romer's theory of non-rival costs is necessary to increase the output from the same number of resources. Doing this without pooling the resources in the Joint Operating Committee will cause the producer firm to broaden the scale of their earth science & engineering capabilities beyond what would be a commercially viable concern. The Preliminary Specification notes that we have contributions from earth scientists and engineers from multiple producers working together to meet the objectives of the Joint Operating Committee. Therefore we need a means to organize themselves and that is the Industrial Command & Control of the Security & Access Control module. 

How the ICC will be implemented will be determined by our user community. However, I can speculate that the Joint Operating Committee will have standard roles and identities used throughout the industry. Standardization provides many benefits and will be necessary in this instance to make technology work. One of the key benefits of standardization is enhanced innovation. The need to have the various areas "covered" in terms of compliance and other requirements will require a standard template used by everyone. Everyone will know that that position is responsible for that role and responsibility. When Joint Operating Committees are small and have only a few people assigned, multiple roles can be assigned to one individual. 

There are security and access control issues associated with the service industry and particularly service providers accessing People, Ideas & Objects systems and data. Removing administrative and accounting resources from the producer firms and organizing them in their own service providers provides significant operational flexibility to the innovative and profitable oil & gas producer. The Security & Access Control module ties these disparate organizations into highly organized replacements for the current bureaucracy. Contributing substantially to People, Ideas & Objects' overall tangible portion of our value proposition.

With the natural division in the types of information held within a producer and Joint Operating Committee. Producers will know that the Preliminary Specification can deliver the right information to the right people at the right time. Leakage of proprietary information can be mitigated by isolating company data. This is due to its unique nature and Oracle Label Securities' ability to restrict access to database fields. 

Oracle’s products provide a strong layer of mission critical capabilities in the Security & Access Control module. Oracle provides comprehensive coverage of security, access control, audit, back up and roll management to name just a few of the highlights provided. Although this comes with additional costs, I am certain that no one will argue with the quality and peace of mind that these products bring. 

OCI Security & Access Control, Part I

 Introduction

Joint Operating Committees are the key Organizational Construct of a dynamic, innovative, accountable and profitable oil & gas company. It is the interactions of many producers, service providers and suppliers who are involved in the day to day commercial and strategic concerns of that Joint Operating Committee that we need to concern ourselves with. The Security & Access Control module's focus is to ensure the right people have the right access to the right information with the right authority. This is at the right time at the right place and through the right device. 

Throughout the Preliminary Specification we discuss two of the most pressing operational issues in the oil & gas industry. Those being the demand for earth science & engineering effort is increasing with each barrel produced. This is best represented by the steep escalation of oil & gas exploration and production costs. At the same time, critical earth science & engineering resources are fixed and difficult to expand. And with the anticipated retirement of this brain trust in the next twenty years, the problem becomes critical. The second issue regards the manner in which the administrative and accounting resources are organized within the industry. With the Preliminary Specification the need for each producer to develop their own administrative and accounting capabilities internally is replaced by an overall industry capability. Then each producer can access those resources on a variable cost basis with direct charges to the Joint Operating Committee. This provides operational flexibility in how a producer approaches its strategic and tactical needs. 

There are few short-term solutions to the shortfall in geologists and engineers over the next twenty years. It takes the better part of that time to train them to operate in the industry. What we do know are several "things" being applied in the People, Ideas & Objects Preliminary Specification. Many of these concepts are based on what we call Industrial Command and Control. Which is a method developed in the Security & Access Control module of imposing command and control over any and all Joint Operating Committees, working groups, producer firms, service providers or organizations the producer may need to add structure to. The concepts are the further specialization and division of labor, and a reduction in the redundant building of capabilities within each oil & gas producer, or as we describe it, a pooling of resources in the Joint Operating Committee.

The first concept of specialization and division of labor is well known as a principle of economics that brings about greater economic productivity from the same volume of resources. Given that the volume of earth science & engineering resources is known for the foreseeable future. Specialization and the division of labor will provide us with a tangible means to deal with oil & gas industry productivity. In today’s marketplace, approaching a heightened level of specialization and division of labor without software to define and support it would be foolish.

The pooling concept is the solution to the current desire that each producer firm acquires the earth science & engineering capabilities necessary to deal with all the needs of their “operated” properties. This creates unneeded “just-in-time” capabilities for scarce scientific resources. When each producer within the industry pursues this same strategy substantial redundancies are built into the industry's capabilities. Redundancies that are left unused and unusable. What is proposed through the People, Ideas & Objects software application modules is that the producer's operational strategy avoids the “operator” concept. Instead, it pools their specialized technical resources through the Joint Operating Committee partnership. That way the redundancies that would have been present in the industry can be made available to the producers and used by the producers through hyper-specialization and division of labor.

These same principles are present in the second issue noted above. The administrative and accounting capabilities acquired through industry-wide capabilities provide the producer with the flexibility to address operational concerns. Issues such as today’s low natural gas prices can be addressed through this revised structure. By having administrative and accounting service providers charge their service fees directly to the Joint Operating Committee. The producer gains the ability to shut-in unprofitable production with only positive effects on their financial performance. Administrative, accounting, and production costs are eliminated during shut-in production. Providing the most profitable means of oil & gas operations when unprofitable properties no longer dilute profitable properties. Producers can save their reserves for the time when they can be produced profitably. Reserves costs don't have to carry additional losses if unprofitable production continues. Reserves can be seen as a low-cost solution to production and storage. Commodity prices will have less volatility due to producers removing marginal production from the marketplace. 

Being able to provide service providers with access to and security during these day-to-day operations will be a unique situation for the oil & gas producer. Service providers will aggregate data industry wide. And there will be many service providers involved in providing administrative and accounting services to the producer firm and Joint Operating Committees. Consideration of the proprietary nature of the information and security will be priorities for the Preliminary Specification. 

A quick note on mobility. People are provided with new devices that enable them to work anywhere. These phones and tablets, in addition to laptop computers, open up security and access control concerns for the innovative and profitable oil & gas producer. Some producers enable their staff with policies that allow them to bring their own devices to work. The fact is these devices provide enhanced productivity and are appropriate for an innovative and profitable oil & gas producer. People, Ideas & Objects Preliminary Specification includes an understanding that these devices will be part of the day to day used in the oil & gas industry. 

What these concepts require is what the Security & Access Control module is designed to provide. The system must provide access to the right person at the right time and at the right place with the right authority to the right information. With the Industrial Command & Control there will be a manner in which the technical, and all the resources, that have been pooled from the producers, interact with an appropriate governance and chain of command.

Two Types of Data

When we talk about the various people within the producer firms affiliated with a Joint Operating Committee. And the number of Joint Operating Committees that a firm may have an interest in. And the number of people a firm employs. Access control becomes challenging. It becomes a challenge when we consider that people certainly should have the access required, but the level of trust they may have with respect to other partner organizations is probably not as strong. That is to say, does using the Joint Operating Committee as the key Organizational Construct of a dynamic, innovative, accountable and profitable oil & gas producer, open the producer firm to data loss? This is how People, Ideas & Objects deal with the access and trust issue in the Security & Access Control module.

When we concern ourselves with the data and information of the producer firm. We also concern ourselves with the information cleared by the various Joint Operating Committees that the oil & gas producer has an interest in. We can all agree that this information is proprietary and subject to each producer firm's internal policies. (Information such as reserves data, accounting information, internal reports and correspondence, strategy documents.) What we're concerned about is the information and data held in the Accounting Voucher module and the associated data common to the joint account. (well file, agreements, production data, capital and operating costs, revenue and royalties.) 

Close analysis of these two types of data and information held within the firm and the Joint Operating Committee falls within the proprietary and partnership domains. In Canada at least, most data and information regarding well operations can be freely obtained through various regulatory agencies. Nonetheless, the majority of the data is shared through the partnership who have an interest in the data and information. Which is not the case with the producer firm's data. Most of the information is kept close at hand and reported through filtered reserve report summaries and annual reports. Therefore keeping a handle on proprietary data, while operating the Joint Operating Committee as the key Organizational Construct of the innovative oil & gas producer, as proposed by People, Ideas & Objects, does not present any data leakage.

Access control can therefore be limited by restricting any company personnel from viewing other companies' files. Which is a given. While in People, Ideas & Objects access control is restricted to the firm's Joint Operating Committees and the firm's files only. To extend this further, we would limit access to the appropriate roles within the firm. Then it is up to our user community to define a standard set of generic roles in which access is required to certain data types. This would apply to the types of operations handled by that role, for example, read, insert, update, delete. These generic roles could then be assigned to each individual within the organization based on their needs. Assigning multiple roles for more complex access. Access to proprietary data would be restricted to company personnel only.

More on the ICC

Throughout the Preliminary Specification we've discussed our solution to one of the premier issues the oil & gas industry faces. That is the demand for earth science & engineering effort per barrel of oil increases with each barrel produced. This is best represented by the steep escalation of oil & gas exploration and production costs over time. At the same time, critical earth science & engineering resources are fixed and difficult to expand in the short or medium term. Add to that the anticipated retirement over the next twenty years of the current brain trust of the industry and the problem becomes a critical concern.

There are few short-term solutions to the status quo volume of geologists and engineers. It takes the better part of that time to train them to operate in the industry. Our resolution in the People, Ideas & Objects software applications modules involves what we’ve developed and called “Industrial Command & Control” (ICC) and the application of specialization and division of labor. Specialization and the division of labor are well known principles of economics that bring about greater economic productivity from the same volume of resources. Given that the volume of earth science & engineering resources is known for the foreseeable future, specialization and the division of labor will provide us with a tangible means to potentially increase the capability, capacity and productivity of the oil & gas industry, yielding multiples of today’s performance over the long term. With software defining and supporting organizations, today’s producers must approach a heightened level of specialization and division of labor through software in broadly dispersed North American markets.

People, Ideas & Objects ICC involves the implementation of specialization and the division of labor in the fields of geology and engineering. It is currently necessary for each producer firm to acquire all the earth science & engineering capabilities necessary to deal with the needs of the properties they "operate". Which allows the full scope of these sciences to be deployed "just-in-time". When each producer within the industry pursues this same strategy, organizational inefficiencies in these critical resources are introduced. This is due to the method of organization built into the industry's overall capacity and capabilities. Leaving resource utilization rates lower due to the volume of unused and unusable resources locked in each producer firm. 

What is proposed through the People, Ideas & Objects software application modules ICC is that the producer's operational strategy avoids the “operator” concept. Instead, it pools these technical resources through each of their partnerships represented in their Joint Operating Committees. That way the inefficiencies that would have been present in the industry can be made available and used through industry wide, producer focused, advanced and advancing specialization and division of labor. Where many of the lower end processes are offloaded to service providers who specialize in that basic skill on behalf of many producers. This is done in a geographical area or other specialization. And each individual producer focuses on a specialized element of science as it develops and innovates upon that. People, Ideas & Objects believe producers will soon be unable to commercially support the full scale of engineering & earth science disciplines tasks and responsibilities as they have in house. This will be due to the shortages of resources, the cost escalation of these resources in the market due to their shortages, the expansion of demand from higher production volumes to achieve energy independence, the demands for more science in each incremental barrel of oil produced, the anticipated, substantial expansion of the sciences and the need to innovate upon that expanding science. For producers to maintain a broadened division of labor to deal with these issues and “operatorship” capabilities, it will extend them beyond any producer's commercial capacity.

What these concepts demand is what the Security & Access Control module is designed to provide through the ICC. The People, Ideas & Objects system must provide access to the right person at the right time and at the right place. This is with the right authority and the right information. With the ICC there will be a manner in which the technical and all the resources pooled from the producers, interact with the appropriate governance, compliance and industry standard chain of command.

Before the hierarchy which was a commercial development of the 20th century, there was only the military structure in terms of large organizations. The main difference between the two is subtle but significant. Military structures are broader and flatter than hierarchy. That is one of the ideals we are seeking, but the more significant feature is the ability for the chain of command to span multiple internal and external organizational structures and to move resources from different areas of the military through standardization.

The nature of people working through the industry-standard chain of command layered over the Joint Operating Committee will include all oil & gas disciplines. The contributions of staff, financial and technical resources will include all those employed by the industry today. I could foresee many office buildings being refurbished to accommodate the staff of a single Joint Operating Committee of a large property. There, staff from the different producers may be seconded to provide support for the Joint Operating Committee. They may work for a single Joint Operating Committee, not for any particular producer firm.

As background we should recall that each individual would have different access levels and authorizations in terms of access to People, Ideas & Objects ERP systems. Assuming different roles and responsibilities, they would impose different access levels to data, information, processes and functionality. People, Ideas & Objects application modules rely on the Security & Access Control module to implement Industrial Command & Control. This structure, particularly in a Joint Operating Committee, would weave multiple producer firms under one industry standard chain of command. The interface ensures that all processes are monitored for compliance, governance, and overall completeness.

Access, Roles and Responsibilities

This topic discusses the way authorizations, roles and responsibilities are handled in the Security & Access Control module of the Preliminary Specification. We should discuss the topic of delegating authority and responsibility during absences, which can come up from time to time.

As background we should recall that each individual would have different access levels and authorizations in terms of access to the People, Ideas & Objects systems. Assuming various roles and responsibilities, they would impose different access levels to data, information, processes and functionality. In addition, Security & Access Control is the key module for implementing Industrial Command & Control across People, Ideas & Objects. This structure, particularly in a Joint Operating Committee, would weave multiple producer firms under one chain of command. To ensure compliance, governance, and overall process completeness, it will need to provide an interface to ensure all processes are monitored.

Throughout the Preliminary Specification there is the perception of a heightened role for technology in terms of enabling authorization to conduct operations. Thus, the ability to do things and get things done depends on collaborating with partners and authorizing actions through processes managed by the systems. This participation dictates that the designation of the roles in the Security & Access Control module “means” more than just data access; it imposes authority and responsibility to undertake actions on behalf of Joint Operating Committees and / or producer firms.

It is necessary to assign this authority within the Security & Access Control module during any absence. If someone with authority and responsibility was away for whatever reason, they should be able to assign their authority to another person. This will enable them to fill that role while away. This will ensure that the process isn’t held up during their absence. Delegations of authority have been used for years in large firms and with a system that imposes authorizations and responsibilities on specific roles, the ability to temporarily move them down, across or up the chain of command is a necessity to keep the organization functioning.

Lastly we should talk about the interface that helps to identify missing elements in a process. It would simply show the command structure of the people assigned to a Joint Operating Committee or a process. It would also show their related role, authorizations and responsibilities. If someone was away, it would indicate who took over their role. It would help to identify how they could impose a chain of command to fill any vacancies. This would be particularly helpful if the role or process needed to be documented for compliance purposes.

Talk is Cheap

 What producer officers and directors fail to understand, repeatedly and consistently, is that their investors know they can talk an impressive game. Officers and directors say whatever comes to mind at the moment. In terms of implementation of what they said back in 1987, investors are still waiting and tired of this behavior. They ceased supporting the industry in 2015. Investors want performance in the form of profits. “Real” profits, not fake ones posted based on how officers and directors "feel" at the moment. If producers were making “real” money they could conduct themselves in what is considered normal commercial operations. Which is defined as generating the financial resources necessary to ensure their future was secure, investors and bankers were satisfied and customers knew they had a secure, reliable and affordable supply of oil & gas. Rarely have producers prioritized even one of these objectives over the sacrifice of the other two. Today, what is normally considered a "commercial operation" is far from a reasonable expectation.

There is a decided engineering aspect to everything discussed in the industry. Just as the next version of Windows will make your business more efficient, oil & gas producers are selling some cutting-edge engineering theories about how they're increasing oil & gas production. Ask them if it's profitable and they say sure. Look at the financial statements. That these statements are deemed unacceptable and have been the source of their investors' frustration is disregarded. It’s an engineering culture that dominates the industry and I'm not saying there’s anything wrong with that. Based on science the industry is complex and difficult. However it is a business and that is what the producer firms are unable to appreciate, understand or incorporate into their organizations. 

When every activity they’ve conducted is reported to be profitable due to specious accounting methods. There is no understanding of performance criteria. Simple field activity becomes profitable. Thereby creating a culture and competitive landscape that is systemically uncommercial. 

The oil & gas economy needs rehabilitation. A culture of talking up their game is the distinct value add of those within the industry. Exxon CEO Darren Woods was in the Wall Street Journal on Saturday and stated. 

Woods explained a high-level plan to investors for Exxon to do something companies have unsuccessfully striven to do for years: boost the amount of oil they can recover from individual shale wells.

Investors had little appetite for boosting investments to increase shale production, but Woods was talking about a way to use technological advances to wring more oil out of stubborn shale rock, according to people familiar with the meeting. Woods said he had directed employees to make it happen, and seemed confident in the plan.

Ultimately, that became one reason Exxon snapped up a large oil producer in the Permian Basin of West Texas and New Mexico: It needed a bigger sandbox for its experiments, and expected to extract more oil than its smaller rivals would on their own.

Exxon CEO Darren Woods also stated in a WorldOil article on Friday that Pioneer would reduce their annual costs by $2 billion dollars, post consolidation. I questioned the numbers on X and asked for further information. However accountability in oil & gas is notoriously flawed and as I've stated many times, purposefully so. What we are told is that Exxon is waging a $60 billion bet on needing a bigger sandbox for its experiments. It expects to extract more oil than its smaller rivals alone. In oil & gas these are believed to be the actions that will lead to profitability. At least that is implied. 

What I stated in an October 22, 2021 blog post entitled "Misguided Angel’s or Devil’s Incarnate.” Within my quote I refer to a Forbes article that has a similar take on Exxon’s 2020 Annual General Meeting. 

Therefore it needs to be asked why did Exxon management vote to have Engine No. 1 directors put in place? Or alternatively show me the vote count. For practical purposes Exxon’s share distribution is 53.47% of the float is held by 3,213 institutional investors. These shares are normally voted prior to the meeting and they’re known by management. Read the dialog of the Exxon meeting from this Forbes article and explain to me why you would think it wasn’t “play acting,” that it didn't have a “banana republic feel to it” or just good old “comic relief.” I highly recommend reviewing it.

The Vote’ is a monumental and innovative theatrical achievement. This compelling human drama is Shakespearean in its depth and breadth while also being part musical, part improv, part comedy, and part theater of the absurd. It even has some western partner dancing. At its heart, the play is a classic Greek tragedy with Darren Woods as the protagonist. He delivers a breathtaking and memorable performance as director and lead actor. ‘The Vote’ gets my vote as the best play of a shareholder meeting I’ve ever seen.”

The point I’m making is that Exxon’s management, as was Shell’s loss in its court case, will see them “forced” to reduce theirs and their suppliers environmental footprint. Appears to conveniently be directed to support clean energy investments. No discussion of performance. No expectation of performance from clean energy. Just the fact that all of the oil and gas bureaucrats can now hang their hats on this one vote and judgment. This was their day of environmental reckoning. Oil and gas has collapsed to the point where the press is actively mocking their attempts to deceive us.

What I recall about that meeting was the suddenness of the action by Engine No. 1. Seemingly overnight they accumulated 1% of Exxon to force a vote on their resolution. They also have three newly appointed directors installed. A successful proxy fight during an annual meeting at a large organization is about as common as a meteor ending civilization. This ultimately saw Exxon commit $17 billion to environmental and clean energy spending. Nonetheless we know producers, officers and directors are now focusing on oil & gas this quarter. Moving into other industries has been well established and done legitimately through proxy wars, if necessary. Having written off shale, and therefore every other method of oil & gas extraction when they sauntered off, they can’t jump back in immediately. I think Pioneer is realizing the winds are howling and as has been the case in previous situations, management and the executive are the first to abandon ship. They’ve opted for the sale of the company as the method to do so.

Now that we’ve established all of this discussion I can get down to the point I want to make. How would the Preliminary Specification work if Exxon adopted it? If Exxon could invest $60 billion to generate $2 billion / year in synergies and a sandbox to try some novel ideas. Or $17 billion in far off industries. It sounds to me that the lunatics are in control. An all-stock deal for Pioneer shows that investors have distaste for this industry. The scope of this deal indicates they're right to keep their distance. It was during 2017 that these producers told investors that the Preliminary Specification would never work. They couldn’t shut-in production without damaging their formations. April 2020 proved this to be untrue when 25% of world production was shut-in and no damage had occurred to any formation anywhere. It was during 2017 that these producers said I was a lunatic. Therefore I feel fully qualified to call them when I see them now. (It’s out of my system now.) These are only some of the highlights of using the Preliminary Specification.

• The Preliminary Specifications decentralized production models price maker strategy cures the industry of its chronic, systemic, overproduction disease. So many trillions of dollars and valuable resources have been wasted at the hands of those that didn’t care and couldn’t be bothered to respond to common sense or their investors since our publication in August 2012. 
• Actual, factual, detailed, standardized and objective financial statements are prepared by the Preliminary Specification for each Joint Operating Committee. By our revised business model all producers' costs are variable based on profitability. 
• Allowing producers to discern which properties are making money and which is not. 
• Enabling them to shut-in unprofitable production to optimize corporate profitability. 
• Save their reserves for when they can be produced profitably. 
• Reducing the cost of their reserves by not adding incremental losses. 
• Keeping the commodity as reserves is the lowest cost alternative to production and storage. 
• Removing marginal production from commodity markets. 
• While shut-in producers can innovatively work the property over to return it to profitable production. 
• When all costs are variable and recognized appropriately. Including the capital costs of a capital intensive industry. All of these costs are passed on to the consumer at the point of sale if the product is produced profitably. Therefore the cash incurred for these costs in the production month is returned as cash in the subsequent month. This provides the financial resources to pay for the following month's costs.
• Today, contrary to common sense producers capitalize overhead costs. Maintain them on the balance sheet for decades and return the cash used during the production process years and decades later. 
• “Building balance sheets” and “putting cash in the ground” is what they’ve told us they were doing. We just should have believed them. And why they were so dependent on outside investors to replenish their capital expenditure budgets each year. Producers drain cash monthly.

The Preliminary Specification establishes an organizational culture based on seven Organizational Constructs to replace the stale, bureaucratic and failed culture of today. Using these market supporting institutions to create and support a dynamic, innovative, accountable and profitable oil & gas producer and industry. A revised culture and roadmap for people to see, understand and apply how, what and why they need to do things in the profitable oil & gas industry.

• Division of labor and specialization increase producers and industries' throughput from the same resource base.
• Application of Professor Paul Romer's theory of non-rival costs. Where a sharing of infrastructure such as accounting and administration is based on industry-wide, variable cost capabilities and capacities. Eliminating duplication of non-competitive capabilities among producers. 
• The Joint Operating Committee which is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. By moving the compliance and governance framework of the hierarchy into alignment with the seven frameworks of the Joint Operating Committee we achieve speed, accountability and profitability.
• Three specific oil & gas related markets are recognized with their own modules in the Preliminary Specification. Resource, Petroleum Lease, and Financial Marketplace modules. Providing the means for producers and individuals to engage in oil & gas business resources. 
• Intellectual Property is a poorly managed resource in oil & gas. This law has been abused and needs to be recognized and respected by producers to achieve the level of innovation and development necessary. No one will break their brains to have their IP stolen by their customers, the oil & gas producers. 
• Information Technology, and specifically the ERP systems that are the Preliminary Specification and Oracle Cloud ERP. Are provided through our Cloud Administration & Accounting for Oil & Gas software and service. Organizations are defined and supported by software. In order to change the organization, you must change the software first. 
• Innovation is the basis of the Preliminary Specification. Firms such as Apple are purpose-built innovators. It is not a happenstance occurrence. Exxon will not innovate because they have an idea. Ideas are the easy part. Particularly for organizations, innovation is inherent in all aspects of the Preliminary Specification. 

Lastly the organization of People, Ideas & Objects, our user community and their service providers. Designed to enable the business models in the Preliminary Specification that release substantial trillion dollar value propositions over the next 25 years. These are only the value propositions we can quantify. There are other intangible value propositions such as the increased performance from specialization and the division of labor used throughout. In addition, there is the sharing of non-competitive attributes of the producers on an industry-wide basis.

These points are just a summary of the highlights of a comprehensive business model for oil & gas. This model consists of almost 400,000 words in the Preliminary Specification. Which spells out in detail how, what and why the industry needs to change to attain real performance and profitability. There are over 4 million words on this blog, most of them reviewing primary research. Is this the level of effort necessary to prove to those in the industry that business value needs to be considered? Or will they continue to spend $60 billion on a “sandbox” to try more “experiments” that might work, or $17 billion in environmental and clean energy on the basis of poorly performed Shakespearean plays? The one thing I can assure everyone of is that Exxon CEO Darren Woods is about to win the biggest, well built balance sheet contest in the industry this year. Wow!

OCI Profitable Production Rights, Part IV

 Issues Involved in Profitable Production Rights Licenses (Continued).

Value Proposition

Our extensive value proposition is based on this premise. This is the value leveraged by both classes of Profitable Production Rights Licenses. As a result of their dependence on and destruction of outside capital and what value was built over the past four decades, the producer companies were never profitable or commercial in nature. We have established the well-known principle that over-reported assets result in over-reported profitability, culminating in overinvestment, which results in overproduction. Price maker principles apply to oil & gas commodities. Doing so for decades is devastating to the prosperity of all parties involved in the oil & gas industry. 

Considering these facts, it is evident that an insidious cancer eats away at an industry's performance criteria over time. Profitability and financial performance are automatically assumed and never questioned. In fact, they are too easy to attain. Over decades, the organization's performance deteriorates to the point where it becomes wholly dependent on outside capital for its basic operations. Oil & gas culture is one of persistence that refuses to change and is unalterable. A chronic lack of performance has rendered the industry worthless as its present value is negative and it requires capital in some form to function. This is attributed to its dominant, permanent, and unchanging culture.

It is, unfortunately, terminal. A market economy cannot function with a useless culture, and the culture should be destroyed to elevate performance as the criterion for success. There is not enough energy in the world to combat this bureaucratic culture and overcome it. Fortunately for People, Ideas & Objects, the oil and gas industry's culture is self-selecting and we are prepared to rebuild it with the performance-based culture of the Preliminary Specification. To ensure that producers are provided with the most profitable means of oil & gas operations, everywhere and always. 

Producers' "muddle through" culture and lack of performance are based on this assumption. Its fundamental belief is that commodity markets will handle any production producers place on the market. As a result, it is imperative that all producers produce at 100% of their production profile at all times. The Preliminary Specifications decentralized production models, price maker strategy is criticized as a collusion strategy. Price makers shut down unprofitable production until it can be produced profitably. Cloud Administration & Accounting for Oil & Gas views oil & gas commodities as price makers. To increase supply, only profitable production is brought on board.

Directors and officers assume that the market is magical and will handle whatever they produce. In these circumstances, oil & gas prices will decline precipitously as price makers. We have witnessed several oil & natural gas price collapses since 1986. A negative oil price of $40 in April 2020 is an example of one of the steepest declines. Markets are not magical. There is only one thing they do. Price serves as a means of information. Producing the product would be worthwhile if the market price was sufficient to make a profit. In any other case, you actively destroy value. Officers and directors of oil and gas producers fail to understand that they are market participants. In their view, the market is magical, and they do nothing to address current market conditions. Regardless of the circumstances, they will muddle through, accept the loss, and continue to produce at 100%.

Profitable Production Rights Licenses leverage the differential between these two industry visions to deliver their value proposition. Over the next 25 years, we have consistently stated their value at $25 - $45 trillion. It generates incremental profitability of $5 trillion. Furthermore, producers claim that $20 to $40 trillion in capital is required to rebuild, refurbish, reclaim, and expand the industry's productive capacity and infrastructure. In the Preliminary Specification, this amount is not necessary, since capital costs are recognized competitively with all other industries in North America. Internally generated cash is reinvested to be recovered repeatedly. As a result, it will be invested again and again competitively with what other industries in North America achieve. The costs of a capital-intensive industry such as oil & gas are primarily capital-related and therefore are the predominant cost passed on to consumers. In contrast to officers and directors strutting down main street comparing their well-built balance sheets and "putting more cash in the ground," the Preliminary Specification puts cash to work, quickly and repeatedly.

Disintermediation by any other name… 

Cloud Administration & Accounting for Oil & Gas offers many benefits. The fact that the industry's officers and directors chose instead to destroy the industry when they had this value available is not surprising to me after 18 years of writing this blog. In a number of industries, the value generated by disintermediating the bureaucratic death grip has been well documented. 

The theory of specialization and the division of labor increases industry throughput using the same resource base. In Adam Smith's research at a pin factory in the late 1700s, production increased over 240 times (24,000%). As a result of division of labor, specialization, and mechanical assistance, these benefits were achieved. All the value generated in our economy today is attributed to specialization and division of labor. There is no doubt that ERP software has locked organizations into unchanging environments where the status quo becomes satisfied with the status quo and only the status quo is satisfied. People, Ideas & Objects propose the establishment of permanent software development capacities and capabilities to eliminate what we consider a modern-day software bug.

New Growth Theory

Professor Paul Romer's theory of non-rival goods supports and enhances the specialization and division of labor. It is People, Ideas & Objects' goal to eliminate the unnecessary and redundant practice of each producer developing their own administrative and accounting capabilities. Using Cloud Administration & Accounting for Oil & Gas instead to establish shared, variable cost, industry-based administrative and accounting capacity. From Professor Paul Romer

Because the economics of ideas are so different from the economics of markets. We’re going to have to develop a richer understanding of non-market institutions, science like institutions, this is going to be a new endeavor for economics.

Budget

There are few individuals who would argue that People, Ideas & Objects' direct costs would fall within the $5.79 billion U.S. It is particularly troubling for the status quo to accept equal amounts for Intellectual Property royalties, equal earnings, and a similar valuation for Flexible Profitable Production Rights. Based on the value proposition identified in the Preliminary Specification. The costs associated with this initiative are incidental to the value generated. In our Organizational Constructs section, we provide further detail regarding the justification of the People, Ideas & Objects budget. It is of course our pleasure to compare the prospective value generated from the Preliminary Specification with the plans and specifications of the officers and directors. There have been no calls for this and we cannot determine if they have a plan.

Promotion of Profitable Production Rights

People, Ideas & Objects has reintroduced Profitable Production Rights. This is to raise funds to develop the Preliminary Specification and establish our user community. In the coming months, I plan to periodically return to this topic and include relevant attributes as they arise. As a result, I will be able to develop a more comprehensive conceptual model. 

Our oil & gas industry has lost its capacities and capabilities to the point that it is no longer functionally capable of maintaining its production profile. As a result of our reliance on shale-based deliveries, we have never seen or experienced the full scope and scale of a potential industry-wide decline curve. First and foremost, we will need an all-hands-on-deck approach to resolving the loss of capacities and capabilities. Complacency has superseded and circumvented any and all industry motivation for taking action. The severity of a problem that needs immediate attention and concern is increased as a result. While I find this issue challenging, exposure levels to shale based production volumes create a much larger issue. Shale exhibits steep decline curves. This is the first time we have been here and we have never been so exposed. 

The people responsible for this situation are the ones who have the authority, responsibility, and resources to deal with it specifically. In most cases, they prefer to "muddle through." This has been made possible by capital intensive industry cash flows to offset the hefty executive compensation they receive. All they do is pretend not to notice the problem.

Conclusion

Status quo producers have lost sight of their purpose. They have failed, will not succeed, and have proven culturally incapable of earning "real" profitability. They have no desire to change or succeed. As time passes, the difficulties in the industry will become more apparent. The choice of alternative organizational opportunities for the greater oil & gas economy is limited to one choice offered by Oracle, People, Ideas & Objects, our user community and their service provider organizations in the form of our Cloud Administration & Accounting for Oil & Gas application. The time to consider these issues has passed. As part of the Intellectual Property available to develop any alternatives, it will be necessary to consider what solutions have already been developed and avoid what exists in our Preliminary Specification. 

In light of the level of damage and destruction caused by producer officers and directors throughout the greater oil & gas economy. People, Ideas & Objects provide extensive value propositions developed new business models that bring new value as a result of disintermediation. The cultural methods we implement in the Preliminary Specification to achieve these advantages are described in our seven Organizational Constructs. We are building the future oil & gas industry on these cultural foundations.

As a result of our budget, the producers' officers and directors have maintained their distance from this project. Because of the scope and scale of these issues and this project, these costs must be recognized. Our next phase of development will not be built on one individual's success. As a result, it will be based on a comprehensive sense of urgency necessary to address these issues in the industry. In addition, the revenue potential and characteristics of Profitable Production Rights should reflect a negotiated share of the BOE's value proposition. And determined by the rights owner.

The purchase price of these rights is $600 U.S. per North American BOE. In addition, the potential revenues and characteristics of that right reflect a negotiable share of the Profitable Production Rights with those who own the oil & gas production. The proceeds are used to build the Preliminary Specification. Fulfilling the need for People, Ideas & Objects revenues from oil & gas production, albeit indirectly in this case. By operating Cloud Administration & Accounting for Oil & Gas software and services, the Profitable Production Right will reflect the intrinsic value of oil & gas production's ability to organize profitably. It is a perpetual right and exists beyond today's oil & gas producers. Although our costs are large they pale in comparison to the significance of the damage done by these officers and directors. This damage is accelerating, has not been identified or approached and continues. Therefore anyone and everyone can share in the effort, the success and the reward of resolving this industry catastrophe to prevent what could become a societal catastrophe.

The Battle

What we know is that billions of barrels of oil and trillions of cubic feet of gas have passed through the North American industry over the past four decades and more. We’re told that it is represented on the balance sheets and was put in the ground by the producers' officers and directors. For what purpose has not been explained and maybe there was a productive reason that is beyond our current comprehension. We should keep an open mind to these things. The fact is no one claims to have prospered from oil & gas. It stands at a point that puts society in serious jeopardy. 

Leadership has been well compensated during this era. They appear blinded by this and cannot see objectively past their “muddle through” strategy. Their recent saunter off the stage towards clean energy, with oil & gas revenues in tow, may now be realized to be a step too far. As a result, they are claiming to be born again shale producers. The point proves one thing: the money in the form of those oil & gas revenues is on the table and will be directed by whichever system is in place.

Profitable Production Rights are the means by which the industry can transition to a performance culture. Driven by the most profitable means of oil & gas operations, everywhere and always. It is where the seven Organizational Constructs define an organizational culture that is comprehensive, intuitive, appropriate, and understandable. An environment in which those who are concerned about today's situation and looking to actively participate and prosper. Creating dynamic, innovative, accountable, and profitable oil and gas producers, industries, and sub-industries.

Get the Offence on the Field

 People, Ideas & Objects have documented our interpretation of the issues North American oil & gas producers face today and in the near future. What the consequences of those issues are and producers' ability to deal with them through their “muddle through” and consolidation strategies. Today there are two issues I want to discuss in much more detail and the need for them to be addressed. How People, Ideas & Objects feel that unless these are addressed, none of the producers' other efforts will amount to much. These issues arise in the service industry and are associated with getting things done. They involve the scientific basis of the oil & gas business and the ability for innovation to meet all aspects of the industries demands for oil & gas. 

Standing on the shoulders of giants is the method used to progress in society today as it has been since 1776. Oil & gas difficulties are already very advanced in terms of the geological and engineering of how this industry achieves all that it does through the service industry. Any further successful advancement beyond what is known today that will make a material difference will require significant understanding and mental effort. More than anything it will take time to prove or disprove the optimal solution and if it’s effective or not. Even if these efforts fail, they'll provide valuable information for further research. 

Producers implement their geological and engineering ideas through the service industry. An industry that delivers products and services to fuel producers' further expansion of oil & gas reserves and production deliverability. Engineers and geologists are rendered ineffective without the means to implement their ideas. People, Ideas & Objects would point out that from a business perspective engineers, geologists, and the service industry are operating in a boom-and-bust industry due to producers' leadership. Again we suggest this is due to, and the Preliminary Specification is a solution to, chronic and systemic overproduction in North America. Therefore the oil & gas business doesn’t support further commercial development from here. If no one is making money, if everyone sees it as a cash sinkhole and an area where none of your ideas and hard work will be recognized for the commercial value they should achieve. What will motivate companies and individuals to act? We need a dynamic, innovative, accountable, and profitable oil & gas industry. That is not what we have and the future looks even harder for that to be achieved.

Intellectual Property is one of the foundations of the U.S. economy and the principal reason it maintains its position in the world. Copyright is written into the U.S. constitution. Therefore we know that industries develop when Intellectual Property is acknowledged and respected. This is not the case in North American oil & gas. In fact it is the opposite of industry culture. Producer firms do not recognize suppliers' Intellectual Property. Will actively share the findings with its competitors to encourage price competition. And will not deal with those that claim Intellectual Property rights as property as People, Ideas & Objects has done with the Preliminary Specification and its derivative works. Producer officers and directors' primary concern here is that as soon as they recognize one company's IP, the floodgates of IP claims will overwhelm their cost structures. They assume a lack of price competition and royalty payments will raise their costs. 

Would this be the case? Copyright provides monopoly rights to express an idea. Therefore there is no price competition unless the copyright holder grants licensing rights to others. Copyright is earned through publication. Therefore others can see what is being done, and apply similar solutions to similar situations. Standing on the shoulders of giants. If this application of Intellectual Property were conducted in a collaborative atmosphere across the broader oil & gas economy would that increase or decrease the producer's costs? Innovation is the result of pursuing ideas. Innovation is not about costing producers more, it's about making money. Is it coincidental that North American producers have not earned any money and only consumed their value since the late 1970s while at the same time refusing to recognize Intellectual Property?

The issue therefore is the management producers conduct with respect to People, Ideas & Objects. There has been no progress over an eleven year old Preliminary Specification. A product of a decade of research and one from which producers benefit. As the principle of this initiative, I have been ostracized and vilified. Will this be the same oil & gas industry that suddenly becomes the most dynamic and innovative industry of all time? As it must be and needs to be? The message is consistent and has been heard repeatedly over the years. People understand that if they spend the next 20 years smashing their brains against concrete they can make a difference in the world of oil & gas. Earning the satisfaction of knowing they did a good job by bringing new products and services to the industry? Maybe recognition one day in the form of a blue ribbon or gold star!

Therefore, we've questioned why anyone in the service industry would initiate any product or service that could provide value to oil & gas. People, Ideas & Objects include any firm that supports oil & gas producers directly or indirectly with their products or services. This is our classification of the service industry. The service industry, like the producers, investors have seen how the game is played and outside of the officers and directors no one wins. And just like the producers' investors, they're tired of playing fools. Producers can spend their way out of difficulties as they have in prior downturns. However, the time it takes to develop updated products and services is far longer and more intense today than before. It’s not money that’s at issue, it's what will they have at the end of the difficult work? What will officers' and directors' attitudes be at that exact moment? Building a successful product may be the easy part compared to overcoming cultural inertia to refuse to deal with the parties concerned. 

The last and possibly most difficult aspect of this impossible journey is having an operational firm that faces the traditional business issues and opportunities experienced by any business in any industry. However, in the service industry there is the increased difficulty of dealing with the boom / bust cycle that dominates oil & gas activity. Producers don’t share service industry concerns. Being the primary industry, oil & gas is produced and revenues are generated from those products in some form and at some price, always. Even if prices collapse, they’ll reign in their costs to ensure they can sustain themselves throughout the bust cycle. This is called “capital discipline.” They’ll reduce service industry activity levels substantially. Even in a mild downturn a 50% drop in activity levels would not be unexpected. In addition, any activity conducted, pricing pressure will be preeminent across the service industry. Producers' ability to play one service industry competitor off another will ensure at least 50% discounts on any activity undertaken. Reducing service industry revenues to 25% of what they were just a quarter ago, even in a mild downturn. In a severe downturn revenues may drop further to 12.5%. This is considered the preferable action to selling horsepower or cutting up your rig to find cash to stay alive. Moreover, when times are tough, producers will still pay for what they contracted for. Even if it's 18 months past due, you will get paid.

Producers fail to understand that service industry participants lack the same luxury from primary industry revenues. They do not provide products or services to any other industry than the oil & gas industry. It’s not incumbent upon oil & gas producers to ensure the service industry is successful and profitable. It is however, necessary that they operate a successful and profitable oil & gas industry and they have failed spectacularly. Overproduction has been the dominant theme in the industry since the late 1970s. The industry culture has been generated by these principals who do not understand or know any difference. If they operated a successful and profitable industry they would not have any of the concerns they’re facing today. They could compete for capital in North American markets against Apple. They would be able to provide long term secure supplies of domestically produced oil and gas to their customers at reasonable and profitable, in a “real” sense, prices. Leadership would have to make difficult decisions based on the untold numbers of opportunities available in the marketplace. To suggest this is what we face today is incorrect.

Capital structures have been unsupported since 2015. Due to industry incapacity and international disruptions, consumers learn the importance of oil & gas supplies. Leadership is forging creative and innovative frontiers and industries, to switch to as they admit they can’t make money in oil & gas. They can’t make money in oil & gas because at no time after the hype of the investment meme died did they ever try to earn money. There was always the next great thing. This included SAGD, heavy oil, offshore, natural gas storage, unconventional gas, then oil and now, finally their ultimate capitulation in these past few years, clean energy. What we saw during any of these transitions was the near unanimous participation of producers in that trending meme. Just as we see today's consolidation meme. Their problem with coming up with the next frontier in oil & gas is they can't go back and claim that’s where the money is. If "shale never becomes commercial" you’re left with little else to draw upon to establish a vision, direction and frontier.

As I pointed out earlier, there are trillions of dollars worth of natural gas that has been wasted since the 2009 price collapse. Officers and directors admit they don't know how to make money from shale. And since shale was the savior of their future. That implies none of their other assets are performing and they're unaware of how to deal with them. They once walked off the stage into clean energy with no authorization or shareholder approval. Their long term argument was to keep oil and gas prices below alternative energy prices to prevent them from getting a foothold. And suddenly they're the ones that fund the alleged prior competition? War breaks out and they're back in the oil & gas industry? Either unknowingly causing disaster after disaster. Or perhaps knowingly? If someone else took a turn at the helm, what would we lose?

This One's Nuclear

 In 2009 natural gas prices in North America began to change on a barrel of oil equivalent (BOE) basis. Switching from its traditional “heating value equivalent” of six units to one barrel of oil pricing. Until January 2023 this restructured price varied between the high teens and low twenties in terms of oil prices. A 300 to 400% increase in natural gas price factors realized before 2009. Representing a fundamental breakdown in natural gas pricing in North America, and only in North America. In August 2012 People, Ideas & Objects published our Preliminary Specification. Included within that was our decentralized production models price maker strategy. This would help to restore the natural gas market back to a six to one heating value basis. And to suggest that oil prices since 2009 have been spectacular as to what caused the factor to expand would be incorrect. No one has earned real profitability in North American oil and gas markets. Particularly considering the high costs of shale development. A fact that even oil & gas producers' officers and directors agreed upon when justifying their excursions to the clean energy frontier. Stating “shale will never be commercial” etc.

During this time, LNG is being developed in the Gulf of Mexico, Australia and Qatar. This has done little to move continental natural gas prices in North America to global natural gas prices. January 2023 notes that natural gas prices have further deteriorated in North America. This is evidently as strong as in 2009. Pricing appears to have moved down further into the high twenties to low thirties per barrel of oil equivalent. 

In 2021 and 2022, we were provided with viable scapegoats from these officers and directors that small producers were overproducing to pay their interest costs. Therefore they had to consolidate their operations to deal with the issue. The result of consolidation appears to show that the smaller producers, as reasonably assumed, were not responsible for the further breakdown in prices. Were there other unidentified issues consolidation did not address? I will continue with my systemic chronic overproduction theory. Producers that know better due to the publication of the Preliminary Specification yet appear mentally constrained by their “muddle through” strategy. 

There is an obstinence and perseverance in the officers and directors class of North American oil & gas producers. The destruction of natural gas prices has been ongoing for 14 years, and the value that's been destroyed has been tragic. Rough calculations between 2009 and 2023 show trillions of dollars wasted. Wasted is the appropriate word to describe the actions of the officers and directors since they had every opportunity to deal with the issue. No one in the industry would disagree with this analysis. It is obvious and in plain sight everywhere you look. The officers and directors' only comment is that they've "muddled through” and will continue today.

In their defense producers will assert that natural gas is a by-product of oil production. The Permian is a field with significant associated gas volumes. This is typical of the “muddle through” strategy in which any viable scapegoat will suffice to prevent further thinking or action on any of their issues. Issues are not challenges. They only generate excuses to avoid action. What is clearly evident is that no thought has been put into this issue's resolution. LNG has expanded the export market however, Australia and Qatar are also leaders in this area and have no shale gas. Acceptance through “muddle through” has seen the United States produce 259.83 TCF of shale gas between September 2009 and September 2023. Canada's shale and conventional production numbers for the same period were 80.64 TCF. This is for a total of 340.47 TCF of gas volumes during the restructured pricing period. This does not include U.S. conventional natural gas volumes.

The severity of the pricing differential's tragic consequences is evident in September 2023. EIA reports prices for September 18, 2023. At Henry Hub prices were $2.77 (32 to 1 unit of oil), East Asian prices were $14.63 (6 to 1 unit of oil), Netherlands $12.61 (7 to 1 unit of oil). Observe how foreign countries have maintained the traditional heating value of natural gas prices. Assume that North American natural gas production does not have a differential between Henry Hub and East Asian prices. What would the value of natural gas produced in this period be? Interested parties could calculate the difference. The answer is in the mid single digit trillions of dollars. I cannot grasp the scope and scale of the destruction caused. 262 TCF shale gas volumes have been produced in the United States. Remaining reserves are estimated at 625 TCF. Would this be considered a wasteful use of an irreplaceable resource? Or am I mistaken in thinking this is a business?

History has some interesting lessons regarding oil & gas development in this past century. The following are quotations from Professor Richard Langlois' recent book “The Corporation and the Twentieth Century, The History of American Business Enterprise.”

Professor Langlois is correct in this assertion. I would add that the inefficiency of the hierarchy during the 20th century was offset by the tremendous mechanical leverage experienced first by coal, and later by oil & gas. Without that leverage would the hierarchy have been able to destroy market-based systems? With the decreasing trajectory of energy leverage, due to the time and effort over the past century to explore its full value, has this laid bare the hierarchy's inability to perform?

I often wonder how those oilfield pictures came about. Where wells were literally stacked upon one another. If someone was producing, you just moved a few feet next to them and started drilling yourself. That was how the industry started. 

And

Overproduction and collapsed commodity prices are inherent parts of industries' culture and heritage. Historically attempts to deal with overproduction have failed in every way. And it is assumed to be an unresolvable problem. However, what is clear is the connection between overproduction and collapsed prices. There is a culture today that suggests the “market” will somehow magically deal with any production a producer produces. Unaware that prices are the only information markets provide to market participants, and that producers are market participants. The price taker mindset is what oil & gas producers operate under. The Preliminary Specification institutes production discipline based on price-maker characteristics. Only when prices are high enough to generate “real” profitable production will incremental production be added to supply. This production discipline is further supported by the capital markets' lack of support for any producer not maximizing profitability. If a producer wants to continue producing unprofitably, they’ll have no support for their capital structure. Investors tell producers' officers and directors this today. And it is reasonable to imply that a “real” profitable operation will provide an officer and director with all the financial resources they could dream of. Yet they continue to ignore reality through their chorus of “muddle through.”

When a fundamental change occurs in the underlying oil & gas business. With the shift from conventional to unconventional drilling, oil & gas is moving from scarcity to abundance. To one of higher costs, massive reserves exposure, high deliverability and steep decline curves. There is a change that needs to be addressed in the business as a result of such a significant, dynamic change. Unaddressed, the business could suffer consequences that could eventually lead to larger problems. The Preliminary Specification was published in August 2012. Three years after the decline in natural gas prices due to overproduction and three years before the same issue became prevalent in oil. 

Australia, Qatar and the United States are 1, 2 and 3 in LNG export leaders. The United States leads. Australia was the first to expand its LNG capabilities to deliver gas to Asian customers. Due to some massive conventional natural gas discoveries prior to the shale era in North America. 75% of their production is conventional. I am unaware of what percentage of their natural gas production is associated gas. However, I would not expect it to be materially different from the United States. It is interesting to note that Australian producers realize the netback price on LNG exports. And there is a regulated price on the domestic market that is approximately 60% of the export price. 

To describe this next issue I’ll mix the maritime term of Free on Board (FOB) and the common oil & gas term of netback pricing. Netback pricing is used in the U.S. for most gas sales based on the Henry Hub sales price. Any production in the country is therefore priced according to what it costs to get that gas to that port. Transport costs etc. are deducted from the Henry Hub price to determine the local production price. This is not a hard and fast rule as contracts are subject to negotiation. Maritime Free on Board indicates the seller is responsible for shipping costs and title transfers to the customer at the destination port. In an LNG shipment situation a natural gas producer in the United States shipping gas to an Asian customer would realize the Asian price noted above of $14.63 and incur the costs of refrigeration and shipping the LNG (approximately $5 - $6 / MCF). Although $8 to $9 does not seem significant, the Asian price has been as high as $55 in the past year.

What’s behind “muddle through?" Is it cultural laziness, or as we’ve seen in every corner of our lives today outright corruption? You have a situation that has been evident since 2009. A solution since 2012. Many trillions of dollars in waste and lost commerce. A destroyed oil & gas business with no support for the capital structure and a service industry that doesn't trust producers. You have an eerily parallel business environment in Australia where producers realize the netback price of their Asian sales prices. And by regulation, they must sell domestically at a discount to the LNG export price. You have convenient excuses, blaming and viable scapegoats being tossed about in full harmony every time questions are asked. None of these hold up under scrutiny and are replaced by equally faulty and absurd talking points. What actions over this period could we point to to determine the source of this issue? My argument is, if Henry Hub was receiving $2.77 and Asia was paying $14.63, where is this money? There is no reason for North American producers to not have received it.

Losing your shareholders' trust and faith in 2015 would have been terminal for any business if not for oil & gas's capital intensive nature. What we have seen instead is the officers and directors' stern denial of any and all requests for remedial actions. Accounting shenanigans and other issues of the past are only enhanced by their lack of transparency, accountability and unacceptability. Producers record most of their costs outside of royalties and operations as capital. Inflating the balance sheet has the same effect on earnings when overcapitalization leads to over reported earnings. Then over reported earnings attract more investors and overinvestment occurs, leading to overproduction. This has carried on for more than four decades and extinguished all the value that was built in the industry before and invested subsequently. I have suggested that their poor accounting is supported by ERP systems that officers and directors have placed on starvation and second hand shoestring diets. Where no development has been made in decades, and the reason for the shrill response to People, Ideas & Objects. 

The one action I think we can point to of the officers and directors in the past years that identifies exactly what it was that motivated the “muddle through” to continue was: Their abandonment of shale, the claim it would never be commercial and their unanimous deep dive into clean energy without any shareholder resolution or discussion prior to these decisions. In ExxonMobil's case, they created a boardroom battle that "Engine No. 1" was unhappy with their environmental record and Exxon accommodated them immediately. Under the premise Exxon listens to their shareholders. In 2022 Exxon reported that over 70% of their shareholders voted against this position. Today, with oil prices higher, officers and directors are back in the oil & gas business. And expect us to follow their non-plans and non-visions.

What was this diversion about? Pursuit of the land of the absolutely unaccountable clean energy business under the guise of proving to teenagers they were clean energy warriors? Taking others' oil & gas revenues, built by others, and absconding with them for unauthorized, unaccountable spending? But they’re saving the planet! Destroying the careers of oil & gas workers by saying clean energy was the future and you’re yesterday’s news. It's absurd to take shale's advanced technologies and say they’ll never be commercially viable. Without a moment's thought about how to change the business to make it viable. Indirectly telling the service industry not to invest in equipment, staff or training. We don’t want it or need it unless you have a never-commercially viable and never-will-be-commercially viable solar panel. I can certainly criticize these for being some of the dumbest, hypocritical business moves I’ve seen. No question. The industry-wide unanimity between these officers and directors and their actions is disturbing. These officers and directors are so well practiced at getting on the same page about excuses, blaming, viable scapegoats, fundamental and unauthorized changes in the direction of the business. Which brings us to the question of this post. Is this leadership unaware or corrupt? There are significant financial losses of resources and cash in natural gas between Henry Hub, Asian and European markets. Where are these dollars today?

Some may argue that my argument should not apply to all natural gas volumes. And only applies to LNG export volumes. However in the Australian example, even with regulation they realize a large percentage of the export price on domestic sales. These are not prices that resemble what the North American producer accepts. The validity of my argument is the differential between North American producers' realized prices and what we could suggest is a price closer to the traditional heating value price of 6 to 1. During the period from 2009 to today, LNG may or may not have been available for some of that period. 

The value from North American natural gas production has not materialized. People, Ideas & Objects Preliminary Specification solves this well-identified problem. An issue that has resulted in absolute destruction. In this case, what’s its value and where is this money? Why hasn't anything been done about it? As a result of discussing and resolving these issues, I have been vilified and ostracized from the industry. Would it be fair if anyone wishing to innovate within oil & gas was forced to suffer decades of persecution before these officers and directors finally approved of their ideas? How will an innovative industry replace the damage caused by these officers and directors when they’re so easily able to stop anyone? Is the elimination of initiative and innovation one of the highest costs? Given the destruction they've caused, is this heavy-handed treatment by those unaware or culpable appropriate? What is the reason for its continuation? The process of turning this around will take time and effort. People, Ideas & Objects are decades ahead of anyone else in solving the issue, but that does not mean we should waste time.

This One's a Firecracker

 We have a few items on our list that demand discussion. The first will address the daily chronic leakage that seeps out of oil & gas producers. Officers and directors have received all forms of compensation in the past decades. These compensations honor their ability to mismanage their organizations and lose money at every turn. We see what these costs are as compliance and governance provide transparency. However, People, Ideas & Objects offer to audit producers' General & Administrative costs. This is to determine the cost of administering an oil & gas producer. We’ve had no takers for our no-cost audit offering and we assume it would have led to enhanced transparency and more comprehensive reporting. The reverse has been the case. Over the past few years I've questioned this issue many times. Why are officers and directors so protective of overhead costs that total just 1 - 4% of revenues? 

As we’ve previously pointed out, this activity of enhancing executive compensation has been carried out for decades. It’s not lost on producer firms' upper management. They see how it's done and how it could enrich them in similar ways. Perhaps they are thinking it will prepare them for an officer role in the organization. This has always been considered the entrepreneurial way and to an extent it is. However, if you want to test a person's entrepreneurial skills, it usually means they've left the oil and gas company. In the past few decades not leaving has become easier, and straddling the inherent conflict has become a science. And that is what we have. Employees who are in relatively senior positions are “affiliated” with organizations they control that contract with the individual's employer to conduct the tasks that would be undertaken in the marketplace of service industry firms etc. That the producers' senior managers can contract directly between their own firm and their employer is known in some instances and in some cases they’re not. Some of these relationships are sophisticated, with individuals merging their operations with others working for different producer firms. These may have been "friends" prior to the formal business relationship. They also have similar interests in market participants. Mostly to appear as arms-length transactions. 

I’ve hinted at these relationships in past blog posts and I’ll explain them in detail here. Today we show that all is not well in the senior managers' empire. As one of the few oil & gas opponents to this practice, I am in the minority. You are employed to build value for your employer. Not to siphon off shareholder value from related party transactions that benefit yourself. But that is the culture of the industry and suggesting otherwise is setting oneself up for failure and shame as you walk down the street. Therefore what do I have to lose? I only see upside from where I’m at at this moment.

Let's look at an example of a "Chief Engineer.” They own two companies that have several, probably ten employees, in the primary firm. The second firm is in its infancy. In addition to confusion about who you're working for in a meeting, who you'll invoice and whether you've already invoiced them for the contract must be clear in their minds. Conflicts of interest are difficult to manage at times. A slight slip up could be considered a criminal act if they billed the producer for work they already billed or for work they performed that was part of their job description. Such are the risks when flying at such heights!

Here’s the problem. Basically, you have to look the part. The big house, the cars, the second vacation home and the cash disappears faster than you can imagine. In addition to the recently born five-month-old, oil and gas doesn't look healthy right now, and those interest rates aren't helping. It was all smooth sailing. What have they done wrong? I’ve heard that this Chief Engineer, and this is an actual example, has been running around screaming at the people that work with them and in one case firing a fully qualified east Asian engineer that was asking “too many questions.” Going as far as calling them a “turd.” This is what happens when the circus is run by one showman in a tent that is not their own and doesn’t pay any rent at the facility because no one knows they're using it. One day it all crashes down. These are the kind of people that although they appear to have it all together, fall hard and never recover. Psychological problems will soon limit their future potential. The proverb says that when you “chase two rabbits, you catch neither.”

The problem is that this is not just one instance. There may be thousands of these situations occurring in the industry at the moment. It is these people that will be the “canary in the coal mine” that will cause the collapse of the senior managers' external organizations. Which carries into the producer organizations. Internal self-dealing results in loss of both internal and external capabilities of the producer that were believed to be secure. Everyone looking out for themselves for the past few decades will solicit no sympathy for these individuals. This will not motivate anyone else who has observed these antics over the years to redouble their commitment.

I would steer clear of this situation. The difficulties these people are facing are not something they’ve been accustomed to, have the training to deal with or have the cultural propensity to resolve. They’re business issues and there is no one to bail them out, if that doesn’t sound like a cliché yet. These were not businesses built on determination and perseverance. Based on my experience, I suggest they consider it a big black hole.

As the title suggests, this is a firecracker in terms of impact. Tomorrow we'll see what other weapons are available for use.