This One's Nuclear, Part III

 We’ve noted throughout our discussion the decline in natural gas prices since the financial crisis, and most recently, the further decline in early 2023. A fourteen year period in which nothing was done by producers other than to chronically and systemically overproduce hundreds of trillions of cubic feet of natural gas at discounted prices that provided nothing but destruction throughout the industry. Recent prices were barely higher than 1983. This occurred during a time when the ability to organize to realize a newly formed “global” natural gas price was available in the form of the newly rewritten Preliminary Specifications decentralized production models, price maker strategy. It has been available since August 2012. And the development of a natural gas export market since 2016 of over 13 BCF / day through LNG.

To take advantage of opportunities and avoid difficulties, every aspect of life requires organization and structure. Since 2009, trillions of dollars of waste has been realized due to a lack of organizational capability. The industry structure today cannot understand where it makes or loses money. It has never acquired the production discipline necessary to realize business benefits. Consequently, a much-needed chance to establish the natural gas industry on a profitable basis for the long term was not missed, but actively avoided by producer officers and directors. 

Realizing as little as one third of the value of natural gas produced since 2009 is tragic, however all is not lost. We stand today with this lesson learned and the newly rewritten Preliminary Specification available to us. This is to provide for organizational needs to realize the full value of future natural gas production. We also have a noticeable development in LNG export markets. The United States' current LNG export capacity is 13.44 BCF / day. There is additional capacity of 10.32 BCF / day coming online in the next two years. And there are regulatory approvals for an incremental 18.26 BCF / day beyond that. This brings incremental capacity of 28.58 BCF / day for a total capacity to 42.02 BCF / day. In terms of size that would be 40.2% of today’s total U.S. domestic production. A far more significant opportunity than what has been lost, or alternatively, in the "status quo" officers and directors, a far greater disaster if unrealized. 

Therefore it is incumbent upon this industry to focus on organizing itself to capture and realize this value. Otherwise we know and have seen what will happen. They fooled us once, and we’ve all suffered. If they do it again, who should we see then?

From the Preamble of the Preliminary Specification 

The following graph was provided by Les Borodovsky from @SoberLook. This graph represents the status quo perception of costs and production management in oil & gas.

Producer officers and directors perceive their total costs for each barrel of oil produced in the various shale formations are $48 to $54. Operating and royalty costs vary between $28 and $37. I would point out that the $20 to $23 in capital costs are based on an allocation of their capital costs across the entire reserves of the property. We’ve argued that this allocation is unreasonable in a capital market where the demands for capital performance are far greater than what can be achieved when a producer cycles their cash through their investments in a manner that retrieves their investment over several decades or more, or if at all. This is further aggravated when shale exposes prolific reserves and demands substantial incremental capital to offset shale gas' inherent steep decline curves. This is to maintain deliverability. 

People, Ideas & Objects recommends that producers retire their capital costs within the first 30 months of the property's life. This will allow previously invested capital to be captured and reused. In turn, it provides them with the means to meet their internal demands for future capital expenditures, shareholder dividends and debt repayments. In addition, they can better match shale's rapid decline rates to compete on North American capital markets. This can only be done if the producer sells their commodities at a price above their break-even point. This considers an appropriate accounting of exploration and production costs. And to reuse their assets repeatedly on this basis rather than every second decade. 

This graph reflects producers' current policy position on Well Break Even and Shut-in prices. At any point, and as long as the commodity price covers the operating costs, the property would continue to produce regardless of the impact on capital costs. If a dollar of capital costs was returned, or one dollar above the shut-in price, the property would continue production. Only at the point in time where the commodity price dropped below operating costs would the producer allegedly shut-in their production. This is a fundamental misinterpretation of the term break-even. It is the reason the industry struggles and why producers have lost money for four decades. Break-even is not what's interpreted here. The producer assumes that as long as there is cash flow above operating costs, they make money and continue to produce. What they’re stating is they may not be breaking-even, and as a result over the long term, stranding unrecovered and unrecoverable capital costs in abandoned properties is acceptable.

According to People, Ideas & Objects in our newly rewritten Preliminary Specification, the point at which the property would be shut-in would be at break-even or below, if we assume the accuracy of the graph numbers. (Note that our break-even point would be higher due to competitive recognition of all capital over a thirty month period. The reason for this being the production discipline gained through knowing that producing any property unprofitably only dilutes corporate profits.) Producing below the break-even point is unprofitable. Producing below the break-even point for one producer, in an industry whose commodities are price makers, will drop the price everywhere for all producers. When all producers continue to operate below the break-even price for four decades it exhausts the value of the industry on an annual and wholesale basis. Which I believe occurred in the 1990s and since then, times have only been " favorable " when investors were willing.

To avoid the allegation of collusion officers and directors would have us believe that they were operating the industry within the law. Losses of catastrophic proportions have been realized, displacing and disrupting producers' financial resources over the long term. Today the industry's financial, operational and political frameworks are in tatters. This is considered the normal course of business operations for officers and directors. Imposing the destruction of their firm's assets, the capacity and capabilities of the oil & gas and service industries is the price that they believed needed to be paid as a consequence of its acceptance of a “boom / bust” business by way of “muddle through.” This is unnecessary and unacceptable when the Preliminary Specification is available to operate the oil & gas business as a business.

Using Decentralized Production Models and Price Maker Strategies, the newly rewritten Preliminary Specification provides the inverse situation. In an environment where the Preliminary Specification will be operational, higher commodity prices would bring about production volumes that meet profitability thresholds. Therefore, previously shut-in properties would return to production. Enhanced commodity prices would allocate financial resources to innovative exploration and production methods. Providing the dynamic, innovative, accountable and profitable North American producer with the most profitable means of oil & gas operations, everywhere and always. 

The organizational objective is to satisfy consumer demand for energy with abundant, affordable, reliable and profitable energy. The value proposition of a barrel of oil equivalent is 10 to 25 thousand man hours of equivalent mechanical leverage. Living without oil & gas is impossible in the most advanced society with the most productive economy. Oil & gas producers' value proposition to their consumers is therefore the most substantial of any business.  

People, Ideas & Objects feel that oil & gas has distinct characteristics that need to be recognized and adhered to. These commodities are valuable and limited in the long run. How do we ensure that we can prove to future generations that we used our share of these resources appropriately? The first way is to show that all of them were produced profitably everywhere and always. As well as passing along a profitable and viable oil & gas and service industry. To do otherwise would be unwise and unjustified. When oil & gas commodities follow the principles of price makers, it is unnecessary to do so. Consumers know the only effective way to have secure, reliable and affordable energy independence in North America is when producers are financially successful. Why this hasn’t been done is a question that needs to be answered by those that have not done so. They had the alternative in the form of the Preliminary Specification available since 2012, and the LNG export market developing since 2016.

Operating the primary industry of oil & gas profitably, everywhere and always, will enable them to maintain the capacities and capabilities of the broader oil & gas industrial economy. That People, Ideas & Objects were subjected to abuse and punishment for this position and other content contained within the Preliminary Specification is evidence that officers and directors knew better, that our alternative was available and it was refused as it disintermediated the officers and directors method of management and personal compensation. They now need to live with their destructive legacy.

Production Discipline

Production discipline is the issue at hand. Today producers employ the high throughput production model which seeks to offset their high overhead costs across the largest base of oil & gas production. Maintaining 100% capacity is standard practice in the industry. Continuing to practice this for over four decades causes commodity prices to fundamentally collapse. Through a variety of natural gas or oil price collapses since the 1986 initial oil price collapse. Producers have employed their “muddle through” strategy and continue to produce at full capacity everywhere and always. For them to know and understand where and how they are earning profits or losing money is impossible using the current ERP systems they employ. One of the feature characteristics of the Preliminary Specification is that we provide detailed actual, factual, standard and objective financial statements for each and every Joint Operating Committee. Each property can be dealt with separately to determine profitability. If unprofitable, it can be shut-in to achieve the following benefits.

• Maximize corporate profitability by ensuring only profitable properties produce. No longer dilute profitable properties with losses from profitless properties.
• Save their reserves for when they can be produced profitably.
• Reserve costs don’t have to carry incremental costs of additional losses.
• Unprofitable production and storage costs are reduced if commodities are kept as reserves.
• Our method provides the current replacement value of the commodity. Price makers only increase production when it is profitable.
• By removing unprofitable production, commodity markets find their marginal costs.
• Making independent business decisions based on detailed actual, factual, standard and objective accounting that determines profitability is not collusion. 
• Marginal prices for all producers' properties across North America.
• Markets provide one thing, and only one thing, price. If the price provides profitable operations, they’ll produce.
• While shut-in producers will innovatively work the property back into profitable production. 

Production discipline is acquired through this process when producers compete for capital across capital markets. Diluting their earnings through the production of losing properties will not achieve the performance criteria that their competitors in the industry can attain. They will not maintain capital markets' overall performance expectations. Producer officers and directors will know the consequences of continuing to operate in that manner. Capital discipline which is claimed today is a dull instrument when used for production discipline. It is best considered the willing destruction of productive capacity over the long term. And that is all. People, Ideas & Objects decentralized production models, price maker strategy is the only fair and reasonable means of production discipline available. All others have been tried and failed when no one is satisfied with their allocation of production quotas. Production discipline is attained through performance and profitability. Achieve those and produce. Fair and reasonable which no one disputes. 

The standard and objective nature of the Preliminary Specification, our user community and their service provider organizations is critical in ensuring that each producer knows and understands that their assessment of profitability in our Cloud Administration & Accounting for Oil & Gas Software & Service is fair and reasonable. When a producer's financial statement reports a loss at a property, they will know that all properties in North America were assessed on the same accounting basis. As a result, they will shut-in their property to gain the benefits noted above. 

Bringing this production discipline to North American oil & gas producers is part of the People, Ideas & Objects value proposition. These are some of the quantifiable and tangible benefits necessary for the industry to undertake its difficult and significant role in society. As a primary industry producers must understand that the service industry is wholly dedicated to its needs. Without the service industry producers would lose flexibility, innovation, and speed in their field operations. Oil & gas producers generate revenues and profits through the service industry. As it is with their internal staff. To continue to have geographical and technical flexibility, a healthy and prosperous service industry is a critical foundation for the oil & gas industry's health and prosperity. It is these tangible benefits derived from an appropriate accounting of oil & gas exploration and production costs. These benefits will fund these industries' health and prosperity. 

In addition to the tangible benefits there are unidentifiable and unquantifiable benefits to the Preliminary Specification that are potentially as material as those already noted. The Preliminary Specification lists a defined and supported culture from our seven Organizational Constructs. These establish an understanding for everyone operating within the industry. And include specialization and the division of labor, the only means of generating value in any organization since Adam Smith published the Wealth of Nations in 1776. With our Cloud Administrative & Accounting for Oil & Gas Software and Service, we incorporate Professor Paul Romer's non-rival costs or "New Growth Theory." Relieving each producer from having to develop unshared and unshareable, in-house, non-competitive accounting and administrative capacities and capabilities within each producer firm. Rather than being a fixed cost for each producer. The Preliminary Specification makes overhead a variable cost of each Joint Operating Committee, variable based on profitable operations. When a property is shut-in, all costs are variable and it incurs a null operation, no profit but also no loss. Providing the production and capital discipline necessary. And subsequently, overhead is treated as a cost and not an asset as it is today. Therefore overhead costs are passed to the consumer in the current period, priced into the profitable commodity produced and therefore the cash incurred for these overheads is returned in the following month to establish and support a producer's “cash float.” Today, overhead is capitalized and realized over decades. Demanding that producers seek outside sources of capital to fund overheads and capital expenditures. 

Cash flow in capital intensive industries is strong, and these have been used to compensate oil & gas officers and directors handsomely. There are more roles and responsibilities that producers must undertake. In the service industry and providing an affordable, abundant and secure source of energy for the consumer. Therefore, the internal generation of these financial resources will need to be the source of capital for these roles and responsibilities. And although there were significant volumes of capital in the past, the inappropriate management of those resources is not what is required for the order of magnitude of resources being demanded. This will obviously be beyond the scope and comprehension of the current officers and directors. Producers will have all the money they want if they turn their organizations profitable. 

In Conclusion

What purpose would there be if we were sitting here in four years' time? A time when we can conclude, possibly, that consolidation is a failure. When no natural gas market price rehabilitation has taken place after the incremental 28 bcf / day of LNG has been brought online. Serially addressing the industry with one solution at a time is a luxury no industry has considered for decades. Yet oil & gas with their “muddle through” strategy can only approach one solution at a time. They need to pursue a multitude of solutions and have the results of each experiment determine the possibility of resolving their issues. Hiding in the crowd of those chanting "consolidation" ensures no accountability when failure occurs. With "muddle through" it's been that way for every meme, clean energy, shale, heavy oil, offshore… It’s never one individual that can be held accountable for past failed decisions. Accountability doesn't apportion blame. It intends to remediate the issue and determine how it occurred. It also seeks to resolve how to overcome it in the future. To avoid repeated mistakes.

Producers must provide vision and leadership for the marketplace and seed it with funding. In a paper written by Professors Richard Langlois and Nicholas J. Foss entitled “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization," they note.

The organizational question is whether enhanced capabilities are best acquired through the market, through internal learning, or through some hybrid organizational form. And the answer will depend on (A) the already existing structure of capabilities and (B) the nature of the economic change involved. p. 20.

Officers and directors must focus on where the producer can generate the greatest value, on finding and developing oil & gas reserves, otherwise...

If by contrast, the old configuration of capabilities lies within large vertically integrated organizations, creative destruction may well take the form of markets superseding firms. History offers many examples of both. p. 20.

OCI Rewrite Complete

 I just wanted to drop a note that states for all intents and purposes the November 10, 2023 post was the last post involved in the rewrite of the Preliminary Specification. We began rewriting our product on November 1, 2022 due to Oracle CloudWorld 2022 conference contents. We were impressed with the impact it had on our ERP product and the incremental value it brought to the North American oil & gas marketplace. Further evidence of this impact was presented at the Oracle CloudWorld 2023 conference. We also wrote our Operations Management module. To coordinate these new technologies, data, and information with the Joint Operating Committee to ensure that oil and gas producers have a dynamic, innovative, accountable, and profitable operating environment. 

I am pleased to be involved in bringing this opportunity to the industry at this time. I feel the industry needs many changes to its administration, accounting, operations and management in order to ensure that we provide a profitable operation to producers' shareholders and the lowest cost oil & gas products to energy consumers. This can only be accomplished through a common sense approach that is comprehensive in nature. The short, medium and long term issues affecting the oil and gas industry are the focus of our approach. There is critical and difficult work to do. The Preliminary Specification provides a viable vision for people to follow. It is a comprehensive plan based on a workable business model that organizes the overall industry. An approach to this opportunity that deals with the issues we will fail in far more than just the oil & gas industry.

Today the Preliminary Specification stands at 14 modules. Although there has been a reduction in the wording for clarity purposes, the addition of the Operations Management module, Oracle automation and Generative AI has pushed the total word count to 383,492. It is comprehensive in nature and a lucid description of how our business model resolves the most pressing oil & gas challenges. More than anything however, is our commitment to our user community and user driven ERP software development. It is the only way to build a quality product, and quality will be the only product that People, Ideas & Objects delivers.

OCI Designing Transactions

 One area of the Accounting Voucher where the Preliminary Specification is different is the concept of designing transactions. We should define what we're discussing. Where accountants will spend their time in the future is designing transactions and leaving the processing, mostly through automation as a result of the design of the transactions, to computers. If you’ve read the Preliminary Specification you’ll be aware of the shift towards increased reliance on the marketplace as an organizational method. You'll also understand how the Joint Operating Committee interacts with the market and the producer firm. It will be with that understanding that we can begin to understand the concept of designing transactions. So let us begin with a simple description of the transaction's makeup. From Harvard Professors Carliss Baldwin and Kim Clark’s paper “Where do Transactions come from? A Network Design Perspective on the Theory of the Firm.”

In summary, objects that are transacted must be standardized and counted to the mutual satisfaction of the parties involved. Also in a transaction, there must be valuation on both sides and a backward, compensatory transfer - consideration paid by the buyer to the seller. Each of these activities - standardizing, counting, valuing, compensating - adds a new set of tasks and transfers to the overall task and transfer network. Thus it is costly to convert even the simplest transfer into a transaction.

Taken as a whole, standardizing, counting, valuing, and paying for transfers give rise to what we call “mundane transaction costs.” pp. 12 - 13.

Let's use a scenario where a group of producers have several producing wells of natural gas with some liquids production. They are situated next to a large gas plant that processes their gas in exchange for the liquids and markets their gas on the spot market. In this scenario we are evaluating these properties from the perspective of implementing them into the Preliminary Specification. We begin by analyzing the production accounting elements in the Accounting Voucher with the related Production Accounting Service Providers. Production Accounting Service Providers assess their fees based on units of work incurred during a production month. This is for any of the many processes involved and however our user community configures the software during the development of the Preliminary Specification. At each point they’ll assess a fee for their service based on transaction design principles. Our user community designs their work flow from a transactional perspective. Professors Baldwin and Clark.

The user and producer need to deploy knowledge in their own domains, but each needs only a little knowledge about the other's. 

If labor is divided between two domains and most task-relevant information hidden with each one, then only a few, relatively simple transfers of material, energy and information need to pass between the domains. The overall network structure will have a thin crossing point at the juncture of the two subnetworks. Furthermore, because the transfers are relatively few and not complex, mundane transaction costs will be low at the thin crossing point. Thus, other things equal, thin crossing points are good places to locate transactions. p. 15.

And

Placing a transaction - a shared definition, a means of counting, and a means of payment - at the completed transfer point allows the decentralized magic of the price system to go to work. p. 19.

Again if there is no production there is no basis for the Production Accounting Service Providers billing. Fulfilling the Preliminary Specifications' decentralized production model objective. This scenario shows how the Production Accounting Service Provider needs to design their transactions to produce the desired result. It also shows how to conduct their service and automate their billings. Additional transactions related to gas production, sales of natural gas, royalties, and payment of the processing fee are designed into an Accounting Voucher. This is the role of the Accounting Voucher for the producer firm and the Joint Operating Committee. Automation of innovative oil & gas industry business processes through transaction design. A production process creates an information unit that triggers the appropriate service providers to conduct their operations on the Joint Operating Committee's behalf.

The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on... Frederick Hayek (1945) The Use of Knowledge in Society

The Accounting Voucher has a “Transaction Design Interface” that provides a worksheet for accountants to design transactions. There is a defined process for analyzing these transactions. We will discuss that as we develop the Preliminary Specification. It is worthwhile to note at this point that each Accounting Voucher is used as a template for subsequent months. So once a transaction is designed, it will be reused, and built upon through the implementation of it as an Accounting Voucher template. This will provide the automation invoked each month of production which is supervised through the service provider organizations.

The role of the Accounting Voucher in determining the source of the market or the firm as the originator of the transaction is minimal. However, it ensures the costs of these transactions are minimal. If there was a simple way to describe this purpose of designing transactions it would be as a tool to coordinate the firm's or Joint Operating Committee's use of the market. This conceptually falls between transaction costs economics, capabilities, transaction design and automation. All areas Professor Richard Langlois includes in his research. We have also used Professor Carliss Baldwin for her transaction design work. Professor Richard Langlois in his paper "Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization."

However, a new approach to economic organization, here called "the capabilities approach," that places production center stage in the explanation of economic organization, is now emerging. We discuss the sources of this approach and its relation to the mainstream economics of organization. p. 1.

And

"One of our important goals here is to bring the capabilities view more centrally in the ken of economics. We offer it not as a finely honed theory but as a developing area of research whose potential remains relatively untapped. Moreover, we present the capabilities view not as an alternative to the transaction-cost approach but as a complementary area of research" p. 7.

The Accounting Voucher module of the Preliminary Specifications transaction design takes the accountant away from the benign scorekeeping role to the role of active participant in the operation. One that looks at the market from the point of view of how best to coordinate its various elements. This will provide the greatest added value to the firm or Joint Operating Committee. In Richard Langlois' “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization"

A close reading of this passage suggests that Coase's explanation for the emergence of the firm is ultimately a coordination one: the firm is an institution that lowers the costs of qualitative coordination in a world of uncertainty. p. 11.

And this is perhaps one of the most relevant considerations of the work we do here in People, Ideas & Objects, our user community and service providers. Is the realization that each producer firm and each Joint Operating Committee will be unique. That due to their makeup they’re going to be different in material ways. Innovation will have a dramatic impact on how it is measured against each firm or Joint Operating Committee. Specialization and the division of labor, and other aspects of the changes imposed on producers will lead to broad diversity of approaches. The approach will be anything but cookie cutter. However, that does not preclude it from the process of standardization.

Either way it boils down to the same common-sense recognition, namely that individuals - and organizations - are necessarily limited in what they know how to do well. Indeed, the main interest of capabilities view is to understand what is distinctive about firms as unitary, historical organizations of cooperating individuals. p. 17.

Therefore, according to Professor Langlois' research, controlling transaction costs to ensure they are immaterial to firms and Joint Operating Committees. That is to say that they will be the same in all instances. And People, Ideas & Objects assert they will be irrelevant due to standardization through Information Technologies. These costs of coordinating the market will differentiate between firms and Joint Operating Committees. Making the Accounting Voucher module a critical tool in offering the producer firm the most profitable means of oil & gas operations.

... while transaction cost consideration undoubtedly explain why firms come into existence, once most production is carried out within firms and most transactions are firm-firm transactions and not factor-factor transactions, the level of transaction costs will be greatly reduced and the dominant factor determining the institutional structure of production will in general no longer be transaction costs but the relative costs of different firms in organizing particular activities. p 19.

We have been discussing Accounting Vouchers' “Transaction Design Interface” and its purpose as a tool to coordinate the use of markets. We want to ensure that market coordination efforts are consistent with the firm's or Joint Operating Committee objectives. They don’t conflict with the objectives of those who initiate work in Research & Capabilities or Knowledge & Learning or other modules. As we can see coordination through the Accounting Voucher of the Preliminary Specification is focused on the business end of the transaction, not on the operational side. It is a follow-up process invoked once the appropriate qualified vendor has been selected by operations.

The first question most people will have is why are we concerned about the coordination of the markets in the Accounting Voucher? In a comment made to the editor of Capitalism and Society, Professor Richard N. Langlois wrote this comment in response to an argument made by Professors Giovanni Dosi, Alfonso Gambardella, Marco Grazzi and Luigi Orsonigo (2008). 

Here again, I think the problem is one of conceptual imprecision. It is perfectly common, and often unobjectionable, to contrast a market and an organization, that is, to contrast the institution called a market and the institution called an organization (such as, notably, a firm). But the opposite of “organization” in the abstract sense is not “market” but disorganization. More helpfully, the opposite of conscious organization is unplanned or spontaneous coordination. In this sense the market-organization spectrum (and similar spectra one could imagine) are arguably orthogonal to the planned-spontaneous spectrum. One could well wonder, as I have (Langlois 1995), whether large organizations do not in fact grow far more as the unplanned consequence of many individual decisions than as the result of the conscious planning of any individual or small group of individuals. And it is certainly the case that, as Alfred Marshall understood, both firms and markets “are structures for promoting the growth of knowledge, and both require conscious organization” (Loasby 1990, p. 120). p. 10.

In today's globalized economy, there are large distances and other considerations between vendors and producers. Leaving market coordination to “spontaneous order” is asking too much of human ingenuity. Particularly with the focus of the industry on a further division of labor and specialization, where the risk and reward of oil & gas operations are so substantial, market coordination or transaction design will be a critical and necessary task to be carried out. Operations may involve more people. Once again it is from a business point of view that we are attempting to influence the operation. How will transactions and business be captured in such a manner that the firm and Joint Operating Committee incur the lowest possible costs from the most efficient methods of these business transactions? From Professor Richard Langlois Economic Institutions and the Boundaries of the Firm: The Case of Business Groups."

As Harvey Leibenstein long ago pointed out, economic growth is always a process of “gap-filling,” that is, of supplying the missing links in the evolving chain of complementary inputs to production. Especially in a developed and well functioning economy, one with what I like to call market-supporting institutions (Langlois 2003), such gap-filling can often proceed in important part through the “spontaneous” action of more-or-less anonymous markets. In other times and places, notably in less-developed economies or in sectors of developed economies undergoing systemic change, gap-filling requires other forms of organization — more internalized and centrally coordinated forms. p. 6.

And

Let’s take a closer look at the nature of the “gaps” involved. Adam Smith tells us in the first sentence of The Wealth of Nations that what accounts for “the greatest improvement in the productive power of labor” is the continual subdivision of that labor (Smith 1776, I.i.1). Growth in the extent of the market makes it economical to specialize labor to tasks and tools, which increases productivity – and productivity is the real wealth of nations. As the benefits of the resulting increases in per capita output find their way into the pockets of consumers, the extent of the market expands further, leading to additional division of labor – and so on in a self-reinforcing process of organizational change and learning (Richardson 1975; Young 1928). p. 7

We’ve seen over the past several decades that producer firms lack the speed and capacity for change. People, Ideas & Objects asserts this is attributable to producer officers and directors' desire to maintain low accountability levels through poor ERP systems. Today organizations are defined and supported by software, and most particularly ERP software, and they are therefore constrained by them. The Preliminary Specification has chosen the market to deal with this issue instead of cultural difficulties of change and the firm's historical performance as the other choice. There needs to be a means to affect the producer firms' performance trajectory. Specialization and labor division have been the only proven methods to build economic value since 1776. There is a way to access this through the market, which disrupts the culture of the producer firms. A culture that counters profitability and must be dismantled. The addition of transaction cost economics and these tools will enhance the transition. This will facilitate the performance trajectory necessary to achieve profitable energy independence in North America.

The question as to which, the firm or market, to use as the means of production in oil & gas is academic. Geographic and technical diversity is necessary to operate in the North American oil & gas marketplace. This is due to the many levels and types of operations a producer could specialize in, even in today’s market. The answer has always been the market. There is significant conflict and contradiction in the relationship between producers and the service industry. This is due to the treatment the service industry has been subjected to over the past several decades. It is suggested that producers will need to make a deliberate effort to remediate and rebuild the capabilities and capacities necessary to provide profitable energy independence in North America.

The starting point of this rebuilding process for our user community is as follows: If we recall in the Resource Marketplace module the vendors and suppliers maintain their own contact data. Within that data is their key personnel which includes their field staff. They should also include their key business personnel for the purposes of the “Transaction Design Interface” to collaborate on these interfaces. In addition, their financial data and billing information, as well as other critical data and information. This will help the producer firm or Joint Operating Committee efficiently coordinate and process transactions. Lastly a collaborative interface should be provided for everyone within the Accounting Vouchers vendor pool to discuss how the transaction is designed and the template that is used by the specific vendor. Obviously, our software development for the service industry will begin here.

OCI Revenue Model

 Our Value Proposition

People, Ideas & Objects our user community and their service providers value proposition is that we provide North American oil & gas producers with the most profitable means of oil & gas operations, everywhere and always. We do this by developing, providing, implementing, supporting and defining within the Preliminary Specification a business model and vision that enables the producer to be more profitable than in any other business model. Our value proposition is quantified over the next 25 years in the range of $25.7 to $45.7 trillion. This incremental value is compared to oil & gas producers' current "corporate" business model. The difference between average oil & gas prices currently realized vs. actual exploration and production costs determined by accurate and timely accounting constitutes the value of this ratio. To earn "real" profitability, producers need higher commodity prices. From Professor Richard N. Langlois' recently released book, The Corporation and the Twentieth Century: The History of American Business Enterprise.

To economists, a “bubble” occurs when the prices of assets diverge from the “fundamentals”: when people do not trade strictly in light of a careful and sober assessment of the prospects of the firms issuing the stock, including the prospects for dividends, but rather trade purely in expectation that asset prices will continue to go up and provide them with capital gains. Essentially all popular accounts take it for granted that the crash of 1929 was the result of a stock market bubble. So too do Keynesian (and post-Keynesian) economists, who believe that financial markets are inherently unmoored from the fundamentals and are inevitably at the mercy of “irrational exuberance.” Experimental evidence suggests that even when trading is clearly grounded in fundamentals, adjustment is never instantaneous and bubbles are possible during the process.

The Preliminary Specification assumes that producers' property, plant and equipment accounts, as they stand today, will need to be exhausted in the next 30 months. Producer firms need to cease using investor capital to subsidize consumers' capital costs. All industry value and cash resources are held in producers' property, plant and equipment accounts. They’ve literally “put the cash in the ground.” This reflects the cumulative subsidies producers have forced investors to subsidize consumers by. If industry were to recognize those costs based on our Preliminary Specifications decentralized production models price maker strategy they would resume normal healthy operations without the need for outside capital. Key to this strategy and the realization of this value is the implementation of our price maker strategy. This would enable oil & natural gas prices to capture all exploration and production costs in a timely and accurate manner. This would ensure profitable operations. And therefore the industry could compete on the North American capital markets. Oil & gas is a capital intensive industry, so it is reasonable to assume that consumer costs will be predominantly capital in nature. This hasn’t been the case for four decades. Please review the Preamble to the Preliminary Specification for more information on our decentralized production model's price maker strategy.

Everyone intuitively understands that if each producer scaled back their production by 5% their revenues would triple. Oil & gas are commodities that reflect economic characteristics of price makers, not price takers as assumed today. With an elasticity of supply / demand characteristics severely affected by the incremental barrel. The issue is producer organizations built today were developed during resource scarcity. When resources are scarce, full production is assumed at all times. Therefore, using the high-throughput production model to offset high costs of an operation, especially overhead, would be a logical organizational approach. In the shale age, however, the market consistently experiences that incremental barrel, which leads to commodity price collapse. Therefore, an organizational methodology is needed to organize North American producers. One in which only profitable production is produced everywhere and always. And profitable from the point of view of all exploration and production costs being recognized on a timely and accurate basis. Turning over the capital trapped in property, plant and equipment so that capital resources, or cash, are not sitting idle waiting for decades to be returned and redeployed. In addition, investors are asked to fund basic operations. Investors are unwilling to invest their money and watch it sit in property, plant and equipment for ten to twenty five years. This is when other industries turn capital over in six months. Oil & gas producers are not competing for capital, only consuming it as evidenced by their claims of “building balance sheets” and “putting cash in the ground.”

People, Ideas & Objects are turning the entire industry's focus to where its value can best be increased. Profitable energy independence in North America. The producer's value proposition to the oil & gas consumer is quantified in the area of 10 to 25 thousand man hours of mechanical leverage. This is for each barrel of oil equivalent. The greatest contribution to society of any industry. One that civilization loses without. This needs to be the heightened focus and drive of producer firms. This is where their value is realized and the outsized role they play in the critical nature of providing abundant and affordable oil & gas products to the most powerful economy man’s ever known.

Who Are We Building Systems For?

We now apply and extend Professor Jurgen Habermas’ 1960s theory of different knowledge interests from his book The Theory of Communicative Action. We delve into the difficult question regarding what we need the Preliminary Specification for. Are we developing systems that manage oil & gas producer commercial operations? Yes we are, but that does not address the societal and individual needs of these systems. If we continue to look at just producers' needs, we leave many needs unaddressed. Society and individuals are critical elements of a profitable oil & gas industry. For example society benefits by having producers and the service industries efficiently interact, develop profitable operations, pay royalties and taxes. Individuals create innovative solutions to producers' demands for their services. Profits from primary industries such as oil & gas are necessary to ensure prosperity throughout the secondary and tertiary industries that exclusively support North American producers. Trickle-down economics is valid in its application. This has not occurred in oil & gas and now there are significant issues ahead and large consequences as a result of the past management of the industry. Today no one in oil & gas would question the need for real profitability in North America, everywhere and always.

Organizations, individuals and society benefit from an increased and expanded division of labor and specialization. As defined by Professor Anthony Giddens' The Constitution of Society and Professor Wanda Orlikowski's structuration model. In today’s globalized, high technology workplace an expanded division of labor and specialization can be more efficiently created through permanent industry-wide software development capability. People, Ideas & Objects describes this in its Preliminary Specification. When we consider the oil & gas industry's economic output, increasing it requires increased levels of specialization and division of labor. Responsibility for increasing output does not fall on society, individuals or organizations in isolation but on all three. Therefore it is reasonable to state that what we need is the Preliminary Specification to address societies, individuals and organizations' needs. I do not foresee further development of the division of labor or specialization within the oil & gas industry without systems development involvement. In a somewhat deliberate manner where all groups are represented such as People, Ideas & Objects Preliminary Specification.

The Flow of Funds

As well as their part-time work with People, Ideas & Objects our user community relies on this as one of two sources of funding. I now seek to clarify how our revenue model provides funds flow within these associated communities. To start we need to clearly identify the two different groups that are supported by People, Ideas & Objects revenues and who is not. These groups include (1) People, Ideas & Objects, (2) our user community members. Service providers are a separate and distinct group of independent businesses funded by producers. These funds replace their current accounting and administrative resources. They will deliver People, Ideas & Objects software with process management services directly to producers. Therefore, our user community members will receive another revenue stream since they are the service provider's principal owner and operator. The size of the service provider's revenue stream would be consistent with what is incurred today in the oil & gas industry for accounting and administration. The need for financial support for these communities is as follows.

Funds will then be distributed from People, Ideas & Objects to our user groups for their participation in our software development. Our user community members are independent business people. They define and design the systems needed by the oil & gas industry based on the Preliminary Specification vision. This is a revenue-generating activity for their organizations. It is in this way that People, Ideas & Objects acquires Intellectual Property rights to our user community members' contributions. Please see our User Community Vision for further information.

People, Ideas & Objects Capitalization

Another element of our Revenue Model is the means by which People, Ideas & Objects are capitalized. Traditionally software developers are stand-alone organizations with their own banking, regulatory and venture capital influences. People, Ideas & Objects takes a project management perspective in providing this software solution to the marketplace. Our capital structure differences are significant, with our Revenue Model being a critical element in defining and supporting these differences. Other key deliverables of this organizational structure are People, Ideas & Objects earnings, Intellectual Property royalties and Flexible Profitable Production Rights.

Our ability to maintain our focus on our user community's needs. I believe the situation in oil & gas today is the most significant issue in its history. The monetary value of our solution to the oil & gas industry is substantial. On the other hand the oil & gas industry, from an ERP perspective, is very small and raises a number of difficulties in terms of realizing any value from our efforts. Our budget is immaterial to the value created when producers implement the Preliminary Specification. Far more money is lost each month due to oil & gas overproduction and oversupply.

Our application scope and scale are very large. We need to eliminate and deal with any constraints that would otherwise occur with a compromised capital structure of People, Ideas & Objects. Therefore People, Ideas & Objects is funded by its Revenue Model and focused on its users, making it more of a project management venture. To be clear the scope and scale of People, Ideas & Objects is well beyond what venture capital groups would fund. Complicating our capital structure only complicates and compromises our software and services deliverability. To suggest that People, Ideas & Objects can be structured without investment capital might be naive for me to consider. However I do know that it would be naive to suggest that the systems as described in the Preliminary Specification could be built with the traditional influences of a capital structure. It would be contrary to the best interests of breaking from the existing failed industry culture. Theoretically our investment capital demands may require us to compromise with producers on a few key issues. To then suggest that we were focused on quality and achieved that through our user community would be a farce. Therefore, with that in mind and to ensure that the Preliminary Specification captures the full scope and scale of the technical and geographical concerns of the profitable North American oil & gas industry we can ensure that our user community basis for our software development remains our priority.

We must break from the dysfunctional culture of the current industry's administration. We will only recreate the same failed state if we need to compromise on their failing methods in order to receive our funding next month. Another issue with our funding is that we are subject to producer firms' whims. When push comes to shove, market dynamics may have changed as they did in 2022 with higher commodity prices. It would then be a good time to cancel this project by cutting its funding. Please note that 2022 may be the producers' 6th good year out of 36! Only when they have some “skin in the game” will they remain committed to the manner that will make this project successful and carry it to completion. Expecting producers to directly, or indirectly through our Profitable Production Rights, pay for large development costs. And it is to ensure that they face the difficulties and accountability necessary to firstly admit they've failed and secondly be committed to one solution.

We have discussed the risks of becoming “blind sleepwalking agents of whomever feeds us.” It's an issue of concern when discussing systems development. People, Ideas & Objects Revenue Model shows these risks are real and require an entirely different approach to funding our software development. It serves no one's interests, People, Ideas & Objects, our user community, service providers, producers or the service industry to proceed without dealing with this issue. It is advisable to identify these conflicts and compromise situations now, while the influences are manageable. Financial participation is how our communities are supported and can avoid becoming “blind sleepwalking agents of whoever feeds us.” People, Ideas & Objects are user focused developments. Software development projects can prioritize many choices. Users are one, technical efficiency is another and there are many other possibilities. To support the oil & gas industries' profitability needs everywhere and always. It is critical to focus on a producer's competitive advantages, their land & asset base, and their earth science & engineering capabilities. Users need to have the software tools, capabilities and means of production (the financial resources to build these products and services) under their control. If funding were to be cut or suspended mid-way through this project only the producer's officers and directors would win. There would never, or could ever, be a resurrection of the project or anything similar for the foreseeable future. Producer officers and directors need to be removed from the future success or failure of this development. Cutting their control of this project's funding is only the first step.

Change-Based Software Development Capability

People, Ideas & Objects focus on our user community. They are one of our three competitive advantages. They are our customers. Providing them with the software development capabilities they need to support oil & gas business opportunities and issues in the 21st century. This is not a static instance. As the oil & gas business changes, the software derived from the Preliminary Specification will accommodate those changes. This will be done through the establishment of our permanent software development capability and our user community. We therefore provide change-based software development capability for the North American oil & gas industry. We are not introducing “new” technology for technology's sake. Technology will have a substantial impact on our revenue model. However it is the oil & gas business, and the changes in that business that drive our user community and People, Ideas & Objects.

Traditional ERP vendors in the oil & gas marketspace "sold" a solution to oil & gas producers and supported that application through an annual service contract. Our competitors sell a product that does not keep up with changes in the business environment. Contrast that to the People, Ideas & Objects Revenue Model that is dynamic in that we focus on business environment changes. Preparing Cloud Administration & Accounting for Oil & Gas software and services. These changes generate our revenue stream. Without changes to the software, there would be no developments and no fees assessed in that year by People, Ideas & Objects. These fees are the annual fees incurred by producers once the Preliminary Specification is released.

It is a fundamentally different point of view. Traditional ERP vendors are constrained by their code and their customers. Any changes to the code need to be populated for the variety of customers who use their software. As a result, the vendor is resistant to change. The more code the software vendor generates the more complex the changes will be. And the more customers vendors have, the more costs and conflicts arise. Innovations and enhanced features are not covered by the software vendor's service contract. People, Ideas & Objects will use Oracle's Cloud ERP where changes will be populated for our user base on the same quarterly basis as Oracle’s product. We are oriented to the changes in the oil & gas producers business environment through the demands of our user community. These changes drive our revenue. The contrast between the traditional ERP vendor and our change-based software development capability could not be greater.

Our applications provide software development capability for the oil & gas industry, service providers and service industries. It allows the industry to adapt when opportunities and issues arise. We believe that proceeding through the 21st century without a team of committed and capable ERP software developers will unnecessarily constrain the oil & gas industry within the Preliminary Specifications definition. Evolution of that model is necessary to eliminate systemic and chronic issues. As an example, the current problem of overproduction and oversupply has been around since the mid-1970s.

This One's Nuclear, Part II

 On October 11, 2023, in a post entitled “This One’s Nuclear” I discussed my concern regarding natural gas prices in North America, post 2009s financial crisis. How a fundamental breakdown in pricing from the traditional six-to-one oil pricing had initially fallen to the high teens and low twenties. And since 2023 it has fallen further to the high twenties and low thirties as a factor of oil’s pricing. How this contrasts with the development of LNG markets around the world and the effect they had on Australia's natural gas pricing. Australia, the U.S. and Qatar have approximately equal shares of LNG export capacity. Australian producers experience direct pricing from foreign markets for their natural gas, and by regulation, a percentage of that price for their domestic markets. Asking why natural gas traded at such low prices in North America when the market situation was the same? With a total of at least 340.47 TCF produced in North America and the size of the differential in realized producer prices vs. Asian and Netherlands prices. The magnitude of North American producers' lost revenue from not realizing these “global” natural gas prices I suggested was valued in the mid single-digit trillions of dollars. 

Due to officers' and directors' inaction this value has slipped out of the rightful owners' hands and was not monetized in their favor The rightful owners being shareholders of the producer firms and others such as the Texas Railroad Commission. Why not, and where is this money? Was it corruption or were officers and directors unaware of the opportunities? I’m not ready to answer how trillions of dollars were mishandled. All the while I was trying to convey to them the loss and other means of value irretrievably lost by not developing the Preliminary Specification. Which offers them a means to mitigate and capture this value in the future.

Producers believe they’ve responded to investor demands for enhanced returns. They’ve begun to return some dividends however that appears to be at the cost of the service industry. Continuing their habit of cutting the flow of funds to the service industry when cash demand elsewhere is increasing. Since 2015 when investors became wise to producers' accounting methods, they stopped supporting such nonsense. The service industry has been the primary means producers used to extract the cash needed to pay their investors. Either through the reduction of activity, enforcement of discounts or extension of accounts payable up to 18 months. These have hollowed out the service industry's capital structure, forcing them to sell their horsepower to other industries. Service industry providers cut up their equipment for scrap metal to pay the bills to stay in business. The erosion of field capacity as a result of producer actions has been dramatic. Operating at 30% of prior capacity, the service industry is unmotivated and unwilling to sacrifice more capital to producers. Would a profitable oil & gas industry allow this to happen? Never!

Regarding LNG, we have a situation at one producer that shows sunshine is the most powerful disinfectant. Chesapeake Energy Corporation disclosed in a third quarter 2023 press release the following information. 

LNG Update

On its continued path to Be LNG Ready, the company entered into a Heads of Agreement (HOA) with Vitol Inc. (Vitol). Under the agreement, Chesapeake will supply natural gas sufficient to produce up to 1.0 mtpa of LNG which, post liquefaction, would be purchased by Vitol at a price indexed to JKM beginning in 2028 for a period of 15 years.

Some terms to better define this agreement. HOA or Heads of Agreement is a letter agreement setting forth the general terms and conditions of the agreement that will follow. 1.0 mtpa (million tonnes per annum) of LNG is approximately equivalent to 46 BCF delivered per annum. Or, on average 126 MMCF / day. Chesapeake in 2023 had 3.495 BCF/day production capacity. This contract represents 3.6% of Chesapeake’s current production. JKM is the Japan-Korea Marker price Chesapeake will realize. 

This same type of activity occurs in about half of the producers we follow. In some instances these contracts superseded my October 11, 2023 blog post and were currently in development throughout the industry. The individual contracts reflect they are priced based on Japan-Korea Marker or Netherlands prices and netted back for transportation and liquefaction. 

My argument was, and is, that current LNG export capacity is 13.9 bcf / day or 13.5% of U.S. dry production. LNG is a major market development for North American producers. For all intents and purposes we’ll assume that in 2016, the LNG marketplace was zero in terms of demand. Why then would producers, knowing about the Preliminary Specifications decentralized production models price maker strategy, and natural gas and oil following “price maker” characteristics as we describe, allow prices to remain so depressed throughout the continent after 2016 and up to today? In my opinion there is no reason. LNG was the opportunity to rehabilitate natural gas prices which collapsed during the financial crisis in 2009. An issue that manifested itself in several trillions of dollars in waste over that period of time. That this was not done is inexcusable when there was a solution available in the marketplace from 2012 that deals exactly with chronic natural gas overproduction. This solution being the Preliminary Specification.

• Since 2009 natural gas prices have collapsed and their pricing structure fundamentally broke down due to chronic and systemic overproduction. 
• With its decentralized production model and price maker strategy, the Preliminary Specification has been available since 2012. It does however disintermediate the oil & gas industry which is counter to officers and directors' interests and personal financial health.
• 2015 Investors protest, demanding returns. Consequently, producers tighten the service sector to source these funds, which chokes that industry's growth and development. Leading to service industry operational capacity of 30%.
• 2016 a large market in the form of LNG exports opens up, which brings about the opportunity to re-establish natural gas prices on their heating value of 6 to 1 in terms of oil. 
• 2021 Producer officers and directors capitulate on shale and state it will never be commercial and announce they’ll shift their organizations' focus to clean energy.
• 2023 Producer officers and directors return from clean energy failures to declare shale demands that consolidation is the only solution.

When action is required to remedy a situation officers and directors have been doing nothing for 14 years. When investors suspend their support, officers and directors do nothing for 8 years. When markets begin to form officers and directors have done nothing to capture them for 7 years. Using the LNG export market to rehabilitate natural gas prices was possible using the Preliminary Specifications decentralized production model. When officers and directors want to redirect the organization's focus to non-performing and unaccountable industries, it is implemented immediately. Declaration of shales' uncommercial nature is done in complete harmony across the industry and is completed immediately. Officers and directors believe consolidation is their solution, implemented across the industry and accomplished instantly. 

Are these leaders who have not dealt with appropriate business development over the past two decades looking for exits to escape the crisis they've created? Through consolidation they wash their hands and escape with no one remembering their names or what they did. We may see officers and directors of other producers quit during the next few months. Exit at the top, or at what appears to be the top. This is the scenario that provides them with the most favorable opportunity, and lets the chips fall where they may. 

When I mention the words Preliminary Specification, leadership cringes at the thought of difficult work and facing the music. Officers and directors being acutely focused on the inane cost control of pinching pennies from the service industry. Unaware of the long term damage they did to their critical secondary industry. As trillions of dollars went to waste through chronic overproduction, producers have refused to listen to anyone, including their shareholders, since at least 2015. Which is quickly approaching a decade of ignorance towards the fact they don’t support them. 

• An uncapitalized and unmotivated service industry operating at 30% capacity. Used and abused by producer firms for decades, it now needs active philanthropic rehabilitation by the primary industry that needs them. This may involve an incremental cost to producers of hundreds of billions of dollars due to the level of damage incurred.
• Investors who will not support oil & gas producers.
• Deliverability of oil & gas in North America becomes a heightened concern when geopolitical events indicate energy independence is the wise strategy to pursue. Where the inability to deploy appropriate levels of field equipment may cause shale's enhanced decline curve to become an issue. 
• Producers' internal work-in-progress inventories have been left to atrophy or actively cannibalized by many producers to survive the protracted nature of both oil & gas commodity price collapses.
• Leadership's continued capitulation of responsibility and exit would be a betrayal of their fiduciary duty. Without this leadership, the industry will not resolve itself. Without any alternative in place before they leave, the industry will languish.

What has become clear to many is that the strategy of “muddle through” will be in place until these retirements are announced. Is industry leadership leaving before 2024? I’ve repeatedly asked what the leadership vision outside of “muddle through” was. We can still ask that question, however we preface it by asking where is the leadership? Either through consolidation or resigning from the producer, these next few months may have some surprises. Officers and directors abdicating their responsibilities to leave the industry at this time is the most irresponsible thing that could happen to the industry. History has also shown that management does this when difficulties become untenable.

When science experiments and industry groupthink overwhelmed producer officers and directors, business was neglected. Besides, everything was profitable, we were told. When constructive criticism and alternatives are ignored only internal discussions were accepted due to “oil & gas being so complicated.” Other business alternatives could be disregarded. This culture is systemic and catastrophic.

In support of People, Ideas & Objects, I suggest that the Preliminary Specification does not have an unconstrained vision. North American oil & gas exploration and production must be treated as a business. The Preliminary Specification recognizes a culture based on the Joint Operating Committee, which is the unique operational method of organization in oil & gas. It also recognizes six other market-supporting institutions in our Organizational Constructs. Defining a culture that allows everyone to intuitively understand the correct and appropriate direction to take in the industry. Profitability is the only objective worth pursuing everywhere and always. In a world without profits, we can clearly see the destruction and damage caused by today's oil & gas producers' officers and directors.

OCI User Community & Service Provider Competitive Advantages

 The following is a brief summary and description of the distinct competitive advantages shared between our user community and their service provider organizations. These are the accounting and administrative resources that will be redeployed from the producer firms to be headed up by our user community members in their service provider organizations. These resources will be used to manage oil & gas and associated industries processes. Each advantage shows the unique nature of the competitive environment we seek to build. This is to ensure that North American oil & gas producers are provided with the most profitable means of oil & gas operations, everywhere and always. 

Overall the reallocation of producers' administration and accounting resources in this manner provides several advantages. First it enables People, Ideas & Objects decentralized production models price maker strategy. Establishes a sub industry between producers and the Information Technology community. Employ Professor Paul Romers' non-rival New Growth Theory by sharing administrative and accounting resources industry-wide. Producers will no longer need to build and maintain redundant and costly infrastructure for accounting and administration. Producers will share industry-wide capacity and capability. These competitive advantages eliminate ERP constraints that cement organizations into unchangeable structures. Enabling specialization and division of labor, spontaneity, serendipity and creative destruction to return as powerful tools for competition.

We purposely create these distinct competitive advantages in administration and accounting. Delivered to the industry by our user community members and their service provider organizations. It is this unique configuration that enables these major economic forces to be applied and iterated upon. This creates substantial value and is responsible for the majority of our identifiable, tangible value proposition. When producers are prosperous, all those associated with the industry will realize that prosperity. The proof of that statement is in today's chronic downturn.

Accounting & Administration Expertise

Having acquired extensive experience and training in their fields, our user community members will provide administrative and accounting expertise. This applies to their service providers as well. We offer Cloud Administration & Accounting for Oil & Gas as a sub-industry between technology and oil & gas. Filling a gap between the two as we feel they’re not communicating effectively. 

Analysis of Conflict & Contradictions as Analytic Tools

Conflict and contradiction indicate where the issue's source is. Analysis of these two factors will reveal alternative solutions. When we apply these to the business environment, behaviors, communication methods and other factors, they can provide insight and understanding into issues and their resolution. These are some of the more advanced tools that will be needed to handle the incredibly large volume of issues the industry and our users will have to resolve in the future. 

Application of AI & ML

Artificial Intelligence is overrated in the marketplace at this time. AI is a module in the Preliminary Specification where we can establish effective and efficient algorithms from our user community. These algorithms can be shared across the industry. Offsetting the inordinate cost of each producer involved in the difficult business process of developing, testing and proving AI algorithms. And draining the market of valuable resources to be used elsewhere. Machine learning is a far more effective tool that will be valuable to our user community due to the distinct perspectives they'll have on industry data. They’ll have data sets of the individual processes they manage. That processes data for the entire industry. This data set would be interesting to analyze from the point of view of its unknown unknowns. 

Automation

Automation will be implemented to ensure that the most effective and efficient operations are provided to producers participating in these developments. Relieving administrative and accounting resources to pursue higher level, value added opportunities. Reduction of costs in this sense is worthwhile as it implies high automation levels. Automation doesn’t just reduce costs directly it does so indirectly through error reduction. Error reduction reduces time. What admittedly is becoming a critical resource as we proceed through the 21st century economy. 

Accounting data sets for producers are inadequate for automation purposes. As well as for general financial reporting purposes. The need to organize and manage the firm's data in appropriate formats is a necessary first step before automation or Artificial Intelligence can be applied.

What information consumes is obvious. It consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.

- Nobel Laureate and Professor Herbert Simon.

Collaboration

A collaborative, collegial environment would be the basis of a competitive environment between our user community and service provider organizations. The basis of collaboration and cooperation is the importance of the work they're undertaking and their critical role in rebuilding the oil & gas industry on performance and profitability criteria. 

Licensing of our user community and their service provider organizations provides the exclusive right to manage an individual process. This is on behalf of the entire North American oil & gas industry. The potential tangible and intangible benefits from service providers will be substantial. To compete on price circumvents the long term value generated from pursuing specialization & division of labor, sharing more broadly and other methods that take time and investment to materialize. Value that is realized by all producers.

Compromising

Finding solutions in a world of difficult and complex issues requires creative solutions that meet the needs of those parties. Although we are rebuilding brick by brick and stick by stick there are established industry methods, regulations and processes that need to be adopted. We need to create effective ways of implementing and organizing them. This demands that our user community members offer industry solutions that work for all concerned. 

Creativity & Design

Some may struggle to imagine creativity in administration and accounting. However there is nothing that will be more critical in the discovery, testing and implementation of effective and innovative procedures that provide value to the oil & gas industry. We published the Preliminary Specification in August 2012 and soon after, in March 2014 began the development of our user community. As a result people within the larger oil & gas industry have had the model in the form of the Preliminary Specification and our user community vision in their minds for the better part of a decade. Understanding what their involvement could be, should they decide to join our user community based on the principles set out in these documents. Enabling them to prepare themselves, both directly and indirectly for our development and implementation to begin. 

Creative Destruction, Spontaneity & Serendipity

Each of these is an established economic principle that has been eliminated from the 21st century business landscape through ERP software. The unchanging methods and procedures that software defines in organizations, and particularly ERP systems, lock organizations into rigid and unchangeable situations that only serve the status quo. People, Ideas & Objects have established through our user community and service providers that they can make the effective changes necessary to ERP systems. These changes will be derivative of the Preliminary Specification. Establishing a permanent user community and software development capability is necessary for businesses to evolve throughout the 21st century. 

Explicit and Tacit Knowledge

Providing software in the marketplace is a small part of the solution today. Software captures explicit knowledge and codifies it within process management. It is the service provided with that software that provides value. Tacit knowledge must be included in the service package. Where producers' accounting and administration are managed, such as our Cloud Administration & Accounting for Oil & Gas. Software and services must be able to make the changes necessary to proactively accommodate the accelerated pace of change of today’s market, and what we can only assume will be the case tomorrow. 

Ideas

The uniquely human element that will be in demand. An idea that generates a dollar today will produce a nickel tomorrow. The need to have exponential volumes of ideas will be a demand of the future in everything we do. How these are captured and implemented in our Cloud Administration & Accounting for Oil & Gas software and services will be a necessary part of our user community. And with the shared and shareable model these ideas, once proven, tested and appropriately implemented will be leveraged throughout the industry. Building value for everyone. We believe oil & gas needs to be efficient in process management. The accounting and administration of a producer firm are not distinct competitive advantages.

Innovation

The Preliminary Specification and supporting services are based on innovation. Innovation is a defined and replicable organizational process, according to our research. These have been incorporated throughout the sub-industry we're building. Importantly our user community and their service providers can affect the changes needed to facilitate innovation in efficient and effective ways through the design of their organization.  

Integration

Integration or implementation falls under the responsibility of our user community and service providers. These are the critical components and the final steps in ensuring the quality of software and services we’ll provide. Integration begins on day one of development in terms of planning and preparation. Our user community members will ensure that their service providers are appropriately implementing process management. As the principal owner of the service providers they’ll be duly authorized and responsible.

Issue Identification & Resolution

“Muddling through” is over. There will be no more ignoring oil & gas issues. People, Ideas & Objects provide the tools, methods and Organizational Constructs to address and resolve issues. We see that software is the issue in that it seals organizations in concrete. Which is commendable from a governance perspective, however it must be innovative and capable of change to achieve the high level performance trajectory of a dynamic, innovative, accountable and profitable organization in the 21 century. This will be an order of magnitude more difficult than what the oil & gas culture knows. As difficult as the industry situation appears today. Consider how much simpler it was only a decade or two ago. What will it be a decade from now in terms of the issues and opportunities these firms face? To be unprepared as we are today is dangerous and reckless. 

Judgment

Not a distinct competitive advantage of computers. A uniquely human characteristic that will be the basis of understanding for the remainder of this century and as long as we choose. Oil & gas is valued in the consumer marketplace. The threat of shortages and their impact on civilization is unfortunate. Setting the proper landscape for a more dedicated environment in which oil & gas can prosper and conduct its business operations. What is our judgment regarding the capability and capacity of current producer organizations to realize these opportunities? When each barrel of oil equivalent provides 10 to 25 thousand man hours of equivalent labor it is the consumer who benefits. This is the producer's value proposition, our focus and drive. Why would oil & gas ever be produced unprofitably when it is irreplaceable and limited?

Leadership 

I expect that our user community will provide leadership in the administration and accounting of North American oil & gas producers. Expectations that include the development and evolution of business models and "what, how, and why" profitability is earned. It will provide the industry with the tools to evolve at the speed and capacity required to meet future needs. 

Negotiating

Negotiations and compromise on the basis of interactions between producers and our user community will be frequent. Compromises and negotiations on the Preliminary Specification however cannot and will not occur. The business model is integrated and dependent on that model functioning together. Changes at the Preliminary Specification level may have implications unknown in other areas of the system. If these changes are necessary, they can be analyzed and corrected based on the most comprehensive understanding, once developed. While we haven't fully comprehended all its implications, we should be cautious before disrupting it. 

We are instituting a cultural shift in industry management. Moving away from “muddle through” to a culture of performance and profitability. There will be attempts to resurrect “muddle through” in its many forms by the status quo. We need to be wise to these and ensure that they are excluded from the Preliminary Specification. 

Planning

Planning in a dynamic environment is futile. It however communicates to participants the information necessary to begin the process. It is the first step. 

Quality

Define it, clarify it, communicate it and ensure its implementation. It used to be when you drove downtown to work in the morning, and returned at night. You would see 2 - 3 cars broken down on a 15 mile trip. Japan exploited this opportunity to enter the North American auto market. They introduced reliability. There has been a shift in software reliability in recent years primarily because of the cloud computing era that secured the environment of software and services. Phones are far more sophisticated than people realize since Steve Jobs started in the 1980s after being fired from Apple. And Sun Microsystems with Java’s commercial release in 1994. Cloud Administration & Accounting for Oil & Gas, standardization, objective accounting and other methods will provide higher reliability on top of these technologies. A duly authorized, responsible, and capable user community can do so much more. 

Research

Primary research is abundant in the 21st century. We can choose to stand on the shoulders of giants, or recreate it again if we like. The amount of primary research unused at this point is probably larger than what has been implemented. There is rich ground here for value generation for those that can turn these ideas into reality in oil & gas. In light of all the competitive advantages listed under our user community, putting research under their domain is a natural fit. We see this as highly complementary to the research People, Ideas & Objects will conduct. 

Specialization & the Division of Labor

It has been the source and generation of all economic value realized since 1776. However, software disables its natural development process of “gap-filling” when it has no capacity or capability to change, and the organization has a vested interest in the status quo. Producers have relied on “cost cutting” to generate value for decades and have nothing to show for it but a fundamentally destroyed service industry. Specialization & the division of labor in terms of the development of our user community and their service providers will continue to be a priority. They will introduce the same to the entire oil & gas industry.

Thinking

The contrast between “doing” and “thinking” may grow more significant as we proceed through the 21st century. Writing is thinking. It is becoming increasingly difficult to provide basic services, such as oil & gas, in a timely manner. More may not resolve the issue. Getting ahead of the game may be a thing of the past and a luxury we can tell our grandchildren about. We live in an environment that will require testing hypotheses of various scenarios and assessing the results. Determine what is right based on what generates value for the firm. An environment where what an individual gets out of it is based on their value that they generate.

The Mouse that Roared

 We are now faced with officers and directors returning from their clean energy adventures. Maintaining their story line that shale remains uncommercial and their only hope is to consolidate their operations into massive bureaucracies that only Stalin and Lenin could appreciate. This is done in complete harmony throughout the industry. This is the next "thing" that all producers want to participate in spontaneously and unanimously. Why sit down and determine what, how and why their difficulties came about, and expend the substantial mental effort necessary to resolve industry issues? Instead, consolidation serves as today’s plug-in excuse? That only size can overcome shale difficulties is a specious and unsubstantiated claim. No doubt this meme will take another three years to shake out and prove false. Endorsing what we can all plainly see and agree with will be another failure. The officers and directors for that three-year period will be fine and they thank you for asking. What I believe is really happening is the surreptitious exit of industry leadership from the scene. 

When a firm faces an untenable situation beyond its individual issues. In this instance oil & gas producers' issues include:

• A legacy, a culture and an inability to comprehend chronic and systemic unprofitability and its associated fallout.
• Producers don't know where their operations generate profits or losses. Have organizations that have been led to believe that any action taken by them has been profitable. Creating a distinct lack of competitive and commercial operations throughout the industry. 
• Capital structures, as of 2023, have been unsupported for eight years.
• Producers' actions have decimated service industry capital structures. Only direct, sustained and long-term philanthropic efforts by producer firms to rebuild the service industry will provide them with what they need. Using the "you broke it, you fixed it" strategy, service industry representatives believe producers will view it as a valuable resource if they have some "skin in the game." In addition, it was shameful for producers to fool the service industry. The service industry now resolves they won't be fooled again.
• North American oil & gas management lacks accountability. In terms of both the development and use of its financial reporting and ERP systems.
• Shale-based reservoir momentum is declining due to producer officers and directors' inaction to address the issues identified and resolved in our 2012 publication, the Preliminary Specification. 
• Service industry capacity is at 30% of its peak and declining rapidly. Additionally producer working capital, an issue People, Ideas & Objects identified in 2015 has now become a culturally ingrained issue and an industry-wide, locked-down mindset. 
• Producer organizations have atrophied internally such that the seven to ten year exploration and development "work-in-progress" has been harshly cannibalized for "cost cutting" survival. "Ramping up" won’t happen soon.
• Consolidation provides leadership with a convenient way to exit their posts. Ensuring they will not be associated with this imminent catastrophe they’ve authored. 

Since August 2003, officers and directors have ignored our solution. What do they do now? How do they resolve a looming industry collapse of the most critical resource provided to the most powerful economy ever known to man? During a war with several theaters involved, including the greatest oil exporting countries? Does muddling through seem like a wise strategy? Officers and directors are well compensated during their tenure in the industry. It’s widely understood that Information Technology and other industries are doing well. Their management skills could find greener pastures there.  

I have certainly engaged in an aggravating dialog with North American producers' officers and directors. To suggest that the Preliminary Specification may have been considered if my message was not so negative and derogatory is a possibility. However, that was not the attitude of those I saw on the other side of this debate. They're used to criticism of their inaction and performance. I chose the Preliminary Specification as my route. And I find it difficult to understand how anyone would not be angry and frustrated by the unnecessary situation we’re in? With trillions of dollars of valuable resources wasted, and many more trillions of dollars to be wasted, a solution to remedy their particular situation has always been available. For them to choose the Preliminary Specification, and more importantly to do so now, would demand a willing acceptance and admission of their culpability in creating this catastrophe. 

Professor Richard Langlois makes a pertinent point regarding capitalism and how officers and directors drive consolidation in oil & gas. From his recent book. “The Corporation and the Twentieth Century: The History of American Business Enterprise.”

"Although it came to be a defining theme of the postwar period, it was not, as we have seen, a novel contention that a new class of organizational operatives would soon supplant—or indeed had already supplanted—the capitalist, the entrepreneur, or even the individual. At the back of most formulations of this idea lay the work of Veblen and of Berle and Means, from the 1920s or earlier. Many expressions of the thesis emerged during the Depression and the war, when the market seemed to have failed and enterprise had been commandeered for the needs of the military. In The Folklore of Capitalism in 1937, Thurman Arnold held that “we can observe the rise of a new class of engineers, salesmen, minor executives, and social workers—all engaged in actually running the country’s temporal affairs.” Although for the moment bourgeois traders still “possessed the symbols of power,” it was in fact the “great class of employees, working for salaries, which distributes the goods of the world.” The new class was already “showing signs of developing a creed of its own and a set of heroes.”427 

The power of heroism as a symbol was at the heart of the century’s most sophisticated musing on the disappearance of bourgeois entrepreneurship, that of Joseph Schumpeter. In Capitalism, Socialism, and Democracy, written during the worst years of the war, Schumpeter argued that because of the “progressive rationalization” of bourgeois society, innovation was becoming mechanized.428 It went without saying that salaried functionaries could administer whatever pre-existing economic structures were handed to them. But in the past, innovation—and with it economic growth—was not a matter of administration. Because of the limits to knowledge and the imperfect understanding of the physical and economic world in earlier times, innovation demanded a bold leap into the unknown. The function of the entrepreneur was thus a cognitive one: to appraise the possibilities and make that leap. But, said Schumpeter, the skepticism, critical rationality, and unrelenting curiosity of bourgeois society had created a new world in which science, including the science of administration, is able to foresee all the possibilities involved in innovation and to plan accordingly.429 Leaps are no longer necessary, and the cognitive function of the entrepreneur has disappeared.

When the entrepreneur disappears, so too will bourgeois society. The old family capitalists, not to mention captains of industry like Carnegie, Rockefeller, and Ford, were heroes whose visible role in generating economic growth worked to legitimize bourgeois capitalism. But scientific rationalization, provided by the bourgeoisie themselves, meant that golden eggs would now remain forthcoming even after the goose was cooked and eaten. Without the entrepreneur to provide cultural legitimacy for the bourgeoisie, control will indeed pass inevitably into the hands of the new class envisioned by Arnold. In Schumpeter’s formulation, it will indeed pass inevitably into the hands of the new class envisioned by Arnold. In Schumpeter’s formulation, it will be intellectuals and government bureaucrats who will come to administer a not so brave new world of colorless state socialism. 

Writing at about the same time, though with none of Schumpeter’s wry nuance, James Burnham made a similar forecast in "The Managerial Revolution.” For Burnham, the transition from a capitalist society to a managerial society “is already well underway.” Unlike Veblen, Burnham did not see managers as engineers or technicians; they are a level above: the knowledge workers whose function is guiding, administering, managing, organizing the process of production.” Once again, the crucial piece of evidence for the rise of the managerial class is the assumed separation of ownership from control. Because capitalists are no longer also managers at a day to day level it is self-evident that capitalism is doomed. The entrepreneur and the captain of industry are most certainly dead. The chance to build up vast aggregates of wealth of the kind held by the big bourgeois families no longer exists under the conditions of contemporary capitalism." (Richard N. Langlois, The Corporation and the Twentieth Century) p. 390.

As Professor Langlois discusses later and in many of his papers, this was the case during the latter decades of the 20th century. However, with Information Technology, and most specifically ERP systems, providing the means to disintermediate organizations and industries we may be seeing the end of a “managerial revolution.” And if not for the 10 - 25 thousand man hours of mechanical leverage from one barrel of oil equivalent, and as Professor Alfred Chandler suggests coal being developed early in their tenure, how effective and efficient was the “managerial revolution” for the 20th century corporation?

It is therefore reasonable to assume that what oil & gas is facing is a result of the failure of the “Managerial Revolution” and its legacy of bureaucracy, inactivity and a lethargic pace. 

One of the motivating factors for North American producers pursuing clean energy was their belief that shale would never be commercial. After discovering there was no real support for their clean energy ventures, they returned and were forced to follow the trend. If shale is economically unprofitable, they can no longer justify any other frontier in oil & gas. Consolidation is the only path forward. Consolidation accurately reflects the fierce opposition to everything People, Ideas & Objects provides. Such as a decentralized entrepreneurial market for oil & gas industry administrative and accounting resources.

Officers and directors need a reasonable way to escape their bulging closet full of skeletons, no scratch that, their bulging annex full of skeletons. The industry as it stands today is untenable. Critically, its investors deemed it unworthy of further support in 2015. It is the most damning and damaging event shareholders can assess against management. In most instances this is the precursor to an organization's death. With oil & gas being a capital intensive industry, those prior capital investments generate adequate cash flows that sustain the bureaucracy for years to come. However, if cash flows are not managed properly, they will wither and disappear along with the firm's ability to compete and function. 

Shell, Exxon, Chevron, and BP are hoping to resolve the issues and provide for everyone involved. For the short term anyway. Through their leadership, they can fill the void left by those who created the independent producer era. Industry consolidation is not justified or proven. As with all “actions” in this industry, it is done suddenly, seemingly without forethought or justification from a business point of view. This is all with the declared benefit of a billion dollars in annual cost savings here and there. Why, how are these meager tokens, however derived, designed to aid the industry and specifically any of the wasteful trillion dollar issues identified at the beginning of this post? Stating the issue as that without size, independents cannot approach shale, what are their underlying assumptions in making such claims? 

Observing the rise of independents in the late 1970s and early 1980s. It is expected that Exxon and Chevron will soon be without entrepreneurial talent. From the leadership gap caused by consolidation, a new independent era awaits. Creating the dynamic, innovative, accountable and profitable oil & gas producers we need for the next 25 years. All they’ll need is the means to manage the operation such as the Preliminary Specification. To show Exxon and Chevron how the oil & gas industry is operated and developed profitably. Maybe we’ll be able to thank the consolidators for the service they'll provide in the short term. Transferring oil & gas assets at today’s valuation, running their value into the ground and selling them to future oil & gas entrepreneurs at fire sale prices.

Understanding the existential issues at play in North American oil & gas. Two solutions are offered. It is the consolidated centralized bureaucracy that created these issues over four decades. Who had the opportunity to resolve their issues over the past decade but did nothing about them. Will they be able to deal with the speed and pace of change in their business, meet society's demands? Or is it the upstart decentralized solution of People, Ideas & Objects, our user community and their service providers that provides the most dynamic, innovative, accountable and profitable oil & gas producers with the real value generating choices to be made? People in oil & gas will be torn between these two options in terms of their individual makeup. As Professor Langlois noted in the reference above. There are those who find the corporation an ideal environment. And they account for the majority. There are also those who will form the next industry leadership. Creative destruction is in the air. We have an industry to build.