Profits Before Consolidation!

 The discussion on consolidation in the oil & gas industry this morning raises critical questions about its purpose and implications. Such conversations could potentially limit the perspectives of those making definitive statements too early. For decades, the industry's counter to People, Ideas & Objects' advocacy for a decentralized production model has been the assertion that producers have mastered the necessary production discipline. Yet, the reality of natural gas prices, resulting in monthly revenue losses between $30 to $40 billion when compared to the traditional 6 to 1 heating value basis, starkly contradicts this claim. This situation illuminates the industry's misunderstanding or oversight of genuine production discipline.

This discrepancy suggests that despite efforts to streamline operations through acquisitions and other means, the industry's strategies have not effectively tackled the primary issue of aligning production with market demand and value optimization. Thus, the discussions around consolidation need a critical examination to determine whether these strategies represent a genuine effort toward efficiency and discipline or if they are superficial measures that overlook deeper systemic issues.

The significant revenue losses in natural gas pricing emphasize the urgent need for a strategic reevaluation of production management and optimization. It highlights the importance of considering the decentralized production model proposed by People, Ideas & Objects, which advocates for a more adaptable and market-responsive approach to production that more accurately reflects the true value of natural resources.

Therefore, the industry's current focus on consolidation should not eclipse the vital discussions on redefining production discipline. The ultimate aim should be to cultivate a more flexible, resilient industry that maximizes value and effectively meets the changing demands of the market and society.

Countering the Resistance to Disintermediation

 The following is the result of a discussion that I had with GPT 4.0 regarding the best way to implement change in a situation commonly referred to as disintermediation. The question as to which, a collaborative industry wide effort or one modeled off the research and leadership of an individual would be the most effective was resolved.

Your perspective emphasizes the importance of individual leadership and vision in driving disintermediation and overcoming the cultural inertia that often hinders transformation within industries. The argument for a singular, visionary leader as opposed to a collaborative consensus highlights the need for decisive action and deep strategic thinking that might be diluted in group settings. Here's an elaboration on this viewpoint:

1. **Depth of Vision**: Disintermediation requires a comprehensive understanding of both the existing inefficiencies within the current system and the potential pathways to a more direct and efficient model. An individual with a clear, deep-seated vision is often better positioned to foresee and navigate the complexities of such a transformation than a collective might be, due to the singular focus and consistency of thought.

2. **Agility and Decision-Making**: One of the critical advantages of individual leadership in driving disintermediation is the agility to make swift decisions without the need for consensus-building. This speed can be crucial in adapting to new information and overcoming obstacles, allowing for a more dynamic and responsive approach to implementing change.

3. **Resource Allocation**: The effective use of cash resources to fund the transition is vital. An individual leader, backed by the necessary financial support, can strategically allocate these resources to areas most critical for the disintermediation effort, ensuring that investments directly contribute to the vision's realization and support those capable of implementing it.

4. **Overcoming Cultural Resistance**: The cultural forces that uphold the status quo can be formidable, often exhausting attempts at transformation through collective efforts. A strong, independent leader can more effectively challenge entrenched norms and practices, paving the way for a new model that is unencumbered by past failures and resistant forces.

5. **Ensuring Alignment with Vision**: The overall vision for disintermediation and the new model's independence are paramount. An individual leader, by virtue of their singular focus and commitment to the vision, ensures that every action taken is aligned with the overarching goal of resolving inefficiencies and creating value, free from the compromises that often accompany collaborative endeavors.

While collaboration has its merits, especially in fostering industry-wide standards and engaging with a broader stakeholder base, the unique challenges of disintermediation—requiring deep thought, decisive action, and rapid innovation—may indeed be best addressed by visionary individuals. These leaders can inspire change, challenge the status quo, and steer the industry toward a more efficient and value-generating future without being constrained by the need for consensus or the inertia of existing cultural forces.

As Simple As…

 Overproduction or unprofitable production as we describe it. Is the result of the overcapitalization producers report on their well built balance sheets. Overcapitalization creates an equal amount of over reported profitability due to fewer costs being recognized in the current period. Consequently, the illusion of higher profits draws excessive investor interest, resulting in overinvestment in industrial capacity and capabilities. These enhanced capacities contribute to the overproduction of commodities governed by price maker principles, inevitably depressing commodity prices and leading to the frequent collapses in commodity prices we have observed.

Production discipline can be attained through a variety of methods such as cartels or government fiat. Dictating production allocations that no one is ever pleased with and methods of cheating are readily sponsored. The only fair and reasonable method of production discipline can be attained through the use of the market price. If the price of a commodity offered is adequate to provide profitable operations, based on an actual, factual, timely and accurate accounting, then it should be produced and sold. This is the method People, Ideas & Objects use to establish production discipline in the North American oil & gas marketplace.

Consolidated Losses?

 Consolidation is the topic of discussion in oil & gas this morning. For what purpose and why would only constrain those who make any clarifying statements. For many decades we’ve heard the response to People, Ideas & Objects decentralized production model was that producers had acquired the necessary production discipline. In natural gas, we have prices that continue to produce $30 to $40 billion a month in lost revenues when evaluated against a price based on the traditional 6 to 1 heating value basis. It therefore makes sense to discuss consolidation when they’ve obviously missed the point of production discipline. 

This discrepancy underlines a fundamental misunderstanding or oversight regarding the concept of production discipline within the industry. It suggests that despite the acquisition of assets and efforts to streamline operations, the industry's approach has not adequately addressed the core issue of aligning production with market demand and value optimization. Therefore, the current discussions on consolidation must be viewed through a critical lens, questioning whether such moves are a genuine attempt to achieve efficiency and discipline or merely a superficial solution that fails to address the underlying challenges.

The continued substantial revenue losses in the context of natural gas pricing highlight the need for a more profound, strategic reconsideration of how production is managed and optimized. It underscores the necessity of revisiting the decentralized production model proposed by People, Ideas & Objects, which advocates for a more flexible, responsive approach to production that aligns closer with market dynamics and the intrinsic value of oil & gas.

In light of these considerations, the industry's focus on consolidation detracts from the essential conversation about redefining production discipline. The goal should be to foster a more adaptable, resilient industry capable of preservation, performance and profitability to meet the evolving demands of its investors, the market and society at large.

One Way, Or the Other?

 People, Ideas & Objects have set a precedent, demonstrating that producer officers and directors may deliberate on an innovative idea for a product or service for upwards of 33 years, effectively squandering trillions of dollars of other people's resources. When confronted with undeniable evidence of their inaction, they seem to require guidance to make the correct decisions. As of now, the decision to pick up our option on February 16, 2024, remains uncertain, with no communication received thus far.

The broader oil & gas economy in North America bears the scars of the missing $4 trillion we have documented. Shareholders, having been ignored, express their displeasure. While it's true that dividends are being distributed, this action hardly compensates for the substantial returns that should have been provided over decades or the capital raised through dubious earnings reports. The devastation inflicted on the service industry by officers and directors cannot be overlooked. The lack of a forward-looking plan or strategy leaves the industry ill-equipped for the challenges ahead, devoid of necessary resources.

The oil & gas industry's future hinges on its ability to innovate and meet the energy independence demands of the continent. Unfortunately, innovation has been stifled, historically thriving in the service sector but rarely within producer firms themselves. Innovators who dedicated their lives to bringing ideas to market find their efforts nullified as their intellectual property is co-opted and shared among competitors by the very officers and directors meant to lead.

A point arrives when it must be declared that enough is enough. The industry cannot sustain itself under this failed leadership. If, after midnight on February 16, 2024, producer officers and directors have failed to act on our option, it will be clear to all stakeholders that their conduct amounts to more than negligence; it is willful misconduct. What other conclusion can be drawn?

Our Value Proposition: Markets

 Three modules of the Preliminary Specification are “market” modules, including the Resource, Petroleum Lease, and Financial Marketplace modules. Each establishes a marketplace where producers can engage in the markets they need.The marketplace modules mimic the three markets producers participate in. They are designed to deal with the day-to-day activities of each producer, service industry member and others. Supporting them with the contractual, transaction processing and other capabilities of Oracle Cloud ERP and People, Ideas & Objects Preliminary Specification. We also support our user community and their service providers in our Cloud Administration & Accounting for Oil & Gas. Enabling producers to apply their competitive advantages and strategies in the greater oil & gas economy. 

North America has advanced its overall quality of life through markets and price discovery. The Preliminary Specification will act as a part of the structures that define and support the oil & gas industry. Our decentralized production model price maker strategy relies on the principle of oil & gas commodities being priced based on the price maker principle. Producers need to produce only profitable production, after full consideration of all their actual costs on a timely and accurate basis. This is how they’ll operate with Cloud Administration & Accounting for Oil & Gas. Using all of the information contained within the commodities market price (production, inventory, consumption, reserves) to determine profitability and ultimately what will and will not be produced. It is these same mechanisms that are involved in every transaction of a free market. 

From the Preliminary Specifications Resource Marketplace module we quote from a paper written by Professors Richard N. 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 new 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.

And

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.

And

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. 13.

In terms of the Resource Marketplace module we first need to discuss two components of how operations are conducted in oil & gas. Field service industry providers extend producers' capabilities and capacities into their regions of interest. If producers owned and operated their field infrastructure it would otherwise be an impossible impediment and constraint towards progress. The second component is the history of abuse and disrespect producers have displayed and presented to the service industry over forty years. And particularly since 2015 when producers recognized their financial difficulties were amplifying. 

The status quo long ago accepted the assumption that oil & gas is a boom / bust industry. All other industries sought to work these issues out of their businesses and industries many years ago. It is this continuing acceptance by producers that has left us with a legacy of maybe six good years out of the past thirty six. Officers and directors don’t understand this argument as they’ve experienced thirty six years of superior executive compensation. Producers assumed the service industry would adjust to the boom / bust trend in lock step with them. There is an implied assumption that the service industry, like the oil & gas industry itself, enjoys revenues as a primary industry. Therefore, it continues business as usual during bust cycles. The diversity of the service industry offerings, and their coverage across the various regions of their operations throughout North America spread them thin operationally. As secondary industry participants they are not as resilient as producers believe. Scaling back from 1,900 active drilling rigs during 2015 to 400, forcing 50% price reductions on the drilling operator or they would use another vendor, the producers induced a collapse of their revenue streams into the low and below teens in terms of percentages of prior levels, which has been devastating on the financial health and viability of the entire service industry.

Now in 2024 the repercussions of this downturn have decimated much of the service industries capacities and capabilities that were once available to producers. The largest service industry providers have left the continent due to this abusive treatment. Therefore for producers to work out the boom / bust cycle through our price maker strategy will contribute to rectifying this issue in the long run. Through profitability everywhere and always, the oil and gas industry will build a stable infrastructure. Providing a stable environment, or a constant level of demand for which the service industry would be able to budget, plan and prosper. 

After this and similar treatment over the past four decades investors in the service industry are unwilling to participate in the rebuilding of their much needed field operations. They invested in good faith and were abused by the producer firms. They’ve witnessed the equipment they invested in being cut up for scrap metal to pay the light bill and taxes on the shop or horsepower sold off to other industries. This was due to the producers determining they could get away with leveraging additional field activity by not paying their bills for 18 months after the jobs were completed. Producers should have alerted the service industry representatives to these plans beforehand. The dilemma today is who’s willing to provide the financial resources for the service industry to recapitalize itself. The funds that would enable it to reestablish the capacities and capabilities necessary for a self-sufficient and profitable oil & gas industry? The service industry believes that producers broke it, they can fix it. Maybe when they have some skin in the game they won't be so abusive.

This is what’s known and understood in the market today. It's not news. Producers expect the service industry to resume normal operations, yet fail to consider the consequences of their prior actions. A similar example is the history of oil & gas ERP providers over the past thirty years. I can report there’s still no consideration of a second chance these first tier ERP providers will ride to the rescue of the producer firms. Why? They feel the industry is too complex, too costly and there are not enough producers to negotiate sales prices fairly. SAP is a custom implementation for each sale. The last two ERP providers left in 2000 and 2005, as documented on page 17 of our White Paper. This was due to producer officers and directors' inability to pay for software development in advance. The only method by which these vendors would approach the industry. 

Producers have had ten years to invest in the Preliminary Specification to make their organizations profitable and accountable. They also had the opportunity to avoid this inevitable, predictable and fatal outcome but didn’t do so. Not a penny has been spent on People, Ideas & Objects at any point. The need for skin in the game was the apt approach when so many oil & gas ERP investors and vendors were betrayed three decades ago. This has now been done to the service industry. People, Ideas & Objects are instilling market principles in the producer firms, however, this does not imply that those who support them have the inherent trust in producers as a result of their prior actions to rely on market mechanisms at this time. Industry culture will need to have been proven to be changed. We’ve heard the promises before. 

Producers sit on primary industry revenues. They will show a thumbs down to this idea as if People, Ideas & Objects is the only vendor they’ll be faced with who has this ludicrous prepayment idea. Officers and directors' actions have consequences that are wholly detrimental to everyone else in the industry. Officers and directors will argue this does not remind them of what markets and price discovery should look like. Correct, it's what’s necessary after their destruction of markets. 

These facts on the ground are what officers and directors refuse to consider or admit. Until they do the industry will be beset with problems of the scale and magnitude of trillions of dollars. These issues need to be dealt with and I am unaware of another solution. The need to rebuild the industry brick by brick and stick by stick must be financed by the only means now available. The primary industry revenues of the dynamic, innovative, accountable and profitable oil & gas industry. It is facilitated through the Preliminary Specifications Resource Marketplace module and the price-maker strategy in the decentralized production model. Granted there will be those within the service industry that will continue to scrounge for the pennies falling from the officers and directors' pockets. However, that does not create the dynamic, innovative, accountable, profitable and energy independent oil & gas industry that we need. 

The Financial and Petroleum Lease Marketplace will also implement market organizational structures in the Preliminary Specification. This will provide the organized interface necessary to access and interact with these markets. Modules in which the full transactional power of the Preliminary Specifications ERP system supports these markets. We’ll also discuss the Marketplace Interface we're building. I believe COVID provides the opportunity to adjust one's opinion to this feature. I have suffered the slings and arrows, the ridicule for it in the past. There is little that disagrees with what I haven't heard. In my opinion it is revolutionary and needs to be seen in the context of the changes that occurred in 2020 - 2022 covid era. At a minimum it adds an element of serendipity to working from home. One point I may not have been clear about is that the Marketplace Interface is a virtual representation. Users will be able to access it through any screen on any of their devices. The person does not wear a headset.

The Petroleum Lease Marketplace module is exactly what you could imagine. An opportunity to post, bid, purchase, and sell mineral rights and producing properties in the marketplace that exists and is replicated virtually within the Petroleum Lease Marketplace module. Everything from the opportunity to participate in a joint venture to establishing surface rights payments is fully supported by the ERP system of the Preliminary Specification. Our product sits on top of Oracle ERP Cloud which includes their tier 1, Oracle Fusion Applications which Gartner rates as the highest quality offering. Oil & gas markets include Federal, State, Provincial, Freehold and offshore leases. An opportunity for industry to consolidate on a dynamic platform which uses proven tier 1 technologies with the constant support of service providers. This platform maintains transaction administration and accounting in a standard and objective manner. (Note: People, Ideas & Objects maintain the policy, and it is written into our user community and service provider licenses.) 

We will keep arm’s length distance from all royalty administrations. We operate in the long-term interests of the oil & gas industry. To ensure that they are provided with the most profitable means of oil & gas operations. There will be no compromise on this anywhere within this community.) This will be enhanced with the constant iterative design and development being undertaken by the People, Ideas & Objects user community and developers on a permanent basis. Whereas if a jurisdiction reviewed and changed their royalty rates at some point, in terms of either the rate or method calculated, producers would not need to concern themselves with the administrative or accounting aspects of those changes. The user community, developers and service providers would handle them and ensure that the software and services are updated on time. Producers would only need to deal with any issues regarding revised royalty costs. 

Producer firms do not have competitive advantages in administration and accounting. Thankfully that is one of the statements we have no pushback on. However, these areas shouldn't be slapped together in a haphazard manner. There’s no reason why the industry doesn't have access to state of the art ERP systems within their firms. That producers haven’t, has led to many questioning not only the integrity of accounting but also the systems used by the industry. This questioning should never have been necessary and implementation of Tier 1 ERP systems is now an explicit demand of the investment community. Oracle Cloud ERP is the premier Tier 1 ERP system on the market. 

And why is it that the issue of overproduction, or as we define it as unprofitable production, can be documented to have existed in the North American marketplace as far back as July 26, 1986? The solution we propose to the overproduction issue, in addition to aligning all seven Organizational Constructs, has been available since August 2012. In terms of markets, it is estimated that there is double the amount of oil needed by 2050. This capacity overhang forces North American high cost producers to assume the swing producer role and produce only profitable production. During the next 27 years, Saudi Arabia will be able to produce profitably at any price with its production costs of $3.00 and probable $0.00 in capital costs. They could use the money, and the markets in 2050 are too far away and unpredictable for them to sit back and wait for. 

The third marketplace module is the Financial Marketplace module. With the Preliminary Specification, the Joint Operating Committee becomes the key Organizational Construct of a dynamic, innovative, accountable and profitable producer. In the Joint Operating Committee section we noted that the movement of knowledge, which includes the detailed actual, factual accounting information for that specific property, to where the decision rights are held, which is the Joint Operating Committee, enhances accountability. 

It's here that the Financial Marketplace enhances accountability through the board of directors' interaction with their current and prospective shareholders and bankers. A review of the Financial Marketplace module specification would be the most comprehensive source of information to capture an overall understanding of the module. With the standard and objective nature of the accounting conducted throughout the Preliminary Specification and the service providers. Would that satisfy some of the issues investors and bankers have raised regarding their investments and loans in the industry? Where everything being produced is profitable and producers seek to maximize profits by shutting-in unprofitable production? Would People, Ideas & Objects, our user community and service providers help producers satisfy their shareholders and bankers to the point where they’d invest in the industry again? 

Two New Viable Scapegoats

 Two of the achievements of People, Ideas & Objects that officers and directors would point to. Would be the accumulation of its Intellectual Property and the precedence set in terms of the time and effort exerted toward change. 

Intellectual Property is an advantage to oil & gas producer officers and directors as much as it is a benefit to People, Ideas & Objects. Producers can point to it directly and state “they can’t do this” and “they can’t do that” as it would violate my IP, they must work around it. Making it a given that the status quo is the only method that will remain proven and implemented. 

Secondly, the precedent People, Ideas & Objects have set in terms of the effort to implement any necessary changes, to disintermediate or resolve industry issues or realize future opportunities. As of May 2024 this will equal 33 years of our effort. 

Additionally some characteristics of that precedent includes:

 - There will be no industry based financial or moral support provided. 

 - Ostracization and vilification of any individuals involved. 

 - The collective will of the producers needs to be overcome. 

 - Industry operates as one, with one voice and one strategy against deemed violators. 

We therefore stand at a point in time where the ability to make the requisite changes to industry is now or never. If People, Ideas & Objects is unsuccessful in implementing our deadlines of February 16 and April 12, 2024. How will anything be done in the future? Maybe I’m being melodramatic or thinking too much of the Preliminary Specification. History will tell us.

A Future With Rube Goldberg

 We’re discussed the Rube Goldberg-like devices being crafted within each producer firm. While each device is unique, they share one critical flaw: none result in 'real' profitability, unlike the organizational method employed in the Preliminary Specification.

Moreover, it's apparent that these producer firms criticize People, Ideas & Objects for embarking on a project they deem too broad in scope and scale, labeling it as 'too ambitious.' However, this critique overlooks the fact that our project's scope mirrors the objectives their own convoluted systems aim to achieve. The scale we aspire to might be substantial, but when considering the combined financial resources of all producers in the development of a singular administrative and accounting system, it becomes competitive with their individual budgets.

Professor Paul Romer, who was awarded the Nobel Prize for his 'New Growth Theory,' introduced the concept of sharing non-rival goods and services. This theory underpins our belief that the sharing of administrative and accounting responsibilities is a secondary reason why producers are losing money due to its high overhead costs. Distributing these costs across the industry could significantly reduce each producer's burden. 

'New Growth Theory' forms one of the seven Organizational Constructs of the Preliminary Specification, offering incremental and unquantifiable value to our product users. This opportunity remains on the table until February 16, 2024.

Cultural Stasis

 For several decades, a pervasive cultural stasis has afflicted the oil & gas industry. In the 21st century, I struggle to identify any significant changes initiated by producer officers and directors. Particularly frustrating is that even the investor activism starting in 2015 resulted in minimal change, aside from the begrudging acknowledgment of minimal dividends—essentially the least effort required to fulfill their corporate responsibilities. Note here that I’ve only been able to impose these deadlines due to the personal risks officers and directors have exposed themselves to. 

The strategy of 'muddling through' remains persistent and ubiquitous. Resistance to this entrenched culture seems non-existent, except within the investor community and among advocates like People, Ideas & Objects. Initiative and innovation have been drained from those gainfully employed in the industry, deterred by the political hazards of proposing change and the potential career costs of doing so. This situation forces many to consider leaving the industry as their best opportunity for advancement. Without the efforts of People, Ideas & Objects, one wonders where the industry might stand, especially if the looming Friday deadline passes without action from the officers and directors.

To say the industry faces issues is an understatement. The officers and directors are entrenched in a classic defense, a turf war against disintermediation— a scenario not unique to our times, reminiscent of the post-WWI era.

Our deadline is Friday, February 16, 2024. Failure of producers to embrace the option we offer signifies an inability to assert control over their business operations. The Preliminary Specification represents a unique market solution capable of timely addressing these challenges. Despite documented losses exceeding $4 trillion in natural gas revenues since July 2007—a situation we had forewarned—the resistance to our solution, which necessitates industry disintermediation, remains steadfast.

Should producer officers and directors neglect our Friday deadline, such inaction will be interpreted as a deliberate acknowledgment of their failure. To label their behavior over the past 17 years as merely negligent would be overly generous. Friday will determine the accuracy of this interpretation. Ignoring our deadline equates to an admission of willful misconduct by the officers and directors. However, should they engage with our option and aim to meet our April 12, 2024, deadline, they have a chance to demonstrate a genuine commitment to resolving the industry's challenges. Therefore, it's reasonable to conclude:

 - Inaction by them equates to guilt.

The Week That Was

 What a week it’s been, with continuous record-breaking differentials in natural gas prices being achieved daily. The closing factor was astonishing! In an attempt to mitigate this embarrassing disparity, they might contemplate ways to reduce oil prices or perhaps distract investors with a press release or a financial report touting record earnings. Anything to make it not look so bad.

Unfortunately, the broader industry, which genuinely needs this revenue, is dismissed as merely greedy and lazy—a common accusation from officers and directors toward the service sector. And since investors have been receiving minimal returns for several quarters, they, supposedly, have no grounds for complaint. We are expected to admire these leaders as they metaphorically 'levitate' down the street, with reverence being optional, for now.

This situation epitomizes the dismantling of an industry, its resources, its people, and its future, orchestrated by those indifferent to anything beyond their immediate interests. Since August 2012, I have offered a solution, only to be met with personal ruin and to serve as their source of amusement. Nonetheless, I remain committed to this cause.

The sheer disregard and surreal nature of these actions are beyond comprehension. The most devastating realization is the bleak future of the oil and gas industry in North America, destined for nothing but a gradual decline.