Disappointment, but no Surprise

 Launching a campaign to highlight the lack of production discipline in natural gas pricing couldn't have been more timely, given the recent fluctuations observed over the past few months. Prices have dramatically dropped from $3.34 (24.83 to 1) on October 11, 2023—the day the LNG issue was introduced on this blog—to $1.611 at market close today. The U.S. Energy Information Agency recently reported that natural gas storage volumes have exceeded their five-year average, yet there seems to be no acknowledgment of the problem among producer officers and directors, nor any recognition of the legitimacy of People, Ideas & Objects' Preliminary Specification as a viable solution.

On February 9, 2024, I highlighted on X that producers are now facing operational challenges due to their previous overexpansion of natural gas storage capacity—a decision made during a phase of myopic focus. After realizing these facilities were not profitable, they sold them off, losing control over natural gas storage, which has now become a significant barrier to addressing the pricing structure issues. 

As the producers' deadline expires today, stating that natural gas is trading at 50 to 1 might be seen as a minor detail. However, this structural pricing issue, rooted in decisions made since the mid-1980s, has caused market distortions that will require years of concerted effort to correct. Producers must begin to educate consumers about the real cost of energy. Today's utility bills, with natural gas cheaper than in the 1980s, are inflated with administrative, transportation, distribution fees, and various creatively labeled charges. Utilities may not be held accountable, but producers bear the brunt of consumer dissatisfaction, often resulting in a lack of transparent action from producer officers and directors.

The path forward for producers in the coming months remains unclear. People, Ideas & Objects also face challenges, compelled to pursue a difficult route. The failure to meet our deadline has taught us that no alternative exists but to follow through with our Profitable Production Rights plan, regardless of the obstacles. Previous attempts to find easier solutions have consistently failed. This failure, amidst a backdrop of a 50 to 1 natural gas price becoming the norm, underscores a profound misunderstanding of the opposition we face.

Hours, not Days

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?

Software Can Fix That

 In an intriguing observation by Victor Davis Hanson, a Stanford PhD and Fellow at the Hoover Institute, he notes on his podcast, "The Victor Davis Hanson Show," around the 49:11 mark of “Looking for the Next President” episode. Discussing how societies historically have faltered when knowledge fails to be transmitted from one generation to the next. Citing examples from Rome, Byzantium, the Greek city-states, to contemporary South Africa and Zimbabwe, he underscores the essential role of knowledge in maintaining societal infrastructure and functionality, including crucial engineering knowledge for water treatment and electrical systems.

This reflection has a poignant relevance to the oil & gas industry, especially highlighted by the surprising lack of basic business understanding among producer officers and directors regarding LNG movement out of the Gulf of Mexico. The missed opportunities for capturing export prices in Asia and Europe, due to unfamiliarity with "Free on Board" and “Net Back Pricing” terminology, exemplify the critical need for generational knowledge transfer within the business sector as well.

The current generation entering the workforce, shaped by today’s education system, often exhibits a mindset focused solely on their immediate roles, missing the broader business understanding passed down from previous generations. This attitude risks losing invaluable business knowledge, such as Free on Board and Net Back Pricing, which are essential for the oil & gas industry's agenda.

To address this challenge, embedding persistent business methods and knowledge within the ERP software used in the industry is what People, Ideas & Objects have proposed. ERP software, by its nature, defines and supports organizational operations, encompassing current and potential future activities. Incorporating a defined software development capability, as People, Ideas & Objects has done, ensures that valuable historical business practices are preserved and integrated into future operations without losing sight of past wisdom. This approach not only secures the continuity of essential business knowledge but also fosters an environment where innovation is built upon the solid foundation of historical understanding.

Considering Tomorrow's Deadline

 As of February 19, 2024, our deadline may have passed without any action taken by the producers' officers and directors to address their overproduction issues. These issues have led to a loss of over $4 trillion in natural gas revenues since July 2007. Does this inaction transition from negligence to willful misconduct, thereby opening the door to accusations of deliberate wrongdoing?

I am not a lawyer and I am not offering legal advice. I seek to provide a solution to what I believe are existential issues to the oil & gas industry.

In the context of oil and gas, particularly as discussed on platforms like 'Innovation in Oil and Gas' and 'The Preliminary Specification', understanding the distinction between negligence and willful misconduct is crucial. Negligence refers to the failure to take proper care in doing something, which in this case would be the management's inability to address overproduction. Willful misconduct, on the other hand, implies a conscious or intentional failure to perform a duty or a reckless disregard of the consequences of actions taken or not taken.

The transition from negligence to willful misconduct hinges on demonstrating a deliberate or recklessly indifferent attitude towards the necessity to manage production in line with economic and environmental sustainability. Such a transition is not just a matter of passing time but requires evidence that the officers and directors were aware of the consequences of their inaction and chose to proceed or fail to act despite this knowledge.

In the specific domain of oil and gas, where strategic decisions have profound implications not just economically but also environmentally, the principles outlined in 'The Preliminary Specification' emphasize the importance of proactive and responsible management. Highlighting the $4 trillion loss in natural gas revenues underscores the significant impact of such decisions and reinforces the argument for accountability at the executive level.

Update to Operations Management Module

 The following text has been added to the Operations Management module. Under the heading Swarm, and subheading Cloud Administration & Accounting for Oil & Gas it now reads.

Swarm

Cloud Administration & Accounting for Oil & Gas 

Upon completion of the development of the Preliminary Specification, we will deploy our Cloud Administration & Accounting for Oil & Gas Software & Service. The configuration of the necessary network will be a significant component of our Cloud offering. Our Security & Access Control module aligns with People, Ideas & Objects' objective of delivering the right information to the right individuals at the right time and on the right device, regardless of their location. Since the Material Balance Report and the Operations Management module rely on data provided through the IoT via Swarm, it is crucial to ensure seamless connectivity.

To fulfill our value proposition, we have the capability to establish a dedicated Swarm-based network exclusively for Cloud Administration & Accounting for Oil & Gas Software & Service. Swarm has included this option in their offering, enabling us to construct, launch, and deploy a global IoT network tailored to our requirements for a fee of $25 million. Considering the significance of safeguarding the data and information of North American producers, this investment represents a small sum for such critical infrastructure in terms of security and reliability.

A Fable

 The perception that I’ve always approached the work that I do here at People, Ideas & Objects is controversial and ripe with conflict against the officers and directors. I’ve identified them as the ones that have the authority, responsibility, are allegedly accountable and have control of the resources necessary to eliminate the issues we are faced with. However they have taken our position and seen it as a threat to their bureaucratic ways through the now classic disintermediation. Now that we are hours and minutes away from our deadline passing. I believe it will be difficult for the officers and directors to justify they are negligent and not willful of misconduct. Letting the one solution pass through their fingers, again, is difficult to justify why they would allow that. There appears to be, and possibly there is now evidence that, something larger is in play with them. 

There is a fable that I think puts their situation into context for me. One that maybe shows my actions as being more productive and healthier to their well being than what is assumed and believed. There is still time to meet the deadline, however, there is also the fact that all of this has been known by them for quite some time.

A baby bird, not yet ready for the harsh realities outside, finds itself caught in an unexpected snowstorm after its first flight from the nest. Overwhelmed and unprepared, the bird falls to the ground, its life threatened by the freezing cold. In this dire moment, a cow passes by and, in an act less elegant but life-saving, defecates on the bird. Buried in the pile, the bird quickly warms up, saved from the brink of death by this unlikely act. Feeling revived and grateful, the bird begins to chirp joyfully, drawing the attention of a crow. The crow, hearing the bird's chirps, quickly finds and eats the bird.

The moral of this story serves as a poignant reminder: the one who puts you in a difficult situation isn't necessarily your enemy, and the one who rescues you isn't automatically your friend. Furthermore, it underscores the importance of being cautious with whom you reveal your vulnerabilities or successes, as not everyone who appears to help has your best interests at heart.

Officers and Directors Ambitions?

 Late Sunday, it occurred to me that the officers and directors might be aiming for a breakthrough in the natural gas price structure, targeting a 50 to 1 ratio. Remarkably, by midweek, they've nearly achieved this, reaching a ratio of 48.19—a record in itself and representing an 87.55% erosion in the price vs the traditional heating value of natural gas. I must admit, their ability to come so close to this target in merely two and a half days is impressive. A hat tip is certainly due to the officers and directors for their 'stellar' work.

However, I might be misinterpreting their focus and perhaps overlooking a more grandiose ambition. In September 2023, the industry faced a staggering $46.4 billion in natural gas revenue losses under the then-highest average monthly price structure of 33.32 to 1. It seems $46.4 billion in losses for a single month didn't meet their expectations, hinting at even loftier goals for February 2024.

Regrettably, I find myself in the position of dampening the producers' high-flying ambitions. With oil prices at $87.09 in September 2023 compared to today's $77.05, achieving a 50 to 1 ratio under current conditions would result in total losses around $43.9 billion—falling short of their potential target. They've reached a juncture where the law of diminishing returns kicks in, suggesting a need to moderate their aspirations to a 50 to 1 ratio. Officers and directors, you're so close to this dubious milestone—perseverance is key, but perhaps it's time to reconsider the real costs of such 'achievements.’

People, Ideas & Objects deadline expires in two days and for all concerned, I have not received any contact or information from these ambitious officers and directors. Soon we’ll be able to say definitively it was officers and directors negligence or willful misconduct.

Trillions and Trillions

 People, Ideas & Objects offers a solution to the persistent issue of lack of production discipline, which has led to significant financial losses and broader economic devastation in the oil & gas sector. This problem can be traced back to a combination of accounting and organizational challenges that originated in the late 1970s, culminating in the first of many oil price collapses in July 1986. Since then, the industry has witnessed at least 12 other price collapses, alongside generally depressed prices that have materially impacted the sector over the years.

Throughout this period, North American producers have consistently failed to achieve what could objectively be considered profitable production. The prevailing accounting practices in the North American oil & gas industry are geared more towards valuation than performance, fostering a culture that is distorted and non-performant. This entrenched culture has shown a lack of capacity to grasp the nuances of People, Ideas & Objects' arguments, as outlined in the Preliminary Specification. A clear example of this is the recent missed opportunity to leverage the development of LNG export markets for enhanced natural gas pricing.

In 1985, Canada's natural gas production market and prices were deregulated. At that time, the regulated nominal price was over $3.75, which equates to approximately $7.30 in 2014 terms, considering inflation. Adjusting for inflation to today's value, the 1985 gas price would be around $9.26. This historical context highlights the profitability disconnect in today's market, where natural gas is sold at $1.61, benefiting producer officers and directors strategy of “muddle through” at the expense of the resource's true value. (Graph provided https://www.cer-rec.gc.ca/en/data-analysis/energy-markets/market-snapshots/2015/market-snapshot-30th-anniversary-deregulation-canadas-natural-gas-prices.html)

During the same period, Alberta's natural gas industry was undergoing significant changes, not only due to deregulation but also from the necessity to build the infrastructure required to gather and commercialize natural gas. Previously, producers often flared natural gas, deeming it not worth the investment to capture. This practice, both environmentally harmful and economically wasteful, ceased around the time of deregulation. Consequently, there has been a longstanding neglect towards developing a natural gas market that truly captures and reflects the value of the resource.

Since May 1991, I have been advocating for change, marking more or less thirty-three years of persistent effort. Over these years, it's reasonable to estimate that the North American oil & gas industry has foregone several dozen trillion dollars in potential revenues due to persistent inefficiencies and a failure to adapt. Interestingly, this colossal loss seems to have had little impact on the comfort and positions of the industry's officers and directors, except for the inconvenience of having to contend with my calls for reform. 

This situation underscores a profound disconnect between the industry's leadership and the urgent need for systemic change. While the financial losses are staggering, they have not sufficiently motivated those in power to reconsider their approaches or engage with innovative solutions that could revitalize the industry. Instead, the status quo is preserved, safeguarding the interests of a select few at the expense of broader economic and environmental well-being.

It's Personal

 As we enter February 2024, the looming deadline of the 16th should now be coming into sharper focus for North American oil & gas producers. Historically, producers have managed to evade action by claiming 'they have it under control' whenever confronted with the necessity of production discipline. Such assurances have been frequently given, yet we've chronicled a plethora of excuses, blame-shifting, and what we term 'viable scapegoats' utilized by producers over the years. It would be easy to conclude that, in their view, officers and directors are never at fault.

However, the current situation, with its deadline of February 16th, introduces a distinct challenge unlike any they have previously encountered. The unique aspect of this scenario lies in the fact that the repercussions of continued inaction will directly impact the personal financial resources of the officers and directors. Whether this constitutes Willful Misconduct, Negligence, or something in-between is beyond my expertise to judge, as I am not a lawyer. My role is to offer solutions and highlight the issues and their significant impacts, such as the known $4 trillion loss in natural gas revenue they've contributed to.

Yet, perhaps an implied admission of 'having it under control' by the officers and directors might indeed be the most fitting response. Could it signify an acknowledgment of their responsibility and a willingness to surrender their assets to their shareholders?

We elaborate on our February 16, 2024 Option in the 'This One's Nuclear, Part IV' blog post dated January 17, 2024.  

Our Value Proposition: Innovation

 People, Ideas & Objects et al need to worry about the startup to junior sector as much as any other classification within the industry. And we provide them with the most cost effective solution possible. This is purely because of the fact that the industry’s rebuilding will be done on an innovative basis. Innovation is the basis of the Preliminary Specification. It enables People, Ideas & Objects, our user community and their service providers to achieve our two opposing objectives of providing oil & gas producers with the most profitable means of oil & gas operations everywhere and always, and providing consumers with the lowest possible cost of an abundant and reliable domestic energy supply. With our decentralized production model and price maker strategy, we ensure that all production is profitable. Including Exxon's, Shell’s and that startup oil & gas firm that began this morning. And to do so innovatively to ensure that the ever escalating costs of oil & gas remain affordable to consumers. In addition, the commodities production profile and reserves continue to expand. Achieving profitable North American energy independence.

Enter two variables not available in prior decades and centuries. The cloud computing era coincides with the maturation of the overall technological infrastructure represented by the Internet. We are in the infancy of the Internet. Second, there is the "service" aspect of our user communities' service providers. We found that the level of innovation attributable to the small and medium sectors of an industry was as substantial as the larger sectors. Although the larger sectors contributed large amounts in terms of total expenditures, their impact was no greater than that of what the other sectors contributed. People, Ideas & Objects et al provides our solution for all sectors of the North American oil & gas industry and for all producers. Professor Giovanni Dosi was one of the key sources of research we used to determine the framework necessary for an innovative oil & gas industry. Innovation within a science and engineering-based business is therefore an inherent part of both profitable operations and consumer affordability. Professor Dosi’s paper “Sources, Procedures, and Microeconomic Effects of Innovation” September 1988, discusses and asks what are “the sources of innovations opportunities, what are the roles of markets in allocating resources to the exploration of these opportunities”?

People, Ideas & Objects research in oil & gas focused on these points: 

The main characteristics of the innovation process. 

• The factors that are conducive to or hinder the development of new processes of production and new products.
• The processes that determine the selection of particular innovations and their effects on industrial structures.  (p. 1121). 

According to Professor Dosi, there are two major issues that need to be addressed: 

• The first issue is the characterization in general of the innovative process.
• And second, the interpretation of the factors that account for observed differences in the modes of innovative search and in the rates of innovation between different sectors and firms, and over time. (p. 1121). 

Professor Dosi then states that: 

Typically, the search, development and adoption of new processes and products in market economies are the outcome of the interaction between:

• (a) Capabilities and stimuli generated with each firm and within the industry of which they compete. (p. 1121). 

The purpose of People, Ideas & Objects research in oil & gas focused on the organizational capability and capacities of the producer firm. Specifically in the earth science and engineering disciplines. It was also emphasized that innovations are based on both the firm and the industry. Coordination of the capabilities and stimuli of both the firm and the industry would therefore need to be advanced through changes in the organizational structure of both.

(b) Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers, and so on;  (p. 1121). 

Additional issues include 

(c) The conditions controlling occupational and geo-graphical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulations, tax codes, patent and trademark laws and public procurement.) (p. 1121) 

People, Ideas & Objects propose that innovation represents a critical Organizational Construct which compels organizations to either flounder or flourish. Innovation serves not only as an Organizational Construct in its own right but also, as we have defined in the context of the Joint Operating Committee, it is one of the seven key frameworks of this construct. From this perspective, innovation is seen as a defined and replicable process, which can be systematically established through thoughtful organizational design. Crucial to this design is the integration of ERP software, tailored to identify and support the specific needs of the organization and its industry. In the 21st century, innovative organizations are fundamentally reliant on such ERP software systems. The Preliminary Specification lays the groundwork for these innovative producers. It is up to the competitive nature of the officers and directors to harness their innovative potential, coordinating their earth science & engineering capacities and capabilities effectively.

Our second source of primary research material regarding innovation came from Professor Richard N. Langlois. Throughout our review of his work we determined the appropriate nature of the organizational design of the producer firm and the oil & gas industry itself. Selecting specific areas of the firm or market where the process and its management should be. Where capabilities should reside. By fully implementing the Internet and using Professor Langlois' research, which included Professor Carliss Baldwin's determination of where exactly that transfer between firm and market should occur. We designed the appropriate software tools, such as our task and transfer system. This will enable our user community to define which processes to undertake and manage in their service provider operations. Introducing enhanced efficiency in oil & gas administration and accounting. 

Building on other innovations that provide value generation such as cloud computing. People, Ideas & Objects, our user community and service provider organizations can accomplish this through the introduction of Cloud Administration & Accounting for Oil & Gas. A service that turns the fixed producer overhead into a variable industry-based overhead that can be provided to any producer no matter what their size or production profile. It is possible for producers to shut-in unprofitable production and produce only profitable properties, increasing shareholder value as a result. A substantial portion of our published value proposition of $25.7 to $45.7 trillion over the next 25 years is attributable to introducing this production discipline. This is to eliminate the known $4 trillion in damage and destruction caused by overproduction in natural gas since 2007.

The Preliminary Specification has captured this understanding of innovation and incorporated it within the culture of the industry we are rebuilding in these Organizational Constructs. It is also part of the Joint Operating Committees innovation framework. Each of the fourteen modules of the Preliminary Specification is materially affected when we identify the Joint Operating Committee as the key Organizational Construct. Which provided us with an opportunity to incorporate this understanding of innovation into the design and reorganization of the oil & gas producer firm and industry. These can be identified by several major processes of innovation within the Preliminary Specification. One of these ensures that failed innovations and experiments, and their underlying processes are not repeated in separate and distinct areas of the organization each year. Using the same failed “ideas” repeatedly is not innovation. Another major process of innovation is to enhance the scientific basis of producer firms and the industry as a whole. Moving forward on the basis that an idea that generates a dollar today will only produce ten cents tomorrow. We therefore must increase the volume of ideas generated and incorporated into our work processes to continue increasing our value. Various other innovation processes have been incorporated throughout the Preliminary Specification based on primary research conducted by Professors Giovanni Dosi and Richard N. Langlois. Enabling producers to earn the unquantifiable value that needs to occur throughout each producer firm and all tiers of the oil & gas industry in the decades to come. Value that will need to fund the innovation for tomorrow.

Oracle Cloud Infrastructure (OCI)

Continuing our discussion regarding the recent Oracle CloudWorld 2022 & 2023 conferences. Producers can generate incremental and continuing value from enhanced innovation through the development and implementation of the Preliminary Specification. Oracle’s products are the premier technologies in database systems development and their ERP systems are the base of the Preliminary Specification. Oracle is now partnering with service providers to enhance their products with a variety of services in order to bring about the innovation-based benefits we have discussed throughout the Preliminary Specification. Theirs will be in the domain of generic business processes such as banking etc, or the non-oil & gas specific processes that we handle through the 14 modules of the Preliminary Specification. 

Our proposed combination of Oracle Cloud ERP, People, Ideas & Objects, our user community and their service provider organizations are designed to deliver the foundation in which the producers, the oil & gas industry and all the tertiary industries can succeed in the 21st century. Without these facilities and capabilities the question we would ask is how will the industry “muddle through” so many of these issues and opportunities otherwise?

Since Oracle’s beginning they have pioneered the development of their technologies to be the premier tier 1 provider in all categories of their offerings. Oracle has been a critical and essential innovator in each of their products and markets. They continue today with products such as Oracle Cloud ERP and Oracle Cloud Infrastructure that continue that heritage. Recently with the Oracle CloudWorld 2022 conference we saw an innovative direction beginning with their development of service providers to augment their products. These enhanced products and services bring tremendous incremental value to oil & gas users. And are consistent with the work People, Ideas & Objects has undertaken on behalf of North American producers. 

Innovation throughout the business and industry specific process management, built upon the premier tier 1 Oracle products. This augments the dynamic, innovative, accountable and profitable nature of what is demanded of North American oil & gas producers. This is not a static environment. It will be through our user community and their service providers that producers will be able to interact with all aspects of business and industry specific process management. To make changes, innovate and develop these further which is an inherent part of People, Ideas & Objects and our user communities permanent software development capability. But there’s more.

A production configuration oriented toward this innovation Organizational Construct. With the Joint Operating Committee, that Organizational Construct holds innovation as one of its seven frameworks. Not only oil & gas producers, but the entire oil & gas industry and its tertiary industries and supporting institutions will be culturally aligned and oriented through Oracle Cloud ERP and People, Ideas & Objects Preliminary Specification towards innovation in the earth science and engineering disciplines. Providing the means to rebuild the industry in this configuration with software that defines and supports these objectives. Where the industry's approach to its next 25 years can be the most dynamic, innovative, accountable and profitable in its history. A future that is the most demanding, challenging and exciting in its history.