These Are Not the Leaders We're Looking For, Part XXI

So Many Questions

Why would anyone choose to produce oil & gas at a loss? How could such actions be justified? Given its limited supply and critical role in our economy and standard of living, shouldn't oil & gas production always be profitable? Each barrel represents 10 to 25 thousand man-hours of labor, underscoring its immense value. Our reliance on these resources is not only crucial for maintaining our standard of living but might soon become a symbol of our independence. How should this vital resource be managed? What is available to sustain oil & gas for the long term other than profitability? The sector is too significant to continue relying on investor subsidies. Have investors been misled by officers and directors to cover the capital costs of consumer consumption? Is that a flawed business model?

Introduction

People, Ideas & Objects is committed to transforming the oil & gas culture to focus on preservation, performance, and profitability. This is spearheaded through our Preliminary Specifications ERP software, designed to address significant industry challenges, notably the lack of production discipline. This issue has led to trillions in revenue losses since the oil price collapse of July 1986—a problem persisting nearly four decades without effective mitigation. The conflict between officers and directors and People, Ideas & Objects is not just about these issues; it is that our software disintermediates oil & gas producers and therefore attracts the defensive posture we see in their leadership. 

Performance today has become the issue. It has been too long and broad of a systemic drain of financial resources into supporting the production of oil & gas. The net present value of the producers is negative as it demands cash to produce. Subsidized for decades by investors, producers have become slack in their internal expectations. Spending money is profitable according to producers' accounting methods, therefore those with the authority to do so are able to achieve any expected performance criteria. Over four decades this has eroded the expectations overall to a low level of overall industry performance. 

Faith, trust and goodwill within the industry towards the officers and directors is at best abysmal. The service industry will do nothing to develop itself after the financial abuse applied to it by producer officers and directors. It’s a simple case of fool me once, shame on you, they’re not going to be fooled again. In 2015 investors stopped funding the endless demands for capital. Most damning of all is the leadership declaring the frontier of oil & gas, shale to be uncommercial. To venture off into new industries with oil & gas revenues in hand. Some people may go as far as to call that theft, a sentiment with few detractors. Yet somehow that leadership remains today with a new ultimatum.

The inability to change and address its issues does not exist in the current business model. We pointed out at least a decade ago that the demands for cash by producers was self-inflicted. On average producers capitalize 85% of their overhead to avoid identifying and recognizing these out of control costs. However, in the process were only retiring these costs over the many decades as part of the annual depletion. Hence, leaving them with no cash float to cover the overhead costs each month. Every month becomes a renewed search for new sources of cash to fund the current month's overhead cost for the next 10 to 20 years until they’re fully recognized. Why would they do this? Why has this not changed since we first raised the point over a decade ago? Is overhead so out of control that to specify them would severely diminish their performance? Yes. Are these annual overhead items incidental, or immaterial, in comparison to the cumulative cost of drilling and completion? Why has this practice persisted for four decades without change? Is it because specifying true overhead costs could dramatically expose the inefficiencies or other activities in their operations. 

Choices

At this juncture, officers and directors face several strategic options. They can either maintain the status quo or initiate a cultural shift towards the preservation, performance, and profitability framework outlined in the Preliminary Specification. A third potential route would directly tackle profitability issues; however, despite our ongoing discourse since 2005, no substantive actions have been taken in that direction. This lack of progress suggests a fundamental incapacity for change, perpetuating a future that seems destined to follow their longstanding approach of merely "muddling through."

Last Week…

We noted how W&T Offshore had expanded their board of directors and filled the spot with the following candidate.

Mr. Buchanan has served in various legal roles as Chief Legal Officer/General Counsel/Corporate Secretary at several S&P 500 companies. Mr. Buchanan most recently served at ExxonMobil Corporation (“Exxon”) as an Assistant General Counsel from February 2023 to March 2024, where his responsibilities included handling corporate, regulatory reporting, compliance, and securities matters for the holding company and its subsidiaries. He also served as the Secretary to the Exxon Audit Committee and the Finance Committee.

Are there unfolding scenarios in the oil & gas industry that remain off our radar? Does our interpretation that these companies are shifting towards a defensive legal strategy in anticipation of shareholder litigation hold water? Are there alternative strategies that could help break the deadlock? Since launching this campaign on October 11, 2023, no producer has reached out, and the industry seems to echo a 'Borg-like' mindset, uniformly adopting the latest trends—whether it's heavy oil, shale, or the more recent shift to clean energy. This behavior, reminiscent of the Keystone Cops' chaotic pursuits, should not be dismissed as merely coincidental. Our observations suggest such patterns are indicative of deeper systemic issues, leading us to consider them in our ongoing analysis. There exists a significant legal risk for producers, officers, and directors, which forms the basis of our current analytical approach.

The Threat 

By adopting a defensive legal stance, producer officers and directors acknowledge the risks they face, which also suggests an admission of guilt. In such cases, they are compelled to remedy the issues plaguing their firms. Given the severity and duration of these issues, as well as the havoc wreaked by their past actions in the ERP marketplace, the Preliminary Specification emerges as the sole viable solution. Failure to fulfill their fiduciary duties now could jeopardize their Officers and Directors Liability Insurance, though they may have other indemnity measures in place. Either way shareholders are paying that freight.

This defensive legal posture seems to signal a threat from the officers and directors: accept the current situation, or they’ll abandon ship. 

Destruction, like progress, is non-linear. As the industry spirals further into disaster, the entrenched resistance to change by officers and directors over the past decades is likely to persist until their positions become unsustainable. At that point, we may witness these individuals seeking opportunities elsewhere, especially as the productive capacity of North American oil & gas begins its rapid decline. This tendency to flee when situations deteriorate is not new—it echoes patterns observed since the Great Depression, evolving over time. Recently, we discussed bankruptcy as a potential escape route for these leaders. However, the decline in production deliverability renders their ability to reverse the situation nearly impossible. Consider the analogy of a log rolling downhill: the best time to stop it is before it starts. After that, the only sensible action is to step aside. Why would anyone attempt to return the log to its original place?

People, Ideas & Object Perspective

The actions and statements of producer officers and directors present a clear message: it's either maintain the status quo or proceed without them. They are unlikely to fund the Preliminary Specification due to the admission of guilt it would imply. Currently, their stance is "my way or the highway," setting an ultimatum for shareholders and investors regarding the challenge to their four-decade legacy of fiduciary oversight—noticeably, without mentioning their performance.

The Preliminary Specification is not their chosen path, nor is the pursuit of profitable operations. Instead, they prefer to wield the threat of litigation without proposing any solutions, suggesting that if their approach is not accepted, they might simply walk away.

Conclusion

Are we to be held hostage to the stark choice of enduring the status quo or facing their departure? Are officers and directors effectively positioning themselves above the eject button, ready to press it if they don't get their way? They are obligated by fiduciary duty to avoid such reckless behavior. If you believe that such duty guides their actions, then one must question whether the $4 trillion in lost natural gas revenues from July 2007 to December 2023 took them by surprise. If so, why have they not addressed the ongoing losses of $40 billion per month?

We must consider whether accepting their ultimatum and leaving them in charge will lead to any improvement. The departure of current leadership could be challenging to overcome. However, if they remain and the industry continues its rapid decline only for them to eventually exit, what have we gained? Would we not be in a worse position, having allowed further degradation under their watch? These are the questions we need to confront as we contemplate the future direction of the industry. 

These Are Not the Leaders We're Looking For, Part XX

 People, Ideas & Objects are acutely aware of the challenges involved in effecting change within the industry. Our prolonged efforts have made us keenly aware of the deep-seated animosity that exists between us and the industry's leaders. Championing solutions and prioritizing profitability often renders one an outsider. I recently came across a press release from W&T Offshore that seems indicative of the stance its officers and directors are taking in response to our ongoing initiatives. Despite the expectation that they would address these critical issues to mitigate personal risks, such actions appear to be too much to hope for. On April 11, 2024, W&T Offshore announced an expansion of their board to six members, nominating Mr. Buchanan who has served in significant legal capacities at various S&P 500 companies, including a recent role at ExxonMobil Corporation. 

Mr. Buchanan has served in various legal roles as Chief Legal Officer/General Counsel/Corporate Secretary at several S&P 500 companies. Mr. Buchanan most recently served at ExxonMobil Corporation (“Exxon”) as an Assistant General Counsel from February 2023 to March 2024, where his responsibilities included handling corporate, regulatory reporting, compliance, and securities matters for the holding company and its subsidiaries. He also served as the Secretary to the Exxon Audit Committee and the Finance Committee.

This move by W&T Offshore could suggest an anticipation of legal challenges emanating from the Audit and Finance Committees. It seems they are preparing to defend against potential legal actions from shareholders and investors—a stark contrast to the proactive problem-solving approaches we advocate at People, Ideas & Objects. Our focus on addressing issues directly and enhancing profitability remains controversial to those who, paradoxically, would benefit most from such a focus.

Oil & Gas Doesn’t Need Profits?

Profitable organizations operating in competitive industries are not for the faint of heart. Organizational performance can be classified into a variety of business and government models. Government has the difficult task of motivating employees towards common goals and objectives, doing so with tight budgets across large domains. Government level performance is expected to be incapable of undertaking many certain tasks. In business there are utilities such as pipelines which are regulated companies. Although they trade on the stock exchanges they are operated under defined business models such as cost / plus where they are deemed quasi-government. And profitable operations where the organization is expected to earn its way by living by its wits. More or less. 

Oil & gas has not operated under any of these usual defined business models as I’ve summarized them. Theirs was simply spending a constant stream of investor cash. Officers and directors misinterpretation of the SEC Full Cost and Ceiling Test requirements were what aided the continuation of this business model well beyond what common sense would dictate. A highly capital intensive industry such as oil & gas will generate substantial cash flow that will sustain the organization through its boom / bust cycles. Limiting its exposure to real life consequences of their actions. Oil & gas as a primary industry slowed the flow of cash flow to the tertiary industries during times of difficulty. Life was easy and life was good for the producers’ officers and directors. Others need not apply. 

What Could Go Wrong?

Producers often misinterpret SEC regulations, viewing the Ceiling Test not merely as a requirement but as a target —to align their reported asset values as closely as possible with the independently evaluated petroleum reserves. In pursuit of this, they began capitalizing various costs including interest and overhead, aiming to "build their balance sheets" and "put cash in the ground." They did not realize that by capitalizing these costs and holding them on the balance sheet for decades, these expenses were never recognized as costs on the income statement nor deducted from profits. Consequently, profits were consistently overstated, mirroring the overvaluation of their assets. Property, plant, and equipment represent an exceedingly high percentage of all producers' asset values. A retroactive adjustment to deplete at least an additional 65% from property, plant, and equipment would provide a more accurate representation of a producer’s financial performance and health.

In fact, the most profitable oil & gas producer would be one that reports a balance of property, plant, and equipment close to zero, indicating they had earned more than they spent. The practices of "building balance sheets" and "putting cash in the ground" have not been adopted as standard accounting principles in any industry due to their obvious impracticality and the mockery they invite. These practices have led to numerous unintended consequences, including:

• Decision-making often revolves around whether spending will inflate the balance sheet size, rather than enhance real profitability.
• A culture has evolved where the mere authority to spend is seen as an indication of performance and profitability.
• Accounting practices have become distorted, focusing more on representing supposed value rather than accurately evaluating performance.

With such an entrenched culture perceived as successful, why would anyone consider adopting the Preliminary Specification? Running a profitable organization is challenging—it demands that every decision be critically analyzed and assessed based on actual facts, proven policies, and principles. Theories and innovations should undergo rigorous organizational and scientific testing to ensure their effectiveness. Decision-making should be based on more than just hearsay overheard at lunch.

Annual Meetings

The tranquil tone of today’s proxy statements, suggesting business as usual, starkly contrasts with the actual urgency of the situation. Although articulating future plans and strategies in writing can be challenging, offering a brief summary of topics for open discussion during the meeting could be a constructive and welcomed change. This is one of the rare opportunities for the company to openly communicate their intentions.

As producers venture into unrelated industries, shareholders are prompted to ratify nominees for each year's board of directors. The question arises: how have proxy statements become so entrenched in regulatory formality yet so devoid of substantial content? Meanwhile, the directors' decisions to branch out appear to be made with reckless disregard for their impact. How can oil & gas producers’ officers and directors, having once dismissed shale as uncommercial to chase after clean energy ventures without proper authorization, simply revert to shale exploration as if no errors were made? Their flip-flopping raises doubts about their commitment and strategic direction. Perhaps it’s time to suggest that they have lost their way and need assistance finding the exit.

Conclusion

The significant cultural shift outlined in the Preliminary Specification is essential to eradicate the unproductive and wasteful activities plaguing the oil & gas industry. The saying "the fish stinks from the head down" aptly describes the situation, with the officers and directors bearing primary responsibility for the current disarray. They possessed the authority to prevent these issues, were aware of the unfolding problems, and faced shareholders clamoring for change. Despite the availability of viable alternatives, they remained inactive. 

Immediate action is crucial to restore the industry's health and ensure its future prosperity. Those who had the authority and responsibility, yet chose inaction or failure, seemingly focused only on protecting their positions without regard to the industry's welfare. Therefore, it is now imperative to decide how, what, why, where, when, and by whom these issues will be resolved for the benefit of the shareholders, investors and all others.

These Are Not the Leaders We're Looking For, Part XIV

 For this last phase of our campaign People, Ideas & Objects will be focusing on a small number of producers who we feel should be sent a message of dissatisfaction from their investors and shareholders. Producers who have participated in the value destruction that we’ve been discussing. I’ve drawn up a short list of three that I think institutional investment groups can collectively put some pressure on to act to rectify what ails the industry. However, if other efforts are underway, we would not frown upon contributing.

The purpose is to establish People, Ideas & Objects with a foothold in the industry in terms of one or two companies that have paid their share of the costs of the Preliminary Specifications development and implementation. We believe with these financial resources in hand we can approach two areas that we are unable to at this time. 

• Begin the Preliminary Specifications software development process.
• Our first year is not a high cost year.
• Launch an aggressive marketing campaign to have the remainder of the industry participate.
• Initial participation establishes momentum, credibility and security to our Sales Commission program.
• Extending the program to a larger population of people.

What we need is the support of the investors that have more to gain than any other group. As we believe in our last post, the consolidation plan being pursued by producers today doesn’t necessarily include the specific needs of any stakeholder group outside of the officers and directors. What we have done is selected three producers that have certain characteristics that can make this far easier than it sounds. Our targets are large intermediate producers and for the reasons detailed below, we feel a need to fire a shot across their bow. Selection was done primarily for their high percentages of ownership by institutional investors. This eliminates the need for anyone to involve themselves in a proxy war that is futile and no one ever wins. However, if investors were to target one or two of the directors being nominated. Our recommendation would be the Chairperson of the Audit Committee. This could send the message that the status quo will no longer be tolerated. A message that would resonate across the industry.

The three producers selected are:

• Chesapeake Energy Corporation
• 102.86% Institutionally Owned. (Unknown how the factor was achieved.)
• 1st Quarter 2020 bankruptcy declared, eliminating shareholders, maintained, reinstated and rewarded the officers was the result. 
• Devon Energy Corporation
• 70.99% Institutionally Owned.
• EOG Resources Inc. 
• 92.0% Institutionally Owned.

The directors who are nominated can be voted for or against with a 50% majority. With the large percentage of Institutional Ownership these appear to be a possibility and efficiently within reason. A legal sticking point is the by-laws and regulations of the corporation. A majority vote against a director may not carry the weight we anticipate in this action. We feel this is irrelevant. For a director to continue without the support of the shareholders is possible, however, both directors and corporations need to concern themselves with the vote. 

Focusing our energy in this process may be effective and also could fail. We have about a month in almost all cases before the Annual General Meetings. This does not preclude institutional investors organizing themselves with respect to other producers. There are tangible and intangible benefits of doing so and we’ll detail some of these below. 

Investor Benefits

We anticipate these producer firms to fund their share of the Preliminary Specifications cost at the direction of their shareholder. People, Ideas & Objects Profitable Production Rights are the ownership rights that are earned for those who fund the development of the Preliminary Specification. Information regarding these can be sourced here. These Profitable Production Rights would be distributed to the institutional shareholders of these target producers. It will be in that way their motivation is aligned more closely with People, Ideas & Objects. 

We’ve recently heard natural gas “is a by-product” as a convenient excuse, method of blaming and viable scapegoat. Easily used at the drop of a hat by those that have no capacity to think, no culture involved in business or innovation but most of all no motivation or desire. 

European gas storage is higher than its ten year average. Two years into a war where natural gas supply has been a concern. With English Channel pipelines being destroyed and Ukraine being the primary source for Europe's access to Russian gas. It would appear that LNG shipments have had the effect of exporting North American producers' passion for overproduction. Which have now infected global markets with their chronic overproduction and pricing model.

And although negative $2.00 gas, as detailed in the OilPrice.com article, in the Permian is a tragedy. One amplified by the seasonal change to which storage will only now begin to fill. The real issue is the deterioration of the capacity and capabilities of not only oil & gas but also the greater oil & gas economic structure. The inability to conduct the level of operations necessary to maintain deliverability may soon be at hand. To suggest that consolidation will resolve this doesn’t deal with industry current leadership, its methods or culture. The inability to identify an issue and resolve anything is in question. Issuing press releases well after the fact is about all that they can do. Implementation is a foreign concept that officers and directors know nothing of. 

Determination of profitability was made long ago through the selection of the land, development of the appropriate adjoining properties, selection and interactions with partners, the engineering and geological work completed, the efficiency and know-how of what it takes to explore and produce oil & gas. To conduct the field operations in a competitive industry, where the capacities and capabilities are seriously diminished will only be done by those who have the idea that oil & gas exists in the minds of oil & gas men and women. This is the source of competitive advantage of the dynamic, innovative, accountable and profitable oil & gas producer we’re enabling with the Preliminary Specification. 

The Preliminary Specification uses the Joint Operating Committee as the key organizational construct. One of seven Organizational Constructs that define the culture of preservation, performance and profitability we’re rebuilding the industry upon. It is a standalone entity which eliminates the operator classification used today. That sources its engineering and earth science capacities and capabilities from the owners of the Joint Operating Committee and the market. These capabilities are focused on generating incremental asset value. The property's administrative and accounting is conducted by our user communities service providers who administer the property on a hyper-specialized, shared basis that is standardized and objective across the industry. When they are standardized and objective no producer will argue their evaluation of profitability was different than Y producers. Profitability would be the same no matter who owned the property in terms of a pure ownership classification. Only the overall profitability of the corporation, its generation of value and its holdings of Joint Operating Committees, its highly specialized engineering and geological capabilities, raw land and other intangible attributes such as who its partners are, will. Should the property not achieve profitability it can be shut-in until the time it can produce profitably. Either through innovation or increased prices.

Looking internally, People, Ideas & Objects have been able to make some changes to the methods we use to develop our software. Methods which increase our capacity and capabilities, increase our performance and cut substantially the time necessary to complete our development. When natural gas production is losing revenues on a heating value basis in the region of $40 billion / month, time is money. However, it should be noted officers and directors do not share our sense of urgency or concern regarding the identification of this being an issue, or that anything should or could be done about them. Suggesting “muddle through” to be the best option and “consolidation” to proceed. Do they deserve to have anything but this purge to be exercised against them? They have been there for too long, with no action taken, and even today an unwillingness to act, accept responsibility or identify a pertinent issue. Tell them to go.

In Summary

Producers will never pay People, Ideas & Objects as it implies guilt. Payment would amount to an admission of that guilt. You have a situation where the productive deliverability of both oil & gas may be beginning to decline and the cupboards are bare. There are no resources anywhere large or trusting enough in producers, officers and directors to even begin to approach the seriousness of the issue. Profitability is the only source of financial resources large enough to tackle the issues present in oil & gas. 

Conclusion 

Who will hold the officers and directors accountable if they continue to resist change today? A shift from the status quo cannot be achieved without first changing the ERP systems, decisions for which rest solely with the directors. 

Investors and shareholders are increasingly at risk under the continued governance of these officers and directors. The acceptance of the status quo has persisted for too long, leading to severe consequences. The value within the oil & gas sector and its associated industries has significantly diminished. Trust and confidence in leadership have eroded, and the capacity to conduct field operations is now just 25% of what it once was. Yet, officers and directors have taken no steps to rectify the problems they have caused. 

Too much patience has been exercised. If investors and shareholders still place their trust in the officers and directors, they will likely find themselves betrayed. The strategy of consolidation lacks support and transparency, and it's unclear why it is being pursued. These leaders have been given numerous opportunities over the past decades, yet they have consistently failed to substantiate their claims or justify their performance.

The oil & gas industry continues to grapple with overproduction, or unprofitable production as People, Ideas & Objects characterize it, driving prices down further. This issue is exacerbated as both oil and natural gas shale fields begin to experience industry-wide steep decline curves. This destructive cycle will persist as long as unprofitable production continues to flood the market no matter at what deliverability.

The current trend towards consolidation does not address these fundamental issues and contradicts the decentralization that the Internet enables. Why pursue consolidation unless it is to fail on a larger scale, possibly securing a more advantageous position for officers in impending bankruptcy proceedings? Who else could step in to manage these firms and initiate a fresh start with new relationships based on different assumptions? If not strategically planned, the prevailing "muddle through" mentality will continue to undermine any potential for future value.

The lack of a clear plan, visible benefits, or a strategy to remedy the destruction is alarming. This situation persists despite investor dissatisfaction, the availability of alternative ERP systems like the Preliminary Specification, and the ongoing substantial financial losses in natural gas value. The leadership's actions—or lack thereof—demonstrate a disregard for both the industry's health and investor interests.

These Are Not the Leaders We're Looking For, Part XVIII

 With this post we present a scenario of continued denial of People, Ideas & Objects Preliminary Specification by producer officers and directors. How their denial may subsequently be perceived and its implications to any Officers and Directors Insurance coverage or other form of indemnity they may have secured.

Introduction 

People, Ideas & Objects have detailed throughout this series of blog posts. A series that began on October 11, 2023 and can be aggregated by using this Notice label. To document the $4.1 trillion revenue losses incurred by North American natural gas producers between July 2007 and December 2023. We’ve also documented many other causes and effects of the officers and directors mismanagement of the industry over the past years. We discussed the risks officers and directors carry regarding their Officers and Directors Liability Insurance and the possibility of their (in)actions being deemed negligent or possibly willful misconduct. Rendering their insurance coverage invalid. They may have been indemnified by the corporation for the same reason, however this too may be invalid if the individual “ought to have done” some mitigating action.

• Reviewing the aggravating elements of officers and directors actions which caused industry damages above the $4 trillion.
• Actions of producers regarding their investors suspending further funding since 2015. 
• Satisfying investors' concerns should have been officers and directors' only priority.
• Development of substantial LNG markets missed since 2016.
• Unaware of basic business concepts that applied. Unable therefore to begin the necessary rehabilitation of natural gas prices.
• Declared shale uncommercial.
• Renounced the industry as uncommercial to justify entrance into clean energy. The most unaccountable industry.
• Diverted producers organizations and revenues towards the unrelated clean energy industry.
• Without shareholder approval.
• Abandoning those service industry and producer employees committed to oil & gas to second class status. 
• Only to return to shale with corporate consolidation as their solution.
• Realizing their mistake regarding shareholder approval, they required a reason to return.
• Consolidation is contrary to decentralization occurring in other industries in the greater economy. 
• Decentralization is facilitated and organized through the Internet.

The Preliminary Specification as a solution has been available for development and implementation since August 2012. No attempt beyond belittling its effectiveness was ever offered by officers and directors. Today common sense in the industry is consistent with the processes and methods managed throughout the Preliminary Specification and communicated for almost two decades by People, Ideas & Objects. However, producers today can not determine which properties produce their profits, if any. Shutting in production may be detrimental to producers. They are structured on the high throughput production model. Where full production is employed to cover their high overheads. Leaving some overheads uncovered when some production is shut-in. The Preliminary Specification uses the decentralized production model to turn overhead variable, based on profitable production. 

Another significant benefit of the Preliminary Specifications decentralized production model is the overhead incurred is included in the current month's production costs, which are passed to the consumer. Therefore the cash incurred to pay overhead is returned each month in a monthly cash float. Today producers capitalize 85% of their overhead to appear more efficient and to “build balance sheets.” Recognizing these overhead costs as depletion over the course of several decades, and making producers dependent on outside sources of capital. Undervaluing the real cost of production and proving once again that they don’t understand general business concepts as basic as a “cash float.” No change has been made to any producer's process of overhead management since we first raised this issue. Possibly it's not clear to them the point that I’m trying to make. Or, overhead costs are substantial and include the kitchen sink. 

Therefore only the Preliminary Specification is capable of mitigating the risks officers and directors face with their shareholders. Lawsuits by shareholders seeking to reclaim what officers and directors mismanagement lost and destroyed from officers and directors personally. People, Ideas & Objects have always stated “it's no longer enough to just own the oil & gas asset, it's also necessary to have access to the oil & gas software that makes the oil & gas asset profitable.”

Damage? What Damage? 

Here are just a few examples of the damage caused by officers and directors' inappropriate management. 

- Criticism has been voiced regarding the decision-making process of taking oil and gas revenues for investment in clean energy projects without shareholder consent, questioning the governance practices of officers and directors.

- The absence of a coherent long-term strategy, vision, and business understanding among leadership has been pointed out as a significant concern.

- Their acceptance of any financial information is a given as long as it's not a loss or objectively factual.

- A detailed analysis of public financial statements of producers reveals that capital assets in property, plant, and equipment have remained largely unadjusted for capital expenditures since before 2016, with the reported depletion rate significantly decreasing from 46.9% of revenue in 2016 to 16.5% in 2023.

- Capital assets prior to 2016 have still not been touched in terms of any depletion and won’t for at least one more year. 

- We argue that adjusting the depletion to reflect even just 2016s 46.9% would transform producers' reported 2023 profit of 18.8% into a real loss of 11.3% today. People, Ideas & Objects suggest a much more rapid depletion schedule. One that reflects the replacement cost of production, the real cost of oil & gas production. 

- The discrepancy between 2023 and 2022 revenues with the reported 22.6% revenue drop in dollar terms and a 2.68% increase in production volume is noted as producers talk but never act. “Making it up on volume” fails again. 

- The volume of profitable natural gas volumes to offset officers and directors losses is over 9 volumes to 1. “Breaking even” which is all this would accomplish is not within the mindset of “muddle through” or “it’s a byproduct” thinking. At a $87.17 oil price and 6 to 1 heating value pricing of natural gas would be $14.52. 

- The deliberate financial performance embellishment in corporate reporting points towards a need for greater accountability and transparency in corporate governance. 

- Consolidation would be helpful for officers and directors, I’m at a loss to identify anyone else. Oil & gas would continue to stagnate.

- Lastly, what is the vision, strategy and direction which consolidation will take the industry?

A Scenario

Let's envision a scenario where, as we move through the first half of 2024, the Preliminary Specification remains unfunded. In this scenario, officers and directors take no action, allowing their financial struggles to continue. Given the current market wisdom, which increasingly favors shutting in production to prevent overproduction and unprofitable output, inaction during this period could be seen as a missed opportunity to address these issues. Especially now, as producers have acknowledged the necessity of curbing excessive oil & gas production, a principle People, Ideas & Objects has championed for years and we’ve structured within the Preliminary Specification.

The challenge lies in the gap between public statements and actual strategic action, often referred to as “muddling through.” Officers and directors, who decide which Enterprise Resource Planning (ERP) systems to be implemented, effectively shape the organizational management for decades. Without a change in these ERP systems, altering the status quo is unattainable. Any ERP system that critically challenges the officers and directors' approach is unlikely to be adopted and therefore effectuate the necessary changes.

We find ourselves in a stubborn situation where those benefiting from maintaining the current state hold the reins. Without initiating ERP innovations, there is no impetus for operational change. The question then arises: how will stakeholders engage with these officers and directors in the future if their resistance persists? If this year's Annual General Meetings conclude with no changes, shareholders might have to resort to litigation.

What is the fate of natural gas producers through the year if officers and directors continue, as they’ve done in the past, leveraging bankruptcy proceedings as a fallback? Could consolidation render them even more unassailable? The difficulty of initiating change now will only amplify, escalating the risks for investors yet to realize their investment's value. Should consolidation falter under "unforeseen circumstances," bankruptcy becomes the fallback for officers and directors, leaving shareholders incurring the whole cost of this disaster when their shares are canceled.

These Are Not the Leaders We're Looking For, Part XVII

The EIA's graph on shale gas volumes in the United States narrates not one but countless tales. Among these, two specific narratives stand out to People, Ideas & Objects, shedding light on the unique challenges and repercussions within the sector.

Value Destruction

The inception of shale exploitation marks a period of substantial investment with minimal commercial return. Investments flowed to entities skilled in expenditure but not in value creation. Recent revelations expose a profound ignorance among officers and directors about their business realm. The industry mantra to "put cash in the ground" and "build balance sheets" dominated, with profitability always a future promise. Since January 2000, the U.S. has produced 288.3 trillion cubic feet (TCF) of shale gas, a venture that, both in terms of investment and production, has failed to yield commercial success. The flood of shale gas not only diluted investment but also undercut the value of conventional gas operations, evidenced by a distorted price multiple to oil, standing at 48.72 compared to the traditional 6 to 1. This ongoing price erosion underscores the need for a comprehensive medium-term market rehabilitation, as outlined in the Preliminary Specification, action that transcends mere press release solutions.

Throughout the shale era financial statements of producers reflected their profitability from the endowment of riches attributable to shale technologies. In fact it was over reported assets through the “building of balance sheets” creating equal amounts of over reported profits. Creating excessive interest from investors chasing those profits, creating overinvestment and hence overproduction, or as we describe it, unprofitable production. People, Ideas & Objects believes overproduction has occurred since the late 1970s and its effect on prices was readily apparent since as early as the July 1986 oil price collapse. 

Behind the (Decline) Curve?

Secondly are we at the peak of shale gas’ potential in the United States? Are production volumes beginning to turn down over the past three years? Are shale's steep decline curves coming into play as a result of the industries and service industries diminished capacity and capabilities? Manifesting in the inability to maintain production volumes? There is a definitive turn in the Utica shale's productivity. Has the damage and destruction from officers and directors inappropriate management of this resource now beginning to show? 

We’ve previously described this as a general understanding that bringing a well to production takes seven years. Therefore when investors are forced to express their dissatisfaction with officers and directors by withholding additional funds. Instead of responding appropriately, officers and directors began the process of cutting costs. Therefore the first year of the seven year process was determined to be easily sacrificed based on the understanding the people can be claimed when the “investors” learn the wisdom of the officers and directors ways. Then the second year, third and down the line. How much of this seven year process has been eroded in terms of its capacities and capabilities. Add a few years of Covid madness to the mix. Shuffle the cards by declaring “shale will never be commercial” and “clean energy is the future.” Use the service industry as the last form of capital resources by not paying their bills for 18 months. And hence, losing the faith and trust in the producers. You have a situation that is untenable. Until these officers and directors are removed and there is a means to rebuild the industry on the basis of preservation, performance and profitability such as People, Ideas & Objects Preliminary Specification. We may find ourselves at the high water mark in terms of productive deliverability.

The issue is we’ve never been here before. The situation as described has not happened due to shale not being present in prior periods. Shales distinct characteristics include its prolific production and reserves, steep decline curves in as little as eighteen months and the high cost of drilling and completions, but also their many reworks. 

What Now?

With so many issues I’ve discussed in the past years. It’s possible most of what I said went over officers and directors head. When “free on board” is not understood there is little hope of them understanding much of anything that I’ve been writing about. What should be clear to most people is the exercise known as shale can’t be graded as anything other than an F-. Or any other part of the industry. All the value represented in the investment made by the investors, the real profits generated by earlier generations in the industry and the founders is gone. The value that should have been gained by shale resources is gone, it was never generated. 

There are reserves that remain and they are substantial. The issue is the industry has a net present value that is negative. It takes financial resources in order to operate the industry at a loss greater than what is generated. How else would the officers and directors describe their performance? It’s not that bad? No it is far worse than bad, it is a disaster. It is a five alarm fire and something that threatens to put in jeopardy the standard of living of all North Americans permanently. If domestic sources of energy are unavailable due to this incompetence then we will be subject to the whims of those who do not share our ideology and are only envious of us. 

Is consolidation the answer? How, bigger producers moving slower with the inability to understand basic business and unable to grasp anything that exists outside of their bubble? I would need to see the plan, the strategy, an understanding of how they address these issues. Once again the industry just makes it up as it goes, the standard fare operating procedure is “muddle through” everywhere and always. 

Here’s a question to ask the officers and directors in the upcoming Annual Meetings. Where will the money come from to rehabilitate the producers capacities and capabilities? Where will the money come from to rehabilitate the service industries capacities and capabilities after producers so willingly destroyed it. Leaving them to sell horsepower and cut up equipment for scrap metal to pay their bills because producers would not pay theirs. Fool them once. The belief is if the producers were to recapitalize the service industry on a philanthropic basis. They’d then have some skin in the game and would think twice about their destructive actions again. Where is the money to buy the time to rehabilitate the natural gas market price? 

The only source of financial resources large enough is the profitable oil & gas producer. However, driven by a culture of “muddle through,” of having it under control and making specious profits. Officers and directors believed they were successful. They’ve destroyed everything in the industry and all the financial motivation of everyone who participated. They feel they were taken to the cleaners by these officers and directors and producers wonder why it’s become so difficult. Here is the first hint, the same officers and directors who blew it up are still there. Those others are not insane and will not be doing the same thing over again. Besides, weren't the officers and directors the ones that declared shale would never be commercial and clean energy was the future? Why are they still here?

I’ll repeat that producers had it within their grasp to have all the financial resources they could have imagined since at least August 2012. By choosing the Preliminary Specification and operating profitable organizations, most of this damage and destruction would not have occurred. They were too busy lying about how “the Preliminary Specification would not work because they can’t shut-in production because the formation will fold over.” Or they could have started listening to their investors at any time since 2015. Take the development of LNG as an opportunity to rehabilitate the gas price. Or any of the other many opportunities given up to their god of “muddle through.”

Conclusion

The situation confronting us is one of significant damage and destruction, where no forthcoming rescue for the officers and directors will or should be made. Why that isn’t clear to them is the same reason they never responded to their investors. The legacy and historical performance of the producers are now clearly recorded, diverging significantly from the optimistic portrayals depicted in their financial statements. The harsh reality is that the oil and gas sector, particularly influenced by the shale industry, has been marred by ineffective leadership and strategic failures. The producers’ officers, and directors have consistently demonstrated a lack of understanding and foresight, leading the industry down a path of destruction with their ineffective plans and strategies. Their lack of awareness and sophistication has become evident, as they have failed to identify and implement profitable operations despite decades of opportunities and others asking why? 

People, Ideas & Objects have long understood and now demonstrated that producers will not compensate us, as doing so would imply an admission of guilt. Acknowledging fault through payment is an action they seem incapable of considering. Thus, the conflict at hand extends beyond financial restitution to a fundamental decision about the future cultural direction of the industry. While we did not cause the industry's decline, the necessity to reconstruct it presents a choice between two competing visions, each advocating for a distinct cultural foundation on which to rebuild.

These Are Not the Leaders We're Looking For, Part XVI

 People, Ideas & Objects have set out an ambitious plan and strategy on how to put the oil & gas industry on a cultural foundation of preservation, performance and profitability. We understand the difficulty we face. The 33 years we have spent working toward this goal underscore the Preliminary Specifications vast scope and scale, highlighting the immense difficulty of the task. We believe that the value we provide industry is substantial and the issues we’ve sought to resolve in the development of the Preliminary Specification are the preeminent difficulties in the marketplace today. Clearly, People, Ideas & Objects have made some correct decisions. 

People, Ideas & Objects have earned the copyright and associated Intellectual Property rights from our work. We therefore can state that we’ll be the ones responsible for developing and implementing these technologies in oil & gas. We’ve built value through the implementation of Information Technology in oil & gas through innovative thinking in solving business issues for many decades. Officers and directors may be interested in sponsoring some alternative ideas of their own. However, it's been our experience that it takes the better part of a decade to go from a basic idea to a fully integrated, viable business model. Their difficulty is they’ll have to do so while avoiding the Preliminary Specifications Intellectual Property. What plan do they have?

We are not about to approach this software development, cultural and organizational change on the basis of a slimmed down budget. A task that may have difficulties that must be overcome. And to do so on the basis of the needs of others and specifically the producer officers and directors. People, Ideas & Objects earned the pedigree and heritage associated with knowing and understanding what was necessary decades ago. Built a viable business model, the Preliminary Specification, available since August 2012. Resolving the issues identified, however unresolved by these producers’ officers and directors. The multi-trillion dollar value proposition we asserted decades ago. Are now seen as manifested in actual trillion dollar revenue losses and damages to the industry due to officers and directors willful misconduct and neglect. Now that we’ve suffered and sacrificed to get to this point. Our value proposition is proven, we’re not going to take any water with our wine. The time for producers to have negotiated a better deal was a decade ago.

Tis’ the Season for Action

Now is the time of year when officers and directors speak to their shareholders in a different language. The language that soothes shareholders' anger of their past performance. It has been noted by People, Ideas & Objects that this is a temporary effect that expires quickly after the Annual General Meetings. At which time “muddle through” comes back into full effect. Today’s discussions of better managing the natural gas marketplace is new however. Stung by our presentation of $4 trillion in revenue losses from July 2007 to the end of 2023. They never expected to appear so out of touch and incompetent. A serious and consequential risk to the officers and directors if they do not choose to make the appropriate decisions in the immediate time period. The risk they could be sued for this lack of performance when they should have acted should be their preeminent concern. And therefore the only means in which to mitigate that risk is to develop the Preliminary Specification. Taking the steps necessary to correct the difficulties.

What evidence is there to show shareholders they were duped out of their value and upside by the officers and directors. Should officers and directors have listened to their shareholders after 2015 when they suspended all support for any additional equity investment? What more consequential action could their investors have taken? Just as People, Ideas & Objects were ignored for proposing the Preliminary Specification. Shareholder concerns were disregarded. Assets were wasted when oil & gas sold for well below the market price and actual costs. Creating losses that were papered over by claims of “building balance sheets” and “putting cash in the ground.” As ridiculous as these excuses sound, they're well remembered as the kind of verbiage that spewed out of the producers' boardrooms. Were these claims the cover story for their inaction?

LNG’s export market developed from 2016 forward. Exposing the global natural gas pricing model to the North American market. Did they not realize or care that the opportunity was available. Secondly, if they were aware of the opportunity, they proved in late 2023 that they did not know the basic business understanding necessary to bring about the value from those new markets. If this evidence isn’t disqualifying from the point of view of ending their tenure, I don’t know what would be. 

The primary purpose of the reorganization of the producer and industry in the Preliminary Specification is to institute production discipline on the only fair and reasonable method. If the property produces profitably, it produces. Otherwise it’s shut-in for future use. Maintaining its value and maximizing the producers current profitability. The aggravating aspect of this is we published the specification in August 2012 and originally began discussion of the decentralized production model in 2007. People, Ideas & Objects were ridiculed by those that are now responsible for at least $4 trillion in natural gas revenue losses since July 2007. Damages as a result of overproduction of oil & gas commodities. It is unclear how much oil prices have suffered at their hands. If they don’t understand their business to this extent there are few acceptable choices left for them. 

And They Call Themselves Leaders

We should collectively do them a favor. It was as little as three years ago they declared shale would never be commercial. Their frontier was clean energy and were transitioning to that. This being the one decision they made unilaterally. Taking the oil & gas revenues developed by their shareholders to fund investments in unrelated industries without the approval of their shareholders. All on the strength of the power of a press release. Those who were committed to shale, the service industry, engineers and geologists were rendered second class. Shale was no longer the future. This is the type of leadership at the helm of the industry?

Only to return when the prices of oil & natural gas were rising and they realized their mistake to pursue consolidation? We’re supposed to forget about these “mistakes.” Mistakes made while trillions of dollars are lost in a business they can’t manage, admit they can’t commercialize and saunter about looking for uncompetitive industries to invest in. What more proof is needed to show they’re incompetence? What more proof is needed to show they’re lack of focus and understanding of their own business? What more proof is needed to show their tenure must end. 

If anyone should suggest that producers have learned their lessons and seen the future and therefore will rise to meet these demands with action. I can only suggest getting off the drugs. Their culture of inaction is systemic, chronic, intractable and here to stay. It will not change, it can’t change and for anyone to think otherwise is lunacy. Too many chances have been afforded to the officers and directors and they have now formed an intractable culture around the expectation there will be no expectations of them. 

Organizational Dynamics

What we know through centuries of organizational economics is that “organizations don’t change, people do.” There is no future for the producer firms as currently constituted. Other than a slow and painful death. Serendipity, spontaneous order and creative destruction are the principles that brought much of the renewal to corporate America. These three change related forces are no longer valid for primarily two reasons. The role of software in our lives. To organize anything today demands software to define and support the organization in the processes and management. Without these being effectively managed and designed to accommodate organizational changes in a timely manner. Officers and directors such as those in oil & gas are able to maintain a vested interest in the status quo by never changing the software. The second is the legislation that enables firms to declare protection once failed in the form of bankruptcy and receivership reconfiguring their capital structure. As in, investors are kicked to the curb. 

Investors need to ask themselves what planning is currently being undertaken by their producer firm. Is it further dilution through consolidation, bankruptcy or solving these issues. I think they’ve acquired a good record of success through the bankruptcy process. Investors should therefore act before the officers and directors relieve them of their financial interests through bankruptcy.

Officers and directors Liability Insurance is null and void if failure can be proven to be a result of Wilful misconduct or even negligence. We’re in a quiet stasis at the moment, I don't expect that to last much longer. Officers and directors are the ones with the tools and the cash in this fight. It will be interesting to see how it all works out. It's not enough to just own the oil & gas asset anymore. It's also necessary to have access to the oil & gas software that makes the oil & gas asset profitable. 

Restating Our Call to Action

People, Ideas & Objects presents the Preliminary Specification as the essential framework for revitalizing the North American oil and gas sector, encompassing producer firms, the service industry, and the broader industry infrastructure. The prevailing status quo now threatens the sector's health and prosperity, demanding urgent action to dismantle the entrenched interests that prioritize self-preservation over collective well-being.

Investor Action

Investors must take decisive steps to remove these entrenched interests. The survival of the industry hinges on the willingness to champion change and invest in a future where preservation, performance, and profitability are paramount. It's time to demand accountability and advocate for strategic restructuring to safeguard their investments and the industry’s future.

Role of Officers and Directors

The responsibility also lies with the officers and directors, who must shift from defensive postures to proactive engagement with innovative strategies like the Preliminary Specification. Their historical preference for consolidation, despite regulatory challenges, and bankruptcy as solutions to performance pressures, undermines the industry's potential for genuine growth and profitability.

Shareholder Engagement

Shareholders find themselves at a crossroads, needing to assert their influence and interest in shaping the industry’s direction. The current path, characterized by temporary cash flow maintenance and strategic stagnation, is unsustainable. Shareholders must voice their expectations and demand a comprehensive strategy that aligns with the long-term health and profitability of the oil and gas sector.

In essence, the time for complacency and passive observation is over. All stakeholders, especially investors and shareholders, must actively engage in defining a new trajectory for the oil and gas industry, one that is aligned with the innovative and sustainable principles of the Preliminary Specification. The future of the industry is in their hands, and the actions taken today will determine its legacy for generations to come.

These Are Not the Leaders We're Looking For, Part XV

 A Contrast of Visions

My purpose in today’s post is to put across People, Ideas & Objects' vision as captured in our Preliminary Specification and to contrast that directly with what I’ve called the officers' and directors' 'muddle through' vision, offering a clear understanding of the two visions' readiness, willingness, and ability to satisfy the many stakeholders dependent on oil & gas.

Although biased towards our own solution. It is reasonable to conclude officers and directors have not articulated a vision beyond “muddle through.” Our analysis is therefore limited to that claim and its associated behavior that we’ve experienced at People, Ideas & Objects. 

Our Vision 

People, Ideas & Objects seeks to rebuild the industry, service industry, and producer firms based on a culture of preservation, performance, and profitability, providing the dynamic, innovative, accountable, and profitable oil & gas producer with the most profitable means of oil & gas operations. This vision permeates the fourteen modules of our Preliminary Specification, our user community and their service providers. 

People, Ideas & Objects culture consists of a foundation of seven Organizational Constructs that define and support our culture. These include the Joint Operating Committee, hyper-specialization and the division of labor, Professor Paul Romer’s Endogenous Technical Change, Intellectual Property, Information Technology, markets and innovation.

It is through this vision that we can see the next 25 years and the challenges that oil & gas faces. Turning a centralized, do nothing industry into a profit motivated one that can focus on the needs of the property and develop it in its most effective and efficient form. Where people are dynamic, innovative, accountable and profitable and driven to build value to generate the resources they need to expand their opportunities and horizons. Where the future is unknown, far riskier than what’s been experienced before. But most of all unquestionably the most challenging and in turn the most demanding and rewarding. 

“Muddle Through”

What officers and directors offer as their vision is the past. A past based on their share price performance. A performance that includes them crawling out of the sub-basements they’ve been dwelling in for decades. Now firmly entrenched in the basement, their recent upward performance is driven by the increase in the price of oil. Prices that have remained positive since April 2020 and prices we can attribute none of their increase to any specific action as a result of “muddle through.” Remember it is President Joe Biden who is limiting the industries ability to operate, therefore it is unreasonable for producers to claim any achievement when it is President Biden who is responsible for all of the historic development that occurred in oil & gas. This is the nature of the blame game officers and directors have involved themselves in for decades. If it’s the President's fault for stopping them, then it must be the President who is responsible for all the oil & gas exploration and production that came before. Taking responsibility is not the officers and directors forte. Is leaving the industries future in their hands now a fool's proposition?

Preservation

People, Ideas & Objects' objective of preservation is unique, steering clear of the traditional definitions of preservation and/or conservation, which have taken on a political point of view inconsistent with the commercial nature of the oil & gas industry. Ours seeks to build and maintain the capacities and capabilities of the industry to deliver to the consumer their energy needs. To pass on a viable, prosperous and commercial oil & gas industry to future generations. Establishing what we believe to be the evidence necessary to prove to those future generations that none of the oil & gas we used was wasted. As none of it was produced unprofitably and a viable industry was passed down to ensure subsequent generations have the means at their disposal. 

Oil & gas provide a unique value proposition to its consumers. Anywhere between 10 to 25 thousand man hours of mechanical labor is contained within each barrel of oil equivalent. Without oil & gas our standard of living would not exist in its most basic form. And therefore the preservation of the capacity and capability of the industry is a must from the point of view that the World’s most powerful economy must be self-sufficient through a dynamic, innovative, accountable and profitable industry. 

People, Ideas & Objects believe that producers should educate consumers about the cost and consumption of oil & gas. The value proposition provided is spectacular and this needs to be better understood for what it is, a limited resource of extreme value. When consumers understand the value of a viable, profitable and commercial industry. They’ll understand the cost of their standard of living is a necessity. And the more the resource is used, the more difficult and costly it is to produce. Oil & gas is on a unique and ever increasing cost trajectory. The easy stuff is gone, it will only get more difficult from here, and a prosperous industry will be necessary.

“Muddle Through”

To capture the greater commercial point of view in today’s officers' and directors' vision of 'muddle through' is difficult for me to see; other than that, everyone should show up tomorrow, and we’ll see if we can survive another day. That appears to me to be the full extent of what North American oil & gas producers' vision of the greater good consists of.

Performance

To be specific, People, Ideas & Objects' expectation of performance is that the oil & gas industry will compete in the capital markets at the higher ends of all other North American-based enterprises, a lofty goal considering where we stand in a world with so much uncertainty and potential being generated. There is one constant and that is the power for this economy comes from oil & gas. It is therefore foundational to our future and the foundation that has been established in the prior centuries. 

Shale oil & gas needs to be considered a rich endowment just as the heavy oil operations in Alberta are. It’s now time for a different approach. One that expands the opportunities throughout the industry, the tertiary industries and all those involved in making it happen. Including the corner store in the local town. Oil & gas is a primary industry. Meaning it captures the money that “trickles down” to the other industries. 

“Muddle Through”

Some may argue that the current producers are performant. And for that no one could argue. It just has been and continues to be an unacceptable measure of performance. With no vision, plans or desire to change. 

Profitability

What source of value, other than profitability, is there that can sustain the oil & gas industry? Other than 'beg, borrow, and steal,' profits are the only source of value that any firm can rely upon. Governments only tax the value generated by others. Banks loan the money they have on deposit and investors effectively invest their profits into new ventures. Profits are the surplus value generated from activities the firm’s involved in. The need to compete on a broader scale is necessary. Capital markets today provide far greater returns than what oil & gas has recently provided. The need to compete for capital and investors has to take this into consideration. Lower returns from oil & gas operations does not impute greater safety in terms of the investment. Over the past decade oil & gas has been the far riskier proposition. 

Therefore if the officers and directors were to understand that a profitable oil & gas producer. And profitable from the point of view of what real, incremental and competitive profits consist of. They would realize the amount of the resources and opportunities at their disposal would be limited by their imaginations. Or maybe their imaginations were fully engaged? 

The catch to achieving a profitable operation is fundamentally different from an organization that believes it generates value through the spending of investors money. Profitability is not for the faint of heart and can’t be obtained from a litany of excuses, blaming and viable scapegoats produced over the past decades. Investors are not disappointed with the officers and directors performance, they’re disgusted by them and have not accepted such since 2015. 

“Muddle Through”

No approach to production discipline for decades. Oil & gas is a boom / bust industry and there is nothing that can be done about it. Markets provide the commodity prices, producers have no choice but to accept. Besides “we’re profitable!” There is no doubt in officers and directors minds as to what they are going to do. And they’re not going to be working with People, Ideas & Objects.

These Are Not the Leaders We're Looking For, Part XIV

 A Call to Action

A direct call to action is needed. Every opportunity has been provided, yet none have been seized. Why has this proven so difficult? 

Investors 

Investors need to establish the oil & gas industry on the principles of preservation, performance, and profitability by funding the Preliminary Specification. They must choose and support the vision viable for the future.

Officers and directors 

Officers and directors need to accept responsibility and mitigate the risk they pose to shareholders of destroying considerable value and overlooking their waste.

Prospective user community member.

The license to the Preliminary Specification and its development will provide significant value to this critical community. Participation will pave the way for resolving industry issues and establishing a future, long-term role for each member.

What can and will be done in oil & gas has to happen and begin now. The market is becoming more unhinged and unpredictable as we proceed. Boom / bust will be accepted as the reason for the extreme volatility of the market. Volatility is the precursor to substantial market moves. Which direction it moves clearly does not matter. Either direction will lead to further chaos and the inability to function as an industry. That's one man's opinion, it’s time for others to make their opinions known too.

People, Ideas & Objects have highlighted many of the difficulties that are now apparent to most people in oil & gas. These have been the concerns of ours for some time and we have been able to act upon them to provide our solution, the Preliminary Specification. One of the distinct difficulties today is the persistent culture that is best captured in “muddle through.” It is a belief that given time, oil & gas will resume its prosperity and will make up for any difficulties being experienced today. It has fostered a culture of inaction and acceptance of loss as a common everyday occurrence that is of no concern. Working with this culture has not been an opportunity that People, Ideas & Objects have been provided. We were perceived as a threat to the status quo from the moment we published our Preliminary Research Report. What can now be seen as a benefit to us as we’re uncontaminated by the status quo.

The issues we’ll be discussing today are:

Culture & Industry Dynamics

• People, Ideas & Objects have consistently highlighted the prevalent difficulties in the oil & gas sector, advocating for a shift from the passive “muddle through” culture to one of preservation, performance, and profitability. The industry has failed to address these existential issues for decades, necessitating urgent action beyond mere press releases.

Information Technology Infrastructure

• The current IT infrastructure fails to support dynamic, innovative, accountable, and profitable oil & gas production. Individual producers' reliance on complex, outdated ERP systems has led to opaque organizational structures. Shared, industry based development and deployment through People, Ideas & Objects Cloud Administration & Accounting for Oil & Gas, which uses the Preliminary Specification, is the preferred cultural choice to “muddle through.”

Oil & Gas Commodity Markets

• The market dynamics of natural gas have become more global and complex, rendering old attitudes towards it as a mere byproduct of oil obsolete. The substantial financial losses due to pricing differentials highlight the urgency for a strategic reassessment, which the Preliminary Specification addresses.
• People, Ideas & Objects began documenting the value lost from natural gas price differentials on October 11, 2023. There is a distinct lack of urgency regarding the need to act on these issues. Natural gas prices averaged $2.59 in 2023. Substantially greater than 2024s prices. 2023 generated $464.5 billion in revenue losses, what does 2024 have in store. These are the issues that are addressed within today’s post.

Culture

People, Ideas & Objects Preliminary Specification proposes changes to the organization of producer firms and the industry itself. Taking the distinct competitive advantages of the producers and making those their primary concern. Whereas accounting and administration are organized on an industry basis to achieve two significant benefits not attainable from the current business model. Converting overhead to establish an industry based capacity, capability, and variable cost. Variable on the basis of profitable production. The second is to employ Professor Paul Romer's Non-Rival Cost theory to the development of these capabilities. Such as cloud computing provides the infrastructure available to conduct any computing for a small hourly charge. People, Ideas & Objects, our user community and service providers are eliminating the need for each producer to be concerned with developing and maintaining their accounting and administrative capacities and capabilities. Producers accounting and administrative resources are reorganized through hyper-specialization and division of labor and applied to the North American producers scope and scale. Establishing production discipline throughout North America, and enforced through the discipline of the capital markets. If a producer chooses to continue to lose money by overproducing, then their performance will be uncompetitive.

The culture we’re creating is designed to replace the inactive, non-participatory culture that exists today. Incurring losses on natural gas of $4 trillion since July 2007 must be an industry record that reflects this persistent culture. A time in which natural gas prices began to break down from their traditional heating value basis to the price of oil. Yet nothing was done despite this blog's first mention of our solution, the decentralized production model, on January 5, 2007. This culture is not only persistent, it is also defensive and known to treat disruptors harshly. Creating a climate of going along to get along. If People, Ideas & Objects were to fight this culture we would ultimately expire from exhaustion in the long run. 

Therefore our Preliminary Specification is based on establishing an alternative culture based on preservation, performance and profit. Providing the dynamic, innovative, accountable and profitable oil & gas producer with the most profitable means of oil & gas operations, everywhere and always. It has a cultural foundation of seven Organizational Constructs that define and support it through our ERP software, the Preliminary Specification. These constructs include the Joint Operating Committee, hyper-specialization and the division of labor, Professor Paul Romer’s Non-Rival Costs, Intellectual Property, Markets, Information Technology and Innovation. Without the software being built to define and support the producer organization in these cultural objectives, it will not otherwise happen in the 21st century. Serendipity, creative destruction and spontaneous order have been constrained by a firm's software definition and support of the status quo. If the officers and directors continue to choose and define the ERP systems used in the oil & gas industry, there will be no cultural change from what we see today. 

Industry Response

Recent actions by firms like Chesapeake Energy, which plans to suspend a portion of its production, reflect the broader industry's slow and politically complicated decision-making processes. These practices underscore the need for the systemic changes that the Preliminary Specification advocates.

The objective of removing 20% of Chesapeake’s production as previously reported may be as late as the end of the year. Involving only new wells being drilled. 

Claiming the shut-in production was using reserves for the purpose of storage. Returning the reservoir to production upon new demand as reflected in a higher price.

Looking toward the future where market expansion from LNG would influence prices. 

Planning to remove 20% of their production by the end of the year does little for today’s price. Who knows what price natural gas will be at during the end of the year. Or if it will be necessary to shut-in any production. What is evident are the capabilities of the producer firm are such that they’re too slow, too politically conflicted with the Joint Operating Committee and unable to discern where they earn their profit. Does shale gas not qualify as profitable? Or is it their Joint Operating Committees voting in majority not to shut-in. In either case it's a reflection that none of the necessary speed, dynamism, accountability and profitability is attainable with the current model. 

If the Joint Operating Committee is obstructing the process of shutting-in a property. Doesn’t that prove the key organizational construct of the Preliminary Specification is a bad choice to organize around? On the contrary if there is an inability to make these decisions in the Joint Operating Committee it reflects two issues. The division of operational decision making in the Joint Operating Committee and compliance in the operator firm, such as Chesapeake. A point that the Preliminary Specification reconciles by aligning the compliance and governance frameworks to the seven frameworks of the Joint Operating Committee. Which therefore increases accountability. Everyone will therefore know who made the decisions. And the extremely poor quality of any and all accounting information providing differing performance metrics will cease. 

Competing Visions and the Path Forward

The contrasting visions between current industry practices and the transformative approach of People, Ideas & Objects highlight the critical need for reform. The Preliminary Specification offers a structured, innovative, and legally compliant framework to guide the industry towards sustainable profitability and growth.

People, Ideas & Objects vision includes seven Organizational Constructs as a foundation of the culture we seek to establish in the industry. Where people who work within the greater oil & gas economic structure can understand and imply the cause and effect of what their disposition and action should be. 

Joint Operating Committee and its Seven Frameworks

Where the Joint Operating Committee, which is the industry standard for joint operations and partnerships. Its frameworks consist of the legal, financial, operational decision making, cultural, communication, strategic and innovation framework of the industry. Aligning compliance and governance frameworks of the producer firms with the seven frameworks of the Joint Operating Committee will bring about speed, accountability and profitability. Will consolidated producers continue with this conflict between compliance and operational decision making? Sacrificing accountability for another generation?

Markets

The Preliminary Specification has three modules that define and support markets. The Petroleum Lease, Financial and Resource Marketplace modules. Market participants or consolidated producers are the two choices being offered through these competing visions. Every industry since the development of the Internet has been subject to decentralization, disintermediation and released the power of the market economy. Only the status quo has stood in the way of this progress, as it does today against People, Ideas & Objects Preliminary Specification. Will continued consolidation of producers provide any value generating capabilities, and if so how?

Specialization and Division of Labor

Specialization and the division of labor have been credited with all incremental value generated since they were developed by Adam Smith in 1776. His research in a pin manufacturer increased productivity 240 times through the division of labor, specialization and mechanization. We stand at a point where automation can contribute to the economy in terms of productivity as the maturity of Information Technology is available and the Preliminary Specification has adopted it.

Hyperspecialization is at hand to augment these developments on an industry-wide scale, and are inappropriate within the producer firm. Hyper-specialization is defined in this Harvard Business Review article. Can consolidated producer firms apply hyper-specialization across their domain to reap any value or benefit?

Endogenous Technical Change or Non-Rival Costs

Building off of the tremendous value generation possible from specialization and division of labor is Professor Paul Romer’s Endogenous Technical Change. The sharing of Non-Rival Costs such as Cloud Computing provide massive incremental value generation to its users at cost metrics that were unheard of otherwise are shared. It is here that People, Ideas & Objects apply these three cultural influences to reorganize the administrative and accounting resources under the Cloud Administrative & Accounting for Oil & Gas software and service which provides the Preliminary Specification. Eliminating the time, effort and cost of each individual producer building and maintaining the dedicated accounting and administrative capacities and capabilities in each firm. Slashing overhead costs in the process. While at the same time offering them as a variable cost based on profitable production. What will today’s culture provide?

Innovation

To unanimously declare themselves innovative is the common theme that officers and directors have a propensity to do. Yet I am unable to identify one development from them. Shale is the result of the service industry, and only after decades of knocking on producers' doors in an attempt to have them try their technologies. Would an industry that declares itself innovative be surprised by the $4 trillion natural gas revenue losses People, Ideas & Objects documented? Or have basic business principles such as “free on board” or “netback pricing” be finally understood after the fact? There can be no claim to innovativeness when people who seek to provide greater profitability are subject to ridicule and abuse for 33 years. People who are providing solutions to serious difficulties in the industry.

People, Ideas & Objects Preliminary Specification is structured to identify and support innovative producers and service industry organizations. There are also mechanisms for the structure of innovation across the industry. Innovation is not happenstance. It is a deliberate process that is inherent from the structure of the organization. Without this structure organizations have confusion and waste. Has the current culture identified any of these issues at this point?

Intellectual Property

Poaching of another's Intellectual Property in the 21st century is theft. It’s been theft since the U.S. The Constitution includes some form of copyright protection since 1790. However, the vested interests are now on the side of those who own the Intellectual Property. And the Wild West in terms of ownership determination is over. The term I use for what I believe occurred in the 1990s. The Wild West determined IP ownership based on the size of the armament and the amount of ammunition one carried. Professor Richard Langlois wrote in his 2023 book "The Corporation and the Twentieth Century: The History of American Business Enterprise."

Producers will need to leave behind their wild west ways and begin dealing with Intellectual Property in the manner that is consistent with the law. Otherwise no one who owns any Intellectual Property (IP) will deal with them as they’ll believe their IP will be placed in jeopardy by officers and directors. 

The Intellectual Property legal structure that is inherited is valuable for oil & gas. It provides two strong cultural influences. It ensures that those that want to break their back or their brain will be protected and compensated for their work. Producers will no longer be able to take the outcome from that work and pass it to the developers' competitors in order to sponsor price competition. 

It eliminates the redundant and wasteful doubling and tripling of the same research each and every year. If the legacy of the product or service is published, a requirement, then it will be available for all to see and hire who owns that IP. Reducing the “me too” copycats that pollute the marketplace having incurred no research costs or any of the skills involved in research. 

Providing value for the inventor and less waste when people are able to focus on their developments for the long term without fear of loss. Is the current oil & gas culture's approach to poaching IP sustainable? How will the oil & gas industry solve the challenging and difficult issues that stand before it? If those individuals who develop the innovative products and services have their customers, the producers, render them as simple price based competitors. As is done today, how does the consolidation model solve this critical issue?

Information Technology

Value exists in the infrastructure of Information Technology today. The Internet of Things, ERP systems, automation and a host of other proven value-adding technologies are in the market today. Producers, from an accounting perspective are in the dark ages, or at best the era just after the dark ages. These technologies define the structure of the organization and reinforce the policies and procedures that an organization stands upon. 

To leave oil & gas producers in the condition that stands today will ensure the trillions of dollars wasted so far is only a beginning. I’ve often commented that the lack of accountability in the industry is purposeful to obscure the performance of the producers. And in 2023, the lack of accountability began proving to be the case. As it appears now that even officers and directors are unable to grasp the depth of their difficulties due to the opaque nature of their organizations.

Conclusion

Officers and directors will need to justify their vision based on their performance, their consolidated vision and literally the age of their fax machine. Whether it can continue to operate for much longer and provide value to a disbelieving investor community and public. Average natural gas revenue losses are in excess of $45 billion dollars per month in 2024. Far greater than People, Ideas & Objects development fee, making the Preliminary Specification the greatest value for money officers and directors could invest.

Conversely People, Ideas & Objects is far reaching and includes as critical elements these Organizational Constructs that make up its cultural foundation. Giving everyone in the industry an intuitive framework of how, what and why the industry needs from them. A culture that will be supported through the software we build, our user community designs and heads up in their service provider organizations that deliver our product and their service to producer firms. 

Producers current Information Technology infrastructure is incapable of delivering on the promise of technology that is revolutionizing many disintermediated industries today. People, Ideas & Objects perceive the individual “Rube Goldberg” ERP systems being maintained in each producer firm as unsustainable. Officers and directors will claim that our scope and scale are too large to undertake. We agree that remedying trillions of dollars in waste will be a challenge. However, the scope of what we are undertaking in development of the Preliminary Specification is otherwise what would be necessary for each and every producer to bring their “Rube Goldberg” ERP systems into the 21 century operational infrastructure. And we see that as costly, but mostly just more waste. 

Disintermediation introduces new business models that fundamentally transform the performance of an organization and industry. It is time for oil & gas to undertake this process by adopting the Preliminary Specification. What I particularly don’t understand is the reason that a fax machine and random press releases have the ability to circumvent these principles People, Ideas & Objects put forward. Our ERP software competitors are constrained by the second hand shoestring budgets these officers and directors provide. Ensuring they never attain an acceptable level of accountability within the producer firms. Our competitors never had a chance to correct the difficulties producers were facing.

These two competing visions need to be resolved for the future of the industry. It is evident to all concerned based on the numerous issues People, Ideas & Objects have raised and the scale of the damage we’ve documented. How these issues were easily mitigated if producers listened to their investors beginning in 2015. Accepted a solution that has been in the market space since August 2012. 

Looking for solid ground to stand upon with the current officers and directors is difficult when the positions shift so frequently and violently. The press releases issued to set the record straight are being written every minute of every day. Yet no one makes the critical changes necessary to address the underlying issues. An industry that produces paper in the form of specious financial statements in a highly competitive game of who’s got the biggest balance sheet. A vision of the future you are guaranteed with the current producers. One that I clearly don’t see any value keeping. 

An untenable situation that needs action. If the officers and directors can continue for the next few months without any disruption in their tenure. They’ll be there for as long as they want. They’ll be intractable and immovable. Knowing that there is nothing that anyone will be able to do about their continued administrations.