People, Ideas & Objects Campaign Report, Part II

 We've been discussing the insurance policy that People, Ideas & Objects offer to those responsible in the industry—a contingency plan to establish an alternative means of organization and operation in case the current administration fails further. This failure has been ongoing for at least a decade. Progress is not linear, and unfortunately, neither is failure. While we stand on the shoulders of giants, we've neglected to advance further, leaving issues unresolved for too long. Future opportunities are now beyond our reach, necessitating a rebuilding of infrastructure capacities and capabilities as a priority.

People, Ideas & Objects have campaigned to persuade industry officers and directors to adopt the Preliminary Specification, aiming to reconfigure the oil & gas industry around a culture of preservation, performance, and profitability. However, producer officers and directors denied any need for such changes and proceeded with their own consolidation plans. We wish them well, understanding that they likely feel the same about People, Ideas & Objects. If nothing else, our Campaign Report Part I identified the issues, highlighted the inadequate approaches taken to resolve them, and exposed the fundamental lack of business understanding that caused these problems in the first place. This has been quite revealing regarding the quality of the current leadership in the oil & gas industry.

The Other Insurance

Our campaign has now firmly placed officers and directors on record regarding the industry's issues, their severity, the resolution we offer, and the time frame within which these problems must be addressed. The potential loss of revenues and assets, amounting to $40 billion per month or more, should be a significant motivator for them to act. Failure to act promptly exposes them to personal jeopardy, as their mismanagement could lead to shareholder litigation, putting their personal assets at risk to cover the shortfall investors should have realized. Regardless of whether officers and directors were previously aware of this risk, they are now legally held to the standard of awareness and should be fully aware of the situation following our campaign.

Consolidation, like most industry initiatives this century, is already showing signs of failure. One major issue that People, Ideas & Objects have highlighted is the extinguishing of motivation and initiative due to the current leadership. From producer investors to the service industry, nothing will happen while the current leadership continues. The failures of consolidation are evident in layoffs at Chesapeake, where people now recognize that the boom/bust cycle offers no stability for a future career. Nitro, a startup in the service industry, declared bankruptcy because it relied heavily on revenue from one producer that was consolidated and no longer available. Knowing of the prior treatment the service industry received from an unconsolidated industry, who will venture into a consolidated industry where each producer wields more power over the future of each field organization's prospects. This will further stunt the future industry development in terms of technical advancements and innovation.

Producers’ assertion that consolidation will solve the issues they created is invalid in the long run. The shift to declare shale uncommercial and move to clean energy lasted almost two years before they realized oil & gas revenues were essential. If they truly believed in clean energy, they should have quit their positions, started a new venture, and taken the necessary risks. Consolidation is reminiscent of the old Soviet Union, where motivation was driven by fear and intimidation. However, today's officers and directors lack the military or other means to instill the necessary fear to drive a productive oil & gas industry. Their alleged collusion has been discovered, tarnishing the industry's reputation for another generation.

Efforts to mitigate the damages caused by consolidation will fail, as everyone intuitively understands. Attempts to convince their Officers and Directors Liabilities Insurance providers will also fail, as these providers have no reason to cover them when they are likely to be found liable of willful misconduct. This liability is a result of their inactions, despite shareholder concerns since 2015. They never entertained People, Ideas & Objects as a solution, available since August 2012. This indicates they will ride the situation to its lowest point, extracting what they can before the collapse becomes too obvious. 

And 

These two graphs from the May 23, 2024, EIA Natural Gas Weekly Report raise the question of how correlated they are. We are definitely behind the curve in terms of the industry's deliverability, capacities and capabilities. Is the flattening of shale production suggesting producers are finally learning that shutting in production when prices are desperately low is the right action? I can assure you that any production that may have been recently shut-in was purely routine maintenance and has returned. Natural gas prices are not profitable in any sense of the term. Unprofitable production is the same as overproduction. Sustained oil & gas overproduction has gutted all the value from the industry, and it’s now incapable of maintaining its productive capacity.

Artificial Intelligence

The value of Artificial Intelligence (AI) is continually evolving. AI excels in performing specific tasks and assisting people with their work, and its potential will keep expanding. However, the oil and gas industry requires more than just personal task management and productivity enhancements typically associated with AI. In terms of productivity and scientific advancements, AI could become as revolutionary as the Internet. These are indeed transformative times.

People, Ideas & Objects hold distinct competitive advantages in Intellectual Property (IP), research, and our user community. We are discovering that AI significantly enhances the value of our IP. We've documented that IP will be crucial for individuals to remain employed in the near future. While skills and education are essential, they often fall under the category of tacit knowledge. IP of explicit knowledge, on the other hand, can be directly owned, licensed (as our user community members do), or through working for those who own or are licensed in some form of IP. Any of these three methods enable the leverage of IP through AI, making AI the ultimate "killer app."

Another perspective we hold is that AI is now the "app killer." Since the release of ChatGPT 4.0 last year, the number of apps I use has diminished significantly. When tasks can be accomplished more easily and effectively than the best app could previously manage, the need for those apps diminishes. Moreover, why subscribe to an app when AI does it better? With the release of ChatGPT 4.o, I've pleasantly retired Siri to history.

At this point, People, Ideas & Objects can assert that the most valuable asset is the underlying Intellectual Property (IP) of a solution. Unlike other assets, IP cannot be easily replaced by Artificial Intelligence providing a superior alternative. Software will continue to drive progress in every industry, whether dealing with tangible or intangible products. For People, Ideas & Objects, it's not the oil & gas asset itself that holds value today; it's the software that makes these assets profitable. Without robust IP to protect our applications from AI encroachment, we risk becoming obsolete, much like Siri has become.

People, Ideas & Objects focus on addressing business issues in oil and gas. We utilize Information Technology to resolve these issues by automating business processes and reorganizing both producer firms and the industry itself. While our efforts extend beyond AI, AI will have a significant impact within our Preliminary Specification, especially through our Artificial Intelligence module. This module consolidates the industry's AI efforts into developing business algorithms and creating a generic AI base across the industry. Producers can then leverage this AI base to advance their applications for their Joint Operating Committees or producer data within the Preliminary Specification. By using Professor Paul Romer's concept of non-rival goods, we can defer the heavy costs of each producer developing the AI infrastructure, competing for scarce resources, and failing to collaborate on a broad enough scale to maintain appropriate focus.

Currently, the business data within the industry is inconsistent and aggregated with workarounds like overhead allowances that estimate what might be correct. Comprehensive analysis and systems engineering are necessary to establish the industry's needs and build processes based on actual data elements. This foundational step is essential for the industry to make the data usable in the future. Our user community's role is to analyze, input, and maintain these requirements, providing producers with the tools they need. This establishes a permanent software development capability, starting with properly organizing and managing enterprise data. When data is conflicted, unstructured, and unreachable due to being recorded in multiple locations, AI will never help the producer organization derive any value from it.

Managing resources and processes to focus organizations on profitability and value is crucial. This involves stripping the producer firm down to its key competitive advantages—land & asset base, and earth science & engineering capacities and capabilities. Administrative and accounting resources are removed from the producer firms and reorganized into our user community-owned and operated service providers, who hyper-specialize in one process and apply it across the industry. Using hyper-specialization, division of labor, and automation in a shared infrastructure brings enhanced productivity, speed, standardized and objective accounting, turns all producer costs variable (including overhead costs), and focuses these on producer profitability. Only through a fundamental reorganization of the industry and producer firms can the current business issues be effectively addressed.

Conclusion to these Consequences

We often hear producers emphasize their reserves and their ambition to expand and "grow" them through consolidation. This reflects a myopic focus on reserves as the industry's holy grail. By now, it may seem redundant to state that these reserves are useless in their hands. If producers cannot extract them profitably—in the true sense of profitability—then those reserves are better left untouched. Extracting them at a financial loss is a misguided venture. For decades, these producers have persisted in their flawed methods, causing immeasurable losses and damage to the industry.

Their Officers and Directors Liability Insurance risks are substantial. They have not taken necessary steps to mitigate obvious issues, and the industry's landscape increasingly reflects the desolate nature of current administration by officers and directors. It appears they are willing to take this risk, and their chosen method of consolidation is beginning to show its fallout.

In contrast, while we do not solely rely on Information Technology to provide value, People, Ideas & Objects focus on business and organizational issues that can generate real value for producers and the industry. The IT infrastructure, possibly mirrored in the AI infrastructure, is mature. As the rest of the world accelerates in performance and quality, the oil and gas industry clings to its outdated practices. They insist on giving failed methods one more try, despite over four decades of evidence showing they do not work. People, Ideas & Objects provide for the most profitable means of oil & gas operations, everywhere and always. What does their lack of concern for profitability reflect?

Our Value Proposition: Joint Operating Committee

 Once People, Ideas & Objects' Preliminary Specification aligns the seven frameworks of the Joint Operating Committee with the corporation's compliance and governance frameworks, it creates synergy and alignment across all industry and producer processes. Partnerships have been essential since the industry's inception and will continue to be so until its end. The Joint Operating Committee is the industry's standard for organizing partnerships, with a comprehensive understanding reflected in Operating Procedures and Accounting Procedures. These procedures are maintained by independent industry associations that publish and study the methods necessary for operating a partnership in oil and gas.

In our Preliminary Research Report, People, Ideas & Objects hypothesized that the introduction of computers in the 1960s caused a divergence between the accounting and administration perspectives and the operations perspectives of firms. Accounting and administration became focused on the information capabilities of computers, while operations remained centered on partnerships as represented by the Joint Operating Committees. This divergence was exacerbated by tax regimes, regulations, and SEC requirements, which directed the attention of accounting and administration towards the corporation rather than the business operations within the Joint Operating Committees. As a result, the operational information captured at the property level by accounting is now often inadequate for decision-making, which instead relies primarily on independent reserves reports.

Value or Construct?

Does making the Joint Operating Committee the key Organizational Construct of the Preliminary Specification qualify as part of our value proposition? If so, how?

We believe it does. A producer firm has to balance two different organizational focuses and objectives. The technical side is centered on the business of the business, while the rest of the firm is focused on regulatory requirements, reporting, corporate compliance and governance demands.

The first issue involves data inconsistency. Producers often see the same or similar data captured across different parts of the organization, but the data is inconsistent. The needs and requirements for data vary, particularly when it comes to production-related data. For instance, is the data monthly or daily, gross or net, spec or raw, natural gas or oil, actual or accrual, nominated or produced, sold or inventoried? What’s the chromatograph on that stream? These complexities often lead to confusion and inefficiency, as highlighted by the common response, “I just want the number we get off that monthly fax from such and such. I don’t know what number it means. I was told to use it when I started this job.” This situation is unfortunate and needs to be remedied. Production-related data is complex, difficult to manage, labor-intensive, and subject to numerous amendments and accruals, typically finalized within 60 to 90 days after the production month closes. People, Ideas & Objects believe there has to be a better way.

Therefore, we developed the Material Balance Report, part of both our Partnership Accounting and Accounting Voucher modules. The Material Balance Report standardizes the reporting of production to establish certain objectives. First, the volumetric balance is subject to the same rigor as debits and credits in the financial system. Second, it ensures volumetric balance within the partnership itself. All aspects of every production transaction are contractually defined and secured through agreements. Third, the report will be system-balanced and reconciled in terms of the larger system of industry production.

Different users need different perspectives and uses of the data. This is achieved through the Preliminary Specification Material Balance Report. E.F. Codd’s Relational Theory shows that different uses of the same data are one of the attributes of relational databases. Engineering the Material Balance Report as People, Ideas & Objects suggest provides the means to identify and accommodate these different uses. When we consider technologies, such as the Internet of Things, that are just beyond the grasp of what’s available today, and understand that the purpose of the Material Balance Report is to automate follow-on processes from the production data being generated, we can see how oil & gas employees can alleviate themselves from the tedium of manual processes. They can then invest time in capturing their tacit and explicit knowledge in the software and services of Cloud Administration & Accounting for Oil & Gas, focusing on the difficult, time-consuming, and critical work needed to make the industry dynamic, innovative, accountable, and profitable. This approach keeps the industry moving forward and achieves what we know must be done.

But a Rebuilding?

Why discard everything when some aspects are still functional? People, Ideas & Objects believe that North American oil & gas producers are currently operating at about 25% of what would be considered competitive. The industry has spent decades considering spending as inherently profitable, leading to homogeneous and indistinguishable financial statements across producers. These statements typically feature large property, plant, and equipment, minimal working capital, high debt levels, overstated assets, and shareholders who face diluted interests and fake profitability.

If the industry believes it is prepared to tackle the next 25 years with the current structure and leadership, this perception is misguided. The endowment of shale resources is beneficial, but rebuilding the service industry is crucial. The service industry, mistreated for decades, will require long-term proof and free industry cash to support their rebuilding efforts.

Our research taught us that when compliance and governance are aligned with operational decision-making, accountability results. This is intuitively understood. We believe this to be a source of conflict throughout the oil & gas industry, creating an atmosphere and culture of unaccountable decision-making. The contradiction occurs when operators assume the responsibility of managing the Joint Operating Committee. This is based on the need to have the requisite capabilities available to conduct necessary field operations. The Joint Operating Committee holds operational decision-making authority, which is then delegated in the Operating Procedure to an operator based on voting by its producer participants. A threshold percentage is established for any decision to pass. Let's assume 60% is required for approval, and the operator has a 33% working interest. Decisions are then made on this basis, AFE’s are issued, funds are spent, and the initiative fails. Who’s responsible and accountable for the difficulties—the operator or the Joint Operating Committee? 

We believe this to be the root cause of a related issue we identified in our discussion regarding Specialization and the Division of Labor. When producers have never been held accountable for day-to-day individual field decisions during their tenure, why would they be held accountable for decisions when they’ve assumed officer or director roles in the firm? Just “muddle through.” The industry culture developed over the past six decades underpins this unaccountability. In its place, a culture of excuses, blaming, and the generation of what we call viable scapegoats has emerged. To resolve this, the Preliminary Specification aligns and implements the Compliance & Governance module to the operational decision-making framework of the Joint Operating Committee, establishing an organizational culture of accountability for decisions.

The next point is related to the accountability issue and to other issues around resource restrictions in the earth science & engineering technical resource supply. Professor Richard N. Langlois was an extensive source of primary research we used throughout the Preliminary Specification. His research in industrial and innovation economics raises what he calls the agency issue or rights assignment problem in his working paper “Modularity in Technology and Organization.”

The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? 

Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) who point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). p. 27.

Moving the decision rights to where the knowledge exists was the appropriate decision to be made in the 1950s. However, this is inadequate today due to the difficulty for the producer as operator to maintain the full suite of just-in-time engineering and geological capacities and capabilities in the ever-expanding sciences. The solution therefore is specialization and the division of labor, which only exacerbates the difficulties and demands more from the operator. People, Ideas & Objects suggest we’ll soon reach the point where these capacities and capabilities will grow beyond what the commercial producer can support. Our solution to replace the operator definition is called Pooling.

Therefore, what rebuilding will be done? The current administration doesn’t understand there are issues. They wouldn’t know how to correct them, nor how to fix them. Consolidation is the principle they’ve hitched their wagon to, and already it's having severe consequences for both the service industry and the people who work there and in oil & gas. The only other alternative is the Preliminary Specification, designed specifically to rebuild the industry on these issues, as detailed in May 2004's Preliminary Research Report. The Preliminary Specification, published in August 2012, offers our solution: rebuilding the industry on the basis of a new culture of preservation, performance, and profitability.

The Joint Operating Committee 

Identifying, supporting, and aligning producers' processes within the Joint Operating Committee provides real value to producer firms, enhancing their performance and enabling progress in an industry that has at best stalled at a critical point in its history. People, Ideas & Objects don't believe consolidation is the answer and offer the Preliminary Specification as an insurance policy in case of its failure. Today, half of the producer firm utilizes the Joint Operating Committee. The engineering and earth sciences are deeply rooted in the traditions and culture of the industry's partnerships. However, they operate without the support of accounting information tailored to the oil & gas business, which instead caters to external interests like tax authorities, the SEC, and regulators. These external entities understand the communicated corporate related data because they define it, but engineering and earth science professionals are unaware of the flexibility and value of performance reporting that can help them determine what works and what doesn't. For four decades, they've been told that spending money is profitable—”just look at the balance sheet and income statement!”

Unaware of which property is profitable and which is not, they cannot determine where and why they may be losing money. They don't understand the financial impact of any actions taken or what measures can mitigate issues. They live by two truths: spending is profitable, and field costs need to be pared down.

Aligning the corporation’s compliance and governance frameworks with the Joint Operating Committees legal, financial, operational decision-making, cultural, communication, innovation, and strategic frameworks resolves the issue of “two separate organizations” operating within the producer firms. Although the value in doing so is inherent in the alignment, the quantifiable benefits are incalculable. Starting with the same actual, factual, balanced, and reconciled data used throughout the organization, the People, Ideas & Objects user community can make changes to the software to accommodate innovation. This reduces the redundant, costly, and non-competitive tasks of each producer building and maintaining accounting, administrative, and systems capacities and capabilities.

Focusing the culture of the rebuilt oil & gas producer around the Joint Operating Committee centers the focus on individual assets and their performance. There will be no ambiguity about the financial consequences of any action taken when actual, factual, standard, and objective accounting is conducted through the Cloud Administration & Accounting for Oil & Gas. This provides an understanding of these changes. All modules of the Preliminary Specification focus on the Joint Operating Committee. Engineers will be able to prepare pro forma financial statements based on their planned changes. They'll have access to the Artificial Intelligence, Performance Management, Resource Marketplace, Research & Capabilities, and Knowledge & Learning modules focused on the same Joint Operating Committee or whatever domain they define. The alignment of the financial and operational domains of oil & gas producers should have occurred long ago. We’ll soon discuss why this hasn’t happened and how it has contributed to the industry's downfall.

Conclusion

The concept of alignment may have been popular among technology enthusiasts a decade ago, but many such initiatives failed to deliver the promised business value. At People, Ideas & Objects, we address business issues by enhancing productivity and performance through specialization and the division of labor, supported by automation. This approach can significantly impact the industry's performance if the internal conflicts within organizations are eliminated. The current structure of having two distinct organizations within one firm creates independent silos working against each other, and consolidation only entrenches and prolongs these issues.

NVIDIA will soon breach a $3 trillion valuation. Tesla doesn’t appear too far behind if I’m reading what their future may look like. What we can say today is that Information Technology is mature in terms of its offering. As an investment it’s behavior is similarly mature. There are more exciting and dynamic industries to be involved in. The value that is being generated remains spectacular and will continue to the foreseeable future. What we have in North American oil & gas is analogous to an individual who’s been living in a homeless shelter for a few decades. Scratching out a living between the free food and currency they can get their hands on. On the periphery there are a group of people who are doing quite well through their schemes and manipulations of those less fortunate. But outside of this dystopian landscape the industry has been there so long that no one expects anything of it. Clean energy, yeah sure why not. Consolidation, yeah why not. Name me one initiative in the industry that has worked in the 21st century. And don’t mention shale, a resource known to always be there, a resource that is only produced as a result of the innovations that the service industry developed in order to access those reserves. Innovations the producers fought the service industry for years before they even tried them. Just as People, Ideas & Objects fight them daily for the past decades to enhance their profitability. What galaxy are these officers and directors from?

The future we envision is a highly competitive oil & gas industry thriving in North American capital markets. Consolidation, as a strategy, merely seeks to manage inefficiencies on a larger scale. In contrast, People, Ideas & Objects see immense potential in this industry. The path forward lies in embracing our Preliminary Specification, fostering a culture where the industry is dynamic, innovative, accountable and profitable. Leveraging specialization and automation to unlock the true value and competitiveness of North American oil & gas.

People, Ideas & Objects Campaign Report, Part I

 People, Ideas & Objects have acknowledged that our campaign from October 2023 to May 2024 was misguided. We now realize that our approach was unreasonable from the start. Expecting a decision to replace the established oil & gas organization with the Preliminary Specifications vaporware, despite its quality, was unrealistic. This insight is the main takeaway from our campaign. We have always known that officers and directors are unlikely to change. What we perceived as their obstinance was actually our own unreasonable belief that such a switch to the Preliminary Specification would be considered in a reasonable world.

The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.

George Bernard Shaw

Moving forward, our approach will evolve. We will highlight the deficiencies and failures of the current system to contrast and promote our solution. By offering the Preliminary Specification as an alternative in the marketplace of ideas, we aim to secure the need for change. The need in the marketplace is becoming apparent to others, suggesting that our strategy might be appropriate. However, while this might address some timing challenges in our product development and delivery, it does not fully resolve them. The industry's needs are evolving rapidly and will remain pressing in the near future. Offering an insurance policy in the form of an alternative at hand is our objective.

Highlights of Our Campaign

The issues we raised during our campaign turned out to be the key deliverable. There are many serious, and what People, Ideas & Objects suggest existential, issues facing the industry. These issues have been systemic for decades, arising from a myriad of reasons. None of these have begun to be addressed since our Preliminary Specification entered the marketplace in August 2012. Over time, these issues have become material, with significant financial consequences for all producers in the North American oil & gas industry.

Pricing of Oil & Natural Gas

People, Ideas & Objects have documented that both oil and gas have been overproduced since the late 1970s. The first significant evidence of this was the oil price collapse in 1986. After the 2009 financial crisis, producers began overproducing natural gas at volumes exceeding previous levels. This overproduction was driven by the prolific nature of shale and the industry's outdated view that natural gas is merely a byproduct of oil. People, Ideas & Objects challenges this perspective, arguing that the severe financial consequences of overproduction demonstrate that natural gas is not a mere byproduct.

Following the 2009 financial crisis, overproduction of natural gas intensified, causing its price to collapse far beyond the traditional 6 to 1 heating value ratio compared to oil. By 2024, this ratio had soared to as high as 50 to 1, reflecting the extent of overproduction from shale development. People, Ideas & Objects calculated the difference between the natural gas revenue the industry should have realized at the 6 to 1 ratio and the actual discounted revenue. The total loss amounts to $4.1 trillion, with realized revenues during the shale gas production period totaling approximately $3.253 trillion. This represents the loss of the commercial value of 764.8 TCF of natural gas, reinforcing that natural gas is not a byproduct.

The waste of assets in North American natural gas is unparalleled. Trillions of dollars and trillion of cubic feet of gas have been squandered, while industry leaders maintained that only they could understand and manage oil and gas operations. These executives, enjoying what People, Ideas & Objects describes as “creative executive compensation,” perpetuated their mythology with a lavish lifestyle, ignoring external advice.

Investors, frustrated with poor returns and performance, began withholding financial support from producers in 2015. This drastic measure, typically the last resort for shareholders, should have prompted firms to address shareholder concerns. However, nine years later, no substantial action has been taken, suggesting the message from investors has been ignored.

People, Ideas & Objects have proposed a solution through our Cloud Administration & Accounting for Oil & Gas software and service, which introduces a process of disintermediation to focus on a culture of preservation, performance and profitability. Despite the clear need for change, this solution has been overlooked since 2012, during which the majority of the $4.1 trillion in waste occurred. Similar waste likely exists in the oil sector, though it is harder to quantify the true value of a barrel of oil. Given that oil & gas provide significant mechanical leverage, it remains one of the world's most valuable resources, essential to our advanced economy, political influence and way of life.

LNG

The revelation that North American producers failed to benefit from the development of LNG export markets is shocking. Since 2016, U.S. LNG exports have grown to 12-14 BCF/day, representing approximately 12-14 percent of U.S. natural gas production. This growth allowed entities outside the industry to purchase inexpensive onshore natural gas, ship it free on board to Europe and Asia, and sell it for up to five times its cost.

Producers were initially unaware of this opportunity and the associated business terminology until we highlighted the issue. This prompted a rush among many producers to secure long-term LNG facility contracts, aiming to sell their natural gas at North American export prices and capture the “global” natural gas prices in Asia and Europe. These contracts also presented a chance to establish commercial natural gas prices in North America. By late 2023, numerous LNG facility contracts were announced. However, existing long-term contracts held by external parties locked producers out of operational LNG facilities, including those under construction and some awaiting regulatory approval. As a result, producers ended up signing contracts for non-existent LNG facilities, ones not under construction, not approved by regulators, and merely conceptualized on entrepreneurs' desks.

We began discussing this issue in early October 2023. The market’s rapid action stemmed from significant monetary deficiencies and the previous recklessness of officers and directors. By late December, the Biden administration recognized that this situation conflicted with their policies, leading the president to declare a halt on further LNG facility approvals by regulators, thereby closing off the opportunities that officers and directors sought to secure.

How was the opportunity to establish North American natural gas pricing based on global prices actively avoided? For years, producers touted the value of LNG exports but did not realize any incremental value. They essentially gave away their gas at substantial discounts compared to the sales prices realized by others soon after purchase. This promotion of LNG was hollow, resembling little more than a parade of officers and directors lining up behind CEOs, who, as parade marshals, boasted their accomplishments with “big, beautiful balance sheets.”

There is only one method left for the producers to eliminate the value being siphoned off by others. To implement the Preliminary Specification across North America and assure that all natural gas is produced profitably everywhere and always. That way the margins being realized by those with the existing LNG contracts will find that what was once a profitable business will become risky and marginal. 

Chronic Lack Of Profitability

Chronically low oil and gas prices, punctuated by occasional collapses and even negative prices, have led to repeated boom-and-bust cycles in the oil and gas industry. People, Ideas & Objects view these cycles as unnecessary, especially considering that oil and gas are scarce resources that must be managed responsibly for future generations. This requires ensuring that these resources are produced profitably, always and everywhere, based on an accurate and timely accounting. An accounting that understands that a capital intensive industry's products will generally pass their costs, which are predominantly in the form of capital, to the consumer. Furthermore, the consumer value proposition from oil and gas is critical, as it underpins a prosperous economy at low costs, with significant economic and political consequences if disrupted. 

Low oil and gas prices can be attributed to overproduction by North American producers. In essence, overproduction equates to unprofitable production. Producers may claim profitability, but this is often due to accounting methods that fail to accurately account for the substantial capital costs involved in exploration and production. The dependency on external investor cash for annual spending has led to a cycle of overcapitalization, overreported profitability, and subsequent overinvestment, ultimately increasing the industry's productive capacity beyond the actual profitability threshold of oil and gas production. For commodities like oil and gas, which follow the principles of price makers, this overproduction leads to precipitous price declines from these incremental barrels.

Additional difficulties for the oil and gas sector are imminent. When natural gas was trading around $1.60 (or 50 to 1) in early 2024, we projected that achieving a 10% profit would require a price of 6 to 1 compared to oil. Producers fail to realize the economics that producing at $1.60 necessitates the profits of nine volumes of profitable gas, if that should ever occur, to offset the losses incurred on each volume produced today. This lack of basic business understanding highlights decades of poor business management, marked by slogans like “building balance sheets,” “putting cash in the ground,” and “muddling through.” Basic business concepts such as free-on-board and netback pricing are often unfamiliar. If not for the convoluted methods of accounting produced by officers and directors they would have seen the waste of assets and chronic deterioration of cash. Business can not afford to produce at such losses for long, yet oil & gas has been at this for over four decades. Aided by specious accounting that deceived investors of their cash. Spending is not a business model. 

Producers have a solution in the form of the Preliminary Specification, which addresses this issue and ensures profitable production everywhere and always. Profitable production should reflect the replacement cost value of the produced barrel of oil, which People, Ideas & Objects believes to be the true cost of oil and gas. The financial resources needed to drive the industry forward over the next 25 years are significant. Investors lack both the vast resources necessary and the desire to provide further capital. Therefore, profitability is the only long-term sustainable and substantial financial resource capable of meeting the industry's needs.

Capital Costs

A significant portion of our $25.7 to $45.7 trillion value proposition is derived from the more effective use of capital within the industry. In capital-intensive industries like oil and gas, the largest portion of the consumers product costs comes from capital. Accurate and timely reporting of these capital costs, and passing them on to consumers through the income statement, is essential. The Preliminary Specifications enhanced performance reporting can achieve this, a capability that current producer systems lack.

Since at least 2006, People, Ideas & Objects have highlighted issues in recording and recognizing capital costs. Despite discussions and proposed benefits, no substantial changes have been made industry-wide. The current methods have become culturally entrenched, showing no signs of change. We advocate for the rapid recycling of capital costs on a 30-month basis to meet the industry's capital needs for the next 25 years.

Profits are the only substantial source of capital capable of funding the industry's future requirements. Current officers and directors have mismanaged capital, betraying investors, bankers, and service industry representatives. Producers face rapid monthly cash drainage, an issue we have repeatedly pointed out. Without annual capital injections from investors to stabilize cash reserves, producers have encountered cash crises, exacerbating their problems.

We estimate $20 to $40 trillion of our value proposition is attributed to capital recycling. Rather than relying on investors for these resources, People, Ideas & Objects believes that the approximate $2 - 3 trillion levels of property, plant, and equipment recorded on producers’ balance sheets, when recycled repeatedly, are sufficient. If these capital assets were profitably recycled every 30 months, they would generate enough cash from oil and gas sales to fund future capital expenditures, bank loan repayments, and investor dividends. However, this logic seems lost on current officers and directors of producer firms.

Absent and Unmotivated Leadership

In 2021, during the COVID crisis, producer officers and directors declared that shale would never be commercial. This declaration set the stage for their pivot away from the oil and gas industry toward the unaccountable clean energy sector. They anticipated that they would only need to report to environmental activists like Greta Thunberg and could attribute any lack of financial performance to their efforts to save the planet. This charade unfolded in board meetings across the industry, with purported investor pressure driving the demand for change. This theatrical performance was documented at the Exxon annual meeting.

Read more in the original documentation:

[Shakespearean performance at the Exxon annual meeting].

They were correct in stating that shale would never be commercial—under their administration and management. One might wonder if this declaration was a response to the wide distribution of our white paper, “Profitable North American Energy Independence — Through the Commercialization of Shale,” published by People, Ideas & Objects on July 4, 2019. Alternatively, perhaps our paper did not resonate well in their circles.

Skydiving Without a Parachute

People, Ideas & Objects initially adopted an all-or-nothing strategy, urging the industry to choose between our vaporware ERP system and their outdated systems. We now recognize this approach was unreasonable. Instead, we should have offered a competitive solution to address the industry’s issues. The Preliminary Specification focuses on the business challenges of oil and gas producers, and we believe these issues have now reached a critical point where choices need to be made. We are now offering the industry an insurance policy to support it in the event that the current administration continues to fail. To illustrate, I reference a quotation from Henry Kissinger’s last book, “Leadership: Six Studies in World Strategy.”

The strategy of forcing a choice between us and the existing systems was likely inappropriate. The desire to impose such a stark choice did not justify the associated risks. However, is it now prudent to proceed without an alternative in hand?

People, Ideas & Objects offer a compelling value proposition based on the business model defined in the Preliminary Specification. We have mentioned the trillions of dollars our value proposition provides and assert that we will focus on dynamic, innovative, accountable, and profitable oil and gas operations for producers, positioning ourselves as the primary, quality choice of ERP system. 

As Margaret Thatcher noted regarding government administrations, democratic societies have options, while dictatorships ensure they are the only choice, often securing over 90% support in elections. People, Ideas & Objects are not dictators. Regrettably, we were drawn into emulating the same type of dictatorship that officers and directors have imposed on the industry for the past four decades.

Consolidation

The chronic lack of profitability in the oil and gas industry, along with its root causes and resolutions, has been detailed in the Preliminary Specification. Despite these insights, producers are turning to consolidation as their solution. This approach contrasts sharply with the global trend towards decentralized organizational structures. The consolidation of North American oil and gas producers seems out of sync with the broader business world. 

These issues are cultural and systemic, originating in the late 1970s and becoming evident with the first oil price decline in 1986. The industry seems lost, unsure of how, where, or what to do to achieve profitability. Are they truly committed to oil and gas? What is the plan for these consolidated producers? We have seen no clear strategy. How will they organize without infringing on People, Ideas & Objects' Intellectual Property? Consolidation might have been effective in the 1950s, but in today’s fast-paced, AI and Internet-driven world, these producers are likely to fail as they have been, evidenced by their need or desire to consolidate. Two days ago Chesapeake announced another round of layoffs. Inspiring another generation to stay as far away from oil & gas as possible. You can't raise a family or pay a mortgage on the fickle prospects of officers and directors who are incapable of comprehending anything beyond boom / bust. 

Given these circumstances, it would be prudent to have an alternative organizational method in hand. People, Ideas & Objects’ Preliminary Specification offers a viable insurance policy against the industry's current trajectory.

Conclusion on the Issues

People, Ideas & Objects' concern is that none of the issues and opportunities identified and addressed in the Preliminary Specification have been acted upon by the industry. Efforts to enhance profitability and introduce innovation have been resisted by officers and directors since its publication in August 2012. Will consolidation fix this? We are concerned that the industry's productive capacity is beginning to decline.

We have seen significant deterioration in all aspects of the greater oil & gas economic infrastructure. The service industry has been seriously damaged and has little faith, trust or goodwill in the producer firms. Its capacities operate at around 30% of prior levels and continue to diminish. An active rebuilding is necessary. Where does the capital come from to undertake that rebuilding? In the past investments were made in good faith and they saw producers abuse accounts payable in order to finance their capital expenditures for another year. "No one else would give us any money." Not paying their suppliers for 18 months is not what a primary industry does. During covid producers sat and watched as the suppliers sold off horsepower to other industries and cut up equipment for scrap metal to survive. And now consolidation is adding additional difficulties in the form of fewer producers / dictators telling them what the service industries prices will be. Which brings them even more impediments to not invest. In a case of “fool me once shame on you, fool me twice shame on me” the service industry won’t get fooled again. The service industry believes if producers had some skin in the game, by way of philanthropic contributions, then they’ll have an understanding of their behavior's inappropriateness. 

The Preliminary Specification offers an organizational performance framework with a vision for the next 25 years, aiming to rebuild the industry on a culture of preservation, performance and profitability. We fear that without change, the oil and gas industry will continue on its failed trajectory, exacerbated by consolidation. This would lead to greater distraction, lack of focus, and incapability in what is called the leadership today. The jeopardy this places society in is particularly dire, considering the economic and political consequences of allowing this industry to continue its degradation over the past decade. Producer firms have picked their solution in the form of consolidation. Having an alternative organizational and operating method as an insurance policy would be wise counsel. People, Ideas & Objects offer the Preliminary Specification. 

A Capital Change

 Oracle published in their Oracle Connect News Stories (March 26, 2024) an interesting article with significant productivity implications to future oil & gas producers who will be using the Preliminary Specification. The article was dedicated to the announcements of Oracle Database 23ai, for Artificial Intelligence, which is a development of Oracle Database 23c for cloud. The News Stories are under the subtitle “Bringing the Power of AI to Enterprise Data and Apps.” The article that I’m discussing today is “AI is transforming finance.”

The module this change has been written to is the Partnership Accounting module. That is where the financial statements for each producer, for each Joint Operating Committee they participate in are prepared to determine its performance. If it is profitable it continues producing, if it isn't, it will be shut-in to focus the firm's innovative resources on making the property profitable again. The change is in the method and means of how that performance reporting is generated. First an introduction from the Oracle article. 

Financial Reporting and Analysis

In the Partnership Accounting Module of the Preliminary Specification we are augmenting the discussion with Oracle Database 23ai. The following are from the Oracle article.  

AI can help automate and enhance multiple aspects of the financial reporting and analysis process. In the initial stages, it can extract relevant financial information from various data sources. It can then clean and process financial data by identifying errors, inconsistencies, or missing values and notifying finance staff of the areas needing attention.

AI can then use the data to help generate financial statements, such as income statements, balance sheets, and cash flow statements, transforming the data into reports that highlight key performance indicators (KPIs), trends, and observations. It can also help with regulatory reporting. GenAI can fill out the needed forms with data provided by the finance team for the staff to review and confirm.

GenAI can be used to produce narrative reports, providing context into the numbers by combining financial statements and data with an explanation of each. GenAI can even help prepare first drafts of 10-Qs and 10-Ks, including footnotes and management discussion and analysis (MD&A).

At People, Ideas & Objects, our primary concern is the performance reporting of each Joint Operating Committee (JOC). This performance reporting is crucial for determining the profitability of a property. Profitable properties continue to produce, guided by the reorganization to Cloud Administration & Accounting for Oil & Gas, where our user community’s service providers execute their processes in standardized and objective ways. Producing this requirement in addition to the financial statements and other reporting requirements that Oracle noted in the first quotation will be part of the understanding and responsibility of our user community when they develop the Preliminary Specification.

Currently, there are significant issues regarding the differences in the amount of capital recorded in what People, Ideas & Objects would consider for our method of using the Joint Operating Committee, today’s corporate records, and independent reserve reports. We believe the latter two records are deficient in two material aspects when applied to performance at the Joint Operating Committee:

Overhead Allocation: 

The overhead incurred to operate a property is unknown and untraceable. Overhead costs are aggregated in corporate accounts and capitalized at year-end, with allocations to individual Joint Operating Committees made through overhead allowances that cumulatively balance to zero across the industry.

Capital Definitions: 

While the costs of drilling, completion, and equipping are appropriately included under corporate, reserves, and People, Ideas & Objects definitions, there are differences in how capital is recognized. For example, in the Preliminary Specification, reconciliation will occur on a global basis, with both the producer's depletion and property, plant, and equipment (PP&E) accounts balanced to the cumulative balances in all Joint Operating Committees and done so monthly. Any outstanding PP&E balance continues to be depleted to determine the individual property’s monthly profitability. And for purposes of accounting to the SEC other costs such as the abandoned wells are to be included. Where are they included in either corporate or reserves reports?

In particular, the amount of capital recognized in PP&E differs materially, including all land and bonuses paid, and depending on whether SEC reporting uses Full Cost or Successful Efforts methods. For instance, under Full Cost accounting, the costs of abandoned wells in an eleven-well program are included in the producing well's capital. These costs should be accounted for in corporate or reserves reports, but are not.

Before deploying AI to clean up PP&E data and reported depletion, substantial analytical and audit work must be performed to establish accurate balances for each producer's Joint Operating Committee PP&E and depletion accounts. The Preliminary Specification addresses differences between individual producers within the JOC to accurately determine profitability, recognizing that each producer may have different capital balances due to varying capital and depletion balances. For example, a producer who recently purchased their interest will have different performance criteria than one who has held the interest for a longer period. These issues are managed through the Joint Operating Committees Operating Procedure and its operational decision-making framework. The Preliminary Specification specifically aligns with the seven frameworks of the Joint Operating Committee as part of our Organizational Constructs. Where producers may have determined that for a vote to pass on an initiative requires a 60% working interest threshold. With determination to produce or shut-in, in this instance, being the consequence.

Producers have assumed this substantial work load of preparing financial statements for each property, was too burdensome and unnecessary. People, Ideas & Objects approach was always one of high levels of automation of the business processes. Artificial Intelligence would be a further and welcome development. Hoards of data in the form of information are what needs to be fed to humans to make the appropriate decisions. This is the point we’ll discuss next, one in which we felt officers and directors didn’t fully appreciate or necessarily understand. Possibly unaware of the overall quality of industry information and cultural influences and their implications on producer firms.

Once again I asked ChatGPT to provide me with a drawing depicting how I saw the officers and directors approach. I call this one "A Board Meeting for the Permian."

Is it Data or Decisions?

If only producers could address the more important end of this process. They’d need to decide which that end is. We're in the deep-end now and those that are unprepared are beginning to feel a desperate need for solid ground. The demand for decisions to be made is horrendous in oil & gas. Around 2008 it became difficult to keep up with the pace of the oil & gas business. I would blame the poor quality of the data that producers had then. ChatGPT 4o had the following to say about corporate data.

Specific Trends and Statistics

IDC Report: According to IDC, the global datasphere will grow to 175 zettabytes by 2025, up from 33 zettabytes in 2018. This indicates a compound annual growth rate (CAGR) of around 27%. 

Gartner Forecast: Gartner predicts that by 2025, 75% of all enterprise-generated data will be created and processed outside a traditional centralized data center or cloud, indicating a shift towards edge computing. (People, Ideas & Objects believe the extensive use of IoT will be the cause of this.)

Implications

Data Management Challenges: Organizations face significant challenges in managing and securing this data, necessitating advancements in data governance, storage solutions, and cybersecurity measures.

Infrastructure Investment: Businesses must invest in scalable infrastructure and advanced analytics tools to harness the value of their growing data volumes.

Strategic Decision-Making: Properly leveraged, this data can provide a competitive advantage through improved customer insights, operational efficiencies, and innovation.

The rapid growth of corporate data underscores the importance of robust data management strategies and the adoption of emerging technologies to stay competitive in the digital age.

Improve decision-making

From the Oracle paper.

A 2023 study by Oracle and New York Times bestselling author Seth Stephens-Davidowitz shed light on the dilemma faced by business leaders around decision-making—and the results were sobering.

Of the surveyed business leaders...

74% believed the number of decisions they make every day has increased 10X over the last three years. 97% wanted help from data in making decisions. 93% felt that the right decision intelligence could make or break an organization. 72% admitted the sheer volume of data has stopped them from making any decision at all. 89% believed the growing number of data sources has limited the success of their organizations. 94% felt the right data and insights could help the finance department make better decisions. 

AI’s abilities around data management collection, analysis, and contextualization—just to name a few—help eliminate many of the decision-making roadblocks cited by business leaders.

Oracle’s Recommendations

Some promotional information from Oracle on what is necessary and how producers could approach these issues. 

What can companies do now to prepare for increasing AI use over time? First, aggressively automate processes to reduce transactional work. Second, train staff so they have the skills to effectively interact with AI tools, building analytical capabilities that capitalize on the technology. Giving finance staff increased understanding of AI will also be critical in ensuring the proper security, controls, and appropriate use of the technology.

“As businesses are under pressure to grow revenues while expanding margins, it’s clear that finance teams will be a driving force in that effort,” said Stirrup. “The world runs on data, and organizations that can quickly learn from and execute on it—through the right planning and analytical tools, cloud technologies, and the efficient application of AI—will be the ultimate winners.”

AI depends on data. With Oracle Fusion Cloud ERP, companies have a centralized data repository, giving AI models an accurate, up-to-date, and complete foundation of data. With a complete, cloud ERP system that has AI capabilities built-in, finance teams can get the data they need to help increase forecasting accuracy, shorten reporting cycles, simplify decision-making, and better manage risk and compliance. With Oracle’s extensive portfolio of AI capabilities embedded into Oracle Cloud ERP, finance teams can move from reactive to strategic with more automation opportunities, better insights, and continuous cash forecasting capabilities.

Conclusion

One distinct benefit of People, Ideas & Objects will be our ability to determine the data elements and their appropriate management, storage, and process requirements. While each producer must undertake this task individually, we only need to do it once on behalf of the entire industry. These substantial savings are then distributed back to industry when they’ll not have to conduct that work. This highlights a significant future management question for the industry: how will it be done?

People, Ideas & Objects offers our Preliminary Specification as an alternative to the current status quo. Producer firms, whose officers and directors have ignored this well-known Information Technology difficulty, now face substantial problems. They haven’t asked where to start or how to resolve these issues, instead they’ve dismissed our warnings. We propose a solution that will save them time, effort, and money in the long run. As a result they are not authorized to use any of our Intellectual Property. It belongs to us, and we intend to use it to rebuild the industry appropriately after current leadership abandons their posts. If they do use our IP, we will ensure they cease and reverse any of their unauthorized use.

This discussion does not address the structure of producer firms or the significant issues such as a chronic lack of profitability, lost natural gas revenues or exclusion from LNG markets. The myriad details they will face in managing and interpreting their data will cause continuous difficulties, resulting in wasted time and further financial losses. We believe they promise no future.

Our approach has always been to start with a clean slate, focusing solely on how to best manage the industry for the next 25 years, and to do so profitably. If our Profitable Production Rights seemed implausible to some, consider the future potential for those who will finance the Preliminary Specification. They’ll own Profitable Production Rights in a struggling North American oil and gas industry and will have the exclusive right to process, assign, lease, or rent oil and gas production through the Cloud Administration & Accounting for Oil & Gas system they financed.

They say you should be careful of what you wish for. In 2024, maintaining a lack of accountability to shareholders was popular at the annual general meetings once again. Investors did not act to remove the failing leadership. Instead, they’ve left them to their own devices.

Our Value Proposition: Information Technology

Before the final stretch of our campaign, we started a series in mid-January that breaks down the individual elements of our value proposition. Now that we can return to our regular writing schedule, I'll wrap up the remaining posts on this subject. You can find the previous entries grouped under the label "Value Proposition:" which includes posts titled:

• Introduction
• Capital Component
• Hyper-Specialization and the Division of Labor
• Intellectual Property
• New Growth Theory
• Markets
• Innovation

Today, we'll proceed with our discussion on Information Technology.

Information Technology and Its Impact on Business

Over the past few decades, information technology has dramatically transformed business landscapes by enhancing productivity, performance, and fostering innovative business models. As these technologies have matured and become more integrated, they promise even greater performance and productivity enhancements. A pivotal technology in this evolution is cloud computing, which introduces a cost-effective model for users by shifting large capital expenditures to manageable operating costs. This model is particularly embraced by People, Ideas & Objects in the context of the oil & gas industry, where it revolutionizes access to state-of-the-art IT capabilities at low, variable costs.

This approach extends beyond just IT infrastructure to encompass software, services, and support within the oil & gas sector, using the shared cost methodology. Our model, termed "Cloud Administration and Accounting for Oil & Gas," applies cloud computing principles across oil & gas administrative and accounting processes. This is crucial, especially in a regulatory environment where building and maintaining necessary administrative capacities is costly. By sharing costs, oil & gas producers can avoid these high overhead costs that traditionally hamper profitability.

The traditional model where each producer independently incurs these costs does not offer a competitive advantage. Instead, through our shared and shareable model, producers will achieve state-of-the-art administrative capabilities at reduced costs with lower, variable overhead costs based on the producer's profitable production profile. 

Moreover, the adoption of Oracle Cloud ERP applications in our framework allows senior management to continuously adapt to technological advancements with minimal disruptions. The Preliminary Specification, integrated into our model, will handle future Oracle upgrades and adaptations, ensuring that the producers' needs are effectively met by our user community and service providers.

Finally, our approach with Oracle Fusion Applications avoids the pitfalls of traditional ERP customization. By embedding industry-specific features into the Oracle Fusion Middleware using object-oriented principles, we ensure that our customizations are both sustainable and adaptable to ongoing changes without significant redevelopment. This methodology aligns with Oracle's best practices, accommodating rapidly changing needs that support dynamic, innovative, accountable and profitable producers.

People, Ideas & Objects Information Technology Strategy

At People, Ideas & Objects, our strategic advantages lie in our user community, research, and intellectual property—not in software development. As such, we own and manage the software code derived from the Preliminary Specification and our Intellectual Property, while contracting the software development work to Oracle Corporation. Oracle's expertise in implementing their software products ensures high-quality development, eliminating the need for us to spend years assembling and training a capable team.

Since the first quarter of 2014, we have prioritized the development of our user community, recognizing this as the key differentiator in the quality and value of our offerings. In the oil & gas industry, time is a critical resource. Therefore, focusing on community engagement and intellectual property—rather than internal software development—maximizes our use of time, resources, and expertise. This strategy aligns with our belief in the importance of specialization and division of labor across the economy.

If oil & gas producers consider developing ERP solutions internally, they must face the reality that such undertakings would require immense scale and cost, likely duplicating efforts and expenses that could be more efficiently managed through our collaborative model. Sharing development costs through People, Ideas & Objects is far more economical than what would be spent on achieving comparable depth and functionality independently within each producer's firm.

Moreover, the dissatisfaction expressed by producers' shareholders and banks in 2015 highlighted the industry's broader issues with performance, accountability, and transparency. Despite this, the subsequent inaction over the years underscores the challenges and inefficiencies of working without a unified, effective business model. Our approach not only addresses these inefficiencies but also leverages shared resources to foster innovation and accountability in a sector that demands transformation. Using Oracle will cut many years off the development time. Years the producers can ill afford.

Oil & Gas ERP and Accounting Challenges

In our extensive discussions, we have consistently pointed out that the accounting practices of oil & gas producers over the last forty years have often been questionable. Mismanagement of overhead and capital costs raises significant governance concerns, which have not gone unnoticed by the investment community. We assert that these dubious accounting practices are facilitated by inadequate ERP systems, leading to critical issues in governance and financial oversight that should have become pressing matters for boards of directors.

Despite the essential role of ERP systems in ensuring effective accounting, the oil & gas industry suffers from a lack of effective systems. Currently, there are no tier 1 ERP providers that offer systems specifically tailored for oil & gas, which further exacerbates the problem. Although SAP provides ERP solutions to some major producers, their systems do not cater specifically to the unique needs of the oil & gas industry, often resulting in inefficient workarounds.

Our involvement with Oracle began in May 1991 when we initiated a collaborative development of an oil & gas ERP system, formalized by a contract in 1992. Despite Oracle's support, my initial venture into the oil & gas ERP market ended in failure in February 1997. This failure highlighted a broader issue: competitive ERP vendors have generally met the industry's needs without sufficient financial support from producers. This lack of investment has led to a situation where the personal gain of officers and directors contrasts sharply with the industry's overall financial underperformance and investor dissatisfaction.

Our May 2004 Preliminary Research Report incorporated insights from Professor Anthony Giddens and Professor Wanda Orlikowski, who have explored how technology, organizations, and society interact through Structuration Theory and the Model of Structuration. This theory suggests that any disparity among these elements can lead to conflict and failure. In this context, we've argued that the prevalent use of outdated, bespoke ERP systems in the industry serves to maintain a lack of accountability in financial reporting, allowing corporate leaders to avoid scrutiny and keep their methods unchallenged.

While acknowledging the significant efforts of my competitors under challenging conditions, it's important to note that since May 2004, there has been a deliberate lack of support for further ERP development. This has led to a market once populated by over 20 providers now dominated by a few, like P2, who have survived by absorbing others. Meanwhile, the IT market has matured significantly, but this evolution is largely ignored by oil & gas producers in their administrative and accounting practices. Instead, they often opt to highlight the latest IT trends—like the Internet of Things, Artificial Intelligence, and Machine Learning—as progress, regardless of the actual applicability or impact on their operations.

Oracle CloudWorld 2022 and 2023 Conferences Overview

At the 2022 Oracle CloudWorld conference, Oracle unveiled significant innovations in corporate ERP systems that enhanced business process automation. A standout feature was the advanced expense report process, which allowed employees to directly allocate expenses to specific cost centers using a partnered credit card company. This process, governed by Oracle’s automated policies, streamlined approvals and minimized administrative tasks, offering substantial time and cost savings across organizations.

In 2023, Oracle took another leap forward at their conference by integrating Generative Artificial Intelligence into their platform. This development further automated complex processes, enhancing efficiency and reducing the need for manual intervention.

Despite these advancements, there remains a notable distinction between consumer-facing and corporate applications, particularly in user interface (UI) design. The complexity of enterprise applications has historically made UI development challenging. However, Oracle has initiated improvements in this area with the development of their Redwood Platform, specifically tailored for enterprise applications. These changes are promising, and I recommend reviewing two specific videos that discuss these updates further. (Here and here.)

At People, Ideas & Objects, our primary focus and competitive advantage is our dedicated user community. Since 2014, we have emphasized the importance of involving users in the development of quality enterprise applications—a rigorous and essential process. Guided by our User Community Vision, we equip our users with the necessary tools to tailor applications that meet the unique demands of oil & gas producers, ensuring optimal profitability and operational efficiency.

Our approach to resolving challenges in the oil & gas sector is defined by a commitment to quality. Partnering with Oracle enables us to stay at the forefront of technological innovation. Our user community benefits from a vast array of Oracle’s resources, including access to diverse communities of developers and user groups. Once funding is secured, People, Ideas & Objects, along with our user community and service providers, will fully leverage Oracle’s products and services to realize our ambitious goals.

'It's the Business Model, Stupid'

 It’s here that I’m adopting President Bill Clinton's election campaign slogan of “it’s the economy, stupid.” 

Adopting the candid perspective of President Bill Clinton's famed election slogan, "it's the economy, stupid," I find it necessary to express a similar directness in the oil and gas industry. I often challenge the views of producer officers and directors with a stark reality: merely owning oil and gas assets is insufficient. True profitability comes from leveraging specialized ERP software like the People, Ideas & Objects Preliminary Specification, which transforms these assets into profitable ventures. This is a crucial realization in a century where few businesses succeed in their original form.

Business Model Insights

Amazon

Consider Amazon, a company that, despite never publishing a book or opening a traditional retail outlet, dominates the book and retail industries. This dominance is so profound that traditional retail bookstores have become scarce. Amazon's model facilitates global market access for publishers by allowing them to deliver products to Amazon's cross-docking facilities, ensuring payment at the point of sale. This model not only shifts the inventory cost burden back to the publishers but also benefits Amazon by providing upfront payment, sometimes days before they settle with the suppliers. This foundational strategy has evolved into Amazon Web Services (AWS), turning their internal IT infrastructure into a significant profit center.

Amazon exemplifies an early form of disintermediation in business models, but today's industries and companies employ far more sophisticated strategies. These modern approaches offer competitive advantages that are significantly more cost-effective compared to what was once considered innovative.

Tesla

The selling of cars is less relevant to its business each day, yet highly relevant to the platform for tomorrow.

NVIDIA

An extreme example of such innovation is NVIDIA's approach as discussed by CEO Jensen Huang in a recent presentation. The new H-100 chip, he explains, fundamentally alters the competitive landscape for Cloud AI services by offering unprecedented efficiency and cost savings:

• The H-100 chip weighs 70 pounds and consists of 35,000 parts, with only 8 sourced from TSMC.
• At a cost of $250,000, a single H-100 chip can replace an entire data center, where just the cabling might cost the same amount.
• These examples underscore a new paradigm in business:
• It's not merely the industry you're in; it's the business model you deploy.
• It's less about whom you know and more about what you are capable of achieving.

In essence, the 21st-century business landscape demands innovation not just in technology but fundamentally in how businesses are structured and operate.

Our Strategic Vision

At People, Ideas & Objects, we offer a transformative choice in organizing the North American oil & gas and tertiary industries. We provide an alternative to traditional methods through our Preliminary Specification, coupled with our user-community-driven ERP system built on Oracle Cloud Infrastructure. Our system is designed to ensure that oil and gas operations are profitable under all circumstances, fostering a culture centered on preservation, performance, and profitability.

Assessment of Current Industry Practices

The Preliminary Specification emerges from a critical observation: for decades, the oil and gas industry has failed to generate sustainable value. Previous generations built considerable value, which has been systematically depleted. Despite substantial reserves, which could secure a prosperous future, these assets are rendered valueless under current management as they cannot be profitably extracted using conventional accounting, organizational means and methods.

Challenges with Existing Accounting Practices

Traditional oil and gas accounting, still rooted in practices from the 1980s, prioritizes regulatory compliance—such as SEC filings, tax and regulatory filings—over operational insight. Current ERP systems are not equipped to provide detailed or accurate operational data, leaving a gap in understanding the true performance of each asset. Instead, performance evaluations rely heavily on independent reserves reports, leading to decision-making based on speculative "what if" scenarios. These include estimating capital costs of properties based on what is possible in the market today. And commodity pricing using indirect methods like analyzing satellite imagery to gauge global oil storage levels—a practice whose relevance and accuracy we have critically questioned, especially during market anomalies like the 2020 incident when oil prices fell to negative $37 values.

The Need for a New Approach

Such outdated practices highlight a disconnect between technological capabilities and strategic application in the oil and gas industry. It is possible that these methodologies, rather than leveraging technology effectively, have inadvertently hindered the industry's progress and even led to strategic missteps such as potential collusion among producers and OPEC. Our Preliminary Specification aims to rectify these inefficiencies by introducing accurate, transparent, and objective operational insights that drive profitability and sustainable industry practices.

People, Ideas & Objects Accounting Method

The Preliminary Specification from People, Ideas & Objects ensures that producers produce only profitable properties through the following strategies:

• Monthly preparation of accurate, detailed, objective and standardized financial statements for each property, outlining actual overhead and depletion costs to facilitate profitable decision-making.
• Enforcing production discipline via capital markets; only producers who maximize profitability will achieve peak corporate competitiveness.
• Ensuring that losses from unprofitable properties do not diminish profits from profitable ones. Unprofitable properties are shut-in until they can be innovatively reworked and become profitable once again.
• Reorganizing producers accounting and administrative resources to independent service providers who hyper-specialize in specific processes across the industry, with billing directed to the Joint Operating Committee.
• If a property is shut-in, it generates no data and incurs no billable services, making all producer overhead costs variable and dependent on profitability.
• Overhead costs are immediately recovered in the month when they contribute to profitable production, rather than being capitalized as currently practiced.
• The oil and gas sector will operate as price makers with no true substitutes—highlighting their unique economic dynamics.
• For illustration: using hydro to lubricate an engine or nuclear energy on a camping trip is impractical, and even imagining Elon Musk using firewood in rockets underscores the irreplaceability of oil and gas.

Prices are sensitive to changes in product availability, with producers only initiating new production when profitable as determined by an objective historical accounting, contrasting with price taker commodities like bottled water, which face various readily available alternatives such as tap water, juice or soda.

People, Ideas & Objects Organizational Constructs

The Preliminary Specification is supported and defined by seven organizational constructs that support our culture of preservation, performance and profitability. The seven include the Joint Operating Committee and its seven frameworks, Professor Paul Romer’s theory of non-rival costs or sharing of  administrative and accounting infrastructure, hyper-specialization and the division of labor which is the only means of value generation since 1776, Information Technology to organize, coordinate and control organizations, Intellectual Property which is the legal foundation of the United States and the only means in which oil & gas will find its way through its challenging future, innovation which is structurally defined and supported in the Preliminary Specification and needs to be organizationally managed to be effective and finally markets which are the alternative replacement to the centralization and consolidation solution being suggested by officers and directors. (Each Organization Construct is highlighted in Bold and Italics)

• Hyper-specialization and the division of labor.
• To take advantage of an enhanced division of labor requires the processes to be accurately defined within the software. Principles expand productivity from the same resources.
• Our Preliminary Specification uses these principles and automation of the business process to increase productivity throughout producer firms and industry.
• Professor Paul Romer shared or non-rival costs theory applied to oil & gas administrative and accounting infrastructure.
• Non-rival costs such as these are effectively reduced when shared. Examples include cloud computing.
• Producers will no longer have to incur the redundant costs of building and maintaining independent accounting and administrative infrastructure within each producer firm. 
• Specialization has diversified the roles in some professions, or will soon, where even the largest producers will not be able to commercially staff all of the required capabilities.
• Markets offer the preferred alternative to centralized control from consolidated, unprofitable producers.
• Oil & gas producers' distinct competitive advantages include their land & asset base and coordination of their engineering and earth science capabilities and capacities. 
• Intellectual Property regarding any vendor product or service is of no proprietary value to oil & gas producers. 
• The motivation to pursue the research and development of the issues and opportunities in the next 25 years will not be undertaken by “muddle through,” consolidated producers. 
• Intellectual Property eliminates any costly “me-too” competitors and repeated unsuccessful innovations. 
• Intellectual Property is a foundation of the U.S. Constitution. It is the law.
• Service industry providers have consistently provided Innovation and were poached of their innovations by their customers who handed them to their competitors. 
• Trust, faith and goodwill in producers from the service industry is non-existent. 
• Information Technology is another organizational construct we use to define and support the culture we are building. 
• This revised culture must be built within the ERP software before it can be used.
• Distance eliminates economic opportunities such as serendipity or spontaneous order when markets are continental in their composition. 
• There is no creative destruction when the status quo controls the ERP systems development process. Limiting software developments proposed to support change. 
• Homogenization of the producer firm is epic. Incapable of discerning which is the hero and which is the zero from published financial statements.
• The industry Joint Operating Committee is the standard method of managing partnerships within North American oil & gas.
• Joint Operating Committees are the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the industry. 
• When we move the compliance and governance frameworks of the corporation into alignment with the seven frameworks of the Joint Operating Committee.
• We achieve speed, accountability and profitability in our producer organizations.

Conclusion

Once people in the industry understand the frameworks and constructs in which the systems and procedures of the systems of the Preliminary Specification operate. It will be a simple and intuitive extension of their understanding of the appropriate method to deal with the issue and opportunity they’re faced with. This is the benefit of this design. It is inherent in the way of life and business culture that has been successful in North America for many centuries. The interactions between each of the seven Organizational Constructs are logical and consistent across the industry from an administrative and accounting perspective. This extends to all of the industry and throughout the producer firms other disciplines. Everyone will be focused on generating the profits in the primary industry of oil & gas producers. This will allow those profits to ensure economic health and prosperity are the basis of the industry as the profits of oil & gas producers are a necessity for the dependent tertiary industries. 

Elimination of the wasteful and destructive boom / bust cycles that officers and directors have created will carry enormous value added benefits. Liberating individuals to work towards the research and development of new and innovative products and services that ensure oil & gas is the fuel we can depend upon for many decades to come. There is so much to be done and little time in which to do it. We face the most difficult decades of the industry's history. Have an inappropriate industrial base. Have not been able to motivate the necessary forces to act. Have an obligation to ensure the industry continues in its role to supply a secure, independent and reliable source of energy to the most powerful economy known to man. And to secure the potential of the known petroleum reserves and ensure their value is realized by all. 

I do not see these opportunities being realized today. I do not see these opportunities being realized in a consolidated industry. I do not see the plans as to how the consolidated industry will realize its potential. I do not see any of this coming about by happenstance.

The Incremental Barrel

 It seems evident to me that the actions of certain oil and gas producers signify a clear awareness of the detrimental aspects of their overproduction. The very fact that these companies engaged in discussions with OPEC about production curtailments suggests an acknowledgment of their role in the industry’s poor performance. Their subsequent involvement in collusion, both among themselves and with OPEC, indicates a conscious decision to manipulate production levels to manage the repercussions of their overproduction, or as we describe it, unprofitable production.

A January 12, 2024 civil class action lawsuit underscores this point, naming major industry players such as Permian Resources Corp, Centennial Resource Development Inc., Chesapeake Energy Corporation, Continental Resources Inc., Diamondback Energy, Inc., EOG Resources, Inc., Hess Corporation, Occidental Petroleum Corporation, and Pioneer Natural Resources Company. 

NATURE OF ACTION

This action arises from Defendants’ conspiracy to coordinate, and ultimately constrain, domestic shale oil production, which has had the effect of fixing, raising, and maintaining the price of retail gasoline (gasoline purchased by consumers at gas stations) in and throughout the United States of America.

This lawsuit may have been a catalyst for subsequent Federal Trade Commission (FTC) investigations. On January 22, 2024, the question was raised by People, Ideas & Objects regarding the nature of producer misconduct—whether it was willful or merely negligent. It is now apparent that negligence can no longer be claimed; at the very least, willful misconduct must be considered.

Given the availability of alternative strategies in the market, such as those proposed by People, Ideas & Objects, the actions of these corporations suggest a deliberate choice to ignore business practices. This should compel Officers and Directors Liability Insurance providers to reconsider their coverage policies for these executives. Furthermore, any indemnification provided by these corporations should be deemed inappropriate by shareholders, given the gravity of the situation and the potential harm to the industry’s reputation. This situation raises significant ethical and financial concerns that could affect the industry for generations.

CPA Firms and Their Role in Industry Challenges

Accountability in the Face of Industry Turmoil: 

As we reflect on the tumultuous conditions facing the industry—characterized by a staggering $4.1 trillion revenue shortfall and profitability crises due to unsustainably low commodity prices—questions about the role of CPA firms become increasingly pertinent. The Preliminary Specification has long highlighted these critical issues since its inception in August 2012, yet there seems to be minimal actionable response from the audit sector.

Critical Audit Matters and Balance Sheet Evaluations: 

Over the past few years, CPA firms have seemingly skirted deeper discussions of financial health by employing Critical Audit Matter qualifications, which only serve to obscure further dialogue about balance sheet realities. This approach raises significant concerns about their evaluations of the complex and often inefficient Rube Goldberg-like ERP systems prevalent in the industry.

Transparency and Independence: 

The essential independence of audit firms must be scrutinized, particularly when industry reporting remains opaque and possibly influenced by internal directives from producers' executives. The pro forma compliance by auditors, often described colloquially as merely "ticking and bopping” through the process, does not suffice when the stakes are as high as they are—where investor confidence has been eroding for nearly a decade.

The Silence of Auditors: 

It is particularly telling when an industry faces profound difficulties, yet its auditors remain conspicuously silent on critical financial matters. This silence, especially concerning balance sheet issues, suggests a potential failure in the duty of auditors to provide the necessary scrutiny and oversight expected of them.

A Call for Reevaluation: 

The ongoing challenges and the material nature of these issues underscore the need for a thorough reevaluation of auditor roles and responsibilities within the industry. It's crucial that CPA firms step up to their mandate, ensuring transparency, independence, and diligence in their auditing practices to restore investor and now consumer confidence and contribute to a more stable and profitable industry framework. Investors 2015 actions should have precipitated these follow on actions from these firms by now.

Natural Gas Prices and Market Dynamics

Recent Price Increases and Strategic Implications: 

Last week's rise in natural gas prices to $2.198, spurred by a pipeline outage in the Permian Basin, should signal a critical reassessment for producers. This price movement is not merely a fluctuation but a clarion call for the cessation of unprofitable production, a concept championed and enabled only by the Preliminary Specification.

Storage and Market Rehabilitation: 

The natural gas market is burdened by an oversized storage capacity of 4 TCF, far exceeding the needs of continental producers. The historical maximum seasonal drawdown over the last five years was nearly 3 TCF. A strategic price maker approach might reveal up to 90 BCF of potential shut-in production, which could be reintroduced into the market almost immediately.

Misuse of Storage Facilities: 

Currently, producers are misusing storage facilities as a financial ATM to cover capitalized overhead costs. This misuse is symptomatic of a larger issue of cash flow management within the industry. The Preliminary Specification advocates for rigorous market discipline to ensure that only profitable production is pursued, demanding a level of accounting detail and objectivity not currently practiced by producers.

Debunking Market Myths:

The romanticized notion of markets as magical entities must be dispelled. Markets function to provide pricing information that should guide production decisions. If production costs exceed market prices, continuing production is economically irrational. This principle underpins the need for producers to adopt a more disciplined and informed approach to production decisions.

Market-Driven Production Discipline: 

The Preliminary Specification leverages capital markets to enforce production discipline. By aligning production with profitability, producers can maintain competitive standing and shareholder trust. Currently, many producers lack the necessary insights into the profitability of their operations due to inadequate ERP systems and accounting practices.

The Case for Shutting in Production: 

The incident at Kinder Morgan's NGPL Lockridge Lateral, which pushed the price last week at Waha spot price to negative $2.13, exemplifies the urgent need for production discipline. Producers must resist the impulse to increase production merely to fulfill short-term cash needs, as this behavior contributes to cyclical price crashes and long-term financial instability.

Pricing Conclusion:

The natural gas industry must transition from an era of speculative and undisciplined production to one governed by strategic, informed decision-making as outlined in the Preliminary Specification. This shift is essential not just for the sustainability of individual producers but for the health of the entire industry. Only through disciplined production aligned with market realities can the industry achieve “real” stable profitability and robust growth.

Disproving Long-Standing Misconceptions: 

People, Ideas & Objects have expressed frustration with certain actions by producers that led to recent Consent Orders. Two particular falsehoods have long been perpetuated within the context of the Preliminary Specification. These falsehoods concern the reasons our approach was initially deemed unsuitable for the industry, both of which have now been unequivocally discredited.

The Myth of an Inability to Shut-In Production: 

The first major misconception was the claim that wells could not be shut-in. This notion was dramatically disproven during the COVID-19 pandemic, a time when, under extraordinary circumstances, global producers shut in 25% of oil production capacity due to the plunge in oil prices to negative $37. This event clearly demonstrated that shutting in wells is not only possible but sometimes necessary for economic and operational reasons.

Clarifying the Impact of Shut-In Wells: 

The resilience of shut-in wells has been further evidenced by routine industry practices. Questions about potential damage from such actions were answered in the same way they are when wells are shut-in during hurricanes in the Gulf of Mexico, during OPEC production cuts, or when maintenance shutdowns occur in gas fields. The overwhelming response? No significant damage occurs, debunking the myth that shut-in wells suffer inevitable reservoir harm.

Revisiting Industry Standards and Practices: 

These call for a reassessment of industry standards and the dismissal of outdated beliefs that hinder adaptive and responsive strategies. The Preliminary Specification advocates for such strategic flexibility, emphasizing the importance of aligning operational decisions with economic realities. This approach not only preserves the integrity and profitability of oil and gas operations but also supports the industry’s ability to adapt to changing market dynamics efficiently.

It’s Collusion

Maximizing profitability through property by property evaluations using actual, detailed financial facts to determine profitability and therefore continue production, is business. Another aspect of business that those in oil & gas clearly don’t understand. The accusations leveled against us for years, that our method known as the Preliminary Specifications decentralized production models price maker strategy was collusion, was incorrect and made in bad faith. That bad faith showed itself last week when producers were found to be guilty of colluding by the Federal Trade Commission.

Conclusion

Producers should learn that the oil & gas commodities trade on a knife's edge. One incremental barrel too much or too little will begin to have a significant impact on the price. There are no alternatives to these commodities. Our dependency on oil & gas is critical to our way of life.  It supports and enables the most powerful economy in the world. Selecting who should go without the product is unacceptable and unnecessary. Yet the industry's officers and directors continue to allow it to spin out of control which will inevitably lead us to those shortages. They haven’t  been in control for many decades and their destruction was transparent enough to be hidden. It would seem that 2024 has stepped up the pace of discovery and volume. People, Ideas & Objects are handling a number of issues. $4.1 trillion in lost value. $45 billion in incremental losses each month. Audit firms that rubber stamp last year's annual report with the same verbiage that seeks to mitigate only their risk. Producers entering Consent Orders on the basis of FTC findings of collusion! Officers and Directors Liability Insurance and corporate indemnity should not be upheld for them if they continue on their path. 

In terms of natural gas pricing producers have to deal with cutting off the excess production going to storage. Until storage is better managed, natural gas prices will continue to be on a knife's edge as to what and when the direction they’re headed. What is needed is an adequate supply of gas to fulfill the needs of consumers. Selling natural gas to storage owners is a false market. It must stop by producers only producing profitable production. They knew better and were given every opportunity to do so. What they chose to do was to collude. 

Creative destruction is the process of renewal. We’re experiencing the destruction accelerating now. Progress is not linear and the same holds true for destruction. We’re spinning out of control faster each day. This is quite evident now by the inability of the officers and directors to function appropriately.