"That Jarring Gong," Part III

 Start-ups and Small Producers

People, Ideas & Objects developed the Preliminary Specification to support all producers in the North American oil & gas industry. This was done for three key reasons:

• To address and resolve issues of overproduction or unprofitable production wherever they occur.
• To ensure that all producer members of the Joint Operating Committee align with this crucial Organizational Construct.
• To encourage small and start-up producers to revive the innovation and entrepreneurial spirit necessary for rebuilding the industry.

The conflict between the Joint Operating Committee and the producer corporation is unsustainable in the Internet age. This ongoing conflict has caused numerous industry-wide difficulties. It becomes unnecessary when the operational side of the business remains detached and unconcerned with corporate workings. The current division between administrative and accounting functions, focusing on the corporation's SEC, tax, and regulatory requirements, drives the firm to concentrate on these areas, leaving the operational side oblivious to the business's actual financial performance. This disjointed approach must be addressed to resolve significant issues like overproduction, degraded business understanding, and the misconception that all is well based on corporate profitability linked to spending as the sole competitive advantage. Since 2015, investors have been disillusioned and stopped supporting the industry's capital needs. Producers either do not understand the gravity of this or believe they can secure capital from other sources.

People, Ideas & Objects argue that the industry's exposure to shale formations has placed it at risk if any potential decline in oil & gas deliverability occurs—a scenario never experienced before and challenging to overcome. Currently, the lack of capital, the "muddle through" approach of producer firms, and the damage caused by producers to the service industry have stifled innovation and initiative across the broader oil & gas economy. Producers anticipate a return to normalcy and a rush for profits, but we do not share this optimism. We believe that the faith, trust, and goodwill in the current producer officers and directors have been irreparably damaged.

A Rebuild

The Preliminary Specification offers a comprehensive solution to address the multitude of issues facing the industry. This involves establishing a revised culture centered on preservation, performance, and profitability. The goal is to transform the industry into one that is dynamic, innovative, accountable, and consistently profitable. This new culture aims to provide producers with the most profitable methods of oil & gas operations, everywhere and always.

Retrofitting this renewed culture within the current industry configuration is impractical due to time and resource constraints. Such an effort would lead to arduous battles and, ultimately, failure. We propose a rebuild as the industry is fundamentally broken and requires a fresh vision for reconstruction.

The Technical Challenge For Small and Start-up Producers

Oracle Cloud ERP leverages a multitude of technologies provided by Oracle, designed to meet business needs through generic and standard methods. These applications can be customized for specific industries, which is precisely what People, Ideas & Objects are doing for oil & gas with our user community and their service provider organizations. All these applications run on Oracle’s state-of-the-art database, the most advanced in the market, and the Java Programming Language. Oracle Cloud ERP is recognized as the number one ERP solution by Gartner and is rated as one of the few tier 1 solutions alongside SAP.

However, the challenge lies in delivering Oracle technologies to small and start-up producers. Despite its technical size, breadth and depth, a user could engage with a fully functional ERP solution for years without accomplishing a single constructive task. This highlights the difficulty in effectively implementing these sophisticated technologies for smaller producers, who will lack the resources and expertise to leverage Oracle's full potential.

The Preliminary Specifications Implementation

To achieve enhanced performance and profitability in the industry, we have based our solution on several assumptions, addressed through our seven distinct Organizational Constructs. These constructs define and support the culture of the rebuilt oil & gas industry.

By adopting the Joint Operating Committee, we emphasize the partnership defined by the specific property owners. Corporate reporting will naturally follow the management of the property, unlike the current practice where accounting and administration drive the process, often ignored by operations. The Joint Operating Committee serves as the key Organizational Construct, encompassing legal, financial, operational decision-making, cultural, communication, innovation, and strategic frameworks.

Other Organizational Constructs include hyper-specialization and the division of labor, which enable greater output from the same resource base. We also apply Professor Paul Romer’s concept of non-rival costs, where critical infrastructure such as Information Technology, Oracle, accounting, and administration is shared across the industry. This approach relieves individual producers from redundantly building and maintaining these capabilities within their own firms.

The Preliminary Specification includes specific modules like Petroleum Lease, Financial, and Resource Marketplaces, which identify the main markets producers operate in and provide market-supporting institutions throughout the industry. Innovation is explicitly supported to control costs and reduce redundancies.

Information Technology is an essential Organizational Construct, defining and supporting the organization while also constraining it. People, Ideas & Objects offer a permanent software development capacity to ensure that software does not trap the industry in future failed activities.

Intellectual Property is crucial for an industry like oil & gas to tackle its challenging future. Respect for intellectual property laws motivates individuals to undertake difficult work, validate their ideas, bring them to market, and market them effectively.

Cloud Administration & Accounting for Oil & Gas 

Reorganizing the industry’s accounting and administrative resources is essential for this rebuild. These resources will be removed from individual producers and reallocated to our user community members, who will organize into service provider organizations. These providers will focus on specific processes across the industry, leveraging their competitive advantages in leadership, issue identification and resolution, creativity, collaboration, research, ideas, design, planning, thinking, negotiating, compromising, innovating, financing, observing, reasoning, judging, and automating. Computers will handle storage and process management, while service providers conduct work more effectively and efficiently based on objective, standard methods determined by our user community during the Preliminary Specifications development.

Small and start-up producers will have access to the same wealth of knowledge as larger producers for each Joint Operating Committee they participate in with the Preliminary Specification. This solution includes explicit knowledge captured by our user community during software development and tacit knowledge delivered through service providers owned and operated by our individual user community members.

The Work Order

The Work Order is a new document introduced to address two unique and critical needs in the oil & gas industry. 

First, it supports higher levels of innovation by enabling producers to sponsor and participate in ad-hoc working groups. These groups can be formed to capture and manage the costs, payments, and rebilling of expenses among participants who may have no prior business history or future relationship. Producers can contribute funds, time, resources, or facilities to assist the working group in completing research projects, with the results and costs distributed equitably among participants. Establishing these working groups is crucial, as innovation is essential for overcoming the industry's future challenges. Traditional working groups have declined due to bureaucratic bookkeeping complexities, a situation unacceptable given the immense challenges the industry faces over the next 25 years.

Second, the Work Order establishes a new revenue stream for producer firms. The assumption is that earth science and engineering resources will soon be insufficient to meet industry needs due to retirements and a shortage of university graduates. Specialization and division of labor are necessary to enhance resource performance. However, maintaining the required scientific capabilities may become financially unviable for producers. We believe this point has been reached, prompting the elimination of the “operator” status where one producer manages the Joint Operating Committee. Instead, our Pooling concept allows Joint Operating Committee members to contribute their specialized earth science or engineering skills to fulfill resource requirements, potentially supplemented by external assistance.

The Work Order facilitates the billing and recovery of these resources' costs to various Joint Operating Committees. This creates an opportunity for small and start-up producers to generate revenue, offsetting initial overhead costs and allowing time for their oil & gas investments to mature. With work-from-home arrangements, initial costs are minimal compared to the past. The demand for consulting engineers and geologists may be high due to resource shortages, providing significant revenue opportunities. Consolidated producers may struggle to maintain the scientific basis of their organizations, creating a market for entrepreneurial individuals to start new oil & gas firms.

The Work Order enables charging an individual's hourly rate to the Joint Operating Committee, working group, overhead, or other cost centers, monitoring both time and rate. The rate is either an industry minimum or a factor based on the revenue per employee, whichever is higher. Billing and payment are electronic, leveraging advanced systems. Unlike current operational claims by producers, the Work Order operates on an industry-wide basis, serving as a primary revenue source for consulting firms or a secondary source for all producers.

The CFO’s Role

I envision the accounting and administrative staff for start-up and small producers being limited to the CFO, even for much larger producers than what is feasible today. With the implementation of the Preliminary Specification, our user community and their service providers, preparation of comprehensive information to understand producer firms in great detail. This includes actual, factual, objective, and standardized accounting for each Joint Operating Committee. Through the Oracle Redwood interface, our user community can develop the reports, screens, and information producers need to understand their performance and profitability. This clean slate approach should be embraced by the entire industry, providing ERP systems capable of supporting the industry for the next 25 years.

Where the data is captured at the lowest basic level. An example would be the production and revenue processes. IoT will be capturing and reporting the production data and the Material Balance Report will be balanced across the industry by the service providers. Then the fallout financial calculations, based on the agreements the firm has signed, will post the transactions and report them. Amendments and accruals are handled the same. Automation of the business processes of both oil & gas and generic business by Oracle. 

Service providers will bill each transaction processing cost based on the hundreds of thousands of transactions processed monthly across the industry. With automation, standardization, specialization, and division of labor, transactions will be processed efficiently, and infrastructure costs will be incurred once and shared among all producers, reducing individual transaction costs significantly.

The reporting focus will be on the Joint Operating Committee, with standardization and comprehensive analysis by our user community during development for tax, royalty, SEC, and other regulatory requirements. Small and start-up producers will be full and contributing members of any Joint Operating Committee, equipped with the same systems capabilities and capacities. They will seamlessly offer their skills as contributing engineers or geologists and provide tier 1 ERP systems and support for SEC and other regulatory reporting needs.

These producers will have the legitimacy to engage in capital markets and function effectively in the complex mid-21st-century oil & gas environment. The initial overhead subsidy of $3 million per year will not be necessary, and secondary revenue sources will sustain start-ups beyond what used to be their initial capital demands, allowing them to become profitable immediately. A distinct competitive advantage for these sectors is their ability to implement their ideas within their preferred time frame, potentially reversing the decline in shale deliverability and ensuring long-term profitable energy independence in North America.

The assumption by consolidated producers that only they can achieve oil & gas industry economics due to their size is a fallacy. The adage "the bigger they are, the harder they fall" holds true. People, Ideas & Objects et al. address many issues, enabling small and start-up producers to gain advantages. We believe the industry's rebuild will begin with these producers. The failure of consolidation is becoming evident. Without the financial resources we requested by August 12, 2024, People, Ideas & Objects may not be able to reconfigure and restart this initiative for another three to four years, just enough time for engineers and geologists to have transitioned to new careers in other industries.

"That Jarring Gong," Part II

 The Opportunity in 2025

Just as our 2023-2024 campaign focused on the $4.1 trillion in revenue losses from overproduction of natural gas and the mishandling of LNG developments by producers, we now turn our attention to oil pricing. We have yet to determine an objective means of establishing a reasonable oil price and calculating the revenue lost by producers. 2025 may provide us with the evidence needed to understand the absolute floor for oil prices. Currently, the $75 to $90 range covers some costs, but we continue to see producers' balance sheets grow significantly. This indicates a failure to recognize the appropriate level of capital costs in a capital-intensive industry.

People, Ideas & Objects believe that in a capital-intensive industry, the bulk of costs passed on to consumers should be capital costs. This is not the case in oil and gas, resulting in flawed pricing and overstated profitability due to the overstatement of property, plant, and equipment.

On June 3, 2024, OPEC+ announced plans to reduce their production curtailments in 2025, which had been in place since the COVID-19 pandemic, cutting approximately 2 million barrels per day. This announcement led to a slight decline in oil prices, highlighting two key points: a) oil and gas are subject to the principles of price makers, and b) selling oil at negative prices is fundamentally wrong.

The oil industry is seeing major consolidations at play as Hess (HES) shareholders approved a $53 billion merger with Chevron (CVX), and ConocoPhillips (COP) will acquire Marathon Oil (MRO) in a $17.1 billion all-stock deal. TD Cowen Analyst Jason Gabelman joins Morning Brief to discuss how these M&A moves should be viewed from a shareholder perspective. "We think it creates a more healthy environment for our shareholders," Gabelman explains. He says that the mergers will lead larger companies to have more control of the oil (CL=F, BZ=F) in the US, which will ultimately allow them to execute "moderate, low-to-mid single-digit oil production growth that should result in a healthier commodity backdrop where there will be less responsive to spikes in oil prices and support higher and more stable oil prices." He adds that more stable oil prices will be a relief to consumers as they grapple with tighter budgets amid high inflation. For more expert insight and the latest market action, click here to watch this full episode of Morning Brief. This post was written by Melanie Riehl of Yahoo Finance. 

Consolidated producers need to review their announcements with legal counsel to better express their intentions. The narrative of prioritizing a “healthy environment” over profitability is misleading. Producers have ignored shareholder demands for real profitability since 2015, resulting in no new capital being advanced to the industry until these demands are acknowledged and addressed. Claiming they are responding to shareholders is as false as ExxonMobil's adoption of a climate change policy in “‘The Vote’ (A Play In Three Acts By ExxonMobil Productions).”

Consolidation is a sham. Larger, less responsive, and slower entities will be even less responsive to market forces, leading to higher and supposedly more stable prices. Consumers will face less price variability but at the cost of innovation and new production capabilities. This narrative is fundamentally flawed and highlights the dire state of the oil and gas industry. It is clear that those making these statements are out of touch with the real issues.

An Assumption

If People, Ideas & Objects are unsuccessful in raising our $10 million for our first-year development budget by August 12, 2024, what will the consequences be? This assumption focuses first on the impact on People, Ideas & Objects and then on innovation across the industry.

People, Ideas & Objects have managed to cobble together opportunities every 3 to 4 years: in 2017, 2021, and now. If we fail this time, we foresee another opportunity arising only after the consolidation theme has played out to its full and inevitable failure, which could take up to four years. This also assumes that the market does not dismiss the possibility of People, Ideas & Objects putting this together again, deeming any future attempts as fruitless. However, who can say for sure?

What is not an assumption is that I’ll be 70 years old by then, and reassembling the team would be, quite literally, old school. My commitment to this project and the increasing validation of our perspectives each day is irrelevant unless we succeed now. Success is crucial to avoid the severe contingencies North Americans may face if the industry continues to fail. Should producers fail, it will lead to a rapid decline in overall economic performance and political influence, and the responsibility will lie squarely with the consolidated producer officers and directors.

Culture?

The prevailing culture in the oil and gas industry stifles any initiative. If this isn't clear from the industry's inaction, a closer look is necessary. The industry operates on a "muddle through" basis, where anyone proposing a new idea is quickly sidelined. People, Ideas & Objects recognized this cultural issue early in our software development efforts for the industry. This toxic environment is experienced daily by the service industry and anyone else providing products or services to producers, regardless of the sector, for the past number of decades. Large firms with diverse portfolios, like Oracle, IBM, Halliburton, and SLB, can weather the storm by relying on other markets or geographical locations. But who really suffers from these failures and changes?

Smaller product and service firms left to work with these producers face an impossible situation. Producers, the primary industry participants, see them as leeches, wondering why suppliers don't just raise capital to meet their needs. This perspective reveals a fundamental misunderstanding of basic business concepts such as "profits," "free on board," "net back pricing," and the $4.1 trillion in revenue losses they’ve incurred. Producers attempt to address these issues with "consolidation," "greater control over production," and "less responsiveness to spikes in oil prices," resulting in a more lethargic and less responsive industry.

Is this a corporate culture or personal greed? It seems evident. Doing nothing, getting paid well for it, avoiding accountability, and having an easy exit strategy has become the norm. Meanwhile, the landscape is littered with the ruins of decades of mismanagement and abuse. The industry has created a divide where those in power thrive at the expense of shareholders, service industry firms, and those striving to build value. The employees of producer firms, caught in the middle, are powerless, burdened with responsibility but no authority. This is far from the utopia officers and directors experience.

The Beginning of the Beginning

What if there was a better way? A way that showed promise and followed a logical business model proven successful in other industries. We've seen record stores, travel agencies, book stores, and even giants like Kodak and Polaroid in digital photography get disintermediated. Initially, resistance to disintermediation is strong, but as damage and destruction overwhelm the status quo, alternatives emerge with better products. Who could provide a better product than a mega-consolidated North American producer? It's the person who started a new oil & gas producer firm at their kitchen table this morning. Here’s how they’ll succeed.

The industry has known about the disintermediating solution in the form of the Preliminary Specification for more than a decade. It holds promise but lacks traction due to funding shortages, similar to other service industries and supplier-based products and services in the broader oil & gas economy.

People, Ideas & Objects consider all sectors of the North American oil & gas producer population as potential customers of the Preliminary Specification. Whether consolidated, intermediate, small, or start-up producers, they all gain advantages from using our product and our user communities service provider services. The greatest advantage is experienced by small and start-up producers, who today struggle to compete in an environment where investors no longer trust the accountability and financial credibility of producers. Although these new producers were not part of the integrity breach, they bear the brunt of its consequences.

We see the small producer unable to compete on two fronts outside of this inability to access capital. The first is the overwhelming level of capital, let's call it a subsidy during its formidable years, of up to $3 million a year for a publicly traded producer, to cover its overhead. This can be offset once the firm attains the point where free cash flow contributes to reducing and eliminating the amount of capital needed for the subsidy. In the past this task relied more on talents in raising capital than it did on the talents of finding and producing oil & gas. Second, small producers lack access to patient capital necessary for the long development process of oil & gas. The pressures of business conflict with the long lead time required which do not accommodate the appropriate development unless the firm can quickly overcome their high overhead needs and eliminate their capital subsidy. 

Producers relying on their earth science & engineering capacities & capabilities and their land & asset base as competitive advantages need time to do so. How does the Preliminary Specification from People, Ideas & Objects make this viable? How does it provide distinct competitive advantages above and beyond those of consolidated and other oil & gas industry sectors?

This is a correct assumption and the difficulty we face in addressing these marketplace challenges. We take the most complex, detailed, sophisticated, and difficult ERP system known—Oracle Cloud ERP—and implement it for small producers and start-ups who may lack the capabilities to operate it for decades unless they achieve significant success. This challenge is one we address head-on.

The Preliminary Specification is designed around fostering innovation throughout oil & gas. The innovation undertaken by small and start-up producers is what society will rely upon for the future. Small and start-up producers inability to function in existing capital markets precludes them from competing unless they acquire these necessary capabilities from the outset. This is what People, Ideas & Objects aims to provide. The only way to solve the industry's difficulties is for oil men and women to break down the barriers they face. In an industry facing its most difficult challenges, where consolidated producers are ineffective, small and start-up producers need a way to thrive in a capital environment demanding immediate profitability—in the true sense of the term.

Tomorrow, we’ll detail how the Preliminary Specification offers these distinct competitive advantages to each sector of the oil & gas industry. And at the same time provides the critical small and start-up producers with additional advantages over any of the other sectors.

"That Jarring Gong," Part I

 From Sir Martin Gilbert’s Authorized Biography of Winston Churchill book # 5. “Winston Churchill: The Prophet of Truth, 1922 - 1939 (Volume V)”

When the situation was manageable it was neglected, and now that it is thoroughly out of hand we apply too late the remedies which then might have effected a cure. There is nothing new in the story. It is as old as the sibylline books. It falls into that long, dismal catalogue of the fruitlessness of experience and the confirmed unteachability of mankind. Want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusion of counsel until the emergency comes, until self-preservation strikes its jarring gong—these are the features which constitute the endless repetition of history.

People, Ideas & Objects will move forward with the development of the Preliminary Specification starting on September 2, 2024, building on the groundwork we’ve conducted over the past two years and the $10 million funding we’re commencing today. Here are the key milestones that have led us to this point:

• Reviewed, edited, updated, and published the Preliminary Specification in late 2023.
• Discussed and revisited the issues and opportunities within the North American oil & gas industry, completed by June 2024.
• Started promoting the Preliminary Specification to raise the first year’s development budget by August 12, 2024, for a September 2, 2024, commencement.
• Establishing an alternative means of oil & gas organization as insurance against producers' plan of consolidation and its inevitable failure.

Our motivation behind updating the Preliminary Specification was the significant changes in Oracle Cloud Infrastructure and Oracle Cloud ERP offerings. These changes, demonstrated at Oracle CloudWorld in October 2022, include advanced levels of business automation that provide incremental value beyond what People, Ideas & Objects offer for the oil & gas industry. For further information, please review the series "If You Don’t Like Change, You're Going To Like Irrelevance Even Less" which can be accessed here.

At Oracle CloudWorld 2023, Oracle introduced Artificial Generative Intelligence (AI) to Oracle Cloud ERP, enabling users to derive new and intuitive information from system data and leverage automated processes to generate new outcomes. Oracle is the premier Tier 1 ERP provider, and their state-of-the-art products will be integrated with our Preliminary Specification. For example, only last week, Oracle announced Oracle Code Assist, which is AGI assistance in writing Java and SQL. We will provide the business attributes of the North American oil & gas industry to Oracle's comprehensive business solution, ensuring we provide the most profitable means of oil & gas operations, everywhere and always.

What we’ve been able to achieve in these past 21 months has placed People, Ideas & Objects in a position of having an updated product on the basis of Oracle’s technological offerings and developments in the oil & gas marketplace. We’ve been able to take the original business model inherent in the Preliminary Specification, update it and retrospectively apply it to the historical record. We then verified our $25.7 to $45.7 trillion value proposition provided to oil & gas producers. Identifying that this may be an underestimate when natural gas in the shale era, which destroyed the natural gas market pricing structure, is responsible for $4.1 trillion of revenue losses and 764 TCF of uncommercial gas production. Calculations can be found here. 

Other issues we’ve identified include a lack of business knowledge among the officers and directors of oil & gas producer firms. The industry’s culture has been driven by a focus on building balance sheets, resulting in a fundamental mismanagement of market developments such as LNG exports. This reflects a serious deficiency in the capability of industry leadership, exacerbated by their ventures into unrelated industries like clean energy without proper approval. The current trend towards consolidation, a retread from the 1950s, runs counter to the value generation achieved through decentralization provided by the Internet. We discussed these topics in detail in a series of blog posts, available here.

The current state of the North American oil & gas industry raises questions about the level of failure and value loss. We believe the industry has generated a substantially negative net present value, consuming resources to produce. This situation poses a significant risk not only to the business but also to the energy security and economic power of North America. The value proposition of oil & gas to consumers provides 10 to 25 thousand man-hours per barrel of oil equivalent for only $77.18 a barrel, highlights the critical importance of this industry. Should producers fail further, the consequences will extend beyond the oil & gas sector, affecting the entire economy and national independence.

People, Ideas & Objects Opportunity

September 2024 provides us with an opportunity to pursue the development of the initial year of the Preliminary Specification. Losing this time could very well mean the loss of several years or even more in terms of having the opportunity to restart this initiative. Thankfully our first year's development costs are not significant and we can stop wasting time by proceeding through the first year's development instead of doing nothing.

Therefore, People, Ideas & Objects urgently needs these funds by August 12, 2024.

Request For Proposal (RFP)

During 2021 anticipating we may receive an RFP, we published our response on our wiki. This includes a summary of key discussion points and was rewritten in August 2023 as part of the overall Preliminary Specification update. You can view it here.

We believe that the most feasible way to raise our entire development budget is through the production of oil & gas, leveraging our Profitable Production Rights. Producer officers and directors have shown a lack of awareness and willingness to address these issues, effectively locking us out of both debt and equity markets. Last year, we discounted the initial Production Rights to 10% of their price in order to raise our first-year budget of $10 million, a stance we maintain today.

Service industry firms face challenges similar to those encountered by oil & gas ERP systems providers in the 1990s. Investors have recognized that they lack the necessary legal and business foundation to thrive, leading to a long-standing stigma against ERP solution providers and now the service industry. This has and is continuing to lock us out of equity markets. It is evident that producer officers and directors are conflicted in their dealings with People, Ideas & Objects. Leaving us with the Profitable Production Rights as the means to access oil & gas revenues as a source of income for People, Ideas & Objects et al. Disintermediation is revolutionizing every sector, and those who have survived, such as the producer officers and directors, have learned advanced methods to resist these forces.

Three Times Lucky?

Will People, Ideas & Objects be able to rally if we fail to raise the funds for our first year's development budget? This will be our third attempt to generate interest and resolve these issues. Our first attempt in 2017 faced the false claim that shutting in production would damage formations—a mistruth dispelled during the COVID-19 shutdowns. Our second attempt in 2021 involved writing our RFP to communicate our solution to the market.

In September 2024, we have a pivotal opportunity to commence the initial year of developing the Preliminary Specification. Delaying this effort could potentially set us back several years, or even longer, in restarting this initiative. Fortunately, our first year's development costs are modest, allowing us to make meaningful progress without further delay.

It is increasingly challenging to regenerate market interest without producer uptake, financial resources, or cultural support within the industry. Preconceived notions that nothing will ever be done are reinforced by the lack of our financial backing. Currently, we are experiencing our highest level of support, participation, and activity. However, failure to secure financial support will result in another significant setback, as seen before, taking at least 21 months for a new opportunity to arise.

That said, there is a greater chance of another opportunity for People, Ideas & Objects than consolidation ever becoming successful. Should I be able to hold this initiative together, consolidation's inevitable failure could provide us with an opportunity in three to four years, given the current destruction rate of at least $40 billion per month in lost revenues. A loss of a possible political rejuvenation if there’s a change in the administration and further deprecation in the performance of both the oil & gas and service industries. If the log at the top of the mountain is showing some motion towards rolling down the mountain, timely intervention would be wise.

Producers, Focused Like a Laser

Producer officers and directors can be described as laser-focused, but it's unclear which industry they're truly working in and for whom. They seem to be using oil & gas revenues to explore numerous interesting industries, and with consolidation, they'll have even more cash at their disposal. It might be more accurate to classify them as hedge funds, investing wherever they see fit, leaving investors unable to retrieve their money.

Who will stand up to them? Who will say no? Has short-term passive investing failed? These are challenging questions. What we do know is that the liberties that allowed officers and directors to act as they have did not result in any significant consequences. No one fell on their sword or faced the guillotine for the damage caused. It’s reasonable to suggest that the fear of such repercussions never crossed their minds. As the number of producers decreases and their power becomes more concentrated, what will dissuade them from further exploiting these liberties?

Alleging these revenue losses are nothing more than opportunity costs is a fallacy they’ve been able to get away with. Just as claiming natural gas is a byproduct of oil in the Permian. $4.1 trillion in calculable damage is not an opportunity cost or a byproduct. Not when a commodity subject to the economic principles of price makers is sold at depressed prices due to chronic overproduction. The consequences and damages of which can be found throughout the industry. Where the officers and directors prescribed solutions in their past two attempts was to declare “shale would never be commercial” and “they had to consolidate.”

If you have insights or concerns, feel free to reach out via email or phone as noted above.

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.