"That Jarring Gong," Part VI

 At this point, I want to expand on the implications and consequences for People, Ideas & Objects, the industry, and the broader oil & gas economy if we experience our fourth funding failure. Initially, when I began the “That Jarring Gong” series, I noted it would be our third development funding failure, incorrectly excluding our original 1996 initiative, which led to our market failure in early 1997.

Facing a fourth failure is daunting for anyone. Despite significant sunk costs, my actions today are not guided by past investments but by a continuous evaluation of our offering's deficiencies. Each funding failure prompts me to ask why it did not proceed and what improvements are needed.

I have been fortunate to foresee the current oil & gas issues, predict their impact on producers and the industry, and design our Preliminary Specification to resolve them. This foresight has enabled me to make recent attempts to initiate developments over the past seven years. If these efforts prove inadequate to provide a solution to the oil & gas marketplace, I am uncertain what standard would be acceptable.

My Issue

I struggle to see what more I can do to improve the Preliminary Specification as it stands today. While I am pleased with the current state of our work, I worry that further development by myself could erode its quality rather than enhance it. There is little more I can contribute in terms of vision. Our 2023 update primarily addressed Oracle initiatives in automation and Generative Artificial Intelligence. The scope and scale of our project now require input from many people who understand each aspect of the industry in far greater detail than I or any one person ever could. This is the source of quality in user-based ERP systems.

Developers know how to write software, but expecting them to build an accounting and administrative system for the oil & gas industry without guidance is unrealistic. They need to be guided by the users who will work with these systems, sitting side by side in development. This is the point we have reached today.

Failing to seize this opportunity could be a defining moment for the industry. If we don’t act now, it may lead to a collective resignation: "If 34 years wasn’t enough for the Preliminary Specification, I’m not the person to try next." This sentiment was echoed in the service industry for decades, leading to prolonged inaction. The issues we seek to resolve are systemic and cultural, deeply embedded within the industry. The scope and scale of the damage and destruction to date are tragic, with two key aspects often overlooked:

• The elapsed time during which intervention should have occurred.
• The detrimental and now irreversible causes of the decline.

The hidden, hollowed-out capacities and capabilities of both the oil & gas and service industries may have profound effects on North America's production profile. What if production begins to decline and people realize that the cupboards are bare? This scenario underscores the urgency and importance of our efforts.

Innovation and Initiative

In recent years, the oil and gas industry has shown signs of activity and evolution through various significant decisions. Initially, there was a shift from shale to clean energy, only to pivot away from clean energy later. Now, the focus is on consolidation, with substantial acquisitions aimed at achieving "efficiencies" within the industry. However, these decisions are primarily made at the executive level, while the rest of the industry experiences a troubling paralysis. Reflecting a "muddle through" mentality, the industry seems to be waiting for a miracle—a resurgence of investor cash, full capacity operation of the service sector, and a return to being seen as heroes. This approach requires no action or decisions, just a belief that past successes will repeat, benefiting from the primary revenues of the industry. The service sector, crucial in generating these revenues, is left to fend for itself, despite being wholly dependent on producers. Today, producers are only learning now they too are wholly dependent on the service industry.

Moreover, the industry faces an unprecedented level of obstruction. According to executives, factors such as President Biden, OPEC, weather, pipeline companies, greedy investors, the service industry, consumers, and even the Easter Bunny, have all conspired to create a constant crisis. This mindset dates back to the 1986 oil price crash, fostering an addiction to making excuses, blaming others, and finding scapegoats. This culture of excuse-making has become deeply ingrained, with consolidation now justified by blaming small producers for flooding the market with excess production.

Addressing this cultural issue is evident in this blog's persistence in tackling the industry's profitability challenges. Initially, the idea of prioritizing profitability was met with ridicule. The industry's pervasive "muddle through" mentality is evident in daily frustrations, such as the lack of basic business knowledge in areas like the LNG market, as documented last year. The systemic nature of this issue across organizations results in an inability to make decisions or provide clear answers, reinforcing the culture that People, Ideas & Objects argue has been in place since at least 1986.

Motivation

The oil and gas industry is hurtling towards a crisis, yet many within it are content, convinced that a career in this sector is as secure and lucrative as ever. They believe that simply holding on will guarantee substantial financial rewards and pension benefits. This complacency is pervasive, driven by the leadership exemplified by current officers and directors. It is a despicable yet understandable reality, making any dissenting voice a rarity. For anyone to even raise an eyebrow will soon be forced to pull up a keyboard in the cubicle next to me. 

Reflecting on my own experience, after a significant setback in 1997, I was reminded of why I started this journey in 1991. I foresaw the industry's downfall due to rampant overproduction, leading to price crashes in 1986 and beyond. The solution seemed simple: identify unprofitable properties and shut-in their production. However, producers' accounting systems were and are woefully inadequate for this task. I couldn't be part of a flawed system, knowing I had a solution and doing nothing about it.

A recent post by James O'Keefe, a controversial figure known for undercover video reporting, resonated deeply with me. It highlights a broader societal decline and poses a critical question we all may face in the coming years:

We’re all going to be tested over the next few years with a terrible choice.

Preserve your livelihood and lose your soul.

Or preserve your soul and lose your livelihood.

Will you live a lie in order to survive? 

Or will you live the truth and face ruin?

People, Ideas & Objects do not seek to motivate through fear. We have seen our governments use fear—through climate change and COVID-19—to control behavior. They resort to fear because, in North America, they can't use force. My point is to draw parallels between the decisions I had to make and those that may soon confront everyone. The upside, of course, is that chaos also brings opportunity.

Decisions, Decisions

If we fail to secure funding in 2024, how can People, Ideas & Objects refine the Preliminary Specification to make it more appealing to the market? What additional steps are necessary to move forward again, potentially for the fifth time? We must determine these steps and incorporate them into our strategy. 

And who would be so wise to attempt an alternative to the Preliminary Specification, recognizing our Intellectual Property needs to be avoided and extend to the greater oil & gas economy what the “muddle through” impact is. 

It's crucial to consider whether anyone could successfully propose an alternative to the Preliminary Specification while avoiding our Intellectual Property and addressing the broader oil & gas economy's challenges. Demonstrating yet another failure, such as the industry's consolidation, seems redundant and unproductive. How many times have officers and directors evaded the consequences of their actions? It's naive to assume that the outcome would be different next time. Conversely, those who believed in the Preliminary Specification as the solution have been disappointed by the lack of response. They understand the actions and consequences and recognize that People, Ideas & Objects has made a commendable effort despite persistent cultural pushback. These individuals will question what can be done beyond merely surviving for the sake of their families and careers. Particularly when what is being asked here is to carry the weight of the industry's destruction on the personal budget of one individual these past 20 years. 

The stigma of a failed initiative is unavoidable, and that's where the Preliminary Specification stands if we fail to secure funding again. We face constraints from investors and bankers due to several factors:

• The scope and scale of the issues.
• The producers' behavior towards ERP providers in the 1990s, which demonstrated to ERP investors that they were the target or mark.
• Our inability to provide returns to investors using the standard software business model.

The cultural and disintermediation forces against producers participating in our developments.

Our only viable source of funds is the primary revenues of the industry, with our Profitable Production Rights being the only, albeit unattractive, means to access them.

How would this failure impact the industry? Within the oil & gas ERP marketplace, it would have minimal effect. Most vendors have been in the market as long as I have and have experienced similar challenges. IBM and Oracle exited decades ago, and while SAP offers ERP solutions, they do not have a specific oil & gas ERP solution.

Outside the ERP marketplace, the situation is more intriguing. Consolidation is already causing concerns, as seen with Nitro, a service industry provider that declared bankruptcy after losing half its revenues overnight due to a primary customer's consolidation. Chesapeake announced layoffs despite their consolidation with Southwestern being on hold. Our failure might simply reinforce the existing issues.

Our intellectual property represents 20 years of research and publication. If this isn't sufficient for producers, the next individual attempting to develop a new solution will need to invest a decade in research to at least match the Preliminary Specifications. Since this has been deemed inadequate, they will need to go further, though we have no idea what that would entail. We wish them luck, as we do anyone in the industry seeking to address the officers' and directors' firm grip on primary oil & gas production revenues. As the saying goes, "Who needs profits?" Perhaps we should start calling them "Czars." One thing People, Ideas & Objects knows for sure is that our research legacy and the Preliminary Specification stand alone—there are no other fools or solutions.

"That Jarring-Gong." Part V

 Clarifying Our Budget and Profitable Production Rights

In this post, People, Ideas & Objects aims to clear up some confusion regarding our budget and the motivation behind raising our first year's funds. Despite our efforts to address questions in writing, we recognize that not all concerns may be fully addressed. Unfortunately, our blog stopped accepting comments in 2010—not for the reasons some might assume, but because valuable contributions were being made by unlicensed contributors, posing a risk to our Intellectual Property. Nonetheless, we remain open to communication and have provided my email address and two phone numbers for direct contact. Please feel free to reach out at any time.

The two topics of concern are:

• Our Budget Demands:Some have questioned whether we are capitulating on our budget demands or if we have given up on securing the upfront budget proceeds before starting. The answer is no, we have not abandoned these demands. Securing the upfront budget remains critical to our user community and overall project's success.
• Profitable Production Rights: There is a misunderstanding about the connection between the Profitable Production Rights and their purpose. These rights are not just about providing People, Ideas & Objects with the necessary financial resources. They hold intrinsic value and are crucial for the project's long-term success. Profitable Production Rights holders are the exclusive providers of access for producers to realize a substantial value proposition.

We understand the need for better communication on these points and are committed to providing the necessary clarity. Your questions and feedback are invaluable, and we appreciate your engagement.

The Budget

The budget outlined in the Preliminary SpecificationPreliminary Specification stands at $25 billion U.S. which doesn’t include the fully subscribed Flexible Profitable Production Rights. Why is it so high? The extensive costs are attributed to the comprehensive scope and scale required to rebuild the oil & gas industry based on the vision presented in the Preliminary Specification. The justification for this substantial budget lies in the documented incompetence of producer officers and directors, who have allowed the industry to decline into its current state.

Since the onset of the shale era, the industry has incurred $4.1 trillion in lost natural gas revenues by late 2023. This immense financial loss, resulting in over $40 billion U.S. in revenue losses each month in early 2024, highlights shale may be the greatest endowment of enrichment known to man, administered in the most inept and incompetent manner by these producer officers and directors. People, Ideas & Objects argue that attributing this scale of loss to "opportunity costs" or the justification that "natural gas is a byproduct" is unreasonable.

A staggering 764 TCF of gas was wasted to create this financial disaster. The industry's missteps include declaring that shale will never be commercial and pursuing clean energy, which has yet to produce a profit without substantial government subsidies. After realizing their misguided clean energy ventures, officers and directors returned to shale, now hoping that consolidation will resolve the issues that led to these losses.

These problems are deeply rooted in the industry's culture, beginning with the existence of the current officers and directors. Meaningful change can only occur when this culture is eradicated and replaced with a new one focused on preservation, performance, and profits, as advocated by People, Ideas & Objects. Only then can the industry move past this legacy of destruction.

I have no reservations about asking for our budget. I believe the value has been established and proven through the seven Organizational Constructs supporting dynamic, innovative, accountable, and profitable oil & gas producers. These issues are real and existential for the industry, the service sector, and the economic and political performance of North America. Whether asking for $5 or $25 billion, the producers' mindset would remain unchanged. Implementing the Preliminary Specification is seen as self-destructive due to disintermediation.

The Timing Issue

Delaying our project only prolongs the industry's suffering. Conceding on the budget might seem like a way to move forward, but I believe it's neither necessary nor prudent at this stage. However, we can strategically buy some time. The first year's development costs are relatively small, estimated at $10 million, and we could start in September 2024. This approach avoids the long wait to secure the entire budget.

If we halt after the first year, the impact would be minimal. It wouldn't disrupt a large workforce or jeopardize the careers and credibility of our user community members. Therefore, we propose starting developments in September on this basis, allowing us to tackle subsequent budget challenges as they arise.

This proposal is a straightforward step toward what should have been initiated long ago. People, Ideas & Objects aim to expedite the product's delivery to the market and implement the necessary changes. To facilitate this, we have discounted the price of the Profitable Production Rights to 10%. This enables rights holders to process 100,000 BOE/day when our Cloud Administration & Accounting for Oil & Gas software and service becomes operational. The resulting $10 million in revenue will jumpstart our development efforts, providing us the ability to develop the software and technical infrastructure to establish the blockchain and smart contracts for Profitable Production Rights holders, based on their agreements with producers.

The overall budget and completion date of the Preliminary Specification is a task that currently exceeds the capacity and capabilities of People, Ideas & Objects to determine. We will complete this within our first year.

Profitable Production Rights Value Proposition

People, Ideas & Objects have consistently highlighted our value proposition, estimating it to range from $25.7 to $45.7 trillion over the next 25 years. We validated this figure in 2023, demonstrating $4.1 trillion in revenue losses during the shale era. These losses resulted from the collapse of the natural gas pricing structure, which shifted from its heating value equivalent of 6 to 1, to as high as 50 to 1 by early 2024. Contrary to the claims of producer officers and directors, these losses are not mere opportunity costs; they are real and substantial, reflecting a deeper industry crisis. Disenchanted investors, recruitment challenges, and a decimated service industry operating at just 30% capacity are stark indicators of this turmoil. The industry's current state is dire, with petroleum reserves requiring cash to produce, rendering the net present value of the industry negative.

A crucial point we may not have communicated effectively is that this value proposition becomes accessible to producers only by adopting the Preliminary Specification to manage their organizations. This approach enables producers to define their costs as variable within the Joint Operating Committee. Each Joint Operating Committee would receive monthly detailed financial statements, including actual, factual, detailed, objective, and standard overhead costs, along with appropriate depletion charges. This transparency helps determine the true profitability of properties. If a property is unprofitable, it can be shut in, thereby implementing a fair and reasonable method of production discipline. Profitable Production Rights holders are the exclusive providers of access for producers to realize this value proposition.

Officers and directors often dismiss our method as "collusion," yet today they engage in actual collusion. They fail to acknowledge that a firm producing unprofitable products is unsustainable and must cease such production for its own good. The Preliminary Specification ensures overhead costs are variable and tied to profitable production. Consequently, any shut-in production results in a null operation—neither profit nor loss. By posting actual overhead costs to the Joint Operating Committee for performance and pricing purposes, these costs can be passed to the consumer in the current period. This practice ensures that overhead costs are returned as a cash float to fund the following month's expenses. Currently, producers capitalize overhead and recover these costs over periods extending up to twenty years, leading to a chronic demand for capital.

By shutting in unprofitable production, producers 

• Can maximize corporate profits by eliminating losses that dilute profitable properties. 
• They can preserve reserves for profitable production in the future. 
• Reduce production and storage costs. 
• Lower reserves costs by not having to recover prior losses. 
• Removing marginal production from the market helps establish the marginal price, benefiting their entire production profile. 
• Marginal prices reflect today's replacement cost value of a barrel of oil equivalent.
• Shut-in properties can be innovatively worked back to profitable production. 

This method of production discipline is fair and reasonable: if it produces profits, it produces.

The Value in Profitable Production Rights

To operate any production in North America using our Cloud Administration & Accounting for Oil & Gas facility, producers must license the appropriate volume of Profitable Production Rights. These rights grant access to the comprehensive Oracle Cloud ERP-based Preliminary Specification system being built from the proceeds of Profitable Production Rights. Without these rights, whether through direct ownership or lease, producers cannot access the facility or its benefits. The owner of the Profitable Production Rights holds the leverage, as they control the essential access that producers need to manage their production profitably. Owners of these rights, each equating to the processing of one BOE/day, will negotiate, bargain, and lease their access rights to producers.

A common argument is that consolidated producers may choose not to participate in the development and use of the Cloud Administration & Accounting for Oil & Gas software and service. This is a valid concern, and it raises questions about the future sustainability of these consolidated producers. Critical questions include: What industry will they ultimately focus on? What business insights will they gain moving forward? How will they handle recruitment when individuals have opportunities to establish their own oil & gas firms, join our user community, or hold Profitable Production Rights? As markets mature and consolidation becomes less viable, as seen in other disintermediated industries, these considerations become increasingly pertinent.

A fitting example is the music industry, which has undergone a complete transformation over the past 24 years. Artists like Taylor Swift and Kanye West now operate independently, making hundreds of millions of dollars without relying on traditional industry infrastructure. This stands in stark contrast to past superstars who depended on agents, managers, producers and recording labels to earn significantly less. 

The ultimate fate of North American oil & gas producers is uncertain. It will be shaped by individuals who engage with our user community members, small and start-up producers, and those who own the Profitable Production Rights to process barrels of oil using the Cloud Administration & Accounting for Oil & Gas software and service. Those with the foresight to purchase People, Ideas & Objects' hybrid oil & gas and technology product will play a crucial role. They will hold transferable access rights in perpetuity for as long as the software remains relevant, enabling producers to operate their firms within a culture of preservation, performance, and profitability. I’ll reiterate, Profitable Production Rights holders are the exclusive providers of access for producers to realize the $25.7 to $45.7 trillion value proposition.

"That Jarring Gong," Part IV

 People, Ideas & Objects are the licensed commercial developers of the Intellectual Property presented in this blog, wiki, and other platforms. Moving forward requires licensing this IP to our user community and their service provider organizations. This will also be a crucial consideration in what we anticipate to be a comprehensive Oracle agreement.

My initial negotiations with Oracle in 1991 took a year to complete. People, Ideas & Objects have unique and specific needs that Oracle may or may not have encountered before. However, we have always found Oracle's organization to be performance-oriented and highly motivated. What we sought to accomplish in 1991 pales in comparison to the complexity of our current implementation.

We approach this endeavor with open eyes and the benefit of our experience from our Oracle relationship between 1991 and 1997. That relationship ended in failure due to the lack of market performance and the inability to get oil & gas producers to commit to participation. We now attribute this failure to producers' reluctance to embrace accountability within their organizations. This is the same type of failure Oracle experienced with their Oracle Energy initiative, which was removed from the market in 2000, and the same issue IBM faced when they exited the market in 2005. These market failures, driven by the actions of producers' officers and directors, have been documented in detail on this blog over the past few decades.

Groundwork

Repeating the same actions and expecting different results might question my mental fitness, but the persistent issue is the lack of producer participation. This has been evident in our 2017, 2021, and now fourth attempt to fund the development of oil & gas ERP systems. Given the industry's current level of destruction and the urgent need for a rebuild, the avoidance of accountability by producer officers and directors has become untenable. Is it my persistence that’s at issue here, or is it the obstinance of producer officers and directors?

In the first year of our development, we must focus on organizational groundwork. People, Ideas & Objects have operated on a bare-bones budget for decades, and it shows. Discretionary funds are virtually nonexistent. Consequently, many tasks beyond our Intellectual Property still need to be addressed. The advantage of this situation is that the configuration is yet to be written, allowing us to seek input and foster a collaborative environment. This collaboration will be essential in determining the appropriate methods to resolve difficulties as part of the overall vision of the Preliminary Specification.

My Role

When I began, my sole ambition was to write software. Those days are behind me, and the scope and scale of our work have expanded to the point where no single person can claim credit. Instead, our initiative will be the collective effort of thousands. Our user community is the driving force behind this initiative, as detailed in our user community vision. User communities are essential for building and implementing quality ERP systems. Our user community is licensed to create derivative works of the Preliminary Specification, and our developers are licensed to seek input exclusively from our user community, which also has absolute control over its budget. 

Our user community wields the power to effect change and build the Preliminary Specification within the rebuilt oil & gas industry culture of preservation, performance, and profitability. People, Ideas & Objects, our user community, and their service providers are dedicated to providing the most profitable means of oil & gas operations. Producers will have a single point of contact to address their software configuration and development issues. In today's ERP systems landscape, who has the authority or financial resources to adapt to the industry's evolving needs?

My contributions are embedded in the current Preliminary Specification. In 2003, recognizing the potential of the Joint Operating Committee as a solution, I embarked on a decade-long research journey to determine what, how and why producers and the industry should operate if the Joint Operating Committee were the key organizational construct. This involved answering critical questions, exploring every possibility, and learning from failures. The work was arduous, especially during the 2008 financial crisis, when I felt I was failing to deliver timely solutions. However, the research culminated in the completion and publication of the Preliminary Specification in August 2012.

Our User Community 

People, Ideas & Objects are built upon three distinct competitive advantages: Intellectual Property, research, and our user community. At the start of 2024, we focused on developing our research capabilities and initiated three unannounced projects. One of these projects involves the compensation structure for our user community. Currently, user community members are compensated on an hourly basis. Their individual contributions will be analyzed using AI to determine the service provider organization they have earned, its function, and the corresponding assignment to a user community member. This performance metric serves as a strong incentive based on their overall contribution.

However, we are concerned that this might not be sufficient. The task ahead for our user community is as challenging as the research that identified the Joint Operating Committee as the key organizational construct. While designing the details will be easier and less time-consuming, the conflicts and contradictions will be more intense. Our current hourly rate does not incentivize the rigorous work required to navigate these difficulties. It does not, in my opinion, set the appropriate tone to attract those with the sense of urgency, motivation, and incentive needed to resolve these industry issues. We are researching a new compensation method for our user community that is incentive-based and more lucrative for high performers while still providing adequate hourly compensation to meet their needs.

The hourly component will be used to acquire or purchase Intellectual Property from our user community members. We will buy it from them. Additionally, we will implement an AI algorithm to determine the allocation of service provider organizations for user community members when the application is deployed. We expect our user community members to hold part-time independent roles, otherwise leading their service provider organizations and to continue in these roles throughout the software's lifecycle. Our compensation system will consider these foundational aspects and include the following attributes:

• Budget Control. Our user community will control its budget, with a clearly defined process for its operation, that will be developed in these first year's budget requirements.
• AI Algorithm Development. The AI algorithm for assigning service providers will be developed by our user community in the first year, ensuring it is available when needed.
• Work Identification and Compensation. The process for identifying, budgeting, and approving user community members' work will be defined, with a significant portion of compensation coming from bonuses upon successful completion.
• Performance Criteria. The process will be developed by each user community member and will emphasize performance, represented by quality and features at the expense of cost.
• Decision-Making Authority. Each user community member will have decision-making authority over their domain of involvement as users and within their service provider organizations. 

We are also exploring additional performance-based incentives for our user community members. Our compensation research project is expected to be completed by December 2024, ensuring that our user community has the means to make the Preliminary Specification successful. They will have the power to effect change, allocate financial resources to priorities, and incentivize performance to ensure both personal and professional success.

User Community Defined Quality

Developing and implementing Enterprise Resource Planning (ERP) software is a complex and challenging task. The proven method to enhance system quality, implementation, and value is to align development with user needs. People, Ideas & Objects leverage our user community as one of our three competitive advantages. After publishing the Preliminary Specification in August 2012, we prioritized developing our user community, starting with the publication of our user community vision in March 2014.

The failure of most ERP systems today lies not in focusing on user-based systems but in their implementation. Typically, a user committee is formed to identify surface-level needs, leading to conflicts and contradictions that quickly inflate the budget. Consequently, the user committee is disbanded, a generic ERP system is implemented, and users must adapt to the system as is until the next implementation cycle.

Quality can only be achieved through an empowered user community, like that of People, Ideas & Objects. Although it may seem that this approach slows down development, we know otherwise. By publishing our user community vision in March 2014, we have sparked a shift in the minds of users within the oil & gas industry. They recognize the difference and understand how the industry should operate with the Preliminary Specification. Many have envisioned their roles in making this a reality, with ideas evolving in potential users' minds for a decade.

This long-standing engagement presents an opportunity to accelerate our quality-driven user developments. Empowered by a clear vision, our user community is poised to drive meaningful, user-centered enhancements in the Preliminary Specifications development, ensuring it meets the true needs of the industry.

Our User Community Conclusion, For Now

Our goal is to ensure that our user community members are empowered individuals, equipped with the right incentives and tools to drive the success of People, Ideas & Objects, the oil & gas and service industries. We aim to foster an industry culture centered on preservation, performance, and profitability, where dynamic, innovative, accountable, and profitable oil & gas producers are provided with the most profitable means of oil & gas operations, everywhere and always.

To achieve this, our user community must have the authority to effect these changes, control their own budget, be the sole source for software developer input, and be the exclusive point of contact for anyone seeking input on the developments of the Preliminary Specification. Governed by the Preliminary Specifications Intellectual Property license, each user community member will have decision-making authority over their domain. They will select an area of the application where they have skills, experience, understanding, and knowledge, but most importantly, where they have ideas. This will create a collaborative environment where like-minded individuals with different approaches and contributions can find each other and add value. Their processes and features will overlap and interact with others', creating a synergistic effect.

"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.