Arbitrage Strategy, Part III, One Lever, Four Actions

It’s tempting to claim that replacing and rebuilding the oil and gas industry is unnecessary and that current leadership has everything under control. People, Ideas & Objects will not lead that charge. We seek new leaders who instinctively recognize the industry’s operational and financial disarray and are ready to pursue alternative paths. Organizations don’t change—people do. Addressing the scale and scope of oil and gas challenges requires organization first. This transformative leadership and change must be backed by the financial community to succeed. Please read our papers on leadership in oil & gas here and here. And our April 2025 White Paper on this Arbitrage Strategy. 

Broad participation in shaping the future oil and gas industry is critical now. Further delays in rebuilding a viable industry are unaffordable. Who will consumers turn to when their energy needs go unmet, forcing reliance on foreign producers? Ceding control of North America’s economic future is unacceptable and must not be passively entertained. This isn’t yet a crisis, but it looms large.

Whether investors choose to sue producer officers and directors for willful misconduct or negligence will be decided by those with greater authority than I. Leverage lies with those who have witnessed decades of poor producer performance. The current situation was predictable, inevitable, and widely discussed by People, Ideas & Objects, making it nearly impossible for officers and directors to claim ignorance—they had to willfully ignore the warning signs.

Today, leverage rests with investors eager to reengage with oil and gas. The status quo leadership, responsible for these issues, will never address them. Acknowledging the problems would demand they admit their culpability.

Investor Actions 

Beyond their overstated claims of shale innovation, oil and gas producer officers and directors have revealed one undeniable truth: shale represents the continent’s greatest wealth endowment. Yet, after two decades of their leadership, the industry lies in ruins, with no residual value. An industry that neither profits, knows how to profit, nor cares to profit is unsustainable.

First-quarter 2025 reports confirm production declines in over half of our sampled producers, a direct result of their reckless destruction of the service industry, now operating at 30% of its pre-2015 capacity. Their “muddle through” strategy—relying on misinformation, blame-shifting, and scapegoating—yields no progress, only mounting challenges. Under current leadership, the industry is locked in a decades-long culture of decline that will devour any reform attempt. This culture must be abandoned decisively, replaced with People, Ideas & Objects’ vision of reservoir preservation, performance, and profitability.

Decades of leniency have been granted to these leaders, yet the industry continues its downward spiral. Oil and gas are no longer commodities to be taken lightly—our economic and political future hinges on energy independence, or even dominance. Consolidation, a misstep that maintains inflated asset values through dilutive share swaps, is the wrong path.

The investment community must now lead, using this arbitrage strategy to transfer the industry to new hands. By accelerating property sales, “new” investors can rebuild oil and gas under a culture of reservoir preservation, performance, and profitability, as outlined in the Preliminary Specification. The investment community’s objective, unrelenting guidance is essential to wrest control from self-serving officers and directors. The industry’s scientific brilliance and innovation must drive competitive differentiation, enabling dynamic, innovative, accountable, and profitable producers to compete fairly on North American capital markets.

The service industry, battered by decades of producer abuse, requires active rebuilding within this vision. Producers, through their deceit, bear the blame and cannot expect the service industry to risk further exploitation without shared commitment. If producers invest meaningfully, respect may follow.

Investors now hold absolute leverage due to officers and directors’ failure to act, breaching their fiduciary duties and exposing themselves to personal financial liability. This leverage can drive the necessary business transformation. The time for action is now—we all share a duty to avert further consequences. North American consumers will soon demand accountability, and the fallout will be severe for those unprepared.

Industry Leadership Actions

Since the early 2000s, I have built a personal knowledge management system inspired by Nobel Prize winner Herbert A. Simon’s insight:

In an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.

(Simon, H. A., 1971, Designing organizations for an information-rich world, in Computers, Communications, and the Public Interest, pp. 40–41, The Johns Hopkins Press).

Using tools like Readwise (https://readwise.io/i/paul8934 for one month free) and its Reader app, I collect and review highlights from books, articles, PDFs, X posts, and podcasts via Snipd (https://get.snipd.com/pAbF/0sbistdl ). My system, enhanced by AI, curates content by searching for conceptually similar ideas. A striking example comes from Aleksandr Solzhenitsyn’s The Gulag Archipelago 1918-1956, a challenging but essential read for those swayed by ideological extremes:

A bold thought, a desperate thought, a thought to raise a man up: how could things be changed so that instead of us running from them, they would run from us? Once the question was put, once a certain number of people had thought of it and put it into words, and a certain number had listened to them, the age of escapes was over. The age of rebellion had begun.

AI analysis of my collection surfaces related themes of transformative shifts—from fear to resistance, passivity to rebellion—mirroring Solzhenitsyn’s spark of collective action. This resonates with the urgent need for change in the oil and gas industry—namely, the moment where fear and passivity give way to collective resistance and a new age of rebellion or transformation:

1. The clearest parallel is found in another section of Solzhenitsyn, where an ordinary act of refusal—"I’m not going"—becomes contagious and tips the balance from acquiescence to collective resistance. As others join in and refuse to let the authorities take a fellow prisoner, the captors realize that they can no longer operate with impunity. Solzhenitsyn writes that "[w]e were thousands! that we were... politicals! that we could resist!" The passage concludes with a sense of the revolution gathering strength and the "wind that seemed to have subsided... sprung up again in a hurricane to fill our eager lungs"—a quintessential image of the transition from escape and resignation to rebellion and collective power.

Leadership from those specified above know it’s time. 

2. Another powerful conceptual sibling is from John Locke, where resistance to tyranny is reframed: "those who justly resist are not the rebels; rather the rebels are those who are justly resisted." The doctrine of just resistance, rather than promoting rebellion, acts as the "best fence against rebellion" because it reminds rulers not to test the people’s tolerance for injustice. This passage carries the idea of a conceptual switch—of the moment when individuals and groups see that the real disturbance is not in resisting but in allowing unchecked authority.

The true rebels are not us but the small cadre of officers and directors who have exploited the system for personal gain. They hold the responsibility, accountability, and resources to lead the industry, not to enrich themselves. The status quo offers no viable future. Investors must act decisively, sending an unmistakable signal for reform, as further delays will deepen and prolong our challenges.

3. In Kissinger’s World Order, revolutions are described as erupting "when a variety of often different resentments merge to assault an unsuspecting regime." The broader the coalition, the greater the transformative potential—the parallel here is in the gathering of thought and will, when isolated individuals suddenly see themselves as part of something larger, and revolutionary change becomes possible rather than impossible.

In an us vs. them, they are the small cadre of officers and directors who hold the responsibility, accountability and resources to lead the industry, not to fuel their personal empire. 

4. In Thomas Schelling’s analysis of "spontaneous" revolt, he notes that when tyranny is effective in making examples of leaders (thus exacting a price for resistance), people will not move until "a signal so unmistakably comprehensible and so potent in its suggestion for action" is received. Once that threshold is crossed, and the potential for mutual support is clear, "spontaneous" collective rebellion becomes possible.

I believe that day is today. If left too much longer our difficulties become more profound and protracted. Investors must send "a signal so unmistakably comprehensible and so potent in its suggestion for action" that there is no ambiguity. 

5. Victor Davis Hanson discusses the concept of the "counter-revolution," a moment when the "madness" of a revolutionary situation reaches its limits and a critical mass seeks to restore normalcy. This is an explicit call to collective change, where individuals stop running and attempt to reverse the tide.

How many more chances will current leadership receive? How can we justify inaction when the need for change is clear? The industry’s trajectory under these officers and directors risks an existential crisis for oil and gas, threatening North America’s economic and political stability. Investors must leverage their authority to drive a mental shift toward action, using the Preliminary Specification’s vision of reservoir preservation, performance, and profitability as the foundation for rebuilding.

6. In the podcast Back to the People, the idea that "doing the right thing... puts the biggest target on your back and they will hunt you" directly echoes the existential risk and courage required to move from compliance or flight to standing one’s ground—even in the face of extreme danger. The passage details the necessity and inevitability of taking a stand, at great personal cost, when confronted with injustice.

My journey advocating for industry reform has taught me that ideas have consequences. The Preliminary Specification challenges entrenched norms. Is it enough to catalyze the investment community’s resolve? If left unaddressed, the industry’s decline could redefine “crisis” in catastrophic terms.

7. A different but related angle is found in Changemaking and overcoming resistance: Travis Kalanick asserts that "to overcome resistance to change, build trust with those you are asking to change." The notion here is about overcoming a culture of passivity or hostility—transforming fear and inertia into coordinated change, which echoes Solzhenitsyn's theme of the mental shift that precedes action.

Just as Solzhenitsyn described a turning point where courage reaches critical mass, we stand at a crossroads. Investors and new leadership must seize this moment to confront the status quo, shift from resignation to action, and rebuild the industry. History turns on such moments—let this be ours.

8. Lastly, in another highlight from Kissinger's World Order, it's observed that "[t]he grave conditions described here must, in the end, provide the impetus for societies to insist on meaningful leadership... greatness in history resides in the refusal to abdicate to vast impersonal forces," echoing the idea that history turns when people stop fleeing and instead face their challenges head-on. 

Each of these passages encapsulates—like Solzhenitsyn’s—those pivotal moments where thought and courage reach critical mass and the balance shifts from submission to confrontation, resignation to rebellion, and thus, where history turns. 

In Summary, Investors Have One Lever - Four Actions

Our strategy relies on the following understanding. Producer officers and directors can be incentivized to facilitate their companies’ liquidation to reduce their personal liability and preserve Directors & Officers (D&O) Insurance coverage. Investors are able to enact the Arbitrage Strategy by doing the following. 

• Acquisition of conventional and unconventional reserves at ultra low commodity prices. 

• Ultimately realizing both price and reclassification increases in reserves valuations. 

• Obtaining profitable operations through a reorganized and Preliminary Specification enabledindustry. 

• Producers can be directed to distribute special dividends of the proceeds from property sales to assist their investors in funding their acquisitions. 

• Enable People, Ideas & Objects reservoir preservation, performance and profitability culture. “New” investors purchase, and direct “old” producers to acquire Profitable Production Rights. People, Ideas & Objects method in which to fund the Preliminary Specification. 

• Producer officers and directors are motivated to participate in their liquidation to mitigate their liability and maintain D&O Insurance Coverage. 

• Indirectly stimulating the “new” producers leadership market to initiate action in creating dynamic, innovative, accountable and profitable oil & gas producers.  

Arbitrage Strategy, Part II, Leverage

Many issues are resolved in the Preliminary Specification, when implemented. The question arises why has that not occurred, or better yet, why has the level of accountability in oil & gas remained as opaque as it is and continues to be unaddressed? Producers could resolve their decade old conflict with their investors and regain support for their capital structures by doing so. What obstacle or obstruction is standing in their way? Two unresolved material issues which are directly addressed and appropriately resolved by the Preliminary Specification are the capital allocation to reserves for commodity pricing purposes and producers ability to shut in production. The consequences of producer inaction is the purpose for this Arbitrage Strategy we’re encouraging investors to use. 

Issue One: Capital Allocation to Reserves

In the capital-intensive oil and gas industry, unique business principles must be addressed. Capital costs dominate the cost structure and should be passed to consumers, but current pricing calculations in oil and gas fail to do so. SEC requirements uniformly allocate drilling and completion costs to every molecule of proven reserves, regardless of production timelines. This practice, applied to both conventional and shale properties, significantly distorts costs, particularly in shale due to its substantial reserves discovery. It severely understates per-barrel capital costs, inflating asset values and by equal amounts, overstates profitability, retained earnings and shareholder equity in financial statements.

Shale’s reservoir characteristics allow producers to book vast proven reserves, often in the Trillion Cubic Feet (TCF) range for natural gas—a scale once exclusive to major producers. However, shale wells experience steep production declines within 18-24 months, necessitating costly reworks like additional laterals and / or refracing, which can cost 50-60% of original drilling and completion expenses. These costs are added to property, plant, and equipment, again allocated across all proven reserves. This accounting method risks leaving substantial capital costs stranded upon property abandonment, a problem exacerbated by shale’s high costs, high deliverability, steep declines, and large reserve bookings.

This issue has been repeatedly raised, including in blog posts like “Issue Mitigated, Nothing Litigated” and “Reality, Accountability, Myths and Chester Too” from January 2021, and on page 32 of the July 4, 2019, White Paper, “Profitable, North American Energy Independence — Through the Commercialization of Shale” Industry leaders are aware but have not adequately addressed, it states.

What we do know is that no producer at any time in the past four decades has temporarily shut-in any oil or gas due to its lack of economic performance. Here is the very difficult aspect of the behavior which is conducted in oil and gas today. Not only do they continue to produce systemically, everywhere and always below the breakeven point. They’ve attempted to deceive everyone by allocating their capital costs to each and every molecule of oil and gas held in reserve no matter how long it will take for that molecule to be produced. Will it be this year, this decade or this century in the case of shale reserves of natural gas? Therefore deceiving everyone with the misguided belief that their breakeven costs are $50 / boe when they’re really $150. Causing the erosion of value and wealth to accelerate even faster out the firm.

This issue is evident throughout the oil & gas conventional and shale reservoirs. It has been present since the late 1970s SEC guidelines for Full Cost were implemented and forms part of the industry culture. In January 2021 the SEC began an investigation of Exxon's overvaluation of their assets as a result of an Exxon employee whistleblower complaint. Most particularly in the Permian field. As of today the investigation is believed to be ongoing as there has been no public announcement regarding results. 

Issue Two: Shutting In Production

Our July 4, 2019, White Paper outlined our decentralized production model, or price maker strategy, emphasizing the benefits of shutting in unprofitable production. Enabling independent business decisions by Joint Operating Committee members, based on actual, factual accounting which determines if the property is profitable do not constitute collusion, despite claims by producer officers and directors to dismiss People, Ideas & Objects’ Preliminary Specification.

Officers and directors have also argued that shutting in production would damage reservoirs and incur high costs—claims lacking merit, as shutting in is standard practice during Gulf of America hurricanes, plant turnarounds, and workovers. Nine months after the publication of our White Paper, the COVID-19-induced demand collapse forced a 25% reduction in global oil production. Producers later reported no reservoir damage and full restoration of prior production volumes, contradicting their earlier stance. This discrepancy remains unreconciled.

Determining profitability per property is currently impossible in oil and gas. Since the 1986 oil price crash, the industry’s high-throughput production model, which relies on full production to offset high overhead, has obscured profitability. This model persists as a cultural norm. Our price maker strategy calculates the marginal cost of each incremental barrel, financing the replacement costs for all future production. 

Oil and gas, unlike other commodities, provide 10,000 to 25,000 man-hours of labor per barrel of oil equivalent, and fueling an undetermined volume of Artificial Intelligence, underscoring its unique value proposition to consumers. We have a duty to future generations to deliver a thriving, profitable industry with abundant reserves. How will we justify consuming such valuable resources if their production isn’t profitable?

In 2023–2024, People, Ideas & Objects estimated a $4.7 trillion revenue loss in natural gas this century. Calculated by comparing revenues at a 6:1 oil-to-gas heating value ratio to actual revenues, where ratios reached 50:1 in early 2024. This reflects chronic overproduction’s devastating impact on natural gas’ price structure. Oil price distortions are global and subjective but may be similarly significant.

Our price maker strategy enforces production discipline by aligning with capital market demands. Shutting in unprofitable properties prevents dilution of profitable ones, maximizing overall corporate profitability. Competition in North American capital markets will drive dynamic, innovative, accountable and profitable oil & gas producers' production discipline. 

Discussion

Since the 1986 oil price collapse, producers’ focus on cost-cutting has been a flawed strategy, masking systemic unprofitability. This operational fixation has weakened the service industry, reducing its capacity and pushing it toward non-oil and gas sectors or operations outside North America. Producer officers and directors have not acknowledged this industrial decline.

The resistance to change from officers and directors suggests an intent to sidestep these issues, possibly driven by personal financial motives. Their documented inaction could jeopardize their Directors & Officers Liability Insurance. Questions arise about their insurance status, potential use of corporate resources for indemnification, or pursuit of alternatives like funding the Preliminary Specification to adopt an “Issue Mitigated, Nothing Litigated” approach.

To establish a breach of fiduciary duty, it’s sufficient to show officers and directors should have known about these issues, as evidenced by basic accounting principles, discussions and quantifications on People, Ideas & Objects’ blog. Their failure to act has damaged the industry and its secondary and tertiary sectors.

While proving personal motives for inaction is uncertain, officers and directors are the primary beneficiaries of the industry’s status quo. Under our Arbitrage Strategy, their questionable stewardship raises doubts about the industry’s future. Investment groups, recognizing strong future demand for oil & gas, and North America’s strategic advantages, are eager to invest but distrust incumbent leadership. By leveraging the officers’ and directors’ fiduciary duty violations, investors can oust them, dismantle their culture, and rebuild the industry based on the Preliminary Specifications Arbitrage Strategy.

Continued in Part III, One Lever, Four Actions

Arbitrage Strategy, Part I, Background

 People, Ideas & Objects Arbitrage Strategy

People, Ideas & Objects value proposition offers oil & gas producers the most profitable means of oil & gas operations, starkly contrasting the entrenched “muddle through” and “do nothing” approaches of current producer leadership. Their strategies, unchanged despite over a decade of investor demands, have squandered industry value and investments. Producer firms have not only wasted resources but also systematically eroded the service industry’s capacities and capabilities. Today, oil and gas reserves are a financial burden, consuming cash during production and proving worthless if unprofitable, as we’ve long asserted.

Our strategy splits the industry into “old” producers, clinging to failing models, and “new” producers, leveraging the People, Ideas & Objects Preliminary Specification to profitably produce all oil & gas. By focusing on reserves—especially undervalued natural gas—“new” producers can rebuild a dynamic, innovative, accountable and profitable industry. Investors today can acquire non-operated properties at low commodity prices, realize the price increase for those reserves value and move volumes of possible and probable categories to the proven reserve classification. Managing them in the short-term through the Joint Operating Committees operator. This approach unlocks significant upside through rising commodity prices and reclassifying probable/possible reserves as proven.

For “old” producers, selling these properties should be distributed through special dividends, delivering financial returns to the investors who just purchased the property. However, “new” producers require a robust mid- to long-term system for operations, administration, and accounting. The Preliminary Specification, tailored for this strategy, is the only viable solution. It must be funded through Profitable Production Rights and implemented for “new” investors to realize our Arbitrage Strategy. Learn more about Profitable Production Rights.

Our History

Our writings have consistently emphasized the Preliminary Specification’s price-maker strategy, which maximizes revenues and aligns with today’s oil and gas replacement costs. This ensures producers operate as high-performance organizations with strong reserves value and financial results, competing effectively in North American capital markets. Chronic overproduction, driven by intellectual and systemic failures, has suppressed commodity prices—a core issue we address. Yet, the Preliminary Specification is more than a price solution; it’s a comprehensive ERP system.

Valued in the trillions over 25 years, our value proposition reorganizes the industry using the Internet, replacing outdated hierarchies as other sectors have done. Despite resistance from producer leadership, our warnings—ignored for years—have proven prescient, with the industry now in a historically dire state. Oil and gas, as a primary industry, generates enough cash to maintain a facade of viability, but financial reporting, based on SEC rules, has been distorted. The industry’s focus on “building balance sheets” and “putting cash in the ground” inflated assets and profits, attracting over-investment and causing overproduction of price-sensitive commodities.

Since introducing the Preliminary Specification in 2012, we’ve faced obstinance and resistance from producer leadership. Their mismanagement has also alienated the service industry, destroyed trust, and driven away their investors for over a decade. Producers’ credibility is gone, and their financial performance is abysmal. As a primary industry, oil and gas must recognize its revenues stem from secondary and tertiary industries' involvement not just internal efforts. Dumping its financial challenges onto the service industry has eroded its capacity, ensuring no recovery of faith or goodwill for “old” producers. The path forward lies with “new” producers acquiring properties and the development of the Preliminary Specification as the organization supporting industry.

Directors and Officers Liability Insurance

On June 2, 2020, following the release of our White Paper, “Profitable, North American Energy Independence — Through the Commercialization of Shale,” I raised concerns about Directors and Officers (D&O) Liability Insurance. Our July 4, 2019 paper, dismissed by producer leadership as unworkable, argued for shutting in unprofitable production—a concept ridiculed until April 2020, when oversupply drove oil prices to negative $40.00, refiners rejected production, and 25% of global output was shut in. My comments on D&O insurance were validated by a June 9, 2020, Reuters report noting producers increased their D&O coverage by 75%.

Since then, People, Ideas & Objects have highlighted D&O insurance, emphasizing that officers and directors were informed of their inactions through our efforts and bear fiduciary responsibility to address them. We prepared a draft RFP response, a no-risk proposal, but received no engagement. In early 2025, we quantified the industry’s failures: a $4.7 trillion loss in natural gas revenues since 2009 due to a pricing structure collapse from 6:1 to 50:1, and a missed LNG market opportunity stemming from a basic business misunderstanding of “free on board.”

We question whether these failures reflect deliberate neglect or the “muddle through” inertia of producer leadership. Given the scale of losses, time elapsed, and dishonesty displayed, is “muddle through” just laziness or veiled grift? Despite being informed of $4.1 trillion in natural gas losses in early 2024, no producer contacted us about the Preliminary Specification. And the EIA reported 2024 natural gas prices were the lowest ever.

The industry’s destruction and our harsh treatment are maddening, yet we understand the threat we pose to those resistant to change. More perplexing is why producer leadership has ignored investor demands for over a decade. Investors, seeking action, see no progress. What leverage can they use to compel producers to sell properties and distribute these proceeds as special dividends?

 

The most powerful economy will be the largest energy consumer, emphasizing the need to manage our oil and gas resources wisely. Unprofitable production is wasteful and irresponsible. No external source will provide cheap, reliable energy to fuel the leading nation. Profitable energy independence is not only achievable but essential, and consistent profitability is the only capital source robust enough to achieve and sustain it. By adopting the Preliminary Specification from People, Ideas & Objects, supported by our user community and service providers, we can build an industry that ensures producer profitability, aligning with this vision.

This discussion continues in “Arbitrage Strategy, Part II, Leverage.”

Cultural Stagnation or Revolution

 There’s a point of divergence in the market that holds the fate of the industry in its hands. Those with the cultural influence today are at a difficult point in terms of the industry's fortunes. Custody of the authority, responsibility and resources to manage has been and is mismanaged on a scale unseen in the business community. We can see clearly the devastation and wrought they've authored across the industry horizon. Is anything happening? If anything does happen it usually spells the demise of one group's future prospects. Recently Chevron announced they are outsourcing some of their engineering to India and layoffs within their organization. Engineering graduates from the universities are not adequate to meet long term demands, and that more people are retiring each day are not seen as difficulties. I would have thought that recruitment to begin rebuilding dynamic local capacities and capabilities would be seen as the best solution. 

Kimmeridge Energy Management was in the news looking to Canada to buy into oil & gas producers. Stating that industry consolidation was necessary and therefore the strategy they’re pursuing. What the service industry doesn’t need is a further dilution in their customer numbers. What producers need are dynamic, decentralized and “thick markets” to solve the issues producers have created for themselves. In both oil & gas but especially in the service industry. Chevron and other producers may begin to realize they reap what they sow. What Kimmeridge shows is the extent of the oil & gas cultural influences at times extend into the investment community. 

I’m not saying the Preliminary Specification as it stands today is the solution that solves all the industries difficulties. It does however establish a culture and foundation of dynamic, innovative, accountable and profitable oil & gas operations. With input from throughout the industry it will be the solution the industry needs to begin. We need to organize an industry approach that finds the way using the guide posts of workable models of the Preliminary Specification. Before we can approach any problem of this scale we need to organize ourselves first and foremost. ERP software defines and supports the organization and allows it to function even in today’s basic economy. Imagine how oil & gas could be with the whole of industry's involvement in building the Preliminary Specification five years from now. Then imagine what the status quo would provide. 

If investors want to involve themselves in consolidation it's their responsibility. Doing the same thing repeatedly and expecting different results is insanity. There are areas of the investment community with backgrounds derived from oil & gas’ culture. For them to see People, Ideas & Objects perspective takes a certain willingness and courage. 

Decision Time 

What happens to this industry from this point will be the result of many difficult decisions. People who have watched from the sidelines, who didn’t see the bigger picture or didn’t think these difficulties would affect them now know differently. There are two vivid and stark visions in which to choose from. Each alternative can be mapped to their ultimate conclusion. People, Ideas & Objects offers the challenging and rewarding work of rebuilding and reconstruction of a dynamic, innovative, accountable and profitable industry from the ground level. The status quo is no longer offering a continuation of healthy expectations. Which year will be the one in which your job is outsourced offshore. When the status quo employs the cost control business model, and precludes any other consideration, it will continue to count the pennies while the trillions of dollars of value are ignored or misunderstood. 

In a decentralized market such as what oil & gas needs. Individual decisions need to be made by independent actors. In the past, or in simpler times this could be orchestrated and coordinated loosely through somewhat primitive means. Today’s demands are far more complex and to suggest this is the reason for consolidation is disingenuous. Accommodating speed, complexity, distance, coordination and accountability is not possible through centralized control. Accountability will most  certainly suffer and may be the driving motivation for producers to consolidate. In contrast individuals as actors in a market economy will decide which industry configuration they want and act accordingly. Ray Dalio founder of Bridgewater Associates @RayDalio. 

Ultimately, power will rule. This is true of any system. For example, it has repeatedly been shown that systems of government have only worked when those with the power value the principles behind the system more than they value their own personal objectives. When people have both enough power to undermine a system and a desire to get what they want that is greater than their desire to maintain the system, the system will fail. For that reason the power supporting the principles must be given only to people who value the principled way of operating more than their individual interests (or the interests of their faction), and people must be dealt with in a reasonable and considerate way so that the overwhelming majority will want and fight for that principle-based system.

If there’s one aspect of these past several decades where change has been necessary. The culture of the producers will never make a decision, it is not in the officers and directors best interest. And as ridiculous as it may sound that People, Ideas & Objects would pursue something for so long without the desired results. Consider that producers officers and directors have denied their investors for more than a decade now. Not only denied them, stood obstinately in opposition while they watched their prospects predictably dwindle. Generating viable excuses, blaming others and scapegoating talking points to be mimeographed and distributed to each other for a consistent message to be broadcast across the industry. 

People, Ideas & Objects understand not everyone is oriented to make such drastic decisions. At least not at the beginning. We are however looking for the leadership who will start the ball rolling with us. If this fits within your comfort level and you need to take a swing at bat then the market is the place for you. Whether that’s within our user community or anywhere within oil & gas, including as a newly formed producer, nothing will be left untouched. The first step should be to understand the configuration of the industry within the Preliminary Specification. Then act in your best interest in the market of your choosing. One caution is producers are sensitive to anyone’s affiliation with us. People, Ideas & Objects glows radioactive.  Therefore keep your plans quiet until absolutely necessary. 

Shutting In Production

The current inactivity in the oil and gas sector reflects deeper, long-standing issues. For decades, producers prioritized cash flow over genuine profitability, a focus that masked the steadily declining performance of their assets. This approach led to a reliance on investors, and when that support predictably dried up, working capital became critical. Officers and directors often point to dividends as the cause of today’s cash shortages, failing to recognize that profitability itself would generate sufficient funds, but also secure the operational independence they had lost through years of questionable financial management and reporting.

A key obstacle to optimizing the industry has been a persistent resistance to shutting in unprofitable production. Arguments typically cite excessive costs or potential reservoir damage, but real-world evidence contradicts this. During the COVID-19 pandemic, approximately 25% of global production was shut-in without widespread reports of subsequent reservoir damage. Furthermore, routine gas plant turnarounds and hurricane-related shutdowns in the Gulf of Mexico (such as those caused by Ida, Laura, Katrina, and Rita, which halted substantial production) clearly demonstrate that temporary cessation of production is both feasible and frequently practiced.

This reluctance to production shut-ins seems symptomatic of a "muddle through" culture within the industry – a tendency to wait for problems to self-correct, often resulting in unnecessary and permanent damage rather than proactive resource management. This passive approach has had staggering financial consequences, contributing to an estimated $4.7 trillion in lost natural gas revenues this century due to overproduction. The industry also largely missed the opportunity to stabilize natural gas prices during the buildout of LNG export facilities, partly due to a failure to grasp fundamental business concepts like "free on board." Today's quiet market activity raises the question: is the industry again missing a chance to improve gas prices by not mastering efficient shut-in and restart processes?

A fundamental problem enabling this situation is the inability to accurately identify unprofitable properties. Current Enterprise Resource Planning (ERP) systems lack the necessary detail, especially regarding overhead and depletion accounting. Without this granularity, producers cannot pinpoint where or address the sources of financial loss, even as the need to rehabilitate oil and natural gas prices grows urgent.

The proposed "Preliminary Specification" offers a solution by establishing detailed, factual financial statements at the Joint Operating Committee level. This approach reorganizes industry administrative and accounting resources to directly allocate overhead costs only to profitable properties, eliminating industry standard overhead allowances. If a property isn't profitable and is shut in, associated work stops, and no overhead is incurred.

Consequently, overhead transforms into a variable cost tied directly to profitable production. By recognizing these actual costs within the cost of production (rather than capitalizing them), the commodity price will reflect the true cost, passed to the consumer upon profitable production. This ensures overhead is either avoided entirely or recovered promptly, creating a self-sustaining cash flow for monthly overhead expenses and ending the constant search for new capital to cover them.

The substantial financial and business advantages of this profitability-focused model, often overlooked by the prevailing "muddle through" mindset, include:

• Maximizing Profitability: Preventing the losses of unprofitable properties from diluting overall earnings.
• Officers and Directors Fiduciary Duty: Ensuring reserves are properly recognized, managed and valued.
• Financial Health: Eliminating the burden of using future revenues to cover past losses.
• Cost Reduction: Shutting in production cuts unnecessary operational and storage costs of unprofitable overproduction.
• Enhanced Reserve Value: Increasing the volume of, and Net Present Value (NPV) of reserves as commodity prices rise.
• Resource Conservation: Saving reserves for the time in which they can be produced profitably.
• Targeted Innovation: Focusing efforts on ”where and how” to make unprofitable properties competitive in the North American capital markets.
• Market Price Discovery: Allowing commodity markets to find their marginal price by removing unprofitable production.
• Reflects the True Cost of Today’s Production: Ensuring commodity prices reflect the actual cost of bringing replacement barrels (such as heavy oil or shale) to market.
• Production Discipline: Profitability is the fairest and most reasonable method of production allocation, aligning actions with financial best interests.

This element of our business model provides a compelling value proposition that we’ve documented to be in the trillions of dollars. Yet the cultural push back has been significant. It's telling that while individuals within the scientific community can be persuaded by the data one-on-one, they often revert to industries' cultural norms once back in their environment, repeating justifications for why production supposedly cannot be shut in.

This resistance likely masks a deeper issue: a fundamental inability within the current system for producers to determine with confidence which properties are profitable and which are not. Even if an unprofitable asset is located, understanding the specific business reasons why it's unprofitable is often impossible with existing tools. Navigating the complexities of Producer / Joint Operating Committee dynamics further complicates decisive action. With effective business tools such as the Preliminary Specification engineers and geologists can more effectively do their work. 

People, Ideas & Objects Preliminary Specification resolves the co-location issue of where knowledge and operational authority reside. By delivering the knowledge to the Joint Operating Committee  – the entity already empowered with operational control – we eliminate a major source of conflict and inertia. This aligns the Joint Operating Committee's operational framework with the industry's organizational structure, creating a unified approach where shared financial ownership motivates consensus among partners.

Under this model, each Joint Operating Committee receives granular monthly financial statements. Crucially, these reports should not be viewed merely as tools to flag properties after they become unprofitable – that approach reflects the limitations of today's data. Instead, their power lies in proactive management. Producers should use this information to identify properties trending towards unprofitability six months or even a year ahead of time. This foresight allows them to investigate the root causes, collaborate with accounting on business solutions, and potentially avoid the need for a production shut-in altogether.

Without the clarity provided by the Preliminary Specification, the status quo persists: producers cannot reliably gauge a property's profitability or determine what effective interventions are available. Current methods of recognizing depletion misleadingly classifies all production as profitable. Overhead allowances provide no insight into overhead costs, failing to control one of the industry's largest expenses. Furthermore, reported G&A costs appear artificially low (3-5% of revenue) due to heavy capitalization (up to 85%). While the existing system of overhead allowances reflect an industry-wide monthly total of $0.00 in overhead allowances each month.

Conclusion 

The oil and gas industry's leadership has demonstrably lost its grip on the sector's financial, operational, and political realities. How North America navigates forward from this point is unclear, especially as revenues continue to be managed by those who seem unable or unwilling to acknowledge this loss of control, creating inherent conflicts.

Trust, faith and goodwill in industry leadership were casualties decades ago. Culturally emphasizing a reliance on dwindling cash flows – mistakenly perceived as the only metric that matters. However, the current level of inactivity  reveals that cash flow alone is insufficient to repair the extensive damage caused under this long-standing paradigm.

The critical question remains: what is the path forward? People, Ideas & Objects proposed solutions, designed to address these deep-seated issues, have been met largely with silence from an industry gripped by cultural inertia. There seems to be little belief that meaningful change is achievable. Personnel appear to be simply marking time, anticipating layoffs and severance packages, while leadership in the crucial service sector is showing signs of capitulation.

For thirty-four years, as of May 2025, I have persistently advocated for a different approach. The oil price collapse of 1986 highlighted the issue: strategically shutting in a small fraction of unprofitable production would have stabilized the market and mitigated almost two decades of decline. Yet, my analysis from both accounting and operational auditing perspectives made it clear that the industry's structure, then and now, renders even this seemingly simple action impossible. This realization spurred the development of new organizational models and supporting systems starting in 1991. Decades later, I continue to champion the Preliminary Specifications necessary structural changes, and reflect on not only the desolate nature of industry inactivity, but also the persistence and dedication to “muddle through.”

And We’re Back

I enjoyed the focused time away writing the five papers published over the past few months. These works have solidified research as People, Ideas & Objects’ third competitive advantage, complementing our user community and Intellectual Property strengths. While we’ll shift from a monthly paper publication schedule, we will continue publishing periodically moving forward.

I’m pleased with the papers’ content, which share a cohesive theme: the transformative role of People, Ideas & Objects, our user community, and their service providers in rebuilding North American oil and gas producers. Each paper targets a specific industry segment, detailing how the Preliminary Specification will drive change and support the industry’s reconstruction.

The first two papers, released on President Trump’s inauguration day, January 20, 2025, set the stage for this vision, highlighting the opportunities and mechanisms for revitalizing the oil and gas sector.

Reconstructing Oil & Gas

 Our first paper outlined how engineers and geologists can leverage the Preliminary Specification to establish their own oil and gas producer firms, revitalizing the industry into dynamic, innovative, accountable, and profitable producers competing in North American Capital markets.

Reconstructing Oil and Gas: Enabling Engineers and Geologists to be this Century’s Pioneers and Lead the Industries Future

Overcoming Barriers for Small Producers

 Small and startup oil and gas producers face significant challenges: limited access to capital, high overhead costs, and difficulties scaling into larger operations, which historically relied more on access to financial resources than engineering or geological expertise. The Preliminary Specification addresses these hurdles, enabling small producers, the future pioneers to thrive.

A New Era of Innovation and Profitability

 Small and startup producers are poised to lead the industry’s transformation, echoing the vision, drive and success of its pioneers. Investors, like Citadel’s hedge fund, are committing billions to non-operated oil and gas assets, relying on these newly formed agile, innovative producers to manage them. As change accelerates, investors seek profitable producers to restore faith, trust and confidence in the industry.

Catalyst for Change

 Our second paper explored transformative business opportunities in oil and gas administrative and accounting functions. People, Ideas & Objects envisions reallocating these resources from producers into independent, user community-owned firms. These firms will initially shape the business perspective of the Preliminary Specification’s software development, later transitioning to manage specific industry-wide processes. Service providers, leveraging the explicit knowledge embedded in the software and their tacit expertise, will deliver these services to producers.

Catalysts for Cultural Change: The Leadership Role of People, Ideas & Objects User Community

Leveraging Non-Rival Costs

 Drawing on Professor Paul Romer’s theory of non-rival costs, our user community and service providers operate through the Cloud Administration & Accounting for Oil & Gas platform. This shared infrastructure, accessible to all North American producers, eliminates the need for each producer to independently build and maintain administrative and accounting systems. By pooling these costs, the industry achieves significant overhead reductions.

Enabling Flexible Operations

 This shared infrastructure offers producers the flexibility to shut in unprofitable production. When a property is shut in, no data is generated, no service provider work is performed, and no service provider invoices are issued. The Cloud Administration & Accounting for Oil & Gas system renders the Joint Operating Committee’s financial performance a null operation—neither profit nor loss. This allows producers to focus on innovative solutions to restore profitability to the property.

Innovative Organizational Excellence

 Published February 10, 2025, People, Ideas & Objects introduces new approaches to configuring organizations for exceptional performance. As some organizations achieve unprecedented results, we explore what drives their success and how it can be replicated.

Innovative Organizational Excellence: How Elon Musk and Visionary Leaders Build High-Performance Enterprises

Redefining Performance in Oil and Gas

 North American oil and gas producers face intensifying performance demands from competitive capital markets—standards they’ve struggled to meet. The Preliminary Specification offers a framework to establish dynamic, high-performance standards and adaptable infrastructure. If leading organizations are setting new benchmarks, how long until these become the norm? Can oil and gas afford to meet only today’s expectations, risking obsolescence once again as capital markets raise the bar?

The Quest for Innovation

 Our January 20, 2025 white paper, Reconstructing Oil & Gas, challenged engineers and geologists to pioneer innovations akin to the America’s Cup sailing boats, which achieve 30-knot speeds in 6.5-knot winds. What proprietary innovations will unlock dramatic performance gains in shale formations? With vast known shale resources, engineering and geological breakthroughs could yield significant upside. Is shale’s full potential untapped?

A Call for Collaborative Innovation

 Innovation in oil and gas requires a fundamental shift. Producers, the service industry, academia, and other stakeholders must unite to address critical questions: What performance do we expect from oil and gas? How will we achieve it? The industry’s current approach to innovation is inadequate. The first step is to reorganize, aligning efforts to harness the collective expertise needed to meet future demands.

Building a High-Performance Future

 By adopting the Preliminary Specification and fostering a culture of innovation, oil and gas can meet and exceed capital market expectations. It should be asked if shale has been fully exploited from an engineering and geological perspective. Organizing for excellence and setting ambitious goals will position the industry to thrive in a rapidly evolving landscape.

Hyper Specialization in an AI- and IP-Enabled Workforce

 In our March 17, 2025 paper, People, Ideas & Objects explore the synergy of hyper specialization, Artificial Intelligence (AI), and Intellectual Property (IP) within the Preliminary Specification, building on Professor Paul Romer’s theory of non-rival costs. By sharing administrative and accounting infrastructure, producers avoid the burden of building and maintaining it internally. Combined with hyper specialization and division of labor, these principles drive unprecedented productivity and performance in North America’s oil and gas industry, creating value far beyond the sum of their individual contributions.

Hyper Specialization in Today’s AI and IP Enabled Workforce:

The Power of Hyper Specialization

 Specialization has driven economic value since 1776, but have we reached the point of diminishing returns, where further specialization costs more than it yields? In the context of hyper specialization—extreme task segmentation—we believe we have. ERP systems, designed to identify and support processes and people, must evolve to accommodate this dynamic. Hyper-specialized markets may appear chaotic, with heightened activity mistaken for inefficiency. To prevent disruption and ensure order, clear mechanisms are needed to manage access, roles, and workflow.

Intellectual Property as Gatekeeper

 IP is critical to maintaining control in a hyper-specialized environment. By licensing only authorized participants with defined roles and responsibilities, IP ensures that only those with rights can operate in specific domains. Without IP protections, unauthorized players could encroach, eroding the benefits of specialization and stalling progress. IP safeguards the value of hyper specialization, division of labor, non-rival costs, and AI integration, preserving and enhancing industry performance.

AI as the Orchestrator

 AI serves as the intelligent overseer, coordinating the complex interplay of players, roles, processes, and Joint Operating Committees within the ERP system. With its comprehensive understanding of each participant’s status and responsibilities, AI acts as a traffic cop, judge, jury and executor, enforcing structure and functionality. It ensures seamless operations, managing the speed, complexity, and volume of interactions in a hyper-specialized market.

A Synergistic Future

 The integration of hyper specialization, AI, and IP, supported by the Preliminary Specification, unlocks transformative value for the oil and gas industry. By leveraging shared infrastructure, tightly controlled IP, and AI-driven coordination, producers can achieve unparalleled efficiency and performance, redefining the industry’s accounting, administrative, operational and economic potential.

Oil and Gas Arbitrage: Citadel’s Strategic Play

 On April 7, 2025, People, Ideas & Objects published a paper detailing Citadel’s March 22, 2025 strategy, where one of their hedge funds invested $1 billion in non-operated Haynesville shale gas properties. This move exemplifies oil and gas arbitrage, capitalizing on market inefficiencies.

Oil & Gas Arbitrage: The Market Finds a Way

Strategy Overview: Non-Operated Properties

 By acquiring non-operated properties, investors following Citadel’s approach benefit from operator management in the short term. This allows direct participation in oil and gas without inheriting the inefficiencies of legacy organizations that struggle with profitability. The paper implies that adopting People, Ideas & Objects’ Preliminary Specification offers the mid- to long-term management solution for these assets.

Rethinking Reserve Valuation

 The traditional net present value (NPV) of cash flow for oil and gas reserves inflates asset values due to producers’ outdated “building balance sheets” and “putting cash in the ground” strategies. People, Ideas & Objects advocate valuing reserves based on the NPV of earnings, reflecting true profitability. Producers, unprofitable and cash-constrained, often rely on property swaps or exchanges rather than cash for acquisitions, overpaying based on inflated cash flow metrics and lack of cash makes this now a buyer’s market. 

Citadel’s Long-Term Arbitrage

 Citadel’s strategy involves purchasing reserves at today’s prices, which are undervalued compared to their future profitable value under the Preliminary Specification. The arbitrage opportunity lies in the price differential between current and future profitable prices, multiplied by the vast shale reserve volumes. All costs are fully accounted for in today’s reserves valuation. Maximizing the differential’s leverage. 

Unlocking Value Through Price Increases

 As oil and gas prices rise to “real” profitable levels—defined as the replacement cost of a barrel of oil equivalent in today’s market—reserves shift from possible/probable to proven categories, markedly boosting NPV. Replacement costs reflect the ever escalating, real costs of exploration, production, and operations, as defined by heavy oil and shale.

Escalating Costs and Future Funding

 Oil and gas production costs rise faster than inflation, driven by increasing engineering, geological, and field efforts. With easily accessible reserves depleted, each incremental barrel demands more resources. Current production must fund these rising future costs to sustain output.

Preliminary Specification: A Comprehensive Solution

 People, Ideas & Objects’ Preliminary Specification provides a robust accounting, administrative, and operational framework to manage these assets. It supports flexible participation models—active or passive—yet preserves voting rights in Joint Operating Committee agreements for novated participants.
Citadel’s strategy, underpinned by the Preliminary Specification, positions investors to capitalize on the inevitable rise in oil and gas prices, unlocking significant value from today’s under-realized reserves.

Oil & Gas Arbitrage: The Market Finds a Way

 Our fifth paper of 2025… 

Oil & Gas Arbitrage: The Market Finds a Way. 

Citadel’s Hedge Fund Begins Rebuilding and Reconstructing Oil & Gas. The Final Cornerstone is in Place

Can be downloaded here. 

Hyper specialization, Artificial Intelligence & Intellectual Property

 As promised our paper looks at the dynamic interactions that are a result of People, Ideas & Objects use of Hyper Specialization, Artificial Intelligence, and Intellectual Property for our user community and their service providers. The paper entitled…

Hyper Specialization in Today’s AI & IP Enabled Workforce: 

 Strategic Implications and Operational Consequences 

for the Oil & Gas Sector 

This is our third paper of 2025 that deals exclusively with our user community and their service providers. Download your copy here before all the shooting starts again. 

As Promised

Our third white paper of 2025 is now published—this also our second white paper this year focused on our user community. Today’s paper is titled:

Innovative Organizational Excellence, 

How Elon Musk and Visionary Leaders 

Build High Performance Enterprises.

Strategies for Emulating Their Success Within Our User Community

Be sure to download your copy while it's still fresh!

And Another!

 I’m pleased to confirm that our February 10, 2025, paper—  

Characteristics of Entrepreneurs and Innovators:  

How Elon Musk and Others Excel in Constructing Today’s High-Performance Organizations 

Strategies for Emulating Their Success Within Our User Community 

will be published on schedule.

I can also announce a fourth deliverable for 2025, slated for release on March 17, 2025, under the current working title:  

Hyperspecialization: Its Impacts and Consequences for 

Our User Communities and 

Service Provider Organizations.