Cost Behaviours, Part I

The capital-cost dynamics embedded in producers’ cost structures offer a strategic vantage point into their true financial performance. If each month’s Joint Operating Committee financials reflected these behaviors faithfully, firms would gain unprecedented visibility into the profitability of every property. The foundational issue is a core economic principle rarely acknowledged in the sector, captured effectively in the following passage:

Stabilizing” Commodities 101 - equipment, or those working the poorest land, that are driven out. The most capable farmers on the best land do not have to restrict their production. On the contrary, if the fall in price has been symptomatic of a lower average cost of production, reflected through an increased supply, then the driving out of the marginal farmers on the marginal land enables the good farmers on the good land to expand their production. So there may be, in the long run, no reduction what ever in the output of that commodity. And the product is then produced and sold at a permanently lower price." (Henry Hazlitt, Walter Block, Economics In One Lesson)

The industry’s unresolved problem is the enormous accumulation of property, plant, and equipment. Until these are addressed only some of this discussion will apply to the status quo producers. Carrying oversized property, plant, and equipment makes the status quo the high-cost producer—regardless of the accounting method used. This reality remains unacknowledged, even as firms claim these inflated balances each quarter as evidence of financial strength.

In contrast, startups and midsize operators possess substantial flexibility. Capital-cost behaviors become quasi-variable in several ways. A primary misconception is the industry's current treatment of “breakeven.” Within oil & gas, breakeven is widely misinterpreted as the point of operating profitability. The actual definition is far more rigorous: the cost of property, plant, and equipment associated with a property divided by its proven reserves, which then establishes the per-barrel price required above operating cost to retire the capital invested in finding, developing, and producing those reserves.

Breakeven, properly understood, is the price point at which the producer should shut-in the property. At that point the asset should be transferred to the inventory of innovative work-in-progress to expand reserves, reduce operating costs, enhance productivity, or otherwise improve the economics before returning to production.

Industry behavior demonstrates disregard for this discipline. Firms routinely sell production below breakeven—and even below full operating cost—under the justification that “the market provides what it provides.” This ignores the fact that producers collectively are the dominant force shaping the market.
The question becomes: who actually cares about breakeven? At present, the answer is no one. The perceived inability to drive change has suppressed any strategic response. The Preliminary Specification provides a pathway out of this impasse.

If we assume—strictly for framing—that the cumulative revenue losses this century also approximate $4.7 trillion of natural gas sales below breakeven, the implication is severe. Those losses would be transferred forward into future breakeven calculations, elevating the price required for profitable production to levels that classify producers as the highest-cost operators in the market. Alternatively, these properties become effectively impaired—incapable of ever recovering the capital invested. Production sold below breakeven does not retire capital; it increases the capital burden that must be absorbed by the remaining reserves.

This is why both profit and loss generate cash flow in a capital-intensive industry. Cash flow, in practice, is largely the return of prior investment. In oil & gas this effect is amplified: producers manage cash for up to sixty days on behalf of all Joint Operating Committee participants, and as a primary industry they collect the revenues that ultimately fund the entire service and tertiary ecosystem. If cash is king, this business model elevates producers to another tier altogether.

Yet, for decades producers have required ongoing investor funding simply to meet annual capital-expenditure budgets. This is the long-term result of performance degradation dating back to the 1986 price collapse. The industry was gutted, and the cultural scars remain. The operational mindset became survival—taking whatever price the market delivered, deferring structural change, and continuing as long as cash flow stayed positive.

This raises the central strategic question: is the industry still operating in the same survival mode that emerged after the 1986 crash? After a decade without capital-structure support, no demonstrated capacity for structural change, and a lingering dependence on diminishing cash flow, the evidence suggests an industry unaware of what it must do to sustain itself—let alone generate competitive, market-driven returns.

The underlying issue remains unresolved: producers must recognize their cost structure for what it is, not what they hope it to be. Until then, they will continue to operate on the margins of viability, rationalizing incremental deterioration while believing they look strong—at least to themselves.

Tomorrow we’ll discuss the value of these properties in the hands of those who may be interested in purchasing them. How the acquisition and divestiture market pricing method used in the past remains the method used today. And why startup and midsized producers would be fools to play that game. 

Earnings Season

Exxon is back in the headlines touting its post-consolidation financial performance, and the self-congratulation is striking. If this is the benchmark they’re championing, the organization is well past any credible pathway to rehabilitation. Let’s deconstruct the reporter’s summary to understand what’s actually being asserted.

Cost Behaviors

The headline claim—$14 billion in “structural cost savings” since 2019, rising to $18 billion by 2030—sounds impressive. But against what baseline? What is the reference case? And how does one credibly report “cost savings” as a standalone performance metric without disclosing the counterfactual? This is the kind of accounting sleight-of-hand that has become the norm across the sector, and it reflects poorly on boards and executives who rely on it.

The rationale offered is familiar: automation, supply-chain optimization, and “operational technology” improvements. These allegedly push the breakeven $10–$15 per barrel lower. If the breakeven move is operational, not capital-driven, the math still doesn’t reconcile. Operating costs are up in Q3 and year-to-date; revenues are down. Where exactly is the $2.2 billion in Q3 savings coming from?

Collapsing the breakeven from an implied $50–$57 range to $40–$42 echoes the accounting magic of the 2013–2016 downturn, when producers declared “profitability” at $70, then $60, then $50, then $35, and so on—even as falling prices should have forced reserve reclassifications upward in cost per barrel. Historical capital costs are fixed in time and cannot behave inversely to long-term price deterioration. The numbers don’t cooperate unless the accounting is engineered to achieve the outcome.

Reviewing actual operating-expense profiles reinforces the disconnect:

• 2021: $8.719 billion OPEX / $71.892 billion revenue = 12.13%

• Mid-2023: $8.696 billion OPEX / $88.570 billion revenue = 9.8%

• 2025: $10.094 billion OPEX / $83.331 billion revenue = 12.11%

These are stable ratios. Nothing here supports a cumulative $14 billion of realized and projected cost reductions. If “savings” are being shifted to capital, two issues emerge: (1) the breakeven narrative no longer holds, and (2) the claimed reductions are indistinguishable in the capital base—an ocean large enough to hide almost anything. (See Exxon 3Q 2025, 10-Q, Structural Cost Savings (Non-Gaap) p.23). 

Overproduction and / or Unprofitable Production

The next claim is contradictory on its face:

“Exxon remains confident of its ability to generate profits … and has increased production to 4.7 million boe/d.”

“Remaining confident” is hardly a compelling forward posture. Meanwhile, global overproduction concerns are escalating. Floating storage is rising. Tanker inventories are expanding. The persistent weakness in crude since 2022—despite the temporary $100+ window—underscores a structural imbalance. Yes, the gas-to-oil ratio dropping to ~13:1 is a bright spot, but it hardly offsets the broader fundamentals.

People, Ideas & Objects’ principle of cycling a producer’s PP&E over 30 months provides a clear diagnostic. Applied to Exxon, it implies:

• 2025 PP&E recognition: $119.4 billion

• Q3 PP&E recognition: $29.838 billion

• Implied quarterly loss: $12.4 billion

Whether or not anyone adopts our standard is irrelevant. The market dynamic is simple: producers historically “put cash in the ground,” funded by investors. That era is over. Now the only sustainable source of organizational cash flow is harvesting capital already deployed. The longer producers defer that reckoning, the more financial risk compounds.

But they can’t do it—and won’t. Profitability at scale requires higher commodity prices, which can only be realized by eliminating the market imbalances they created. That requires the Preliminary Specification’s decentralized production model and price-maker strategy. It will never happen under the current system.

Meanwhile, the capital accounts balloon further each year. Some producers are already easing their earnings pressure by under-depleting—recording depletion materially below capital expenditures. In a capital-intensive business, product cost should be dominated by capital costs. Instead we see selective recognition and strategic deferral.

Prospects

Investors have been absent from direct participation for over a decade. Their rationale is unambiguous: poor financial performance and no credible strategy to address root causes. Producers have simply refused to acknowledge the underlying issue. Performance metrics have deteriorated further.

Our evaluation suggests industry-wide performance in the 30% efficiency range. Pinpointing the gaps is difficult because the financials are homogenized to the point of opacity. Capital is overweighted to inflate earnings. The signal is gone.

The industry must confront its structural shortcomings. It must adopt the Preliminary Specification, overhaul its cost architecture—particularly overhead management—and begin building business models beyond “drill and produce.” What is the strategy to create real economic value? How does the industry intend to compete in North American capital markets?

And a fundamental question persists: in a shale-dominated environment where wells decline 65–80% in the first 18 months, why do capital costs linger on the books for decades? Who benefits from this?

Genuine performance uplift would permit authentic profitability at lower commodity prices. Inefficient production would be shut-in and moved to the inventory of innovative projects, not forced into the market. Today’s “miracle” production growth is largely a function of shale’s intrinsic performance—enabled by service-sector innovation such as coil-tubing and Packers Plus—not producer efficiency.

By 2021 producers openly labeled shale “uneconomic,” pivoted toward clean energy by 2023, and now cling to consolidation as their growth thesis. Beyond short-term shale uplift, there is little evidence of any disruptive business model emerging.

The sector has crossed the point of no return. Without radical restructuring, it cannot rehabilitate itself. The current model is obsolete, the cost structure is fictional, and the decade-long battle with investors ends with producers winning the narrative and losing the war.

Change, Part XIII - Our Value Proposition

 In our last post we noted how the Preliminary Specification  recycled cash through the producer repeatedly through property, plant and equipment in order to finance future capital expenditures. How investors will return, however never for “putting cash in the ground” again. And only to support profitable operations.  

We also noted briefly how other industries were experiencing rapid change through the establishment of new startup firms based on innovative business models that leverage new products. Establishing value for their customers through creative and innovative business models. Uniquely positioning themselves as the reason for their existence. An oil & gas producer's existence is established when they provide dynamic, innovative, accountable and profitable oil & gas to consumers who know it is secure, the industry is prosperous and healthy for the long term, affordable and abundant. 

What precludes the startup oil & gas producers from realizing competitive capital performance criteria to other industries in North America? Asking the question, why not oil & gas? The Preliminary Specification preserves and recycles cash, effectively lowering the capital demands of the producers. What other benefits are obtained that would go towards startup or any North American oil and gas producers realizing competitive capital performance. People, Ideas & Objects offers a compelling value proposition to build on that enhanced cash flow. 

A major philosophical difference between People, Ideas & Objects and today’s producer officers and directors is how we see a capital intensive industry. Producers build balance sheets whereas we see that capital intensive industries product costs are going to be predominately capital in nature. Therefore passing that capital cost to the customer on a competitive basis to what the North American capital markets define is the minimum performance threshold a producer must meet. We see the market's expectations for patient capital are to earn their money back in at least 30 months. Having capital sit in property, plant and equipment for a few decades is nothing more than management's attempt to boost earnings in a failing organization. 

Specific producer attributes of using the Preliminary Specification. (To reiterate, the Preliminary Specification turns all of the producers' costs variable. Therefore any unprofitable production can be shut in until it returns to profitability or innovative actionable changes can return the property to profitability.) 

• Profitability: 

• Producers maximize profits by eliminating losses from unprofitable properties.

• All production realizes the commodity price necessary to cover the full replacement cost of exploration and production. 

• Cost Reduction: 

• Keeping oil & gas as reserves reduces production and storage costs tied to excess, unprofitable overproduction.

• Reserves Valuations: 

• Holds reserves for the time when they can be produced profitably. 

• Holding reserves until they can be produced profitably means avoiding incremental costs associated with the losses incurred from unprofitable production.

• Profitable market prices reflect the value of petroleum reserves. And reclassify probable reserves to proven recoverable reserves category.

• Replacement Value: 

• Market prices must reflect current exploration and development costs, representing the true cost of energy produced today.

• Consumers value proposition is 10-25,000 man hours equivalent labor per barrel. 

• Oil & gas is irreplaceable and its value drives our economic wealth and prosperity. What right do we have to waste it.

• Market prices will balance these needs on a day to day basis. 

• Fulfills officers and directors fiduciary duty to safeguard assets.

• Production Discipline: 

• Profitability is the only fair and reasonable method of production discipline.

• Market Stability: 

• Removing unprofitable production allows commodity markets to determine the marginal cost, establishing profitable prices for all production.

• Innovation Opportunities: 

• While properties are shut in, producers can explore innovative ways to increase production, reduce costs, or expand reserves to restore profitability and return the property to production.

• Higher commodity prices finance greater innovation, providing the financial resources for future industry challenges.

The Preliminary Specification provides additional advantages for the startup to mid sized oil & gas producer. These are elements available to all producers however their impact to the Junior sector is material. 

• Establishes a long term second source of producers revenue. The ability to generate consulting fees from engineering and geological work. 

• Initiating the development of the producers competitive advantages of engineering and geological capacities and capabilities. 

• Offsets the need to raise capital for a later date. 

• Delaying the time for outside capital allows founders to build greater value. Incurring less share dilution of founders interest.

• When always profitable, enhanced cash flow will drive capital expenditures. Incurring less share dilution of founders interests. 

• Founders with large positions maintained in the producer firm tells investors they are not today’s oil & gas producers. 

• Supports profitability and accountability as the culture in the organization from day one.

Finally we arrive at our overall value proposition of the Preliminary Specification. It is central to what the industry can gain from our dynamic, innovative, accountable and profitable business model. There are seven organizational constructs we use to define the culture of the producer firm and industry. The seven include:

• The Joint Operating Committee 

• The legal, financial, operational decision making, cultural, communications, innovative and strategic frameworks of the industry. 

• Specialization and the Division of Labor

• The source of all value creation since 1776. The combination of hyper specialization, Intellectual Property and Artificial Intelligence hold the potential of the fourth industrial revolution. 

• Professor Paul Romer’s theory of non-rival costs

• Applied throughout the Preliminary Specification. Delivery of our Cloud Administration & Accounting for Oil & Gas eliminating the accounting and administrative resources from the producers as an example. Just as Cloud Computing shares the costs of an IT department. 

• Markets

• Our Petroleum Lease, Financial and Resource Marketplace modules are part of the Preliminary Specification. Each marketplace is defined by the market regulations for royalties, property definitions for a seemingly infinite number of reporting jurisdictions, banks, crypto, service industry etc. These are all captured in the software to define and support that marketplace, construct and producers’ value proposition. 

• Intellectual Property 

• The most controversial point of the industry and People, Ideas & Objects. 

• Our future will be defined more by the intangible assets we own. IP will be a cornerstone of that asset mix. 

• Such as, ownership of the oil & gas asset is nothing without the software necessary to produce that asset profitably. 

• IP organizes innovation removing the unnecessary duplication of “me too” competitors. Protecting those with ideas to make the investments needed to solve industries' difficult challenges. 

• Innovation 

• People, Ideas & Objects structures the Preliminary Specification to establish producers on a footing where innovation was built within the software. 

• We learned through our research that innovation can be reduced to a defined and replicable process. If the organizational support is there, innovation can be an outcome. 

• Information Technology 

• Hardware, software and infrastructure is an enabling and limiting capability. ERP software has been used in oil & gas to support the status quo when no one has the resources or capabilities to institute change. 

• People, Ideas & Objects have provided the Preliminary Specification with the understanding that software development capacities and capabilities are part of our value proposition. 

• Proceeding forward without a change enabled software development capability would be locking the industry into a definition that may require repeated changes. 

Each of these constructs contain frameworks, conditions, legal requirements, industry standards and physics to enable and constrain the culture of the industry. Those that work within the industry, understanding these constructs, will be able to operate intuitively and consistently with others no matter their field of work or background. 

Readers will know it takes time to build an ERP system and People, Ideas & Objects have been evaluated to be 25 - 30% completed. Engineers and geologists are probably asking themselves why we’re concerned with this? Our answer is it will take many years before a start-up producer is operational. Time will evaporate into thin air no matter how hard anyone pushes in either a new startup or completion of the Preliminary Specification. 

Change, Part XII - Cash is King

People, Ideas & Objects Preliminary Specification is designed to tackle the disproportionate overhead burden faced by start-up, small and midsize producers in the complex oil and gas industry. This overhead is largely driven by unique challenges like intricate royalty payments and regulatory capture.

Historically, larger firms have used onerous regulations to raise the barriers to entry and secure their competitive advantage, leading to a centralized concentration of consolidated producers. In today's chronically unprofitable environment, only the largest survive. This concentration may be unhealthy given the notable challenges the industry will face over the next 25 years.

While consolidated producers may study advancements like AI, cryptocurrencies, and securitized assets in committees years from now, small to mid-sized producers would deploy these innovations as soon as they become advantageous. Consolidation, optimization, and layoffs offer limited long-term promise; the speed and complexity of tomorrow’s business will continue to overwhelm these large, consolidated oil & gas firms. People, Ideas & Objects provides a solution by eliminating the administrative difficulties behind these impediments, though operations remain outside our offering.

Regulatory capture has effectively made start-up producers extinct. Their focus has been diverted from developing unique engineering and geological value-generating capabilities toward managing excessive overhead, administrative burden, and especially onerous public listing requirements. This has led to successful small producers being led by capital-raising experts like lawyers and money managers.

Small businesses now lead many industries in the U.S., even building significant sole proprietorships. The oil & gas sector should be no different, though partnerships may be a better structure due to the nature of the business. With the next 25 years posing the industry's most forbidding challenge—including the question of consolidated producers’ survival and the immense task of rebuilding North American oil & gas—this overhead wall driven by complexity and regulation is a real and present threat.

People, Ideas & Objects overcomes this by reorganizing administrative and accounting resources into variable-cost service providers. Service providers charge for specific processes, meaning a producer is only billed for the services they use. Which converts all the producer's costs to either variable overhead or discretionary capital cost.

The Preliminary Specification will prepare standard, objective, detailed, and factual financial statements for each Joint Operating Committee. If a Joint Operating Committee reports unprofitability, that production can be shut in until profitability returns. Producers can be confident in this assessment because it is based on the same standard, objective basis applied to all other production.

Cash is king in the capital-intensive oil & gas industry. For decades, consolidated producers have consumed cash by "putting cash in the ground" and "building balance sheets." goals that small to medium-sized producers could ill afford, yet were required to emulate.

The Preliminary Specification instills more rational cash management by:

• Accelerating Capital Cost Recovery: Capital costs are recognized on a competitive basis with North American capital markets, expecting 100% recognition within no more than 30 months.

• This rapid recognition instills the capital discipline necessary to prevent chronic overbuilding of capacity.

• It returns cash to the Joint Operating Committee as profitable operations price these costs into what the consumer will be charged for profitable operations.

• Eliminates Overhead Capitalization: 100% of all overhead costs are included in current month calculations and therefore charged to the consumer as part of profitable production.

• Overhead Is Not Incurred on Unprofitable Production: Overhead costs are variable based on profitable production, meaning no overhead is incurred or charged when a property is shut-in.

As a result, cash is either conserved or recovered within a 60- to 90-day cycle, avoiding the decades-long recovery periods common when overhead is capitalized. The massive cash sink the industry has been will be reduced decisively. Investors will return, however not in the manner they funded the industry in the past. The means necessary to generate the financial resources for future capital expenditures will need to come predominantly from property, plant, and equipment being realized as a depletion cost—indirectly returning the cash that was put in the ground.

Change, Part XI - Where’s the Value

When establishing a business model, start-up and small oil and gas producers should examine the industry to identify areas where value is being overlooked, wasted, or unrealized. This evaluation should encompass the entire exploration-to-production process, including product distribution and sales. Retaining control over product sales to the ultimate consumer can yield the most significant value enhancement. Although challenging, this approach has been successfully demonstrated by Venture Global, a start-up that achieved substantial returns.

Producers should develop business models that extend beyond mere drilling and production. While reserves must be valued, this is contingent upon their profitable extraction. Unprofitable operations can be restructured to enhance reserve valuations. Business challenges should be addressed through engineering solutions. The current focus on increasing oil and gas production is not the primary concern; instead, prospective start-up and small producers should anticipate future issues and position their firms accordingly. For instance, the management of solution gas represents a business problem amenable to engineering resolution. Excess natural gas enters the market as a byproduct of oil production, often sold at suboptimal prices.

Producers appear to adopt a policy of immediate concession regarding associated, solution, or casinghead gas, viewing it as an unavoidable constraint. However, no problem is inherently insolvable. The entity that resolves this issue will generate substantial value by restoring natural gas pricing to its heating value equivalent of 6:1 relative to oil. This challenge has contributed to the industry’s estimated $4.7 trillion in natural gas revenue losses this century. Resolving it could form the foundation of a robust business model and enterprise.

Two years ago, People, Ideas & Objects highlighted the leakage of natural gas value from North America due to producers’ failure to maintain title to the product through to the end user, resulting in billions of dollars in annual revenue losses. Fortunately now, companies such as EQT and Conoco have begun addressing this by establishing contractual arrangements for free-on-board delivery to destinations, thereby capturing the full value of their gas production when operations begin in 2029, 2030 and later. 

The oil and gas sector has evolved beyond a simple drill-and-produce paradigm. A pressing concern is the impending disruption from Information Technology (IT) and Artificial Intelligence (AI) infrastructure, which threatens to overwhelm unprepared entities in the next two to three years. The potential damage exceeds the value overlooked in areas such as liquefied natural gas (LNG). Impacts will be widespread and subtle, with firms often unaware until value is irretrievably lost. IT and AI represent direct assaults on consolidated, monolithic organizations, which must also defend vulnerable flanks. The industry as a whole remains highly susceptible. Consolidated producers may attempt to divest underperforming assets to others capable of implementing solutions they themselves could not pursue.

While this may be perceived as a critique from People, Ideas & Objects directed at consolidated producers, it underscores a consistent emphasis on value and profitability. For new start-up and small producers led by engineers and geologists, the insights in these paragraphs should inspire an entrepreneurial initiative.

A viable strategy aligns with the framework outlined in the Preliminary Specification. Recognizing the increasing demand for engineering and geological expertise per barrel of oil and gas produced, the industry must expand its resource base. Decades of retirements and inadequate recruitment have constrained available talent. People, Ideas & Objects propose addressing this through specialization and the division of labor.

This approach will materially enhance the productivity of these resources, sufficiently resolving the shortage. Specialization and the division of labor have been the primary mechanisms for value generation since 1776. In contemporary organizations, which are defined and supported by software—such as the People, Ideas & Objects Preliminary Specification—this process is essential. Please review our Work Order to understand how new producers can establish and generate secondary revenue streams. Initiating expansions in division of labor and specialization, based on unique intellectual property, will serve as a starting point.

The process of specialization and division of labor is fundamentally straightforward, driving productivity by addressing unmet needs. Historically incidental, it has become deliberate in the 21st century due to software dependency. It involves identifying and filling gaps where tasks are omitted but could add value. As suggested herein, focusing on value gaps—where producers have overlooked, unrealized, or wasted opportunities—offers significant potential for generating new value in the North American oil and gas industry. The advent of the AI and IT disruption will further disperse such value that is not captured. 

Experience indicates that consolidated producers are unlikely to act decisively to mitigate their loss or capture this value. Despite opportunities and options provided by People, Ideas & Objects, they have responded with criticism rather than collaboration. They have been afforded every possible avenue to safeguard their interests and have derived benefits from our efforts, yet they decline to act. If they choose to remain vulnerable, that responsibility rests with them.

We can all agree that: 

• a) It is irresponsible of consolidated producers to ignore these issues and those of their investors these past decades. Society may have been put at risk in terms of our continental energy independence and / or stability of supply. 

• b) It would be irresponsible of us to now just point fingers at consolidated producers. Especially when the situation would be so lucrative for us. No one will grant us that luxury in just a few short year’s time. 

An industry transition will not occur overnight when it is needed. We must be prepared and organized to pull the freight when and if we are asked to do so. If we are not asked to, then there will be no harm in us taking advantage of the consolidated producers' flat footedness and obstinate nature. 

Change, Part X - Reconstruction

 Two of People, Ideas & Objects papers published in 2025 provide a vision for how startup and small producers are able to be established and prosper in North American oil & gas. The two papers are:

Reconstructing Oil & Gas:

Enabling Engineers and Geologists 

to be 

This Century’s Pioneers and Lead the 

Industry's Future 

And 

Oil & gas Arbitrage: The Market

Finds a Way

Simply, large, consolidated and centralized producers much as all large organizations face internal performance challenges that may be existential. There’s no need to document the generic difficulties of large corporations. Oil & gas has its own incremental issues which we’ve documented at length and provide the Preliminary Specification as a solution to resolve. 

At the same time opportunities in the oil & gas market are abundant and available to those who can prove to the investment community a renewed commitment to profitability and accountability. The consolidated producers betrayed the trust of their investors, along with many others. After a decade they have not established any credibility around profitability. Investors have not participated in the industry for over a decade as a result. They want back in as they see the opportunities in the next 25 years as the most challenging and rewarding time of the industry. But only with producers who are committed to profitability and accountability. 

The expectation of the investors is that the producer commits to a tier 1 ERP system for their organization. An onerous, expensive and difficult proposition for any company to implement. Traditionally a non-starter for most startups and small organizations. However People, Ideas & Objects have configured our organization to provide the software, accounting and administrative services on our Cloud Administration & Accounting for Oil & Gas software and service. Removing the difficult and costly aspect of ERP to a transaction related processing fee. 

Cutting the amount of overhead cost necessary for a producer to incur a market listing of $3 to $5 million to a more manageable size. A formidable requirement that demands legal or investment capabilities to be the producer's competitive advantages. Whereas with People, Ideas & Objects the producer will be able to profitably advance further as a firm based on their competitive advantages of engineering and geological capabilities before seeking to list their stock. 

Further details of what and how we manage the producers accounting and administration are available within the Preliminary Specification and the two highlighted papers. 

The central message of the Reconstruction paper is profitability is not optional. It’s the only sustainable path forward for the oil and gas industry.​​​​​​​​​​​​​​​​ Investors effectively allocate resources in a market economy. The only sustainably reliable source of capital for a capital intensive industry is profitability. Profitable operations will grant the producer the freedom and independence to pursue their purpose and objectives which is the difference between today’s producer and those who are part of the reconstruction. Today’s producer culture will never be able to change to begin earning something they evidently don’t understand. 

Business model development 

Engineers and geologists must lead this reconstruction, developing innovative business models while the Preliminary Specification provides the administrative and accounting foundation and support for profitable operations. And profitability from the first day. The traditional monotone drill and produce business model deployed everywhere no longer builds value. New models based on new ideas of how to be profitable in the industry are what’s needed. 

What People, Ideas & Objects suggest is the first step in this process is to secure the Intellectual Property necessary to support that new and innovative business model. As a science and innovation based business, having proprietary rights will be necessary. This has been a failure of existing producers to secure. Reasoning as to why Intellectual Property Rights are necessary to be secured can be determined from our Preliminary Specification Organizational Construct and our paper, Hyperspecialization in Today’s Artificial Intelligence and Intellectual Property Enabled Workforce. 

Although consolidated producers are cutting staff in these areas of their key competitive advantages. And stating they’re purging their payrolls of contractors. Industry shortages of these skills are an issue that won’t be resolved by offshoring of engineering or geology. These are part of the foundation of what we believe the startup producers can build upon, consulting fees for these skills. This second revenue stream of a producer are seen as the means in which to fund the development of a producer's earth science and engineering capacities and capabilities in the Preliminary Specification. Intellectual Property is the foundation of those consulting revenues. 

Today’s blog post will not guide anyone through the business model of the Preliminary Specification. It is currently over 400,000 words and comprehensive in its approach to North American oil & gas. Those who may be interested should start with these three of our papers from 2025 and move on to the Preliminary Specification as needed. 

Investors Need Oil & Gas Investments

Our “Arbitrage” paper addresses the desire of investors to move back into oil & gas on the basis it can be profitable and prosperous on a “real” basis as we state. Where the capital costs in a capital intensive industry are recognized and passed to the consumer on a competitive basis on North American capital markets. It is foolish beyond belief to have an industry operate for decades on the basis of “building balance sheets” and “putting cash in the ground.” It is my suspicion that when investors heard producers state these things, they thought the producers were joking. They didn’t realize producer officers and directors were serious. Utterance of this type of nonsense will be immediately disqualifying in the “Oil & Gas v. 2.0” investors are looking to invest in. 

For the past many decades producers consumed investor cash. Due to investors suspension of support this past decade producers' cultural propensities show they’re unable to earn profits or generate cash. The demand for cash in oil & gas will only increase from this point forward. Becoming somewhat of a crisis on its own in the very short term. Balances of property, plant and equipment will continue growing as producers attempt to squeeze out what earnings they can by not passing these costs to consumers. In accounting terms this is called being between a rock and a hard place. Instead of having investors put cash in the ground, producers are holding that cash in the ground out of the necessity to further deceive the market about its earnings. 

Making today’s producer firms distinct competitive advantage their insatiable need for cash. We expect to see more property sales to be the trend from 2026 forward. Establishing our “Arbitrage Strategy” to begin the transition of the old industry to the new. This strategy allows investors to acquire oil & gas assets at what are believed to be distressed prices due to low commodity prices. Realizing the upside from price increases over time and the increase in proven reserves due to the reclassification from probable and possible. 

As non-operator new investors will be able to acquire the existing operators infrastructure to manage these assets for the short term while the Preliminary Specification is developed. Coincidental investments in new “Oil & Gas v. 2.0” producers to consult and take on the assets management in some form in the future. 

This is nothing more than one possible business model out of thousands of other possibilities that can and should be coming out of the disaster that we know and understand as North American oil & gas. The opportunities have never been more substantial. 

However, it should be emphasized the competitive nature of North American capital markets. Investors know and understand the behavior of the industry. They’ve proven beyond any reasonable doubt what is not acceptable will not be tolerated. If they see it again they’ll act as they have. It is incumbent upon “Oil & Gas v. 2.0” to adhere to their demands and to prioritize the top two demands of profitability and accountability. Which begins with a tier 1 ERP solution such as People, Ideas & Objects use of Oracle Cloud ERP. And asset profitability from day one. 

These will be necessary in the reconstruction process. What will also be necessary is a commitment to changing the culture of the industry to understand why these are necessary. Why profitability is the only road to fulfil the industries capital demands. There will be no annual shareholder issuances. Investors learned that trick too.  Accounting does not exist to just pay the bills and balance the check book. They are the critical business tool that keeps the organization focused on its targets. Including profitability. They should be seen as the most valuable tool to make this new culture a success. 

I made a comment the other day that suggested Exxon's acquisition of Sulpetro was based on the reserves only. And that was how most transactions were priced since. The financial performance of those reserves led Sulpetro into bankruptcy. Asking why was the financial performance of those reserves not taken into consideration instead of just reserve volume times projected prices? I would hope that at the beginning of this industry reconstruction, considering industries desperate need for cash, the need to perform financially everywhere and always in “Oil & Gas v. 2.0” the financial criteria would weigh heavier in the Arbitrage Strategy buying decisions. Overpaying for assets is a sure, slow and painful death. Today’s producer with a losing proposition may want to discard the property and may even pay cash to do so. A thought in terms of business model # 549 - Remediating Assets. As that will be their investors only concern with respect to any losing investment they may have made in you. 

Change, Part IX - Our User Community

 As we’ve found each year, Oracle Database World / Cloud World and now Oracle Artificial Intelligence World have had an impact on People, Ideas & Objects and our Preliminary Specification. Three years ago, the Oracle CloudWorld 2022 conference prompted a comprehensive rewrite of the entire specification. A rewrite I completed in November 2023. To be clear, I won’t be spending 2026 doing a comprehensive rewrite based on 2025’s conference content. I could, but we don’t have the time—our user community can creatively fill in the blanks with how Artificial Intelligence is implemented during their developments, while I define a few of the high-level changes of direction in this series.

In saying this, it will involve quite a bit of change from not only our current configuration, but also how that is developed, delivered and who’s involved. We’ll be introducing many new concepts and ones that may not feel right initially—however we have to work within these constraints. It is, for all intents and purposes, a change in perspective. Our Preliminary Specification remains whole. And we are implementing an “Artificial Intelligence First, Everywhere and Always” policy. Artificial Intelligence in the development and implementation of our Preliminary Specification’s configuration. Affecting who it is we’ll have participating in our user community and service providers. Just as the producers themselves.

There are many distinct characteristics of Artificial Intelligence that make it unlike any Information Technology-based changes we’ve experienced before. A comment from Chamath Palihapitiya of the All-In Podcast notes one characteristic. (I heavily abbreviated this quote.)

In 1932, unemployment in the United States reached 25%. If the Artificial Intelligence boom succeeds as anticipated, affecting all industries profoundly, it will drive massive productivity gains—often a euphemism for cost-cutting—which could impact employment. This might involve reducing jobs, enabling more output, or a combination: elevating workers to focus on higher-value tasks rather than drudgery.

For instance, my wife, who runs a life sciences business, views Artificial Intelligence tools as prioritizing speed over quality. She seeks the right molecule for the right disease, even if it takes years, rather than rapid production of 500 molecules. Currently, Artificial Intelligence remains in a novelty phase focused on velocity.

People, Ideas & Objects notes our paranoia about data in a number of prior blog posts. The need to build the foundation of these systems appropriately starts with the data. We should aspire to skip through the “slop-ware phase of Artificial Intelligence” and begin generating value from the fourth Industrial Revolution immediately. To build this right, we must have the data. Moving throughout our development with Artificial Intelligence assisting our quality as the priority, not just our speed.

Impact on employment? Cost cutting? Lose the drudgery? Quality vs. speed? These are only the highlights of Artificial Intelligence-related comments. With respect to the 1932 reference, the Great Depression was economic in nature and has as many origins as there are economists. It was a time of massive societal turmoil brought about by rapid economic productivity increases from automation, specialization and the division of labor. Initially brought about by Henry Ford’s assembly line innovations in 1913. When dispersed throughout the economy it caused too much product too quickly with falling prices as a result. Corporations needed to act to survive.

The lasting legacy of this period is Fear, Uncertainty and Doubt as to what will cause another event and when it will happen again. Artificial Intelligence is creating its own Fear, Uncertainty and Doubt.

Oracle’s Artificial Intelligence Conference 2025 showed me that Fear, Uncertainty and Doubt was prevalent and top of mind everywhere. Except within Oracle and possibly People, Ideas & Objects. Though it became clear to me quite quickly. A number of Oracle presenters had their customers on stage to discuss their plans for Artificial Intelligence. Oracle was visibly frustrated with the responses, going as far in one of the discussions to say “this is an Artificial Intelligence conference, what specific Artificial Intelligence features are you planning.” Only to be rebuffed by their customer once again.

There’s a wall between producer officers and directors and People, Ideas & Objects. One that has shown a persistence that will survive. If officers and directors have provided any leadership in this industry, it is in building this wall to keep people such as us out. The remainder of their organizations are now finding the comfort and support they need in adopting fully the Artificial Intelligence-induced, Fear, Uncertainty and Doubt posture of abstinence and avoidance. This resistance to Artificial Intelligence is what is happening now in North America regarding Fear, Uncertainty and Doubt about Artificial Intelligence. Fear, Uncertainty and Doubt may be a fad, but for how long and what are the long term consequences to those who adopt it.

This upsets our apple cart in many ways. Today’s division concerns us in terms that we may not be capable of carrying the freight of what we think we need our user community to pull. Members of our user community would be heavily ostracized from oil & gas and yes socially too. We haven’t lost the support of those that covertly support us, however someone will need to explain to me why our recruiting grounds in oil & gas have not diminished.

Therefore we need to open the grounds of our recruiting of our user community and service providers to ensure we achieve the development horsepower we need. We understand people’s trepidations and can’t argue with them. There are those who can fill the role we have from outside oil & gas who’ll approach the design and development with fresh eyes. I went through a similar phase, although on a much smaller scale.

While I was in audit, we went through the introduction of the personal computer. Spreadsheets were invaluable and databases were gold mines. (Who remembers lugging an Osborne around?) Yet there were many, I would suggest at least 25% during this introductory phase, who refused to touch a computer. They were raised on 14 column worksheets with pencils and were proficient with those, so they believed. Most were near retirement and were supported as there was nothing that could be done with them. And some lasted into the mid 1990s. There are a few lessons here which we can apply to our current Artificial Intelligence-related situation. In a paper from Damioli, Giocomo entitled “Is Artificial Intelligence Leading to a New Technological Paradigm?”

Moreover, the broader concept of “techno-economic paradigm” is based on the realization that technological evolution is cyclical by nature, where extended periods of gradual accumulation are (rarely) punctuated by radical and disruptive changes. In this framework, the diffusion of radically new technologies with the emergence of a new technological paradigm brings about the need for fundamental socio-economic changes that should be widely spread across the society. This interaction initially implies a “mismatch” between the potentialities of the new technologies and the inadequacy of the current institutional setting; this mismatch often leads to a productivity slowdown (the so-called Solow’s paradox, [Solow 1987]), which can be solved only through a substantial upgrading of the societal and institutional framework (“match”) (see [Draka et al. 2007]).

The remaining question is how much of Solow’s paradox will apply to the status quo producers, and what will that involve? We have to unfortunately apply it to those who metaphorically stick with their 14 columns and pencils too.

To compare the introduction of the personal computer to Artificial Intelligence is the equivalent of comparing Orville Wright’s planes to the F-35. People, Ideas & Objects suggest the velocity and momentum driving the trajectory behind Artificial Intelligence is much steeper and non-linear in nature. A characteristic we’ve possibly not seen in prior technological trajectories. Although we can draw parallels to the personal computer’s introduction, we’ll experience far greater societal change and productivity gains from those who adopt Artificial Intelligence technology.​​​​​​​​​​​​​​​​