These Are Not the Earnings We're Looking For, Part XIX

Buddy could you spare a dime? I had a feeling that the second quarter 2018 financial statements were not going to be “healthy” for the oil and gas industry. Once again I was very wrong. The situation seems to be spinning out of control very quickly. What producers expected from the $74 oil prices didn’t materialize in any way. The alleged profitability of the producers remained mythical in its origins and validity, depressed and recorded an overall similar performance to the first half of 2017 for our sample of 23 producers. The first half of 2017 was a time when the oil prices were up to $30 lower. To hear the producers talk it’s as if they’ve worked miracles and resolved all the problems they’ve ever had. The issues that the Preliminary Specification addresses and resolves are material to the health and welfare of the oil and gas producers and industry. That bureaucrats don’t see it this way is an interesting phenomenon that I can’t speculate on its origin or motivation. There are serious issues at hand and will need to be addressed in short order. This is not normal or is it in anyway acceptable. There is a crisis that has been developing in the industry, I believe that it will manifest itself in the second half of 2018.

The one thing that we know for certain at this point is that there will be no further oil price upside due to the production sharing agreement being renounced by OPEC and Russia. The situation has also become very fluid and dynamic with China being severely affected economically by the U.S. tariffs and attempting to shift supplies away from the U.S. What was believed to be a spike in prices, to as high as $200 by some analysts, has now settled back to the same old, same old in terms of future prices. Commodity prices will not be moving up substantially from here in the short, medium or long term that I can see. What we know from our review of our sample of 23 producers is that the run up in prices from the $30 range to $74 has not healed what ailed the industry as the bureaucrats claimed it would. People, Ideas & Objects have always asserted that prices would need to be much higher with our calculated necessary oil price of $141 for the last quarter. And with cost escalation in the second quarter, the remaining 2018 prices will be needing to be in the low $150 range in order for the industry to begin profitability.

In a world of economic tightening, where the past decade has seen phenomenal expansion of the money supply. Oil and gas producers are faced with the luxury of a hypercritical cash crisis and bloated balances of property, plant and equipment that are supported by unreasonable and unsupportable levels of debt. Who would have thought? Producers may technically have good debt to equity ratios on their pristine balance sheets however if those balance sheets are bloated, then their debt is bloated as well. Investors, who have recently caught on to the annual dilution of their interests in these producer firms, are electing to pass on any further investment. Maintaining their current percentages of ownership of the firm instead of investing more and ending up, as a result of the dilution, with less. Banks are spooked too for the better part of the next generation or until they recover their money by poaching the bank accounts of any cash that comes in from the producers. So yes as we move into a normal interest rate environment where competition for the investment dollar will be very stiff, spendaholics with no “real” performance, plans or strategy but a stack of unaddressed issues to show for themselves will be having difficulties.

The more that today’s producers hold to the “profitability” and superior performance of their organizations the more fearful the investors become. The delusion that the industry is profitable when the capital asset values continue to bloat completely outside of anything that would be considered reasonable. Where the discussion of profitability at $40, $50, $60 then $70 oil was alleged to be boom times for the producers. With the producer organizations quickly dispelling the myth that they’ll be profitable at those prices as soon as those prices are achieved. Hanging on to these myths and fallacies that the industry is doing well in order to hope to have the investors return with their annual cash infusions into the producers is only frightening to those that would have participated. The industry appears to be the only ones that don’t understand the situation that they’re in. They’ll not be making it to Christmas at the rate they’re going and as I see it, the banks and investors are beginning to demand more cash returned before the ultimate, inevitable collapse.

What to do? The producers could provide the investors and bankers with a plan and strategy on how they would turn the industry around and move forward with profitable operations everywhere and all the time. By adopting the Preliminary Specification the investors and bankers, who are businessman and see the long term future, will accept that this plan will give a new and better future to the industry. One that is viable, profitable in the real sense and prosperous for all within the society that are affected by the industry. They would act in the best interests of the producers and fund their current shortfalls until such time as that future was here. I’m preaching to an uninterested and uncaring bureaucracy, I know, but I’m concerned for what I’m seeing. The reason I’ve been doing this for so long and so hard was to avoid what I think this issue could manifest itself as in very short order.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

These Are Not the Earnings We're Looking For, Part XVIII

With the rich endowment of shale technologies and reserves in the past decade. One would have thought that one of the producers would have challenged Apple for that trillion dollar milestone. Shale reserves however have been used in the same way that the traditional oil and gas industry operated. That being they’ve overwhelmed the commodity markets causing them to fundamentally collapse. Some might assert this was mismanagement on the bureaucrats behalf. Others would claim that the industry has not changed to meet the challenges and opportunities brought about as a result of shale. You may have read all of these claims in this blog and I would be honored to make them once again. The level of change introduced by shale can’t be dealt with by the current bunch and we can expect more of the “muddling along” and “do nothing” strategy and operating procedure that the bureaucrats have adopted as their religion. Please note my assertion here is that the reserves of the oil and gas producers are the real assets and value of these firms. And today the sum total of all the reserves of the industry are worthless as they produce nothing of value and indeed require cash infusions in order to function. If they held any commercial value, the possible trillion dollar valuation, they would have needed to be produced profitably. Their trillion dollar value derived from their performance as defined by their (real) profitability. Today the collective reserves of the industry have truly nothing to do with the unrecognized capital costs of prior production sitting on the balance sheets as property, plant and equipment of the producers. To be clear one should be an asset (the reserves) priced based on their performance, and would be emulated on the stock market as the market capitalization and the other are unrecognized capital costs of prior production. Producers today are in a highly competitive race to outspend themselves and “build their balance sheets” in order to represent they are more “valuable.” That is what they believe is the business. Any fool that looks to the accounting for the determination of value is a special kind of fool. Accounting is about performance. For example Apple has a book value of $349 billion of which $288.5 billion happens to be in the form of cash or equivalents. It therefore has only $60.5 billion in long term assets. Roughly the equivalent size of property, plant and equipment of an oil and gas startup.

We need to recall that the purpose behind these accounting shenanigans is to ensure that the capital costs of oil and gas exploration and production are incurred by the investors and not the consumers. By deferring the recognition of the capital costs for decades the producer achieves two key objectives. Their spending looks productive when assets continue to grow, profitability is achieved by any village idiot and cash flows are overstated too. And indirectly the burden for the cost of oil and gas is shifted from the consumer to the investors and bankers who supported the facade for so many decades.

It used to be that if you had a 100 bcf of natural gas reserves you were a force to reckoned with in the industry. Someone who understood the business and could build it. Now a startup could acquire a few tcf of natural gas in reserves in a few short years. The problem is that no one sees any value in that anymore. Primarily because there is no value in that anymore. The producers today have so eroded the value of the commodities prices that they’re incapable of earning a “real” profit, a profit that would be one that includes an increase in overall cash. That no one perceives any value in the oil and gas industry makes it a process of getting out, but before you do, make sure you take whatever you can get. If someone were to grant you their 5 tcf in gas reserves as a gift, you would probably have to throw it back. By accepting this gift you would be jumping in the deep end of the pool with a fresh pair of cement shoes.

One of the issues that I see in this second quarter reporting period is that producers have been telling the world their profitable for years. The fact of the matter is that they’ve been able to report these profitable operations because they hide their costs as assets on the balance sheet. Those costs are now so large as to have distorted every aspect of their financial situation as to permanently render them in a situation of perpetual losses from now on to make up for the fraudulent representation of profits in the past. To simplify the point I would say a corporations lifetime profitability is 100%. Producers today have now reported a grand total of 200% profitability. Therefore the performance of their assets will be bringing the reported performance back in line with actual performance of the organization. This is why accounting is a critical skill in determining the timing of its costs. Producers can solve most problems with the application of effort over a few quarters or years however this issue will take materially more effort than that. We don’t even see the recognition of this problem and the willingness to undertake a review. Note only the Preliminary Specifications decentralized production models price maker strategy can remedy this.

What I can state unequivocally in reviewing the second quarter financial statements of our sample of 23 producers. Is that they don’t know the oil and gas business, they don’t even know their business and don’t understand business in general! Which is probably the worst thing that anyone can say. Consider for a moment however that when oil was at $45 how $50 oil was going to be produced profitably. Then certainly $55 would be better and they stated it would be a windfall at $60. Predictions of these profits never arrive. Oil ended the quarter at $74.25 and the loss of cash, working capital, cash generated and profitability is epic.

I’m sure the industry argument that will be put across is that the amount of cash that is being spent on reducing debt, on dividends and share buybacks is consuming all of the cash the producers generate. And I would ask if they’re a recent university graduate? One that feels that socialism is the preferred method of organization. The fact that producers are paying out the cash to those people is because, anyone, anyone, that’s right it’s a business. And that is what businesses do. The fact that producers are now expected to act somewhat like a business is not a reason to cry about the drainage of cash by the bankers and investors. It’s time to implement the other aspects of “business” and make the industry profitable so that producers can do all of the things that businesses do. Those things that are involved in business that are beyond spending money.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

Second Quarter Results

I’ll be taking the next two weeks off returning August 13, 2018. By that time our sample of 23 producers will have reported their second quarter performance and we’ll begin our analysis. There are a few more things to be discussed with respect to the User Community Developments and we’ll finish off that series as soon as we’ve completed our review of the second quarter.

What is known at this time regarding the performance of the producers is unknown. They’ve certainly had their best quarter in terms of oil prices for the past three years. This has put a bounce in their step and led them to present a positive outlook towards the future. I believe this has been in anticipation of a prospective return of the investment community and the annual ritual of the shareholder fleecing to fund their next years capital expenditures. I am of the belief that investors won’t be back for a few years. They’ll need to see a steady performance of profitable operations before they’ll step back in the ring. These profits that they’re looking for will be the ones that they and I consider “real profits” and not the ones in which the bureaucrats report, which seem to always exclude the capital costs. It is therefore easy for me to predict, which is what I’ve done for so many years now, that the profits that are reported by the producers will not be tangible in the sense that they contributed any value to the producer firm. Without a constant cash infusion from the investors and bankers, the cash shortfall that has become hypercritical in the first quarter of 2018 will now surely be beyond what I could describe. Extension of accounts payable to completely unreasonable time periods is the only means in which to mitigate the producers loss of further cash. It will be interesting to see how its been done.

Certainly prices over $70 have helped substantially in terms of dealing with the cash crisis. The problem is that the producer does not generate any cash that is recovered in the current period. Cash in essence only goes one way, out. When most of the overhead is capitalized these costs, not assets, which are incurred each month require payment each month. Usually a firm has a revolving cash cycle that has the cash paid for its overhead returned to it from the products that they sell that month for use in the next month. When producers never recognize the capital costs of past production, which include the overhead costs, these costs sit as dead weight on their cash demands recycling themselves each month with the demand for new cash to pay next months overhead never being responded to by the business returning that cash. When the investors and bankers take a hike, which had provided the cash to fuel the payment of overheads for a year or more, then there is no money to pay for overheads. With $70 plus oil the amount that the producers are making from the sale of their products are generating more cash, however the amount that each barrel of oil costs in terms of cash out the door, based on our estimates from our first quarter 2018 calculations is in the range of $141. It is very stupid business policies such as these that the producers have been involved in for at least three decades, that investors have caught onto and the cash crisis is based.

One of the ways in which producers have learned to deal with the cash shortfall is to generate new flush production. Which is also known as “the business.” When increased volumes of oil or gas are delivered they’ve had in the past a temporary “free money” kind of tonic on the producers financials. This is also one of the reasons that producers continue to overproduce. To understand the phenomenon think of the gerbil in a wheel running in an attempt to reach its lunch. We’ve learned recently from the EIA that the highest rate of drilling in three years is currently underway. This is what accounts for the “discipline” producers acquired after they collapsed the oil prices into the $30 region.

I think the trend line on natural gas prices is disconcerting. Why the downward move at this time? There appears to be no reason for this and I am at a loss to determine the weakness. I had speculated previously that the pipeline constraints in many of the big shale gas fields, where prices had been severely depressed, were being alleviated. This has been the case and those constraints are now being cleared which is providing the overall natural gas market with incremental supply. As these constraints continue to be cured the industries overall natural gas revenues may drop once again as the natural gas prices begin to adjust to the increased supply.

Although I point these issues out it is clear that the bureaucrats couldn't be concerned in any sense. They’re fine thanks. They have a solution that has worked marvellously for the past number of decades. The solution is they’ll adjust the rate of depletion that they recognize. With higher oil prices the value of their reserves times the price of oil is much higher. Leaving them with much more space in which for them to operate before the ceiling test becomes an issue. Therefore, even though they are spending substantial amounts of other people's money on drilling, it will not approach that threshold of the ceiling test. Therefore they can reduce the amount of depletion recorded in the current period substantially. And that’s not all! They can even go back into the first quarter of 2018 and reduce the amount of depletion that they reported there. In fact I’m willing to predict that with the increase in oil prices for the second quarter we may see the recording of negative depletion for the second quarter of 2018 in some producers. That’ll boost earnings and get the investors back.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

User Community Developments, Part XXI

One needs to contrast the competitive advantages that People, Ideas & Objects user community and service providers provide the oil and gas industry in comparison to the administrative and accounting resources present in each oil and gas producer today. The key differential is that the user community and service providers provide the oil and gas producers with the most profitable means of oil and gas operations. That is verified through our value proposition which is available through use of the Preliminary Specification and these communities. We rely on the user community to provide the leadership within the industry to ensure that the oil and gas producers attain, and continue to always achieve the most profitable means of oil and gas operations. They have the means in which to make the changes to the software that is derivative of the Preliminary Specification and the services that are provided through their service provider organizations.

Another key difference between these two systems of organization of the oil and gas industry. Are that the current organizational model requires each and every oil and gas producer to build and maintain the administrative and accounting capabilities to function in the current business environment. What I mean by this is that the task of building and maintaining the requirements within each and every producer becomes an industry wide capability through the implementation of the user community and service providers. Today each producer is tasked with ensuring that they are meeting all of the requirements of every regulation and ensuring that the shareholders resources are managed appropriately. These tasks are not fundamentally different from the producer in the adjoining building or across the street. Today these resources and capabilities are not shared in any way because they are not shareable. With the structure introduced through implementation of the Preliminary Specification the service providers are managing one process and applying it to their customer base, which consists of the entire oil and gas industry. Therefore the shareable nature of the service providers process management is an inherent cost savings for the producer. This configuration, in addition to enabling the price maker strategy which therefore provides for the most profitable means of oil and gas operations, is a more cost efficient and effective manner in which to build the administrative and accounting capacities and capabilities to ensure compliance and governance is achieved within all areas of the industry and each producer.

The next 25 years in the oil and gas industry will be its most difficult. With the current disgruntled financial community, the financial demand to replace much of the infrastructure and the retirement of the brain trust of the industry. All pose difficult issues to the North American producers. The dynamic, innovative, accountable and profitable producer will need to adopt any and all necessary changes to their operations quickly. The era of muddle along and do nothing has seen its best days and has failed to provide any value for the industry. The user community and service providers, in addition to providing the administrative and accounting services to the producers, also provide continuous development of the business models. If there is a need for the adoption for a new business model, one that is not understood today, or would be incremental to those in the Preliminary Specification these organizations have the capabilities to dynamically make the changes to the software and services that make up the administrative, accounting and business models of the producers and industry.

How will the producers prove to their current and future investors that their future will be any different? How can they assure them they’ve acquired that old time religion of profits? I don’t think they even see the issue or its cause at this point. The producers behaviour has to be frightening the investors as they double down on their muddling and twiddling. Their credibility to provide any profitability or accountability in the current or future environments is null and void. When it comes to the next 25 years with the issues the industry is facing and the bureaucrats doing their Mr. Magoo impersonation I don’t see the investors changing their minds. The current industry trajectory is a continuous decline into oblivion. Allowing the continuation of creative destruction is contrary to the investors realizing the value that they have been short changed by these self interested bureaucrats. This value is represented in the $1.6 trillion sitting in the current producers property, plant and equipment account. This amount also represents the discount that has been provided to the consumers when the producers never recognized these capital costs of past production. To realize this value demands that the Preliminary Specifications decentralized production models price maker strategy be implemented with the user community and service providers. Either the investors can do that through their active participation in their producer organizations or the bureaucrats can wake up.

The President of the United States is suggesting he will be releasing 5 to 20 million barrels of oil from the strategic petroleum reserve to offset the Iran sanctions going into place in November 2018. It's almost like the President believes that oil prices are subject to price maker characteristics! Additional volumes of oil and gas supply have a material effect on the price. The producers should take this as the second source of evidence that the oil and gas commodities are subject to the economic characteristics of price makers and begin behaving in that manner. Implementing the Preliminary Specification might also give them some much needed credibility that they’re approaching the next 25 years with a different point of view and understanding. One in which they’ll focus on providing their investors with the most profitable means of oil and gas operations.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

User Community Developments, Part XX

When a new producer begins. When an acquisition by one producer of another occurs. When facilities or properties are bought and sold. When new facilities are brought on line. The need for systems integration of that data and information into the ERP system is a necessity. These will be carried out by the user community member through their service provider organizations. Integration of the process that they manage will therefore be a key offering, and seen as a distinct competitive advantage that the service provider provides the industry. The skills and capabilities in this area, when limited to just the process that is under management by the service provider organization, could become extremely efficient and valuable for both the producer and service provider.

There has been a strong orientation towards the Information Technologies in the user communities recent development and specifically their competitive advantages. Also with the recent expansion of the Preliminary Specification to twelve modules with the addition of the Blockchain module. The addition of these elements of Information Technology as part of the competitive advantages of the user community member and service provider are a substantial part of their skill set. We are developing the user community from the resources that are currently employed in the oil and gas industry. Primarily from the administrative and accounting fields. The orientation towards the Information Technologies are significant, and as with the leadership we noted the user community would be providing the industry, Information Technology is a fundamental part of the work that we are doing by developing software. The changes in everyone's work in the very near future. The sub-industry that we are creating with the user community and service providers that are filling the gap that has been created between the oil and gas producers and the technology providers. Where specialization and the division of labor has demanded that each of these industries focus on their capabilities and competitive advantages, and as a result are having difficulty communicating with one another. People, Ideas & Objects, our user community and service providers have to fill that gap with our own fundamental understanding of oil and gas and our special attributes or orientation towards Information Technology.

To quickly review where the user community and service providers competitive advantages stand we have the following list. We will provide a quality offering and let others compete on price. We will use specialization and the division of labor to generate further value for the oil and gas producers by doing more with less. Automation of the business processes will be a key feature of the service providers through their abilities and capabilities obtained through the user community vision. Specifically those include control over the Intellectual Property that makes up the Preliminary Specification and that People, Ideas & Objects software developers will only ever look to the user community for their input. The Preliminary Specification, People, Ideas & Objects, our user community and service providers are structured to provide the oil and gas producer and industry with the structure and capability for the oil and gas industry to expand its capabilities in terms of innovation. In that sense innovation on the administrative and accounting expertise will be a contributing factor to these producers innovations. We will focus on having the computers working for us as opposed to the situation today where I feel we are working for the computers. And therefore we will do what humans do best which includes the leadership, issue identification and resolution, decision making, creativity, collaboration, research, ideas, design, planning, thinking, negotiating, compromising, innovating and financing. And as we have been discussing we’ve added the application of Artificial Intelligence, Leadership, Integration and 5G / Internet of Things to the list of distinct competitive advantages of the user community and service providers.

We noted in the user communities vision, and elsewhere, that we need people who have a strong orientation towards the Information Technology capabilities. We are developing software and services based on that software, and understanding the strengths and weaknesses of the Information Technologies provides an understanding of the possibilities of what the software can do. We are the hybrid sub-industry between the oil and gas and Information Technology industries. These demands on the user community members are high, however these are the needs as defined by the marketplace. The service provider operations may be populated by specialists in either of the two industries in order to deal with the unique process that is under management at that service provider. If the user community participation role and opportunity appeals to you we have listed the level of Information Technology courses and understanding that would be helpful in the user community vision.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

User Community Developments, Part XIX

It was December 2013 when we published the final edited version of the Preliminary Specification. It was immediately after that we began with our focus and priority for these past five years. The same priority and focus that will always be what People, Ideas & Objects concern themselves with. Our user community. The development over these past five years has been slow and cumbersome however that is the problem with doing these kinds of things. You can’t short circuit the time commitment necessary to do it right. The biggest issue that I think People, Ideas & Objects have is that our awareness is constrained by the nature of the people who are interested in the user community. They’re not that free and willing to openly discuss this opportunity within the industry. There are many things that can be done quietly in the background, however it would be bad to discuss this in front of your employer, it is very bad to discuss in front of the bureaucrats, they just love to snuff out any interest and its bad to talk to other people who may not see the need in the industry and would see the support of People, Ideas & Objects as part of the loss of commitment to the oil and gas industry, a commitment that they would feel is needed at this dire time of need. This is the political environment that all major changes have to deal with and survive through. What people can determine from this is that People, Ideas & Objects are more committed than ever to see the changes brought about to ensure that we provide the oil and gas producers with the most profitable means of oil and gas operations. The only manner that this will be successfully done is through our user community, one in which has been endowed with a vision such as theirs.

My concern is that we’re cycling downward in terms of oil prices once again. It is what the bureaucrats do. It’s been over ten years in which the natural gas prices declined, and the cycling of those prices up and down, that led to the final loss of faith in the commodity price recovering to its traditional levels. Natural gas has traditionally traded at 6 to 1 of the oil price for the majority of its existence. Oil now trades at almost 26 times the price of natural gas. No one talks about the price of natural gas or the natural gas business. It is for all intents and purposes fundamentally destroyed by overproduction. Initially the low prices were constrained to the North America as a result of the continental nature of the marketplace. That has changed with global prices for natural gas now tracking closely to the North American prices. This has put substantial pressure on the viability and economic performance of LNG and the overproduction by the North American producers continues unconstrained. What constraints consist in the oil sector of the North American marketplace. OPEC has shown the way in terms of managing inventories, as all other business do, to ensure that the prices they ultimately realize would be profitable. Managing inventory is a necessary part of every business. Even Ford recently shut down production of the F-150. The most popular truck manufactured for something like 30 years straight. Why would they do that, because it's a business and they don’t want to overwhelm the market with overproduction.

Producers have expressed no desire to retrieve the monies that sit in property, plant and equipment on behalf of their shareholders! Interesting. I have been discussing the stored value sitting on these balance sheets for years. The only way in which to release this value is for the producers to implement the Preliminary Specifications decentralized production models price maker strategy. Producers would prefer to suffer through a cash induced starvation instead. It doesn’t make any sense and that’s the point. Oil and gas is not being run as a business. The bureaucrats are fine and satisfied with their compensation and see no reason or need to change the dynamics of their personal situation. How many times do bureaucrats think people will follow them when they just ride out the highs and lows of the oil and gas prices. They’ve lost the interest of their investors and bankers. Many have been displaced and those that do remain find that the increase in deliverability of production and the reduction in costs overall in the industry have nothing to do with what they’ve been suffering and sacrificing for, but with Artificial Intelligence! Well who ever was talking to the Wall Street Journal about AI just wasn’t thinking were they, therefore we can only conclude that it was a bureaucrat.

How does this play into the mindset of the user community and the developments we are undertaking. Only when strong leadership is present within the industry will there be a return to prosperity for those outside the bureaucracy. We see the user community being the leadership necessary to make the industry dynamic, innovative, accountable and profitable. The current bunch are not representative of that strong leadership as they are the ones that brought us to the point where this new leadership is demanded. Our user community members leadership will be the reason why our value proposition is realized by the industry.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

User Community Developments, Part XVIII

At one point early in our journey here we had developed a Technical Vision that set out how we thought that the Information Technologies were going to develop. The Technical Vision contained four features that would impact the way that we saw ERP systems being developed and used. The first was the use of object oriented programming and specifically the use of the Java Programming Language with its static capabilities. Second was the roll out of IPv6 which would expand the number of unique Internet addresses. The third component was what we called Asynchronous Process Management and the fourth was wireless communications. Many would see this today as the Internet of Things which is what we’ve begun to use in place of the Technical Vision.

The Internet of Things is the technology that is always just around the corner. And there is nothing to say that in ten years it will still be just around the corner. However, there is a major piece of the puzzle coming into play during the time period that the Preliminary Specification will be under development. One that will enable the Internet of Things to become real. (Crossing my fingers here.) If so then the dynamic that is the Internet of Things can be a key attribute of the Preliminary Specification, our user community and service providers offering. And the majority of the implementation of that offering would be through our user communities inclusion of the technologies within the Preliminary Specification as they build it, and the use and further iterative development of those technologies through their service provider offerings.

The technology that I anticipate will be the reason that the Internet of Things becomes real is the primary reason that everyone’s cellular phone bill is so high. That being the build out of the next generation of mobile phone service that’s in process in the U.S. and Canada. The expectation that these services will be provided some time in 2019 and 2020 is the projected time frame. The technology is labeled 5G and is substantially different than the phone service that your using today. The speed or bandwidth of the service is up to 20gb / second. A remarkable rate. But the real feature of the technology is that it’s not point to point, as I call it. Where your phone is communicating only with the tower that handles your signal. The 5G technology is able to communicate with anything and everything all the time. The ability therefore to interface with the persons phone next to you and communicate directly without having each to be routed through the entire global infrastructure. Therefore having sensors and controls on every aspect of the oil and gas infrastructure with the necessary secure and addressable communications will soon be a possibility.

How is this going to change ERP systems? How is this going to change the Preliminary Specification? How is this going to change the work that we do here at People, Ideas & Objects? And how is this going to change the role of the user community participant and their service provider organization? Well first of all there will be some extra data that we’ve not seen before. I think that’s a given. Here is where the value of the user community and service providers come into focus. I could sit here and come up with some good ideas of what the impact of 5G would be for the Preliminary Specification, and to the larger issue of the oil and gas industry. However, with 3,000 people in our user community who have been endowed with the capabilities and capacities, the power and authority to make the changes to the underlying software and services they use to manage their oil and gas producer clients, the sky's the limit in terms of what the possibilities would and could be.

A new module could be written to include the 5G technologies however, as with Artificial Intelligence, that would be very limiting. The inclusion of 5G and the adoption of the concept of the Internet of Things into the long list of competitive advantages of the user community and service providers is where this belongs. Giving them the understanding that they have the power and control to do what it is they want and need to be innovative and valuable for their producer clients.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

Third Friday

User Community Developments, Part XVII

We raised the point about Artificial Intelligence and how it was alleged to have provided the current producers with substantial gains in efficiencies. The possibilities that AI would be responsible for an increase of one million barrels per day and a reduction in the head count of 21% is well beyond what would be reasonable to assume the technology would or could be able to provide in the next decade or two. The Wall Street Journal doesn’t involve itself in the type of “fake news” that some outlets are involved in. Therefore someone had to be providing those reporters with this information and we can only assume that the bureaucrats are actively looking to enhance their “performance” reputation in the eyes of their investors. This may be the current excuse or reason that will become the go to standard excuse for them in the next few quarters.

Artificial Intelligence is a useful tool and one that will be used throughout the Preliminary Specification, our user community and service providers. We will not be writing a module within the specification that deals with AI’s features. We won’t be writing anything about AI into the Preliminary Specification. What AI will be in terms of the user community and service providers will be another key competitive advantage to be used to provide the oil and gas producers with the most profitable means of oil and gas operations. As will the People, Ideas & Objects developers. Where and how much of the technologies to use and apply in their day-to-day interactions with the producers will be based on the AI skills and capabilities that they the user community member and service provider are able to create. I would also expect that the way that AI is implemented within the service providers would be somewhat of a source of competitive differentiation throughout the service provider sub-industry that we are creating. Just as all their other competitive advantages would be.

In 20 years time we will have gained significant benefit from Artificial Intelligence in the oil and gas industry. What we have learned in the Preliminary Specification is that innovation doesn’t just appear out of thin air as the WSJ report intimates. The structure of the organizations and the processes that support the producer organizations have to be structured in a way to facilitate innovation. Only in that way will innovation be able to foster and grow. Apple is such an organization and there are many organizations that are not. I’m sure that many have tried to emulate the innovative capabilities of Apple in their own organizations. That’s not how it works, for more on how the oil and gas industry will become dynamic, innovative, accountable and profitable, the reader needs to study the Preliminary Specification.

There are two key things to remember at this point. The only manner in which value has ever been generated in the past two or three centuries is through the application of specialization and the division of labor. These are the key competitive advantages of the user community and service providers. It will be a long time before AI knocks these two off their value generating perch. The second thing to remember in this the 21st century is that software defines and supports the organization. Therefore if we want to make a change in the producer organization, based on your analysis of specialization and the division of labor, you will need to change the software that the organization uses first. And that demands that we first configure the industry and producer structures in such a manner as to facilitate these changes. Which is what the reorganization of the administrative and accounting resources of the producer firms into the user community and service providers will do. Making the effective changes to the software that they have the power to do so through the user community vision, and to make the changes to the processes that they manage on behalf of their clients the dynamic, innovative, accountable and profitable oil and gas industry.

Eventually, I don’t know when, the industry will depend on a high volume of ideas being generated throughout the oil and gas producers, service industry, user community and service providers. The volume of ideas today, although highly constrained by the bureaucracy, is still a quantum level higher than it was fifty years ago. Just as the number of ideas will need to be a quantum level higher in terms of volume and velocity in the near term. The distributed nature of the user community and service providers will facilitate the ability to generate the ideas and implement them within the software derived from the Preliminary Specification and follow through with the necessary organizational changes at their service provider organizations.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.

User Community Developments, Part XVI

What the Preliminary Specification, our user community and service providers represent for the oil and gas industry is the capacity to change, the leadership in the administration, accounting and business model development and realization of the full value of our objective of providing the oil and gas producers with the most profitable means of oil and gas operations. It is through our value proposition that we are able to quantify and qualify the industry gains of using the software and services that we’ll provide. It’s not enough in the 21st century to own the oil and gas asset. Producers will also need to have access to our software and services that make their assets profitable. What we have seen is that the industries producers are incapable of generating a profit, they are incapable of generating cash! Without the Preliminary Specification, our user community and service providers the industry will fail. The investors and bankers who once believed the producers now see the future of the industry as bleak and are not actively participating in the decline that is underway.

When the user community and their associated service provider organizations are providing the oil and gas industry with the quantifiable increase in their revenues and profitability. Increases that they’re incapable of generating on their own. Increases that are being valued at $25.7 to $45.7 trillion over the next 25 years, only a fool would believe that the administrative and accounting provided by the service providers would use price as one of their key competitive advantages. Why would they? It is the same issue that we see the industry having towards People, Ideas & Objects development budget. The the high value of the amount of our budget, the payment of Intellectual Property royalties, and the expectation that we would earn substantial profits too! The issues that the producers take with our budget reflect to me that they really not interested in solving problems. Problems that even they can see are quantified in the trillions if only they had the means in which to implement the appropriate solution. They need to pay for that solution, and building that solution is the cost they’ll have to incur in order to earn back what they’ve lost, stem the tide of current losses and build for the future. Otherwise they’ll be headed out of business on the basis of how they’re operating today. It's not our businesses that needs to be corrected, we’re doing fine thanks.

The competitive advantages that the user community and service providers employ are comprehensive and consistent with what a 21st century firm needs to be providing their clients. We have talked about the long list of competitive advantages that they’ll have available to them in order to build value for their producer clients. These have included quality, specialization and the division of labor, innovation based on the administrative and accounting expertise, automation and having the computers work for us. A change from today where the computers have the people shuffling data between here and there. We will relegate the use of computers to what they do best, storage and processing. And the people will involve themselves in the leadership, problem solving, decision making, creative, collaboration, research, ideas, design, planning, thinking, negotiating, compromising, innovating and financing. To name just a few.

I read an article of great interest in the Wall Street Journal the other day. It was discussing the productivity of the oil and gas producers in the field as a result of their application of Artificial Intelligence, automation and other technologies. Suggesting that since the downfall in oil prices in 2014, oil production is much higher at 10.9 mmboe / day, yet oil and gas employment is down 21%. Doing much more with far less as a result of that automation and Artificial Intelligence has provided. Who would have thought, who would have believed? Well I certainly don’t. Deliverability has nothing to do with how many people are employed by the industry. That is not a direct correlation. The industry has not hired any of the people they laid off either. Remember they don’t have the cash. And to suggest that the result of this is that they’ve squeezed higher profits out of the oil is too far of a stretch for me. For your reading enjoyment I’ll provide the two paragraphs that I find the most comical. From WSJ.

Oil prices are back up to their highest levels in more than three years. U.S. production has topped record levels, hitting 10.9 million barrels a day in the last week of June, according to the U.S. Energy Information Administration, compared with its high of 9.6 million in 2015. But as of May, nationwide oil and gas employment is down 21% since 2014, according to state and federal data compiled by Karr Ingham, an economist for the Texas Alliance of Energy Producers, an industry group.

The energy sector had been shielded from pressure to innovate by high oil prices. When prices fell 75% over 20 months beginning in 2014, oil and gas companies were finally forced to modernize to squeeze out profits. Many found they could use new technologies to do the work better and cheaper, with fewer people. They have invested billions of dollars on what the industry dubs “digital oil fields,” embracing artificial intelligence, automation and other technologies.

As long as we know it has nothing to do with prolific nature of shale or the layoff's that occurred during this bureaucratic, disastrous downturn.

Since 2014, and even prior to that when it involved the natural gas business, producers have had nothing but excuses as to what will be the results of the never ending “current situation.” “We’re praying for a cold winter,” “it’s OPEC’s fault,”and “next quarter.” To be honest I’ve been laying in wait for the day when the producers attributed any alleged “increased performance” to the application of Artificial Intelligence or Machine Learning. I thought they would use it as an excuse, though in the form of “we’re going to apply Artificial Intelligence and Machine Learning to the business to gain improvements.” Not that here are the improvements we’ve attained by these technologies. This is very bold statement.

Since 2004 I have been asserting that the issues in the industry are serious and would cut to the core of the industries survivability. Which is exactly what has happened. Taking our breakthrough of using the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. And expanding on that through ten years of research that introduced hundreds of concepts that are codified in the Preliminary Specification and related documents. These concepts have pushed the industry forward substantially in terms of identifying and resolving the issues that are prevalent in the industry today. As of today, they are not so much considered possibles as necessaries in order to put things back together again. The point I want to make is that at no time did I receive any support from the bureaucrats. On the contrary I was subject to constant abuse and on five different occasions other firms were hired to try and poach my Intellectual Property. None of these other firms were successful and all expressed disappointment that they were used by the oil and gas industry in the fashion that they were to violate others IP. These were substantial companies with premier reputations which included Cambridge Energy Research Associates, McKinsey & Company (twice), Ernst & Young, The Oxford Institute for Energy Studies. The ideas inherent in the Preliminary Specification have been fought over due to the effect they have in disinter-mediating the bureaucracy.

For those of you who are unaware what Artificial Intelligence is, it’s very much an extension of what engineering and financial modeling have become. Brute force computing of many different scenarios to determine which is the best solution. Artificial Intelligence takes this same approach and applies it to the conceptual level. Creating new concepts that build off what is known today. If I have had nothing but arguments, fights and difficulties in getting the concept of higher, material profitability across to the bureaucrats, what do you think they’ve determined from Artificial Intelligence that has enabled them to a) reduce the head count in the industry, and b) expand the profitability? And where is that profitability? Acceptance of ideas have been always difficult in oil and gas. Maybe some of the most recent stories regarding coiled tubing and Packers Plus would enlighten you on the decades long pursuit they needed before they were accepted in oil and gas. Bureaucrats will stoop to any level to make it sound like their on the job, meanwhile will stop at nothing to ensure that no concept is ever introduced. That they now claim to be benefiting materially from Artificial Intelligence is a certain type of misrepresentation. One I think they should be called upon. It’s all bunk as my grandmother used to say.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.