My Argument, Part XIII
Commodity prices are showing weakness in the futures markets. Both oil and gas commodities are showing that current prices will be what’s available throughout the next eight years until 2025. Exciting isn’t it. The quarterly reports are all showing that each and every company is losing more than they were in 2015. The year that it was reputed to be the worst year in the industry. We can therefore conclude, with no change in commodity prices and the vast level of stored costs of past production sitting on producer's balance sheets, that no money will be made until at least 2025.
The escalation of drilling rigs since May of last year is indicative of the mindset of the producers. Like the junkie “more” is all that they can consider. It is claimed that these of course are being drilled “profitably” by each and every one of these producers. The costs of oil and gas exploration have decreased to the point where it’s profitable to produce at $30. Then why is everyone reporting losses at $53? With OPEC reducing output and North American producers rushing in to take up the slack, whom is it that’s responsible for the overproduction and oversupply?
We should revisit the producers friend the “recycle cost” that is the determinant of the $30 profitable oil. The last thing that the recycle cost is based on is historical accounting data. It is based on a wish list of optimistic possibles that might be the case. If the situation were to be those “best case” elements then maybe the cost of the operations would be as good as the recycle costs suggests. Historical accounting however shows that the actual costs are much different. Stating numbers that the producer would be profitable at, which do not have a historical cost basis, would be a scam being perpetrated by the officers of that corporation.
The producers will say, “the accountants would certainly have a different take on it. We don’t deal in sunk costs.” They never want to account for their spending. If they park all of their costs on to the balance sheet for decades why would you account for these costs in terms of the cost per barrel today? They don’t and the officers that parrot the “recycle costs” are knowingly deceiving their shareholders and the public. Their financial statements prove that. The determination of “recycle costs” are complex and sophisticated. The producer determines the current price of the commodity. States that there recycle costs are the price minus the profits they need, and the remainder would be the recycle cost. So today at $53 you would be profitable because your costs are $45. Presto! Some would call this lying, I chose to use the industry wide term of “recycle costs.”
As a result when a producer looks at their operation all they see are profitable properties. So when I suggest that the Preliminary Specifications decentralized production model would shut-in any unprofitable production they know, intuitively, that they will never have any shut-in production because all of their production is profitable at any price. Therefore there will never be any need for the likes of People, Ideas & Objects.
So there you have it, you’re stuck with what you have, producers who lose money faster than they can spend it, state falsehoods at any time about critical business facts, who will never accept their role in today’s and tomorrow’s problems and continue on in their own personal best interests with your money. They call it the oil and gas industry, I call em as I see em.
The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. 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.