Some Updates
If you haven’t been paying attention to the “crypto” market you may have been missing the developments in that area. The Wall Street Journal calls this market “frenzied” and what I’m seeing is the beginning of a wholesale shift away from corporate equities to crypto currencies or tokens as the replacement. This is just in the small business arena at this time, however, that may be as a result of the size of the crypto market’s capacity for funding. There are investment groups shifting all of their new business to crypto and away from equities. The advantage that I see is the tokens provide the liquidity that facilitate an exit for investors at anytime. And enable the innovators to ride out their visions to their ultimate destinations without having them cut short by selling the business when it realizes its initial successful run. Enhancing the speed and availability of capital to the highly innovative areas of the North American economy.
Therefore People, Ideas & Objects will be changing priorities to move our Initial Coin Offering (ICO) into our second priority behind our user communities development. This crypto marketplace is developing quickly with its capacity for financing growing at a remarkable rate. Our demands are too large at this time however there are new blockchains such as Cardano that are under development. With Cardano we can use its treasury function to get a start on development by issuing $100 million in tokens with the rest of our budget coming in as needed. The $100 million will be used for the initial eighteen months in preparation for full development. I’ve set our timing for raising these funds for October 2019. Establishing April 2021 when we would begin full development. If producers feel that our timelines are not in their best interests then they could mitigate this time by funding the Preliminary Specification by participating in our ICO. What I expect will happen throughout this period is the systemic overproduction of oil will collapse its price again and the bureaucrats flee like rats.
What we have to offer through our ICO is the exclusive rights to use the software built from the Preliminary Specification. With these exclusive rights held by our coin holders they are the people that the oil and gas producers will need to negotiate for their access to the People, Ideas & Objects software which includes the decentralized production models price maker strategy. We have proposed that the producers fee to the coin holder be one third of the net incremental value that the Preliminary Specification provides in comparison to the pricing model in use by the current producers. For the month of March 2018 our pricing for oil is $141.20, natural gas would therefore be $23.53 and the amount payable per boe to the coin holder would be $13.20 which is included in those quoted prices. I have calculated North American oil and gas production at 33.9 million boe / day. If producers are unhappy with those prices then they should have spent less. If they are unhappy with the value leaking to the coin holders they should think instead of their investors money they’re wasting today. These high oil and gas prices reflect the excessive buildup of property, plant and equipment that is stored on the producers balance sheets. Clearing these amounts is what these prices will achieve.
The Wall Street Journal also reported last week that producers spent $1.13 for every $1.00 they brought in during the first quarter. Clearly what the Wall Street Journal doesn’t understand is that if you never recognize the $0.80 in capital costs of that $1.13 then you’re profitable and your cash flow is high. If they think this spending is outsized they should have seen when producers had investors and bankers backing them. These bureaucrats spent like no one could ever have imagined. A minor imbalance of $0.13 in the first quarter of 2018 is not significant, what is difficult for the producers is that they now have no cash and no working capital and they can’t stop this systemic bleeding, particularly of cash that no one will give them anymore. Show me an investor or banker who will provide a company with cash to augment their working capital and I’ll show you a fool.
Producers are all giddy with themselves over the price of oil these days. Having also survived the annual general meetings in most instances, with some having challenges from their investors, they feel they have another year of partying and the good times are owed to them, once again. My advice would be to be careful. The media and analysts are certainly promoting the return of the good old days for oil and gas. If this should turn out to be another false dawn, as we’ve witnessed so many times in the past decade, what credibility will the bureaucrats have then. Giving the investors the stiff arm during this year’s AGM was successful from the bureaucrats point of view, ignoring their disgruntled shareholders at this point is not going to earn them any sympathy if their credibility plumbs the depths of negative territory such as those negative Canadian natural gas prices.
What we learned from the producers first quarter of 2018’s financial performance is that they’re damaged. Unable to deal with the legacy issues of overproduction of their commodities, for over a decade in natural gas, has left them with the financial resources that enable them to put up a good fight for about five minutes. The other legacy issue that has been discussed here at People, Ideas & Objects is of course bloated balance sheets. Although our arguments have been stated here many times. The issue appears to be one that is inert to the oil and gas bureaucrat in that it’s an “accounting issue” that doesn’t affect cash. Except in reality it’s the money that was raised from investors and bankers and the bureaucrats will never account for their former lavish spending. These bloated balances are a long term issue that does’t get and can’t be resolved through any actions of management. Bloated balance sheets are an albatross around their necks and they are incapable of addressing it as reporting massive, chronic losses might be considered contrary to their best interests. The unrecognized capital costs of past production will haunt these producers in good times and in bad for the next several decades. As much as it was easy to report good profitability and cash flow as a young producer, over decades the buildup of those capital costs became outsized to the performance of the firm. That is where we are today. We have crossed the threshold of reasonableness in terms of acceptable levels of property, plant and equipment. When our sample producers produce only 12% of their property, plant and equipment in revenues in the first quarter, we have some bloat. Depletion at 2.5%, and capital expenditures at 3% of property, plant and equipment for the first quarter shows the never ending desire of the bureaucrats to hide their past wild spending from everyone. This is now the issue that they can’t deal with and can’t account for. When their overproduction overwhelms the market again, what will they do?
The fact of the matter is turning your capital over every ten years was a good business model when the banks and investors provided you with all the cash you could ever want to backfill the deficiencies. A business would normally have to turn that capital over quickly in order to recapture that cash back in the form of higher cash flows. These cash flows would then be used to pay down debt, pay dividends and fund capital expenditures. And that’s not a menu of possibilities as it’s thought to be in oil and gas. A healthy business would have the cash flow necessary to do all three of the activities of paying debt, dividends and funding capital expenditures all the time. That oil and gas producers feel they have to trade one off for the other shows how limited their thinking is. Of course it would be impossible in today’s environment to generate the cash flows necessary to do all three. Producers used their investors dollars to essentially subsidize the consumer for their use of energy by having them pay for the capital costs. These capital costs sit, glowing on the balance sheets of the producers where the CEO can strut about thinking it’s worth something. The only thing that property, plant and equipment reflects today is the amount of unrecognized capital costs of past production and therefore the amount that producers have subsidized consumers for their energy. And how much of these costs needs to be captured in future prices in order to rehabilitate the industry.
As the Wall Street Journal notes, we see with today’s oil and gas prices they are woefully inadequate to cover the cost of operations and overhead of the oil and gas producers. The deferral of recognizing their capital costs continues, and increased in the first quarter of 2018, and they’re still spending more than they bring in, they’re desperately short of cash, yet wildly profitable, with great cash flow. Drilling is being conducted at a reasonable pace now and with shale overwhelming pipeline takeaway capacity pretty much everywhere, the constrained deliverability in those areas is reflected in the high differentials producers are realizing. When pipelines are built we can be assured that the constrained deliverability will be released to the larger market where it’s impact on commodity prices will certainly be reminiscent of the past. And we’ll hear the bureaucrats chime in once again “oh whoa is me.”
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.
Therefore People, Ideas & Objects will be changing priorities to move our Initial Coin Offering (ICO) into our second priority behind our user communities development. This crypto marketplace is developing quickly with its capacity for financing growing at a remarkable rate. Our demands are too large at this time however there are new blockchains such as Cardano that are under development. With Cardano we can use its treasury function to get a start on development by issuing $100 million in tokens with the rest of our budget coming in as needed. The $100 million will be used for the initial eighteen months in preparation for full development. I’ve set our timing for raising these funds for October 2019. Establishing April 2021 when we would begin full development. If producers feel that our timelines are not in their best interests then they could mitigate this time by funding the Preliminary Specification by participating in our ICO. What I expect will happen throughout this period is the systemic overproduction of oil will collapse its price again and the bureaucrats flee like rats.
What we have to offer through our ICO is the exclusive rights to use the software built from the Preliminary Specification. With these exclusive rights held by our coin holders they are the people that the oil and gas producers will need to negotiate for their access to the People, Ideas & Objects software which includes the decentralized production models price maker strategy. We have proposed that the producers fee to the coin holder be one third of the net incremental value that the Preliminary Specification provides in comparison to the pricing model in use by the current producers. For the month of March 2018 our pricing for oil is $141.20, natural gas would therefore be $23.53 and the amount payable per boe to the coin holder would be $13.20 which is included in those quoted prices. I have calculated North American oil and gas production at 33.9 million boe / day. If producers are unhappy with those prices then they should have spent less. If they are unhappy with the value leaking to the coin holders they should think instead of their investors money they’re wasting today. These high oil and gas prices reflect the excessive buildup of property, plant and equipment that is stored on the producers balance sheets. Clearing these amounts is what these prices will achieve.
The Wall Street Journal also reported last week that producers spent $1.13 for every $1.00 they brought in during the first quarter. Clearly what the Wall Street Journal doesn’t understand is that if you never recognize the $0.80 in capital costs of that $1.13 then you’re profitable and your cash flow is high. If they think this spending is outsized they should have seen when producers had investors and bankers backing them. These bureaucrats spent like no one could ever have imagined. A minor imbalance of $0.13 in the first quarter of 2018 is not significant, what is difficult for the producers is that they now have no cash and no working capital and they can’t stop this systemic bleeding, particularly of cash that no one will give them anymore. Show me an investor or banker who will provide a company with cash to augment their working capital and I’ll show you a fool.
Producers are all giddy with themselves over the price of oil these days. Having also survived the annual general meetings in most instances, with some having challenges from their investors, they feel they have another year of partying and the good times are owed to them, once again. My advice would be to be careful. The media and analysts are certainly promoting the return of the good old days for oil and gas. If this should turn out to be another false dawn, as we’ve witnessed so many times in the past decade, what credibility will the bureaucrats have then. Giving the investors the stiff arm during this year’s AGM was successful from the bureaucrats point of view, ignoring their disgruntled shareholders at this point is not going to earn them any sympathy if their credibility plumbs the depths of negative territory such as those negative Canadian natural gas prices.
What we learned from the producers first quarter of 2018’s financial performance is that they’re damaged. Unable to deal with the legacy issues of overproduction of their commodities, for over a decade in natural gas, has left them with the financial resources that enable them to put up a good fight for about five minutes. The other legacy issue that has been discussed here at People, Ideas & Objects is of course bloated balance sheets. Although our arguments have been stated here many times. The issue appears to be one that is inert to the oil and gas bureaucrat in that it’s an “accounting issue” that doesn’t affect cash. Except in reality it’s the money that was raised from investors and bankers and the bureaucrats will never account for their former lavish spending. These bloated balances are a long term issue that does’t get and can’t be resolved through any actions of management. Bloated balance sheets are an albatross around their necks and they are incapable of addressing it as reporting massive, chronic losses might be considered contrary to their best interests. The unrecognized capital costs of past production will haunt these producers in good times and in bad for the next several decades. As much as it was easy to report good profitability and cash flow as a young producer, over decades the buildup of those capital costs became outsized to the performance of the firm. That is where we are today. We have crossed the threshold of reasonableness in terms of acceptable levels of property, plant and equipment. When our sample producers produce only 12% of their property, plant and equipment in revenues in the first quarter, we have some bloat. Depletion at 2.5%, and capital expenditures at 3% of property, plant and equipment for the first quarter shows the never ending desire of the bureaucrats to hide their past wild spending from everyone. This is now the issue that they can’t deal with and can’t account for. When their overproduction overwhelms the market again, what will they do?
The fact of the matter is turning your capital over every ten years was a good business model when the banks and investors provided you with all the cash you could ever want to backfill the deficiencies. A business would normally have to turn that capital over quickly in order to recapture that cash back in the form of higher cash flows. These cash flows would then be used to pay down debt, pay dividends and fund capital expenditures. And that’s not a menu of possibilities as it’s thought to be in oil and gas. A healthy business would have the cash flow necessary to do all three of the activities of paying debt, dividends and funding capital expenditures all the time. That oil and gas producers feel they have to trade one off for the other shows how limited their thinking is. Of course it would be impossible in today’s environment to generate the cash flows necessary to do all three. Producers used their investors dollars to essentially subsidize the consumer for their use of energy by having them pay for the capital costs. These capital costs sit, glowing on the balance sheets of the producers where the CEO can strut about thinking it’s worth something. The only thing that property, plant and equipment reflects today is the amount of unrecognized capital costs of past production and therefore the amount that producers have subsidized consumers for their energy. And how much of these costs needs to be captured in future prices in order to rehabilitate the industry.
As the Wall Street Journal notes, we see with today’s oil and gas prices they are woefully inadequate to cover the cost of operations and overhead of the oil and gas producers. The deferral of recognizing their capital costs continues, and increased in the first quarter of 2018, and they’re still spending more than they bring in, they’re desperately short of cash, yet wildly profitable, with great cash flow. Drilling is being conducted at a reasonable pace now and with shale overwhelming pipeline takeaway capacity pretty much everywhere, the constrained deliverability in those areas is reflected in the high differentials producers are realizing. When pipelines are built we can be assured that the constrained deliverability will be released to the larger market where it’s impact on commodity prices will certainly be reminiscent of the past. And we’ll hear the bureaucrats chime in once again “oh whoa is me.”
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.
