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

 The first quarter 2021 reports of our sample of producers are out and I have to say that I am disappointed. There appears to be a significant regression to the old methods of reporting profit. Stuffing balance sheets by putting cash in the ground is culturally instinctive. Bureaucrats have a heritage of their past efforts, are proud of those efforts and as a result have returned to strutting their achievements down mainstreet to determine who wins the annual biggest balance sheet competition. Any recognition of the capital costs in the cost of the commodity of a capital intensive industry will have to wait once again until such time as the oil and / or gas prices turn negative. 2020 saw what I feel was a reasonable amount of depletion being recognized and the subsequent losses of almost $70 billion being reported for the year. Now, one Canadian producer has even reversed some of their 2020 depletion and reported only $0.68 of capital costs per boe for the first quarter. But of course, and why wouldn’t they? It is a simple matter of regression towards the mean, the mean of the past forty years reporting methods. It’s not that last year began to address the overcapitalization issue, it only addressed the results, symptoms and consequences of that issue. Which of course is the chronic overproduction in the industry. Leading to the April 2020 negative $40 oil prices which proved our good friends the bureaucrats couldn’t care less. We’ve moved from recognizing the capital assets of these producers over the course of 5.2 years at the end of 2020, to now 15.08 years in the first quarter of 2021. It is far better, in the bureaucrats mind, to “build balance sheets'' and “put cash in the ground” than evaluate the performance of the producer by passing these capital costs on to the consumer and recover that previously invested capital for reuse in the process. Investors can be assured that producers don’t need any cash is the message they’re sending, therefore they’ll have no cash from production, profits, investors or banks. If they critically evaluated their performance on a business basis they’d have many more losses such as 2020’s than what their massive “profitability” that 2021 is reported and shaping up to be. If only they’d realize that “putting cash in the ground” could be used as their future “bank” if they began working with People, Ideas & Objects Preliminary Specification.

My comments certainly contrast the spontaneous “boom” proclamations coming out of nowhere these days. And I resent having to be the one that looks at things critically. I would prefer to build solutions but there are irresponsible bureaucrats in control who only state “Forget about the past, that’s history, and only listen to what I say today.” Which oddly seems just like what was said each and every year before doesn’t it. But does anyone remember these types of statements from all of the producers last year? From WorldOil April 9, 2020 Entitled “Oxy Wants Financial Aid, Not Market Support, For U.S. Oil Companies.”

In a sign of how important the appeal is to Chief Executive Officer Vicki Hollub, employees are being urged to send a pre-written wish list to Congress members. Among other things, the company wants the government to “provide liquidity to the energy industry through this period of unprecedented demand destruction and unsustainable pricing until normal economic conditions return.”

Or from the same article,

“This letter lists the steps our government needs to take immediately,” Hollub said in the email to employees. “Now more than ever, we all need to inform our elected officials that inaction could result in long-lasting harm to the U.S. economy.”

I’m only rubbing salt in their wounds however, how can they now stand there and say “boom.” The quoted article reflects the difficult time a year ago when the government was the viable scapegoat at that moment. The time when they had really faced the music, as for some reason no one else they betrayed would step up and help anymore. Ultimately they were turned down and it appears, once again, as it has so many times before, taught them absolutely nothing. Which leads me to question whether it's that they don’t read their financial statements or they don’t understand them. What I’m disappointed about is how could these producers be so poorly managed? I’ve been accused of having a disproportionate sense of urgency and should be more patient. I understand that however I would ask, who is it that needs to be the patient when cash is as critical as it’s being reported. When it’s understood the bureaucrats are not focused on the business of the oil and gas business. And they’re focused on the business of their personal business and don’t have the time to concern themselves with their responsibilities as officers and directors of the producers they’re supposed to be managing. How else does a primary industry with the potential of oil and gas fall into such a state as it is currently and record the kind of performance over these past four decades? I only reviewed a few of the Annual General Meeting materials to gain a better understanding of the topics of concern and issues to be addressed and voted on. Only reviewing a few was all that I could stomach. Accountability is not something that has been expected of these bureaucrats over these 40 years, it’s not part of their culture. Being unaccountable is a bureaucratic feature of the business. Another feature of the business has always been the declining value of the stock once the AGM’s are complete. Who is it that specifies the time of the year in which stock repurchase plans can be implemented?

These reflect the culture of oil and gas is incapable, and has no capacity to change. In a world of disrupted business, the destruction authored by our good friends the bureaucrats and the uncertainty in the global economy. It’s nice to know that the producers are as well managed as they claim to spontaneously be in these times of difficulties. The wall of trillion dollar costs that include rebuilding, refurbishing and reclamation of the infrastructure and the seven crises that we’ve listed are not an issue if they never acknowledge them. “Boom” is the key word that makes it all go away and the sunshine pour in. What we listed as Crises number seven was the Biden administration. Last week we saw a hint of even further dealings to come. The Biden administration has now instructed the Fed and Treasury to figure out ways in which to write policies that are pro climate change. This has been interpreted to mean they’ll pressure banks to stop loaning money to producers. Being that the shareholders of the producers are as disenchanted as they are. That the bureaucrats are using once again their share certificates as their printable currency, this time to fuel their “consolidations.” Chronic, repeated, unnecessary and unwise dilution of shareholders is also a feature in oil and gas. Banks are already hesitant and withdrawing. Now the government wants to instill an even stronger bias against the industry. With  the comical routine of their “capital discipline” invoked in harmony by producers once more. Capital structures being diluted and leveraged far beyond what is acceptable or reasonable for anyone to glean any value from the industry. And if there was any value it would only be diluted in some manner in the future. With real profitability never seen and fundamentally misunderstood or corrupted. What would be in it for anyone other than the bureaucrats for their take off the top?

If only someone would come up with a solution to these issues and provide a means where the producers would have an organization and method that could provide them with the most profitable means of oil and gas operations everywhere and always. That is People, Ideas & Objects Preliminary Specification, our user community and their service provider organizations. But those have been rejected by these bureaucrats as too radical. It stops the bureaucrats from destroying the industry any further by disintermediating them and replaces them with the means to better manage the industry here in the 21st century with the issues and opportunities it faces. Consolidation is the answer to the problem, according to the bureaucrats. I happen to think the bureaucrats are the problem and building bigger bureaucracies through consolidation will be far more detrimental than good. 

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

I Swear, The Cops Were Here Two Minutes Ago

 Clean energy transitions are all the rage in oil and gas. Producer bureaucrats have been committing to the transition in hoards this past year in an attempt to outdo one another, please note it’s never on the basis of any performance criteria. It’s just the place to be, and if you’re not there get your press release drafted quickly or hire a public relations firm before your Annual General Meeting. “Sophisticated” producers will have those greenpeace demonstrations and “smart” investors making their green new deal talking points well known during the Annual General Meeting question and answer period. Rallying support for the cause and the diversion of investment that must be considered a necessity when the “issue” is so prevalent in consumers minds. Don’t fall for it. Outside of the producer firms talking points and Biden’s latest trillion dollar spending bill there doesn’t seem to be too much investment happening in the clean energy “industry.” Maybe it's all make believe? If Warren Buffet’s Berkshire Hathaway does not receive shareholder approval to file annual environmental reports. Where the voting was 75% against, I’m certain that oil and gas producers unauthorized diversion of their revenues into clean energy will be fine, don't you? What I do know is that the oil and gas industry has had a characteristic behaviour, a culture, that I’ve labeled the Keystone Cops that moves the industry wholesale from one favored investment into another in lockstep. Clean energy is the newest target, previous targets, from a Canadian perspective included heavy oil, SAGD, and any other number of activities that demanded the producer to be fully committed if they were to have any hope of ever competing for and in fact raising capital from the markets. 

What we do know about the comedy routine of the Keystone Cops was as soon as they entered the storefront of where the burglars were reported, seconds later they would be exiting out the back of the establishment and running down the alley to the next alarm, all within a matter of seconds. And that is what we see today with our producer bureaucrats. Shale was it as we know. Except it didn’t perform and no one is being fooled anymore. Now those who established the shale frontier and were the first officers into the building in an attempt to catch the shale burglar are the first out the back door, and on to the next five alarm calls. And I’m speaking of course of Chesapeake who are actively getting out of oil shale now that the performance of the firm, post bankruptcy, is not what investors were looking for. We see the placement of their oil shale assets onto the market a day after the CEO suddenly announces his (forced?) retirement. Two days notice for a CEO is the expectation these days. So if you were involved in a shale producer in some form and are now feeling lonely and abused you too may want to keep up and get an understanding of where to go in this fast paced world. “Responsible emissions” are what Chesapeake’s looking towards. Something I’m sure that’s performance based. This is what accounts for responsible and accountable performance by bureaucrats. There’s no more value in oil and gas for the Keystone Cops to chase so they’re moving on to other industries. Clean energy is the one that satisfies for today, there has never been the expectation of any “earnings” so they’ll fit in this time. Tomorrow it may be electric vehicles, satellite Internet or the space race itself. Haven’t you heard, Elon Musk is famous! I just don’t know why no one believes anything the bureaucrats say anymore. 

This is the nature of the past four decades in oil and gas. If it works out great, if not where’s the next alarm ringing. Never has it been thought to stop and try to make what it is they’re doing profitable or perform from a business point of view. Such as People, Ideas & Objects describe in our White Paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” Producers current accounting is not even structured, configured and is not sophisticated enough to determine which property is profitable and which ones are not. This is probably due to the fact that the bureaucrats all know the properties are not making anyone any money, why then would they want to prove it to themselves. It’s times like these, what could be described as the anticipated beginning of the much awaited boom to compliment the boom / bust culture that we see things are truly different. Usually it was all about positioning to “make hay while the sun shines.” Maybe it’s the results of the covid restrictions but it looks more to me like an abandonment of the industry is underway. The movement to clean energy and CEO’s dropping their resignations is the only clear sign of any activity. Oh, and profits too, the reporting of vast profitability.

The Wall Street Journal is reporting that up to 90 new airlines are being launched around the world in 2021. I’ve never understood the airline industry. It violates a basic principle of mine that companies fall within one of two categories. Capital intensive, or labor intensive, airlines being both types of business which seems to me to be too difficult to break out of the unique demands of both. Add to that the devastation that’s occurred during the pandemic to the airline industry and you have an industry that’s in significant difficulty. Not as much as oil and gas in my opinion but significant. Yet here we see abundant entrepreneurship and venture capital being put into an industry that is structured for radical change. Oil and gas, a couple of shrugs, two “oh woe is me” and on to clean energy. Sprinkle in a bankruptcy or two and have the service industry take the real consequences of the abuse and fraud perpetrated upon them by the bureaucrats these past decades. You can still see signs of investors on the horizon, that however is just the dust they’re kicking up as they gain real speed getting away from this industry. 

Of the producer firms in our sample, People, Ideas & Objects have been harping about working capital as an issue that has been growing more difficult since the investors began leaving five years ago. We noted that banks somewhat caught on to the charade of the bureaucrats last year and were commenting publicly that they were surprised and disappointed to see the actions of management in the Chesapeake bankruptcy. The granting and distribution of a substantial pre-bankruptcy management bonus. Where the announcement of that bonus was just hours before the actual bankruptcy. It would seem that the first quarter producers are still struggling with their ever increasing working capital deficiencies. The first quarter of 2021 is no different as the producers' banks seem to be draining producer bank accounts nightly in some cases. And demanding the repayment of their loans on an accelerated basis in order to retire the outstanding debt. There’s lots to look forward to in business after the virus, just not in oil and gas.

In a case of “fool me twice,” for what I believe to be the fifteenth time. It would appear that everyone has caught on and are acting as expected when they’ve been so fundamentally betrayed. Possibly Chesapeake’s CEO feels he’d better get out now and people will forget his name when all the other producers CEO’s soon follow out their doors too. I’ve been writing about the solutions to these issues for 30 years now as I know it was early in the month of May 1991 that I began this trek. I’ve asked a lot of questions as well as developed the Preliminary Specification. It’s interesting to me, and it might be interesting to you my readers, that at no time in the past year(s) were any answers to my questions provided. It’s as if they’re ghosts with the only sign of their existence being the fact they’re still drawing paychecks and the occasional resignation letter. 

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Robot's Are Deaf!

 Alternatively, do they have Optical Character Recognition? Can they read these posts I’m writing in their lofty board rooms and offices of our very good friends, the bureaucrats. They’ve proven they’re automatons, driven by a culture of their own making that can not deviate from its culturally driven programming. The past number of posts I’ve intimated that we’re replicating the holistic culture of models and modules in the Preliminary Specification that would somewhat create a different culture for another age. Except that is not what we are doing. People who work within the administrative and accounting fields of oil and gas will understand how they’ve become the lower rung automatons that feed the beast. Doing little of anything in terms of adding incremental value as a result. It’s what's always been done and will continue to be done in that matter until someone says otherwise. Knowing there is a better way and all but forced to turn that cog or continue spinning the wheel. 

It is true that we are proposing to build a well orchestrated Information Technology based system designed around the cultural norm of the Joint Operating Committee. One that fully deploys the value and purpose behind those IT efforts of more efficiently and effectively managing the producers data and processing. Those are the two attributes that computers excel at and any purpose other than that has been of limited application, including Artificial Intelligence. People, Ideas & Objects plan is to employ people in the process of the higher level attributes of what humans do well and are what we excel at. These include our ever growing list of providing leadership, unstructured problem solving, acquiring and processing new information, deciding what is relevant in a flood of undefined phenomenon, issue identification, creativity, collaboration researching, developing ideas, design, planning, thinking, negotiating, compromising, innovating, financing, conflict and contradiction as analytical tools, observation, reasoning and judgement. This can only be done if we leave the computers to reliably do what they do best and to do so under our full control. Where change is a necessary and daily occurrence that enhances these human competitive advantages repeatedly and incrementally over the long term. Change that is an inherent part of the structure of this well defined system.

Instead what we have is the expectation that what has worked in the past will continue for the future. Except no one but the bureaucrats are pleased with the past. If the situation was as inert as it's represented here we’d see the producer firms dissolve quickly. The fact is they have an abundant level of fight in them and have proven this to me time and time again. Disintermediation has been working to eliminate the redundant and unproductive hierarchies from societies method of organization and management. The use of the Internet as the tool to manage “things” has provided significant benefit throughout society. However, as each industry has fallen to the forces of disintermediation those that remain and are actively resisting these forces: Are as a result all the wiser and knowledgeable in terms of how to continue the fight and survive. People, Ideas & Objects are facing an adversary in the bureaucrats who are enabled with the revenues of a primary industry and using a defensive plan that began its development in the late 1990’s when Steve Jobs introduced iTunes to fully disintermediate the music industry. 

Do I ever consider that maybe one of the stumbling blocks to progress may very well be People, Ideas & Objects budget? I’m certain that it is, and I have no doubt that many in industry will just immediately discard many of the ideas based on the “ask” of our budget. To those I say so long! However let me explain my position. The scope and scale of the application is substantial. User community developments are more costly, but necessary in this environment. No one knows all the attributes of even 0.5% of how the industry operates on a detailed basis. Therefore these have raised the costs of our development. As we detail below there will be a sense of urgency once we begin these developments and that has a cost as well. You can have any priority in software development that you want. Either features, timeliness or cost, pick two at the expense of the other. We have selected higher costs as the non-priority of our development due to a pending and looming sense of urgency. 

These costs form ⅓ of our total budget with the remainder being what I’ve described as the detailed allocation of our margins. These margin allocations are all payable to me in the form of either Intellectual Property royalties which should rightly be seen as a cost to industry, or dividends. They are based on the IP that has, and will be, developed and the profit of People, Ideas & Objects. It has been tradition in oil and gas that producers do not pay for IP, and certainly not royalties. I can currently vouch for that. However the larger point that may be missed by the bureaucrats who seek to secure the return of their investors is that their inability to invest in their organizations profitability is possibly one of the reasons for their investors continued absence. We have always stated that it’s not enough to own the oil and gas asset anymore, it's also necessary to have access to the software and services that make the oil and gas asset profitable. If they can’t, won’t and will not ever develop the Preliminary Specification then possibly their investors fully understand and appreciate that. If producers won’t do anything to prove their profitable, what is there to attract an investor? The only thing left is that history and legacy as represented in those big, bold, beautiful balance sheets that have been built by “putting cash in the ground.”

Our budget is also based on the value that we provide to industry, what is commonly referred to as a value proposition. It used to be scoffed at by the producer bureaucrats that $25.7 to $45.7 trillion dollars over the next 25 years could be quantified and presented as legitimate. Looking at the industry critically no one can say that these numbers are inappropriate. When we understand that the makeup of our value proposition includes others' estimate of the $20 to $40 trillion dollar of needed capital expenditures for the following 25 year period. Capital that bureaucrats expect to come from investors as a result of their ridiculous business model. It is necessary then to understand that People, Ideas & Objects Preliminary Specification provides the method to source those funds from the consumers. Having consumers pay for the full costs of capital, operations, royalties and overhead of exploration and production. And it's not that consumers would need to pay $20 to $40 trillion more for their energy, it is in fact that investors would no longer be on the hook for that “ask.” Secondly, consumers would be subject to funding the producers current needs when producers captured that cash they previously “put in the ground,” realized it in the current period and used it for their purposes of running the producer firms operation. If as the Preliminary Specification proposes, this cash would then be used again and again as it’s cycled through the business. A business does not collect and cherish their capital costs in an effort to build them as high as they can. They pass their costs on in an accurate and timely manner to consumers as they’re incurred, the general subject and purpose of accounting. The other $5.7 trillion is the expected real profitability that I’m always ranting about. Lastly, I’d like to think of that decade when I was researching this project that I would have eventually been paid more than the minimum wage for my time at some point. That my compensation would be based on the value that I generate for others. After all that is how businesses operate, profitable businesses that is. 

Even though our budget may seem high. We are more than competitive in comparison to the performance of the bureaucrats business model. Taking our cost to build the Preliminary Specification and amortizing that over the proposed 25 year life of the system and allocating a portion of that to each barrel of oil equivalent produced during that time. Assuming a continuous 39 mm boe / day North American productive capacity is sustained throughout that period, incurs a cost of $0.0421 / boe. How does four and one quarter cents / boe compare to the past 25 year performance of the bureaucrats? Some may have picked up on the use of my allocation of our budget over the usable life basis of amortization. Somewhat the same method used to deplete reserves of the oil and gas producer and the method that I’m so critical of them using. I’m clearly only trying to relate to the bureaucrats in their own logic and language. The scope and scale of the damage and destruction is truly unfathomable. I chose to not be a participant in that and sought to build solutions at what has turned out to be fantastic personal financial costs. I’m not complaining,  I believe I’m building value and I’m only stating I feel that I’ve earned it. 

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

If Not Us, Who? If Not Now, When?

 This title is a Quote from John F. Kennedy

What right did the bureaucrats have to destroy the value of the greater oil and gas economy when they were the ones authorized and responsible to safeguard it? Starting with the oil and gas investors and working their way throughout to those in the tertiary industries that support the people in the oil & gas and service industries. No one but the bureaucrats have remained financially unscathed by the damage that’s been done. On the contrary, these bureaucrats have benefited financially throughout this period. Why has this happened, and was it done on purpose are just two of the many questions that can be legitimately asked? Particularly when the solution in the form of the Preliminary Specification has been available to them since December 2013, the overproduction issue prevalent in global markets since July 1986 and absolutely nothing has been done to even acknowledge the issue or People, Ideas & Objects solution other than blaming, excuses and the creation of viable scapegoats. There’s no one who begrudges them their fair share of any executive compensation they’ve earned, if they’ve earned it. Profitability from the real sense of the term was never a concern to them. If producers were to maintain real profitability the inherent, necessary and associated revenues of a primary industry would be provided to sustain the greater oil and gas economy. We can now see and agree that this did not happen. Real profitability was never relevant or a priority in oil and gas, it was cash flow. It is now after decades of this thinking that we find this focus has led to its inevitable conclusion. Cash flow is nothing more than the previously invested capital of a capital intensive industry being returned. There never was any incremental value being built, only the prior investors' cash being returned, and then freely diverted to what the spending machines' most recent selling point happened to be. Today it’s the move to clean energy. And just like the Keystone Cops our bureaucrats are consumed by their new passion to catch that bright shiny object.

People, Ideas & Objects have tried to hold them to account, they’ve failed to respond to their investors leaving the industry, they’ve failed to respond to the commodity markets signals not to overproduce, they never accepted any criticism and never sought to resolve their issues or conduct any change to their methods. Proving time and again they are culpable and guilty. What’s worse is that they’re in no way indicating their intent to do anything other than what has put them in the lofty financial position they’re in, and the difficulties everyone else is in. These facts do not absolve us from action today. We must recognize and enforce our obligations to fix it. We have no right to sit back and point fingers, let them take the blame and do nothing about it. If it is as I suspect that people believe covid to be the culprit for the industry difficulties, then we’ll learn soon enough the truth of that possibility. It is easy to forget the trajectory of the industry was steeply downward and although covid makes for viable scapegoats of continued bureaucratic inaction, that is all that it has achieved. I see the trajectory that we were on last year has only steepened and accelerated further during the past year. Producers' debts have become difficult to understand how they’ll improve and not become critical soon. Oil prices are high as the desire to avoid the comprehensive loss of control exhibited by North American producers in natural gas pricing has been OPEC+ governing principle during the pandemic, in my opinion. The resumption of their war on North American producers will restart soon and North American producers will have substantially less in which to deal with the situation. This may be considered a dire prediction that will never be validated. I would encourage anyone to review the history of the North American producers pricing and actions over the past forty years. It’s in fact just the same old, same old. 

Bureaucrats have well established that responsibility is not their forte’. Why are we expecting different behavior and conduct at this time? Change of the nature and scope that is prescribed by these issues is beyond the cultural tolerances of these producers. They are failed organizations and they have failed by the choices these bureaucrats have made. Choices that were made in the bureaucrats best interest. It is remarkable to me that the understanding that oil and gas commodities are price takers is still their only acceptable point of view. Producing oil or gas into large markets where all products are magically taken away to their final destination, is what I assume is the conclusion necessary to support this thinking. Price makers demand that producers use market signals of the price of the commodity to determine if the price permits profitable production, if so produce, if not shut the production in. That is what businesses in all other industries all over the world do. For bureaucrats to justify this fairy tale belief in markets they’ve constructed elaborate Rube Goldberg machines that require staff to “determine the market” based on Artificial Intelligence of the height of the shadows of floating oil tanks captured by satellite images around the world. Using this analysis to determine what the global inventories are and what these guru’s expect to see, while their prices continue to decline due to overproduction. To me this thinking is madness that has driven the entire industry and all those that depend upon it into unnecessary corporate and personal financial difficulties. Why didn’t bureaucrats listen to their investors as they walked out the door? Losing the support of your investors is the most detrimental thing that can happen to a firm. Why don’t they listen to the commodity market price and stop producing well before it hits negative $40? When was it that their Rube Goldberg machines were indicating the oil price was headed to negative $40? There is nothing that can be done to reach these people, sit them down and be rational about. Their conduct is abhorrent. 

Why haven’t these obvious and detrimental errors been corrected? They once claimed the Preliminary Specification was not viable? A reasonable conclusion, however one that is now refuted by the fact that so much devastation has been caused by their management inactions and the fact that their business model has failed. The output of one man, the Preliminary Specification is inherently fallible? Agreed, however the first and next step in our development is for our user community to expose it to that larger community and build upon it. To fill out the skeleton of what the Preliminary Specification currently is with the necessary detail. As the counter argument, I’d also point out that any “committee” or other “working group” set with the task of resolving the industries issues through a newly designed organizational structure and software configuration would have their compromised and incoherent specification available in about a century. It is the type of work such as the Preliminary Specification that can only be conducted by one individual. It requires the lonely “walk through the woods” to find the answers to the problems. Taking the necessary time to explore each and every one of those frustrating bunny trails. Research of that nature which took me over a decade to complete. A decade of seven days a week, nine hours a day with a sense of urgency that I was late and it was needed yesterday. That is the method that these types of developments are made and the only way they’re completed.

I have argued repeatedly that the risk we run in this destructive process is that the situation gets out of control and out of hand for anyone to deal with. Then, as their history dictates, officers and directors seek greener pastures elsewhere. Last week we saw the “sudden” departure of Chesapeakes CEO. Not to speculate, but why? We also see in the few first quarter reports that have been published the sunshine and rainbows accounting has returned in full force. Their profits to me are wholly illegitimate. Will people buy it this time? Will it be assumed all is in hand once again, forget about the necessary changes and leave the situation to only manifest itself again at the end of this year. Where overproduction destroys the commodity prices, OPEC+ declares a war and the remainder of that script has been seen and understood many times before. This is madness and it certainly is not business.  

This is my frustration, this is my dilemma. This is my unsolvable problem. Bureaucrats know that no one can stop them from their methods. As long as they hold the primary revenues of the industry they’ll control what goes on in the future. Which is nothing but destruction. It has become so corrupt that the only purpose is to line the pockets of those bureaucrats. Mouthing the same words in harmony with all the other producers is their security that no one will be able to rise above them. Today that message is clean energy. The questions, I believe they should be asking themselves are the following. If they resume business as usual in the financial state the producers are in, what will OPEC+ next step be? And maybe it won’t be this month or quarter, or even this year. The industry is in a terrible state and could be finished with one minor correction to the production deliverability of the cartel’s profile at any point. That wouldn’t even need the declaration of a price war. They’ve already begun this process and are 25% the way in and North American producers are behaving like they have the world by the tail. Do we truly need to wait for that day to happen? Or do we have to wait until the banks realize their exposure is too great and the capacity of the industry to repay their loans is in question? Or any other number of scenarios that the industry is not configured to withstand the slightest headwind of any kind. We have been left with a looming disaster that bureaucrats are acting out their best performance to try and deceive us with. What are we to do when that happens? Is that the point we should wait for, before we act? 

Maybe I’m too biased and bought into an effort that I’ve invested my career into fixing? Possibly, and I would be certainly willing to accept that if things didn’t appear to be spinning further out of control. I only hope these comments about me being too invested are based on a comprehensive analysis of my research and the Preliminary Specification as developed, and not on a quick and cursory review of the last one or two blog posts. I can accept that I’m wrong but the industry, or whoever, had better not be wrong in their evaluation as to what to do about this. There is more at stake here than the success or failure of People, Ideas & Objects, and as the title suggests; If not us, who? If not now, when?

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

We Won't Be Fooled Again!

 Credibility is what the bureaucracy needs now more than anything. They should remember however, credibility once lost can never be regained. It may therefore have been in vain for People, Ideas & Objects to provide a means in which bureaucrats could have re-established their credibility, particularly in terms of real profitability. Credibility is one thing, there’s also doing the right thing nonetheless. Something that is obviously foreign to them. They’ve slammed the door shut on that opportunity as we’ve determined to cultivate other means in which to pursue People, Ideas & Objects et al funding and development as the final and definitive way to eliminate these bureaucrats. It’s now time for them and myself to deal with the consequences of this closed door decision and the performance legacy of the producer firms. They can argue that People, Ideas & Objects commitment consists only of words which contrast their millions of barrels of oil produced each day. Which is true, and consistent with the thinking behind their great science experiment, one that has produced nothing of value outside of the healthy executive compensation that sustains them personally. It’s time therefore to ask what is it that the producer bureaucrats are committed to? As the CEO’s, CFO’s, COO’s and members of the Board of Directors responsible for the producer firms they occupy space in, are they committed to making it a business? Are they committed to profitable energy independence across the continent? “What” is it that they are committed to and “how” will they fulfill that commitment to the satisfaction of everyone in the industry and greater oil and gas economy these producers depend upon. 

Commitment is an act, not just words. Bureaucrats need to show their commitment to the people in the greater oil and gas economy. And to do so in a credible way. We would note and advise them that in publishing our commitment our Intellectual Property is protected and unavailable to them for their use. The ideas expressed within his blog and the Preliminary Specification are for the purposes that we set out here. Therefore whatever commitment they’ll provide will have to avoid the use of what is expressed here. As law abiding corporate citizens we know this is understood, recognized and will be respected. This would apply as well to any of our competitors who’ve supported what we describe the “corporate model” in their applications. We also understand that this issue is moot from the bureaucrats point of view. They weren’t interested in doing anything with People, Ideas & Objects et al throughout our history, why would they want to start anything regarding aspects of our blog or Preliminary Specification without us. 

As our previous post detailed with the definition of the Artificial Intelligence module. There is an infrastructure, organizational method, data model, technological framework and other aspects proposed throughout the Preliminary Specification, our user community and service providers that will fulfill the commitment that we’ve expressed in the words of this blog. Granted these are just words as the bureaucrats have rightly belittled us for. In my defense I would state that we’ve never received a penny from any oil and gas producer during the entire 30 years that I have been committed to making this real. (May is our 30th anniversary.) Proof that I’m either certifiable or I’m right. Since the industry is in such disarray, it didn’t get to this state last night, and the bureaucrats existence is threatened through the disintermediation that occurs within the Preliminary Specification. I am therefore satisfied in any state of mind that I’m right. It would be satisfactory to all those within the greater oil and gas economy, understanding that the bureaucrats commitment is wholly self-centered, to at least see some words as to what the plan for the future may be. After all, they’re just words, it would be so easy to do so, and think what it might do for their credibility. 

If being right was all that drove me I’d probably have been satisfied in Grade 1. People, Ideas & Objects Preliminary Specification provides oil and gas producers with the most profitable means of oil and gas operations, everywhere and always. We are driven to have the greater energy economy throughout North America succeed. And ask the question why hasn’t it been successful from a spectacular point of view every day of its existence? It is the only industry involved in the exploration and development of products that are irreplaceable, irretrievable and unrecoverable. Who gave us the right to exploit these resources at the expense of future generations without accepting the obligation of handing them a prosperous, capable industry in which to manage their needs, and without the ability to use the market mechanisms determining what the commodity prices should be based on the actual, total cost of that exploration and production plus a reasonable profit. It’s only in that way that these resources can be sustained for the long term. Instead what we have is devastation at the hands of a very small group of people who have felt entitled. How can such a valuable resource be so badly mismanaged? Sitting on top of a primary industry whose revenues represent the entire greater oil and gas economy and dictating their approval / disapproval with their left thumb. With great power comes great responsibility and all that we’ve seen is its abuse and self aggrandizement. Acceptance of this responsibility might be reflected in a commitment that consists of “just words.”

What the Preliminary Specification et al has presented through our commitment is a solution to the issues in the North American oil and gas industry. Profitability, everywhere and always. If the property's cost structure exceeds the commodity price being offered in the market, then it is shut-in to enhance the corporate profitability, save the reserves for when they can be produced profitably and remove that marginal production from the commodity market. To highlight only three of our many advantages. Providing an inherent ability to deal with the cost escalation of each incremental barrel of oil produced. As time passes the easier production is produced leaving the more costly and difficult oil and gas remaining. Our model accommodates this cost escalation at each and every property, each and every day with each and every barrel of oil produced. A reasonable approach to the oil and gas business. Assuming it was operated as a business and not a personal bank account for surreptitious purposes. Recently we identified four new trillion dollar cost categories that would need to be dealt with by the North American oil and gas industry. These included the final recognition of what we’ve described as the bloated balance sheets of the producers property, plant and equipment account, or as we’ve described them more accurately as the unrecognized capital costs of past production. Therefore these four new cost categories are recognizing these capital costs of past production, refurbishment and rebuilding of the infrastructure, capacities and capabilities and reclamation costs. Suggesting that the recognition of the category of unrecognized capital costs of past production, when recognized, would be able to generate the necessary cash to provide the liquidity to fuel the industry for the next generation. This process is the simple retrieval of the investors cash that has been consumed in the fraud of “building balance sheets” and “putting cash in the ground.” The expectation that investors and bankers will line up for a further fleecing is beyond ludicrous. The only line up I see them forming is at the courthouse. The only source of cash large enough to approach the financing of the future costs and difficulties of the industry are the consumers of the oil and gas products themselves. Passing the actual, factual costs onto them in a timely manner is the only business that will be acceptable and profitable. 

In addition to the four new cost categories we identified seven crises the industry is facing in the current term. Any one of which would be adequate to consume the time and efforts of the brain trust of the producer firms. These crises were listed as. 

1. The chronic and systemic overproduction that is evident across the North American production profile since at least July 1986. There is no evidence of even any recognition of this as an issue in the bureaucracy today. 
2. The coronavirus impact in the short and long term. Long term being the work from home phenomenon and its impact on commuting and air travel. 
3. Debt levels in the industry are at critically high levels based on the current financial statements. Due primarily to several decades of low interest rates. These were supported by the high values of property, plant and equipment which are now suspect and being written down aggressively when triggered by SEC investigations and audits. Leading to increased leverage levels that will precipitate remedial actions on some banks behalf. Cutting off many producer firm's last lifeline to funding.
4. OPEC+ could resume their war on North America (or Russia) at any time. With 5 / 6 mm boe / day available post virus, high $60 oil prices are tenable. Natural gas prices at 22.8 times oil, rehabilitation of that market has clearly not begun, considered or committed to.
5. Industrial capacities and capabilities of oil and gas producers and the service industry are in steep decline. Senior service industry representatives such as Schlumberger and Halliburton appear profitable and satisfied with their exit from North America. Which is fine as far as the bureaucrats are concerned, the question they should concern themselves with is how do they get them back?
6. Bureaucratic motivation. Litigation, insurance company policies and sinking ships are great distractions to occupy one's time while inside the firm. For those stuck outside, not so much. 
7. The Biden Regime. 

As with the capability to deal with the never ending cost escalation of oil and gas exploration and production. People, Ideas & Objects Preliminary Specification provides oil and gas with a profitable and flexible organizational structure that is capable of dealing with these crises and cost escalations. But those are just words once again. Words that are comprehensive in scope and scale, deal specifically with the issues and opportunities in oil and gas, forming a coherent, viable, sound and workable business model. One based on the people, technology and culture of the oil and gas industry. This is however, just our commitment, but please remember commitment is an act. Where are the words reflecting the commitment of the bureaucrats. What actions have they taken to even address these points. Drilling wells is not a business model. Cost control is not a business model. What is their commitment, how will they implement it and where is it that we can see this commitment reflected by the producer bureaucrats? If it’s just words, where are theirs?

In their pursuit of unauthorized changes to clean energy, (will the Annual General Meeting finally seek approval for this fundamental change in business?) drilling, “capital discipline” and the consolidation miracle we’re witnessing. We see no discussion about profitability or how to attain it by any of the producers. It is in fact the pursuit of clean energy that proves they haven't been profitable and have no understanding or plan on how to rehabilitate their organizations profitably. No discussion of how they’ll approach the changes in the business or how they propose to solve their difficulties. An industry focused on tomorrow's crises doesn’t have the luxury of naval gazing about 2030 or 2035. It’s business as usual for them and People, Ideas & Objects claims of profitability everywhere and always, or the issues it resolves, have no interest to them whatsoever. They have better things to occupy their time and energy with. 

The successful oil and gas producer will be the one that commits to using People, Ideas & Objects Preliminary Specification, our user community and service providers and be bureaucrat free. Why would investors and bankers continue to fool around with a bureaucracy that feigns not to know what real profits are, are only interested in themselves, have no financial resources in which to proceed and a future that we’ve defined at People, Ideas & Objects as a wall of incremental trillion dollar cost escalation and unending crises. They’re not going to be the ones in a decade from now feeling like they’re the bigger fool. Producers that are not committed to recognizing or addressing any of these points and have proven this over and over again in their behavior these past decades and through the scope and scale of destruction they’ve authored. It’s only themselves they’re fooling this time. 

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

The Preliminary Specifications 13th Module, Artificial Intelligence (AI)

 With People, Ideas & Objects, our user community and their service provider organizations we have a powerful combination of proposed capacities and capabilities available for the dynamic, innovative, accountable and profitable oil and gas industry and producers. Assuming our budget is financed at some point in the future. Which I can only conclude at this time will occur as long as the associated difficulties in oil and gas persist. And therefore our funding is a certainty. When we add to this the incomprehensible list of capacities and capabilities of the products and services of Oracle Corporation. Add to these the models and markets that are built upon the use of the Joint Operating Committee in the Preliminary Specification. We will have a strong foundation in which to begin the resolution of industry issues and ensure that real profitability is earned everywhere and always throughout North America. I dare ask what the bureaucrats are offering? And will the cost of their option be any less than the trillions of dollars irretrievably lost so far?

People, Ideas & Objects have chosen our distinct competitive advantages to be our user community, Intellectual Property and research as the three areas of our domain to focus upon. These are how we earn our profits. We are a commercial operation and we will always be one as we’ve learned, as has everyone else in oil and gas, what the meaning and value of real profitability is. Without real profitability there is nothing. Within the Preliminary Specification there is the Security & Access Control module that sets out the necessary security and data access to those in the industry. Providing access to the right information at the right time to the right people with the right authority at the right location. Two other modules are the Performance Evaluation for the Joint Operating Committee and the Analytics & Statistics module for the producer firm. These modules are tools that build upon the basic data within the greater Preliminary Specification and Oracle applications in order to provide value to users. Organizing this data in an integrated matter and permitting two different perspectives of that same data. One perspective from the point of view of the Joint Operating Committee, accessible by each of the members of that committee. And the other perspective of the producer overseeing their entire proprietary accounting and administrative data. 

Recently we announced that People, Ideas & Objects would be developing as part of the Preliminary Specification, our own data model as a core part of our Intellectual Property. Our data model will be unique to our user communities needs and accommodate the data models used within the Oracle ERP Cloud products. In addition, another aspect of People, Ideas & Objects is the Technological Vision we set out on August 26, 2006 of this blog. It has four components that are in place today, and we feel they provide us with significant differentiation of our product and service offering and will provide real value to the oil and gas industry and producers, enhancing their profitability once implemented. These four technologies consist of Java, Wireless Networks, IPv6 and the application of what we describe as Asynchronous Process Management. A term that we developed that we won’t be getting into today, but will soon. We are wirelessly capable today with both WiFi and Cellular networks. Soon we’ll have the addition of space based networks such as Elon Musk's SpaceX StarLink network. As background these four technologies enable the Internet of Things (IoT) in an industry that is based on the earth sciences and the applied science of engineering. Where the chemical components of oil and gas are measured and monitored in terms of pressure and temperature. The capacity and capability to monitor and control an unlimited means of devices throughout the producers domain. Java and IPv6 enable the addressing capabilities to ensure that the device that is being sought to monitor and control, is the precise device that is being accessed. Java is a typed language which doesn’t confuse itself as to which variable is which, etc. IPv6 networks may appear as if they’ve not been implemented, but that is not the case. They are available through Oracle’s ERP Cloud offering. And the most significant IPv6 implementation to date has to be the cellular phone networks since 4G or LTE. Cellular phones such as Apple and Android devices are IPv6 based devices accessing network voice and data over an IPv6 network.

Therefore it is here we will have the total data set of the historical and proprietary data for the producer firm. The historical data of each Joint Operating Committee. Analytical tools to enhance the meaning of that data and generate the necessary ad-hoc information that the producer may find of value for their unique competitive advantages of their land and asset base, earth science and engineering capabilities. Although these will be used in ways that are unique and value generating in each of the producer firms. And within each of the members of the Joint Operating Committee. There will be a base infrastructure that’ll be prepared and provided to each of the producers on a continuous basis through the People, Ideas & Objects et al infrastructure that I’ve defined here. 

Let's talk about that data. The reason there is no production discipline in the oil and gas industry is that every producer is a spending machine focused on the “great science experiment” as I call it. Therefore it’s not a business and never will be a business with business objectives as long as the bureaucrats remain in place. Production discipline could be imposed by forming a North American cartel, (illegal) government production mandates where no one is ever satisfied with their allocation or implementing the Preliminary Specification. Only the Preliminary Specifications method of production allocation based on “real” profitability provides for fair and equitable means of production discipline. If the property continues to produce a profit then it continues to produce. Otherwise why would you continue to produce if a properties loss reduces the overall profitability of the producer firm, effectively destroying the value of the properties reserves, adding the cost of the ongoing incremental losses to the costs of the reserves and removing the marginal, or unprofitable, production from the commodities market so that they may find their marginal prices. Marginal prices not just for the unprofitable property but all properties across the North American continent. Markets provide one thing and only one thing, their price and bureaucrats refuse to listen to prices even when it's negative $40. They claim our method of production allocation is collusion which is laughable. If making independent business decisions based on detailed, actual, factual accounting that determines the state of the properties profitability is collusion, then bureaucrats belong back in the former Soviet Union. 

It is our user communities service provider organizations that provide the means to instill the production discipline across the North American oil and gas producers. Service providers are a reallocation of the existing producers administrative and accounting resources into approximately 3,000 individual companies. There the service provider will focus on one process and apply that process across the entire industry's data set. It will be at each of the service providers where the application of the individual process will be conducted on a standard, objective, actual and factual basis across the industry. This will be done as a result of each of these processes will be highly engineered during the development of the Preliminary Specification and continuously improved by the user community members in order to meet the requirements of the industry, regulators and all other stakeholders. And of course the producers and Joint Operating Committees needs. Therefore when the time comes to review the Joint Operating Committees individual, complete and comprehensive financial statements for the month, a feature of the Preliminary Specification. And they find that a property, for whatever reason, is no longer profitable they can confidently conclude the property needs to be shut-in. They’ll know that every other property in the industry has been assessed on the same objective, standard, actual and factual accounting basis and as a result each producer can accept that the accounting treatment they received on that property was no different in terms of being better or worse than any other property of theirs or any other producers. And therefore knowing that the focus of the producer is to maximize profits everywhere and always, any unprofitable properties only dilute their overall corporate profitability as well as collapse the commodity prices across their production profile and therefore will appreciate the value of this objective accounting information. They will be able to move the property to their inventory of shut-in properties where their earth science and engineering capabilities can be innovatively applied to rehabilitate the property in some manner to bring it back to profitability. All net positives for the producer and industry overall. 

In summary once again this infrastructure we’re building is to provide the North American oil and gas industry with the most profitable means of oil and gas production, everywhere and always. As discussed, on top of this data we have two modules, the Performance Evaluation, and Analytics & Statistics modules that will provide enhanced tools to analyze this framework for their competitive advantage. The Preliminary Specifications thirteenth module that we’re announcing today is to simply enhance this ERP framework with Artificial Intelligence and that is the name we will be applying to our thirteenth module. Why would producers and the industry be satisfied to continue with low grade and failing ERP systems and specious accounting practices? Each producer as a single entity has nowhere near the resources, capabilities or capacity in which they need to be able to begin developing the automation of their business processes, specialization and demands of this environment. An environment that will be a given from a technological architecture point of view. However, we do know bureaucrats are more than capable of muddling through these technical changes. Maintaining poor quality systems and specious accounting have fulfilled their purpose in oil and gas. Allowing the bureaucrats to continue with their charade will only take the industry into further jeopardy.

The structure of our user community is the means in which the producer firms enhance their ERP software. If they want or need changes to their existing systems, who do they go to in today’s environment, who has authority at the producer, who has authority at the software vendor? Good luck with that question. In the Preliminary Specification people will only need to speak to the relevant user community member(s). Only the user community is licensed to make changes and prepare derivative works of the Intellectual Property of the Preliminary Specification and any additions. Our developers are licensed to take directions only from user community members in terms of what to develop. They are blind, deaf and dumb to all others. User community members population is approximately the same as the service provider organizations they lead. They are focused on their area of expertise and are applying their specialization, division of labor, quality, automation, innovation, integration, leadership, issue identification and resolution, creativity, collaboration, ideas, design, planning, thinking, negotiating, compromising and using conflict and contradictions to get to the source of the issues as their key competitive advantages throughout their organization. User community members are the principles of the service providers whose role it is to provide their tacit knowledge as a service, in addition to the explicit knowledge that is captured in the People, Ideas & Objects Preliminary Specifications software, by the user community member, of which their service providers are using and providing to the industry.

This user community and their service provider organizations are the intellectual framework of the oil and gas industry in terms of accounting and administration. It would be my hope, my anticipation and expectation that one day this would provide the industry with the software and services that anticipated the needs, issues and opportunities that oil and gas would face. The Preliminary Specifications software would be dealing with what it is that’s concerning the industry. Taking a leadership role in the development of the administrative and accounting of the industry. Therefore leveraging this framework as I described it earlier would be a natural extension of what it could, but most importantly should be doing. Moving the Artificial Intelligence for ERP domain within the user community and service provider domain therefore is a natural and necessary fit. My thinking on this began as a result of the announcement by Mr. Thomas Siebel and his Artificial Intelligence firm C3.ai Inc. Thomas Siebel sold Siebel Systems to Oracle Corporation a number of years ago. The purpose behind C3.ai Inc is consistent with the theme that is present in the ERP marketplace. Individual companies can spend vast amounts of money and time internally on ERP systems or Artificial Intelligence with no benefit, wasted investment and unnecessary demand on critical AI and ERP resources. Mr. Siebel suggests that there is a 99% failure rate of internal corporate AI initiatives. We’ve seen this in oil and gas with their announced AI initiatives of a number of years ago being applied at the time to their chronic lack of profitability. The results of those initiatives are forthcoming, I guess. 

Centralizing the resources of the industry into Artificial Intelligence based ERP developments which will be developed and deployed through the People, Ideas & Objects et al framework that I’ve described in this post. Is an efficiency that is consistent with the theme of ERP developments. The demands of software development are no longer a capability that can be attained in-house in order to ensure the full scope of the organizations needs are covered. The same applies to AI. Therefore the Preliminary Specifications consolidation of the industries resources on one focused development in an objective, standard and compliant manner offers better functionality and capability at considerably less cost. Oracle has AI initiatives with their Oracle ERP Cloud, the base of our solution, and we will therefore be adopting those tools. I believe that the addition of the thirteenth modules AI capabilities is a natural extension of our user community and their service provider organizations and an efficient use of industry resources. Enabling producers to focus on their key competitive advantages of their land and asset base, earth science and engineering capabilities profitably. Incurring the time and energy to build the capacity and capability of ERP based AI once, and sharing the cost and this initiatives success across the industry. But there's more, the demand on the AI resources in terms of the practitioners would be too high to ensure that any producer was able to attain any level of AI competitive advantage or even competency in the industry in ERP based AI. It would also be duplicating the capability of the user community in this area. Just asking for a friend, why is there that 99% failure rate? What’s that saying; garbage in, garbage out. 

One of the aspects of the Preliminary Specification is that the administrative and accounting burden of each individual producer is substantially reduced as a result of the changes we will be instituting. These changes are a result of the burden of the producers' fixed, unshared and unshareable, administrative and accounting capabilities are reallocated to the variable and shared administrative and accounting capabilities of the industry. Variable based on production. Another key attribute that we’re using to reduce the costs of administrative and accounting, yet increase the performance and quality of our offering is by using specialization and the division of labor to be distributed across our service providers. These two elements of the Preliminary Specification will work to enhance the cost performance of the producers as we believe that overhead costs are substantial, and are one of the reasons responsible for their chronic unprofitability. Specialization increases the performance trajectory of the service providers administrative and accounting resources by increasing their capacity with the same or even fewer resources. We also apply this principle in the area of software development. More importantly is the unshared nature of the current, bureaucratic and redundant spending of the same overhead costs within each siloed producer organization in areas that are not distinct competitive advantages of the producers.

A key difference between what People, Ideas & Objects have proposed is the Artificial Intelligence module is properly constructed after the models, markets, architecture, infrastructure, functionality, organization and data is assembled. Bureaucrats have been using Artificial Intelligence to enhance their thinking for the past number of years. It has provided no results that we can see or are aware of. In fact it seems to People, Ideas & Objects that AI may have just been another viable scapegoat at the time to ensure their investors knew the bureaucrats were on the job. Except they haven’t any data that is usable. Without that data being organized and managed appropriately what purpose is AI? Oracle has recently stated that IoT may increase the volumes of data five fold by the year 2025. It may be a good time for the industry to start concerning themselves with such petty and annoying things like data and profits, but then I’m biased. Secondly each producer running around spending money on a new initiative that is the next great thing is consistent with the phenomenon we’ve seen repeatedly in the industry and have tagged with the “Keystone Cops” label. 

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

People, Ideas & Objects Tactical and Strategic Changes, Part III

 The stink coming out of oil and gas indicates that the situation is ripe. It’s my belief that People, Ideas & Objects have put forward a viable and credible solution to the issues that are more than evident to everyone now. I have and will continue to be patient however, the time necessary for me to act definitely is upon us. The industry can’t afford any further time wasted. Our case has also been made as to what the contrast would be between an industry operated under the Preliminary Specification, our user community and service providers vs the current bureaucracy. We see today in the inactions of the bureaucrats nothing has changed. Their pursuit of consolidations, increased drilling activity, unauthorized clean energy transitions and the always hilarious “capital discipline” lasting for about a week is just more of the same. For the life of me I'll never understand why they consider that we're the bad guys for focusing on their profitability. As bad as it is, nothing will ever change. Therefore we’re changing it for them. From Forbes

The risk is that the surge in private shale activity overtakes the “restrained growth” narrative that has defined public operators since last year. Larger-than-expected production growth could depress WTI prices and hurt producers and oil services companies. 

Much of what the Preliminary Specification does is define and support the oil and gas producer firm, industry and service industry around the use of the Joint Operating Committee. The legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the oil and gas industry. Joint Operating Committees begin at conception, to represent the partnerships that are systemic throughout the industry for the variety of reasons they’re created. All of the actions involving engineering and earth science of the producer firm actively recognize the Joint Operating Committee. It is the administrative and accounting that has deviated from this business to focus on the accounting, tax, regulatory and compliance issues of the corporation. It is here that the communication between these two silos, the business of the Joint Operating Committee vs the administrative and accounting within the producer firms, ceased to effectively communicate. I believe the aggravating factor in this separation was the introduction of computers in the 1960s. When they arrived it was asked what would / should / could be done with them. The answer was accounting, tax, regulation and compliance for the corporation. And the producers' two silo's separated further each year from there. The adoption of the cultural means of the industry, the Joint Operating Committee, within the Preliminary Specification provides us with an extensive and productive opportunity to redefine the future work that is done throughout the industry and to do so profitably, and in the real sense of profits.

Since the late 1700s the source of all value creation has been a result of the further specialization and division of labor. The efficiencies are endless and therefore the Preliminary Specification has implemented high levels of specialization and division of labor, particularly in our user community and their service provider organizations. We have also developed an enhanced industry wide ERP software development capability and capacity in People, Ideas & Objects. These capabilities and capacities will be able to further iterate on the subsequent expansion of specialization and division of labor to cure the gaps that are discovered in the course of the day to day of the user community and their service providers work, and fill them with new roles and processes. Filling gaps is the method in which specialization is enhanced, this is simply done when the gaps that are identified are subsequently filled with new processes and resources. However without a purpose built software development capability, driven by an active user community and an enabling user community vision in which to enhance the software, no changes can or will take place. The software must be changed first in order for any organizational change to be lasting through to the next change or iteration. When people seek to change the organization without the changes to the software first, they’ll fail and regress back to the methods defined in the current software process. This is one of the many reasons that oil and gas has failed to change and progress. Producer bureaucrats have failed to sponsor any activity in the ERP marketplace for at least the past three decades. Therefore the status quo bureaucracy remains unchallenged in their methods of management and incapable of dealing with the issues and opportunities that stand before it. The speed and performance of their organizations are incapable of dealing with their environment and are represented in the financial statements which accurately predict the producers imminent demise. If producers were using successful ERP systems would their businesses be so unsuccessful? People, Ideas & Objects suggest that it’s not enough to own the oil and gas asset anymore. Access to the software that makes the oil and gas asset profitable will be the critical value generating element of the oil and gas industry. 

Another aspect of our Preliminary Specification is that the overhead burden of each individual producer will be substantially reduced as a result of the changes we’re instituting. These changes are a result of the burden of the producers' fixed-cost, unshared and unshareable, administrative and accounting capacities and capabilities are reallocated to the variable-cost, shared administrative and accounting capacities and capabilities of the service provider organizations. Providing an industry based administrative and accounting capability that is variable in its cost, variable based on production. The other attribute we’re using to reduce the costs of administrative and accounting, yet increase the performance and quality of our offering, is to use specialization and the division of labor to do more with less. These two elements of the Preliminary Specification work to enhance the cost performance of the producers. We believe that overhead costs are substantial, and are another one of the reasons for the producers chronic unprofitability. We also apply the inverse logic of this principle in the area of software development. When each producer approaches the need to develop their own software the demand on the markets IT resources outstrips supply, escalating the costs of the resource. More importantly it is the unshared nature of this redundant spending on these costs within each siloed organization in areas which are not distinct oil and gas competitive advantages. The demands of highly specialized software developments are no longer a capability that can be attained in-house, we believe, by a commercially viable oil and gas producer. Therefore the Preliminary Specifications consolidation of the industries resources on one focused ERP software development in an objective, standard and compliant manner offers better functionality and capability at considerably less cost and higher quality to each producer.

There is a fundamental principle within the Preliminary Specification that governs how the producer will operate in the future. Essentially oil and gas will be operated as a profitable business. Novel concept I know. Bilking investors had a good run but Bernie Madoff is no longer with us. The legacy of his thinking remains in the industry and there will be no future investments made by any investors capable of funding the capital demands of the North American producers. Simply for the reason that there isn’t enough capital on the planet. The blog series in which we identified four new categories of incremental trillion dollar costs of paying for the unrecognized capital costs of past production, rebuilding, refurbishment and reclamation also need to be considered. The producers will need to prove they can be profitable in the real sense for at least a decade, and compete on the capital markets with all other industries before they can reclaim any renewed reputation with investors. Therefore People, Ideas & Objects believe the only source of cash large enough to satisfy the needs of the dynamic, innovative, accountable and profitable oil and gas producer and industry are the consumers who will have to begin paying for the full cost of capital, operations, royalties and overhead costs of oil and gas exploration and production with an element of real profitability. The bureaucrats have rightly interpreted this not only as the demise of their franchise but also as really hard work.

All overhead costs should be passed on to the consumer in the current period. Not stored in property, plant and equipment for a generation as it is today. If oil and gas is a capital intensive industry, does that not imply that the majority of the costs that will be passed on to the consumers will also be capital in nature? Currently all of the costs including overhead and interest of the producer are capitalized and stored in property, plant and equipment for as long as possible by the bureaucrats. This enables the CEO’s to compare who has the biggest balance sheet among their peers. “Building balance sheets” and “putting cash in the ground” have become the talking points throughout the industry. These reflect the disconnect between those that are operating the industry and reality. It is lunacy and they should look critically at why these ever became the objectives they each parroted to one another in perfect harmony for many decades.  

Cash is the hypercritical resource that never stays in one place for long in oil and gas. This is also the reason the investors were annually fleeced for another round of dilution of their prior years investments. The reason for the chronic demand for cash throughout the industry is easily understood if anyone were to apply basic cash management principles. Oil and gas bureaucrats operate a spending machine, money only goes out. The cash that comes in from the sales of oil and gas has to pay for everything each month. Nothing is ever returned. Producers are seeking to build balance sheets and put cash in the ground. Therefore none of these costs are being recognized in the commodity prices that are passed on to the consumers. Therefore these overhead monies are not replaced each month in the form of a “cash float” as it is known in business. For example overhead is capitalized to the tune of 85% on average across the industry. (Still waiting for evidence to the contrary.) Therefore none of these overhead costs, which include rent, salaries, Post-It-Notes, telephones, etc are ever recovered in the current period from the price of the commodity to cover next month's charges. These overhead costs represent the ever expanding, bigger, better, bloated balance sheet of the CEO. That’s their job! Therefore each and every producer has to start anew each month with the fresh challenge of finding cash to pay the light bill etc. Secondly when producers seek to capitalize everything to property, plant and equipment in order to emulate the value of the firms reserves, they’re not passing these capital costs on to the consumers. Therefore they are storing the cash literally in the ground. But then that is what they’ve been telling us. Cash goes into the spending machine. Needs to be reloaded with fresh cash from an outside source each and every month. I’m beginning to see why the bureaucrats have fought so hard to keep me quiet all this time. They either don’t understand what I’m saying, they don’t want to air their dirty laundry or they don’t want to get caught. I guess then I have one question. Why is it that we never see any details regarding the breakdown of overhead incurred in producers. Is there something in there they don’t want us to see?

While the investor watches the behavior of the oil and gas bureaucrat, causing them to nervously shuffle their papers about and begin sweating from simple questions such as what is it they're hiding? They may want to drop another quick question or two on them and ask. Why is it that they don’t use a first tiered ERP systems provider such as Oracle? Why have they stuck with the same systems that began in the 1980s and why is the Preliminary Specification, which is an Oracle based solution, the only solution being offered in the market? Where and what are the existing competitors proposing? Where are their solutions to the industry issues? A question for the vendors might be, since their product was being used in the market how is it, and why is it that the industry failed while using your product? Would the industry have failed if it had appropriate systems in place? And why is it that the industry does not have any tier one ERP systems provider implemented? Why would the bureaucrats, who I’ve alleged are operating a Bernie Madoff style of operation, want to have systems that have failed to make the industry successful? Why are they so satisfied with low quality systems and poor accounting practices? (Again this is not a comment on the high quality of the people who work within oil and gas.) Credibility is what the bureaucracy lost. People, Ideas & Objects provided a means in which they could re-establish their credibility in terms of real profitability. They’ve slammed that door shut on themselves. It’s now time to deal with that and that is what People, Ideas & Objects, our user community and service providers have done. 

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

People, Ideas & Objects Tactical and Strategic Changes, Part II

 In this the second part of a series defining the revised tactics and strategies for People, Ideas & Objects to ensure that the oil and gas industry will transition to the dynamic, innovative, accountable and profitable producer and industry we all need it to be. Patience has been applied, we’ve attempted to work with the bureaucrats, we might have said some things that offended them but so what, and even held out that we could be their best friend in light of the fact that they’re now in such legal jeopardy by not upholding their fiduciary duties. Using our car analogy to reflect the difficulties in oil and gas. The analogy being the car that was trailing oil for the past few miles, began steaming and then lost power. Parked at the side of the road, the owner tried to resurrect the forward momentum by using the battery to turn it over, which lasted about an hour. For purposes of this analogy that was approximately equivalent to the year 2015 in the oil and gas industry. It’s been seven days since the vehicle's breakdown and the owner's family are finding it more and more difficult to find the food and water they need to survive. They have the viable scapegoats of it being too hot and too far to travel to the next town and of course there is no reception. An aggravating factor is they’ve all had the flu this past week. Cars continue to pass on the highway but no one stops and even tow trucks looking for people to save, just pass them by. This family is hopeless and helpless and no one will stop or anything! This no doubt was OPEC’s fault. Other than muddle through there doesn’t seem all that much to do?

I could continue as the analogy to our good friends the bureaucrats never breaks down. “Muddling through” is a lifestyle choice that demands commitment. Just stay with the vehicle until someone rescues them. Conversely what do the producers expect to happen now? What’s their plan and will it work? 

The good news for the producers is that their share values have been rallying handsomely over the past six months. The reason why is an interesting question that we’ll no doubt learn in a short period of time. The week of March 8, 2021 established itself as the high point for our sample of producer firms. Covid has had a detrimental impact on the industry and for that there is no doubt. With the vaccines distribution, relief from the lockdowns and the resumption of “normal'' coming back into focus. This however doesn’t create any benefit for the producers. And just as the impact of the virus is waning across the globe, relief from the flu provided the same effect for our family over the past week they’ve been stranded at the side of the road. It didn’t solve their problem. 

Two of the kids in the back seat of the car decided they might be able to help their parents solve their problem and get them back on the road. One grabbed the playing cards while the other got hold of the checkbook. The first one, thinking that consolidation of assets was a good strategy, started distributing the cards in exchange for “assets” of the car. Representing each card as a share he started by buying the front seats and quickly moved on from there. The daughter began scribbling in the checkbook which caused a “feeding frenzy” between the kids as to who could consolidate the most assets the quickest. It soon turned out that the parents had acquired all the shares and junk bonds the kids distributed and ended up owning each part of the car that was sold. This provided the occupants of the vehicle with ample activity for the better part of each morning they were stranded. Eventually, in frustration the baby threw the cards and checks out the window on a windy day. Which began the kids' consideration of their next move in terms of financial engineering. 

What to do next in oil and gas? It doesn’t seem to be a question that is being asked across the industry today. Drilling is picking up and that is consistent with the actions of the great science experiment that involves acquiring land, drilling and producing, rinse and repeat. Bureaucrats will argue that this is the business and belittle the argument that accounting performance has nothing to do with the reality of the value they produce once they access those valuable oil and gas reserves. It is here that the cultural standoff begins between those that are running the oil and gas producers and the “accountants,” as we’re called. “Accountants should do their job, pay the bills and get on the bus with everyone else.” We are told. That those involved in the science experiment have not conducted any activity in the past four decades on the basis of a competitive operation, where financial performance was a necessary and primary criteria, is not relevant to them. When accountants bring in depletion costs and impairments they’re “non-cash attributes.” Allowing bureaucrats to convince themselves they’re not real costs, “they’re history.” That these costs were incurred as a result of the money handed to them from their investors is not understood or appreciated, and to account for that spending is something they have not done and will never do as far as they’re concerned. That was never part of the plan and they foresee no reason to change any of this. Eventually, as far as they’re concerned, investors will return and the industry will resume its way’s once more. Comprehension that the reserves that are revealed are useless and valueless if they’re consistently produced unprofitably is something that will not, and can not be heard or understood by bureaucrats. 

Let’s have a look at that plan and see how things are in terms of supporting it financially. During times of crisis it is considered prudent to survive in the extreme short term and to do so by not considering the cost of capital in the thinking of what is “financial performance.” The issue with oil and gas is that this is how the industry has been operated for the past four decades. Capitalizing every possible cost that is incurred by the producer and only recognizing the share of capital costs of production in relation to an allocation to the entire reserves base. Leaving as People, Ideas & Objects suggests an inordinate amount of property, plant and equipment on the balance sheet. This amount is in stark contrast to all other aspects of the financial statements and appears as a distorted figure that is not representative of the firm. We believe that it should be regarded as the unrecognized capital costs of past production. Therefore the industry has been operating in somewhat of a crisis mode by never recognizing the appropriate level of capital cost in the commodity prices it passes on to consumers. Instead storing these capital costs on the balance sheet on the basis of “building balance sheets” and “putting cash in the ground” as key corporate objectives. Producers now stand with distorted balance sheets that have become representative of the major issue in oil and gas. That being over reported assets beget equal amounts of over reported profits. Which attracts a disproportionate amount of investors creating over investment in the industry and subsequently suffering as a result of overcapacity and overproduction. In commodities that are price makers, such as oil and gas this overproduction has led to unprofitable prices being realized for 28 of the past 35 years. 

The overhang of assets on property, plant and equipment became a critical audit issue in 2020 for the producers across the industry. Will it be the same for 2021, or how about 2022. How does the industry deal with the legacy of this past that distorts their performance and is more representative of a culture that feigns it doesn’t know or understand the difference? Does it continue to accelerate the depletion and impairment of its capital costs to bring it in line with the market's understanding of what property, plant and equipment is? Or should they await the results of the SEC investigation into Exxon’s overreported asset allegation and potential shale producer review. If they do finally recognize these capital costs of past production the account of property, plant and equipment will come into line with the expectations of reality and can be relied upon as a reliable gage of the producers performance. It however will also eliminate retained earnings in every existing producer, if there are any retained earnings remaining today, and in most cases create a negative equity situation where the debt of the producer is higher than the value represented in total assets. Which begs the question what do the banks think of this situation? 

The majority of the producers would fall into the category of having debts larger than their assets once their unrecognized capital costs of past production are recognized appropriately. This alarms the banks and the regulators for two reasons. First the banks have clients whose leverage exceeds their lending criteria and demand that efforts be taken to remediate the accounts, write down the loans and seize their bank accounts in the most severe situations. More or less business as usual these past five years, only with a desperate sense of urgency on the banks behalf. The debts would then, and in some cases do so today, exceed the value of the reserves that are booked by the producer. Indicating to the bank their exposure exceeds what it is the producer would ever be able to generate and contribute towards the loan. I’m not a banker, but this may be a limit they’ll stop to think twice about crossing. When asked about these issues the bureaucrats will no doubt once again state that these are accounting issues and only represent “history.” Bureaucrats are correct about that however instead of calling it historical, I would suggest they think of it maybe in terms of legacy.

When questioned on the disproportionate valuation of property, plant and equipment the producer can make themselves a candidate for consolidation with another larger producer. This will restore the asset valuation as paper in the form of shares and Junk Bonds are passed about the oil and gas tycoons, much as the kids in the back seat did with the playing cards and checkbook. If they value the transaction for more than what the assets are listed at on the balance sheet, then those values will be what they’re recorded at in the consolidation process. Thankfully no one else in the world is interested in these assets otherwise the premium producers would have to pay would be so much higher. And to take the bureaucrats point of view this is all just accounting jibber jabber. The fact they’re spudding two wells next week in the Permian will be spectasmogorical. 

Performance is the purpose of accounting. The timing and accuracy of all costs incurred is what is sought by accountants. Performance based on falsehoods such as the over capitalization of costs will provide substantial value to an organization in its early years. They will be attractive to investors and appear to be doing well. The reality is that they’re poorly managed and the representations being made are lies and falsehoods, much as the situation we have today in oil and gas. A misrepresentation built upon earlier misrepresentations that are attempted to be concealed by further misrepresentations in the form of consolidations, as the current flavor of the day. Oil and gas overproduction in North America has been with us since at least July 1986. People, Ideas & Objects Preliminary Specification has been available since December 2013. The alternative answer to these is consolidation? Just as our family that’ve been stranded at the side of the road are unaware why they have no help. They’re heading into another day and see their shortages of food and water coming to an end. What will they have to do, abandon their strategy of “muddle along” and get out of the car? Or will someone finally save them? 

We should all thank OPEC. Recently they increased their productive output by 2 million barrels and have 5 - 6 million barrels of oil remaining to provide for our needs in the future. Relying on North American based producers for that deliverability in the long run is not going to be possible. Bureaucrats are unaware of the situation they’ve caused and are causing. They only concern themselves with their personal financial position. We can also thank OPEC for the stern warning in the article of The Calgary Herald of July 26, 1986. The one entitled “OPEC Minister Can See Economic Destruction” and “Return to Glory Days Unlikely.” They knew the results of what was being pursued in 1986 was not going to be productive and were concerned about it. It’s probably a good thing that North American producers were always so much “smarter and better than the OPEC Ministers” were in 1986 isn’t it? Is it that bureaucrats don’t listen, don’t do anything or both?

The issues are evident to most people that have an interest in oil and gas. The investors left in 2015 and I began gripping on this blog a decade before that. What is it that I know now, what is it that the investors are thinking and what do most people have to learn about the level of destruction that has been caused by these bureaucrats? I think one of the key takeaways has to be that shale will eliminate any opportunity for any boom or upside in oil and gas again. When prices begin rising the rapid increase from shale production is the immediate response. This has now become a market signal that soon additional production will be on the market and the price adjusts accordingly. Limiting any upside in the price of the commodities. This is known as an inherent part of the producers business model which is assumed not to be changing. Distractions in the form of bright shiny objects to occupy time, such as consolidation and the pursuit of clean energy will satisfy the media and environmentalists. No one will stand up and say anything to contrast the bureaucrats logic, only to be publicly persecuted, therefore nothing will change in terms of the bureaucrats actions. 

The level of devastation that I see within oil and gas is more than what has been experienced in any other industry that I am aware of. It has been made possible by the large cash flows from being a capital intensive industry. These cash flows have enabled the bureaucrats to continue their methods of “management” and have proven they’re only interested in their own personal financial compensation. Diversion of these cash flows towards clean energy is only the most recent viable scapegoat that draws attention away from their performance. These diversions are not consistent with the oil and gas investors original intent in establishing these producers. I believe they should be stopped and let the bureaucrats pursue their clean energy dreams as startups and feel the rush of having no revenues to rely upon. People, Ideas & Objects will continue to hold them personally accountable for these actions and ensure that it is known that this issue was prevalent since 1986 or earlier, that our solution was available in the marketplace in December 2013 and producers have done everything in their power to avoid addressing either the issue or the solution, but also the continued destruction of the industry under their watch. If it appears as if this is a design feature of their system of self aggrandizement, you’d be 100% correct. 

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, everywhere and always. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. Users are welcome to join me here. Together we can begin to meet the future demands for energy. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.