Apparently, It's Their Best Plan

 What are the producers offering investors today? Share prices consistently record 52 week highs and their performance since the third quarter has been solid. Has all the commodity price rise been realized? Or do producers expect more? What would be the cost in terms of hedging losses if prices were higher? Producers need to pay the royalty share on the full price of the commodity. Leaving them with the commodity price, less the hedging offset, less the royalty obligation on the full price. Effectively doubling their royalty obligations. Prior 2020 asset write downs are being reversed and the recording of minimal depletion appears to be the order of the day. All on the pretense that petroleum reserves are more valuable when their commodity prices are higher. If they can report high levels of profitability by deferring their capital costs, then that justifies? Having minimal depletion recorded in 2021 in order to have the higher commodity price report the highest specious profitability possible is necessary in order to create the facade of performance and offset what they know to be the bad news. Being the deficiency of, or as I call it, the oil and gas bureaucratic oxymoronic “cash management.” The question that people should be asking themselves about the price of the producer's shares is… If, as People, Ideas & Objects have suggested, the petroleum reserves are useless if they can’t produce “real profitability.” Is the producer's stock price a valid commodity price proxy?

For the record People, Ideas & Objects believe a high performing producer would never participate in hedging. We believe hedges establish a set level of performance at which the producer will achieve in any scenario of the commodity price outcome. Therefore the message throughout the organization is to sit on its hands, don’t do anything as the only detriment to performance are mistakes. And therefore the organization does nothing. Not what is needed from a high performing, innovative industry. What is needed is the ability to build value outside of the changes in commodity prices. Secondly, high commodity prices offer an excellent opportunity to expire greater volumes of property, plant and equipment. Extinguishing the account as soon as possible provides the organization with opportunities in the future that are highly competitive and able to increase its options. By turning over its capital investments back into cash quickly, and then having that cash available and able to be redeployed back into new opportunities and capital investment on a rapid, iterative cycle gives them a performance that is hard to compete against. Leveraging their capital structure, not annually fleecing and diluting their investors. Having the investment capital deployed over the course of many decades, as today’s producers have done, and with this depletion policy for 2021, only instills the lack of a poor performing or bureaucratic administration. One that is dependent on outside sources of cash to fund their future spending to continue “building balance sheets” and “putting cash in the ground.” People, Ideas & Objects believe that a capital intensive, primary industry should have realized that large amounts of capital costs would be passed on to the consumer in the sales price. Therefore, storing capital on the balance sheet, as has been done for the past four decades, has subsidized consumers’ the capital costs of their energy consumption at the cost of the producers' investors. 

This is the point of where the industry finds itself today. When we began writing in 2005 we felt the industry was on a terminal trajectory. One in which the proverbial domino effect was in play. Difficulties had manifest themselves to the point where they were not being resolved by the organizations creating them. The consequences of one bad act were causing subsequent symptoms to be treated with the same remedies which caused further dominoes to fall with cascading consequences. If the industry didn’t begin correct action at that time then the difficulties would become too complex to resolve and terminal to the health of those organizations. We’ve now arrived at a time of healthy oil prices. 22 months after the darkest days ever witnessed in the industry. Triggered by the inability to address the existential and detrimental fact their capital structure has lost all support. Provided a lifeline in the form of large cash flows from prior investment in a capital intensive, primary industry that has been, continues to be and is easily diverted to support those in power. Abuse could never be better defined.

The point I’m making is that we’re traveling downhill on a one way road with failing brakes. Every moment that passes gives the passengers a new thrill when they discover the road ahead. There are flat sections that give the appearance of safety, only to realize they’re too short to resolve the full momentum and the steepness resumes. The driver blames the brakes and the mechanic who serviced them. It’s therefore obvious to everyone else he’s out of control and panicking. Few options are available and no time to consider them. Their demise is possible and if not, how could they ever get back to the top of the hill where they started? 

This is possibly a bad analogy however I find it to be exact. Shale gas is prolific with formations that quickly overwhelm the markets they deliver into. This winter's cold season answers last decades producers' prayers for a cold winter. Prices have been healthy and increased takeaway capacity has helped producers remove the excess production from the Permian where prices last week reached $4.11. The Marcellus is benefiting from a cold North East where prices are also “high” for that region at $4.30. And deliveries into Boston were priced at $18.96 with Canadians getting in on the action at $18.75. The difficulties with these handsome prices is that they’re providing the Chicago Mercantile Exchange with profits they could never have dreamed of when they bought the hedges that producers were selling. Oil prices have maintained an average price of $75 over the past three months which brings about the same difficulties for producers. Not all production is hedged. After the scare of negative $40 oil prices were over, producer bureaucrats panicked and were quick to grab the first piece of solid ground which to them were hedging contracts priced in the $40 to $45 region. Natural Gas hedging contracts are averaging around $2.50 to $2.80. Hence the next destination on the speeding cars speedometer is the fact these hedges are consuming large amounts of producer cash. Cash that hasn’t been seen in the industry since investors began leaving in 2015.

When producers operate as non-commercial enterprises they qualify as what I call unreformed spendaholics. Since they don’t generate value, value needs to be sourced from others which was easily obtained through the facade of their financial reporting. Investors and bankers eventually caught on to this. Having no support for the organization's capital structure is the end of that organizations' usable life, except in oil and gas, where cash flow is strong enough to support the bureaucracy in its lifestyle of the rich and famous. Bureaucrats are, as they claim to be, innovative in their search for cash and therefore quickly duped the service industry into funding their capital programs through accounts payable over the course of 18 months. They said they’d be paid as they always had been, it just didn’t turn out that way. And when that didn’t work anymore production was the source of the much needed cash to fund the “overhead.” Negative commodity prices unfortunately are real. Therefore the only possible way to ensure the future was to hedge production and secure that income and the bureaucrats continued existence. Except now the revenue less the royalty less the hedge are costing more than they realized. What we’re seeing here are the cascading consequences of the dominoes. To deal with these problems they just shifted over to clean energy. And now, the last resort of all the bureaucrats in their search to now pay their hedging contracts is to cannibalize one another. In the producers second and third quarter financial statements of 2021 People, Ideas & Objects believe that producer bureaucrats are withholding payment of their working interest partners shares of their cash flow from their properties. Betraying the trust between the partnerships that are a foundation of the industry. For those who are still with me, this is the rock wall in the car's path coming into clear focus.

OPEC+ have done a remarkably good job in keeping the market well fed and the oil price stable since they intervened to remove production as a result of COVID. What is critical to understand about their actions is. They see the state of the North American oil and gas producers as represented in this car analogy. OPEC+ remains at the top of the hill and can see the dust trail from the vehicle and its trajectory. If by some miracle the car's occupants survive, OPEC+ knows they won’t be back soon to cause harm to the oil markets as they have since 1986. And they know there's nothing that they could or could have done to help. Whether they precipitated the North American producer's decline is not at issue. They, as have everyone else in the industry, have been negatively affected by the (in)actions and activities of these bureaucrats for the past four decades. They found themselves unable to deal with the obstinate and pious officers and directors of these producers. Something that OPEC+ could probably share their notes on with the North American producers disgruntled investors and bankers. 

It was a good car once. One of those spacious, luxurious, expensive, foreign models. Thankfully only other officers and directors were in the vehicle at the time, our good friends the bureaucrats. Therefore what is it that needs to be done with the remains of the producing assets of the industry. Those that are demanding capital just to produce. And all those good people who are still committed to the industry. People, Ideas & Objects have a solution in the form of the Preliminary Specification that proves that we can, and we know how to make money in this business. 

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined gettr and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Shale and the Era of Abundance

 In what is undoubtedly the most studied economic period, the great depression, there are many reasons why it came about. We know about 1) the speculative boom of the roaring 1920s and 2) the 1929 market crash. According to Business Insider the third reason they identified was. 

3. Oversupply and overproduction problems

Mass production powered the 1920s consumption boom. But it also led to overproduction on the part of many businesses. Even before the crash, they started having to sell goods at a loss. 

A similar crisis was occurring in agriculture. During World War I, farmers had bought more machinery to boost production — a costly move that put them in debt. But, in the post-war economy, they ended up producing far more supply than consumers needed. Land and crop values plummeted.

It all resulted in a drop in prices, both agricultural and industrial, which decimated profits and hurt already over-extended enterprises.

Overproduction has been the case in the North American oil market as far back as 1986, the time of its first price collapse. Since then we’ve seen multiple declines in both commodity prices as a result of overproduction, or as we call it, unprofitable production due to overinvestment. Overinvestment occurred as a result of the specious profits reported by producers. Profits attract investors to invest causing overinvestment and creating overcapacity. Profitability has been inflated by producers misinterpretation of the SEC requirements that property, plant and equipment does not exceed the proven reserves of the producer. Enabling them to capitalize all their costs to “build balance sheets,” and conversely and proportionately over report their profitability. With the development of shale technologies North America has entered an era of oil and gas abundance. When we add the shale abundance to the natural, cultural propensity to overproduce we have a terminal and unending demise of the North American industry. Living off of the cash flows of prior investments is adequate for bureaucratic purposes, however to operate an industry and associated secondary and tertiary industries these cash flows are inadequate. Therefore no one has succeeded in oil and gas other than the bureaucrat and they refuse to change to address the issue of overproduction and transition to the era of abundance. 

As a commodity price proxy, producer bureaucrats are reveling in their somewhat recovered share prices. Claims of new found “production discipline” and other spontaneous declarations feign the appearance of control and management. “Muddle through” has been the policy consistency over the past decades and throughout the producer population. All of this is best represented by the declared plans of the producer bureaucrats in terms of at least addressing the issues of their investors since 2015. It’s here we have our answer of how they’ll provide us with a better future outcome. They won’t. Regression to cultural inertia will soon bring about the same forces that brought about the same trends we’re living with today. The fundamental and total collapse of the industry due to a self-inflicted depression. We should note that their policy of “market rebalancing” will need to be dusted off and used again in a few years as the overproduction will no doubt, once again, overwhelm commodity markets. Our description of what “market rebalancing” is designed to do is to willingly destroy the industries capacities and capabilities. The state we find ourselves in today. Although destruction is unquestionably their most successful policy to date, it will be needed again soon due to the unconstrained impact of the characteristics of shale and the era of abundance of energy supply. 

Or is this the time in which those responsible for this damage take the opportunity to exit the scene? Today they can claim they left the producer firm when it was in much better condition than it was just 18 months ago, and probably much better than the third quarter of 2022. What better time than now, they’ve survived the zombie apocalypse in the industry and brought the firm back to where it’s just the walking dead. The fact that all the other producers copied their original idea of “building balance sheets” has now created the situation where people can’t tell the difference between they’re brilliant work and that guy down the street. If you compare any producer firm, they’re only relative in terms of their size, their overall configuration and performance is the same across each and every producer. Who’s the hero and who’s the zero is unknown and unknowable. They all have big assets relative to all other aspects of their financial statements. Consistency rules.

Another author I read is Ralph Waldo Emerson who stated in — The Essential Writings of Ralph Waldo Emerson (Modern Library Classics) by Ralph Waldo Emerson, Brooks Atkinson  

The other terror that scares us from self-trust is our consistency; a reverence for our past act or word because the eyes of others have no other data for computing our orbit than our past acts, and we are loth to disappoint them. But why should you keep your head over your shoulder? Why drag about this corpse of your memory, lest you contradict some what you have stated in this or that public place? Suppose you should contradict yourself; what then? It seems to be a rule of wisdom never to rely on your memory alone, scarcely even in acts of pure memory, but to bring the past for judgment into the thousand-eyed present, and live ever in a new day. In your metaphysics you have denied personality to the Deity, yet when the devout motions of the soul come, yield to them heart and life, though they should clothe God with shape and color. Leave your theory, as Joseph his coat in the hand of the harlot, and flee. 

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. With consistency a great soul has simply nothing to do. He may as well concern himself with his shadow on the wall. Speak what you think now in hard words and to-morrow speak what to-morrow thinks in hard words again, though it contradict everything you said to-day.—‘ Ah, so you shall be sure to be misunderstood.’—Is it so bad then to be misunderstood? Pythagoras was misunderstood, and Socrates, and Jesus, and Luther, and Copernicus, and Galileo, and Newton, and every pure and wise spirit that ever took flesh. To be great is to be misunderstood.

I doubt anyone would deny the consistency of the actions of today’s oil and gas bureaucrats. Applied to their discipline and particularly their production discipline we’ll soon find these consistent themes emerging. With today’s ERP systems there is an inability to determine if the Joint Operating Committee is profitable. Producers produce Statements of Operations which have Revenues, Royalties and Operating Costs that include an allowance for overhead. There is no detailed allocation of depletion and the overhead allowance is woefully non-representative. For example, the monthly gross industry overhead allowance always totals $0.00. Therefore when the time comes to determine which property is profitable and which one is unprofitable, there is no possible way in the world today's oil and gas industry is able to determine if a property is profitable. Why would a producer ever produce unprofitable production? The Statements of Operations and Statements of Expenditures were defined in the 1960s. They have not changed since then and are representative of the systems that are in use today. There has been a starvation of investment in the oil and gas ERP space by the bureaucrats as accounting is seen as a detriment to the drilling budget. Accountability is no fun. Today’s systems establish, define and support the firm's hierarchy and are unchanging. Exactly what’s needed in a world where disintermediation is knocking at the door. Consistency rules, absolutely.

Since these points about overhead are refuted by the producer bureaucrats. It would be worthwhile to determine the validity of their claims through a number of questions. What is the total, detailed, actual overhead that was incurred prior to any capitalization by the firm? What was the actual overhead incurred, not an allocation of the prior number, at each of their operated properties? Then ask the producer what is the specific, detailed, actual overhead differential between the administration and accounting for oil and that of natural gas at their properties?

Through the Preliminary Specifications reallocation of the accounting and administrative resources of the producers, into our user communities service provider organizations, People, Ideas & Objects turns all of the producers costs variable, based on production. If the full financial statements we prepare in the Preliminary Specification for each Joint Operating Committee indicates there is a loss at the property, then the producers can shut-in the property and move it to their inventory of innovative works-in-progress. Returning the property to profitable production as soon as possible. This is what businesses have done since learning the lessons from the great depression. If producers removed their unprofitable production from their profitable production it would ensure their corporate profitability is the highest attainable under their production profile. Secondly the producer's petroleum reserves are saved for a time when they can be produced profitably. Unprofitable petroleum reserves will no longer have to incrementally capture and recover additional earnings to recapture those past losses. Keeping the producers operational cost structure lower as the cost of excess production, inventory and storage is eliminated when reserves are instead thought of as inventory and storage. Commodity prices will find the marginal cost when unprofitable production is removed from the market. These marginal prices are in turn provided for all of the producers' profitable production. People, Ideas & Objects provides this opportunity to build the Preliminary Specification and has done so since its publication in August 2012. This publication was met with pushback from bureaucrats who suggested it was collusion. If collusion involves making independent business decisions at each Joint Operating Committee based on its detailed, actual, factual, standard and objective accounting to determine profitability / loss. Then we’re guilty as charged, as are all other industries that have operated profitably since the great depression.

There are broader implications to the production discipline People, Ideas & Objects et al are introducing through the Preliminary Specification. Production discipline imputes a new capital discipline when spending needs, or should be, immediately profitable and remain profitable throughout its usable life. What discipline is involved in the process of building things such as balance sheets, putting cash in the ground? Bringing the oil and gas industry into the context of a commercial enterprise is what the Preliminary Specification does. It takes the status quo method, which is not even the equivalent of the utility business model. Utilities are guaranteed returns. And in turn enforces the producers to be accountable for the activity undertaken everyday they’re in operation. Accountable as an enterprise operating in a commercial and competitive environment. Outside the immediate issue of job security being threatened by disintermediation. Does anyone see why it is that bureaucrats are not interested in adopting the Preliminary Specification, our user community and their service provider organizations? To go through the motions is about 1% of what's necessary to operate a commercial enterprise. Any producer officers or directors capable of fitting that classification?

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined gettr and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Who Will Prosper Now?

 If we take the situation being represented by the producer bureaucrats. That all is well and prosperity abounds. We should ask what brought about this environment, what did they do to bring this about? What behaviors can we expect to see from our good friends the bureaucrats now that they have the alleged well oiled machine operating so well? With respect to People, Ideas & Objects vision of profitable energy independence for the remainder of the century, are we ready to drive the North American economy forward in that possible and probable overall vision. What are producers' plans beyond last year's xeroxed capital budget and drilling plans? How will they address their issues, and begin to provide some profitable stability into the industry by proving, not declaring, they’ve eliminated the boom / bust cycle? Rebuilt the service industry and repopulated the university faculties?  Cash flow is nothing more than the return of previously invested capital. What value was created, where are those “real” profits?

Throughout their administration, and particularly since 2015, we’ve heard nothing regarding their positions other than they’d “muddle through.” Recognition of the fact there are material, existential issues in play, damage and destruction has been realized under their management yet nothing has been done to accept there’s even a problem. With the increase in commodity prices they’re feeling justified in their management and assume that now, things will resume as before. To engage People, Ideas & Objects as the irritant that we are, required nothing more than the effort to stop a mosquito from drawing more blood. Outside of this I see no desire for them to engage in their business in any manner that could be seen or interpreted as a commitment to that business. It was last year there were wholesale declarations that oil and gas would not be profitable and they were moving to clean energy. I fail to see how under their administration the industry would continue in any positive direction. I fail to see under these circumstances why they would be given another opportunity on top of all the other chances they’ve wasted before. So let’s look at this from the perspective of the people who’ve invested all they have in terms of time, energy, money and careers in the greater oil and gas economy. 

Investors

There is no greater signal to management than when your investors no longer support the firm. This only happened recently this century and therefore given time the message may yet still arrive. Cash flow in a capital intensive, primary industry is more than adequate to meet the bureaucrats' needs. What good are petroleum reserves if they’ve never, are or will be able to produce real profitability? The net present value of the firm is therefore zero and this is the protest message investors are sending. People from outside of the industry are looking at these bureaucrats with disbelief at their inability to grasp what it is that's wrong. 

Recall last year, actually just last month, bureaucrats discovered and declared “production discipline.” Now, EOG is saying increased production is the way to go… 

The company has yet to resume pre-pandemic levels of production, but that could change this year under certain macroeconomic conditions, EOG Chief Executive Officer Ezra Yacob said in a virtual energy conference hosted by Goldman Sachs Group Inc. The driller is monitoring global oil demand, inventory levels and unused production capacity within OPEC+, Yacob said.

Culture is unchangeable. Only a rebuilding upon a different culture will be accepted by investors. That’s the message that I’m reading. 

Bankers

There is a backdrop of a scenario where interest rates may be rising in the future. Some say that government interests are counter to them raising rates. That has nothing to do with rates. It is the market that determines rates and the Fed plays along like it has a role. If the market feels the Fed isn’t representing the market, the market will do what it thinks is best for itself and why the 10 yr Treasury Yield is up 61% in 2021. This has put a chill into the market in 2022 and could be highly detrimental to the producer firms who are extensively leveraged. Back when petroleum reserves were everything, banks bought the story. Loaning money to producers on the basis of the proven reserves. As we know, these led to the “ability” of the producer to include as property, plant and equipment any cost they incurred including overhead, interest etc. Inflating the balance sheet and attempting to emulate the value of the reserves. Conversely with higher asset values the proportionately larger, specious profits and cash flow of a capital intensive, primary industry gave the appearance of viability. What the banks have now learned is that without a steady flow of new capital to spend, producer firms are houses of cards in a hurricane.

The concept of a commercial operation, of a business or enterprise with the purpose of money being made and value created has not been the culture in the industry. The point of the exercise or activity is to acquire land, gain production at whatever cost and expand reserves. These, in addition to being fully focused on the latest trend such as shale, are what drive the “successful” oil and gas producer for the past number of decades. The past decade saw the majority of their primary capital sources, investors and bankers, withdraw and time has shown the desperate search for alternative sources subsequently travelled through decapitalizing the service industry, collapsing the commodity prices and now we believe cannibalizing their partners. 

This is the point where bureaucrats feel there's an opportunity for banks and investors to get back in. After they’ve done nothing to resolve, address or even recognize their issues. Just send cash.

The service industry

The service industry is wholly dependent on producers for revenue. There are no other customers of drilling rigs or frac operations. These are capital intensive operations, geographically diverse, highly skilled and labor intensive. Nonetheless, when there is a willing acceptance of the boom / bust cycle by bureaucrats the consequences are fully and completely felt by the service industry. The oil and gas producer generates the revenues that fuels the service industry as well as the bureaucrats. A healthy, prosperous and competitive service industry that is constantly expanding its innovation, capabilities and capacities is a concern of the producer firms. 

Except for now. The consequences of the actions taken over the past 40 years have created a culture that is known and understood throughout the service industry. We can discuss all the conceptual aspects of trust, faith, integrity and goodwill and know that none of these exist. The question that needs to be asked is who’s going to rebuild these field capacities and capabilities when their costs to the producer have now achieved record prices with only 25% of the prior capacity utilization? The second question is who would benefit from a rebuilt service industry and why? 

Staff

The best indicator of the status of the oil and gas industry's employment are Houston and Calgary office vacancy rates. Houston’s has a 23.5% vacancy from a total of 220 msf or 51.7 msf of available space. Calgary has a vacancy rate of 29.9% of a total vacancy of 46.5 msf or 13.9 msf of available space. Houston's vacancies are larger than Calgary's entire market. In terms of the reason why there is that vacancy my assumption is that 100% is attributable to the downturn in the industry since 2015 and nothing from the lockdowns. This assumption is on the basis that leases are long term and subject to the lessee’s long term requirements, not short term trends. Vacancy percentages are not largely changed from 2019. Though there are many firms who have chosen to now work from home permanently, the volume of real estate released as a result would be immaterial at this time, and unknown how much real estate that’s vacant, yet still being paid for.

In the service industry people have moved on to other more stable industries that enable an individual to raise a family and take on a mortgage. In oil and gas those that remain are not far behind in the renouncement of their pledge of allegiance to the corporate logo. It makes me nauseous to think in terms of the scope and scale of difficulties in just identifying the problems here. This may be the hardest of all the issues to resolve. A highly technical industry will regress in its capacities and capabilities for that there is no doubt. This was not necessary.

Tertiary industries. 

The betrayal of those that worked indirectly in the areas of operations and major cities where oil and gas exists were affected detrimentally by this downturn. I would leave the bureaucrats with the question of what it is they plan to do to address these areas. Granted oil prices are up but what have oil prices provided, and for whom, in the past? What’s the plan, how are they going to fix it? Another question that’s pertinent is why will they be doing it?

In contrast, the Preliminary Specification, our user community and their service provider organizations set down a foundation of five organizational constructs in which to begin rebuilding the oil and gas industry into the dynamic, innovative, accountable, profitable, productive and prosperous producer and industries they always should have been. 

• The Joint Operating Committee

From an administrative and accounting perspective this is the long lost soul of the oil and gas producer. In its place there has become a focus on the corporation. There is a divide in producers that is very evident. On one side you have accounting and administration, on the other is geology and engineering. They have no understanding of one another, no communication and otherwise go about their business. When the SEC, Tax, Royalty, environmental, governmental compliance and accountability is needed it is demanded of the corporation. This is what occupies accounting and administration. Note I did not list performance, a key role of accounting. Partners and operations are handled elsewhere.

The Preliminary Specification identifies and supports the Joint Operating Committee as the key organization construct. It is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. Providing the producer with speed, accountability and profitability in their operations. Identifying and supporting this construct with its frameworks will integrate the accounting and administration under its natural culture.

• Specialization and division of labor.

To organize work within oil and gas demands bringing people from many different geographies together. With the Internet this is enabled and it is the Enterprise Resource Planning (ERP) systems such as People, Ideas & Objects that provide the ability to organize these resources. What we have found is that the existing ERP systems are structured to support and define organizations in the hierarchy. There are many issues with this and People, Ideas & Objects have designed our ERP systems and support to deal with the elimination of them.

The main issues here are. 

• Bureaucrats benefit from existing systems when they are unchanging and therefore keep the organization locked in proverbial cement.
• No growth or upside in organizational performance is attainable without additional resources. Bureaucratic nirvana.
• Locking producers and industry into the Preliminary Specifications definition only repeats these known existential errors.

What we’ve done is disintermediated the producer firms and used the Internet to establish specialization and division of labor as criteria to increase the productivity and performance of the producer. There has been no other means in which organizational performance has increased since 1776 than through specialization and division of labor. To enhance this through the implementation of the Preliminary Specification would be productive however, through our user community, their service providers and our revenue model we have adopted change as the means in which to avoid the return of today’s issues. Therefore producing greater organizational performance consistently from the producers same resource base. 

• Intellectual Property

Copyright was written in the U.S. Constitution On September 17, 1787 in Article 1, Section 8. It is one of the reasons that the Americans are what Americans are, their intellectual pursuits are protected. But please don’t tell any of this to our good friends, the producer bureaucrats. They have circumvented the IP of all their vendors and the service industry and distributed it through those industries in an effort to create excess competition and lower prices. With this they’ve created a situation where a) little innovation is now undertaken when it is distributed and given to everyone, b) duplicate efforts learned repeatedly throughout the industry, only to start all over again in the following years. This is unlawful, disrespectful, unproductive and a massive cost of relearning what we knew before but forgot, or someone new took over. 

By adopting the appropriate respect for IP in oil and gas we unleash the resources of those with the ideas to try and develop them. There are facilities in the Research & Capabilities, Knowledge & Learning and Resource Marketplace modules of the Preliminary Specification for these. By doing so we have adopted a self monitoring system where the copyright laws are protecting those with the ideas and therefore unnecessary duplication is eliminated. If we intend to solve the complex technical and scientific issues that exist in oil and gas for the remainder of this century, which model of treatment of IP is the appropriate one? Which one has proven effective in the past? In addition we’ve thrown the cat amongst the pigeons when we state that the application of engineering and geological IP of the producers was never subject to copyright laws either. It remains open and available for anyone to use. These are now being documented by those individuals in the industry who were involved in the process and have additional ideas beyond publishing to establish products and services in the future.

• Markets and the price system

There are few things in life that are predictable. However bureaucrats build redundant empires. This is best represented by their elaborate oil storage inventory systems that tell them what the world inventory of oil is at. Through satellite imagery they see the oil tanks floating roof shadow and therefore know the volume of oil in that tank. Then they have the global aggregate showing them an inventory number where each team can analyze, possibly in real time, the “situation.” No doubt this is what occupied their time when oil prices were negative $40. If they do this for the world inventory of oil, what else keeps them up at night and gets them out of bed in the morning?

People, Ideas & Objects, our user community and their service providers will be using markets and the price system. In order to determine whether to produce or shut-in a property. If the commodity price is adequate to earn a profit the Joint Operating Committee will produce, if not it will be shut-in ensuring that the corporate profits are maximized when losing properties are no longer diluting profitable ones. 

• Information Technology 

IT for IT’s sake is not what People, Ideas & Objects are doing. We are using IT to solve the business issues in oil and gas. Cloud computing is appreciated for its shared and shareable cost model that eliminates the cost and effort of maintaining non-competitive, technically difficult capacities and capabilities. We are expanding the shared and shareable cloud paradigm to include accounting and administration as a cloud like service to oil and gas, bringing about the same capabilities, capacities, features, variable costs and benefits of cloud computing. We believe that the secondary reason for chronic non-profitability in oil and gas is due to the excessive overhead incurred. Our cloud accounting and administration shares these overhead costs, eliminating the need to redundantly build the same fixed accounting and administrative costs, capacities and capabilities in-house. Capabilities that replicate exactly each and every other producer's functions and costs.

It is with these five foundational constructs and their frameworks that we are using to support, identify and extend the software and services that we’re building for the dynamic, innovative, accountable, profitable, productive and prosperous oil and gas producers and industry. None of these constructs are used in any area of oil and gas ERP today. As a result these systems are deficient and therefore depend on the bureaucracy in order to function. Which is redundant in a world where the Internet exists and the only thing stopping the transition from today to People, Ideas & Objects et al is the obstinance, arguments and self interest of the bureaucrats themselves. 

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined gettr and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

Just Who is it That You Think You're Fueling?

I’m using this title as another take on words. People, Ideas & Objects put out a vision for the broader oil and gas economy. One that defines the dynamic, innovative, accountable, profitable and prosperous North American producers and its secondary and tertiary industries. Defining the value proposition that oil and gas provides at least 10,000 man hours of labor per barrel of oil equivalent. One which sees North America achieving and maintaining energy independence for the remainder of the 21st century. This vision should be seen as business as usual, the purpose and role of what it is we’re here to do. Why we’re not is a failure of leadership of the producer firms themselves. 

There is a broader vision of the North American economy that needs to be considered with this oil and gas vision. One that sees the role of oil and gas providing the means in which to compete in the global business environment as it develops throughout this century. One that sees the North American economy compete against Europe and China. With the Asian tigers, India and other countries filling out specialized roles for themselves in terms of their comparative advantages. This broader vision deals with how North America will compete against its two primary protagonists Europe and China. The largest consumer of energy, of which oil and gas is 70% of, will be the most powerful economy.

China believes with its form of organization and volume of people they will come to dominate the world economy. Their Belt and Road initiative seeks to leverage their global reach and influence. To date this seems to be effective however there are issues arising from countries being co-opted politically and economically that seems untenable. The scope and scale of the Chinese manufacturing base is impressive. According to the UN statistics reflected below, in 2019 they were the dominant manufacturer. Note the Asian tigers are formidable in this area as well with 15.2% share just from those in the top 10 list. The base of Chinese manufacturing is not something that can be looked at as being too threatening. The two issues I see are they are a low value commodity like manufacturer of goods and they have not developed their own innovative culture. Taking others' ideas will help you get up off the floor and into a standing position, will it make you capable of running a competitive race such as the 21st century? Once you’ve created the culture of using others IP how do you change the culture to rely on one in which you can then compete based on your own ideas? It comes down to how you change culture, and as we’ve learned in many instances, a change in culture is not possible. We may see the optimal performance of the Chinese economy today with serious symptoms of difficulties on the horizon when real estate and other inefficiencies start to come into play. With a population of 1.4 billion people and a GDP of $14.7 trillion U.S. dollars. All numbers are pre-covid 2019.

Europe is the sleepy, self-absorbed and satisfied long lost uncle. They will continue to do well with not much effort with Britain being a standout performer. It’s always interesting to see Italy’s manufacturing performance being second on the continent. Theirs is a stealthy manufacturing capability based on design and innovation. Hidden mostly in the smaller rural areas where communities work together to manufacture pieces of larger products with high levels of craftsmanship. The essential counter to the Chinese mass industrialization policy, and one that I would suspect would continue to prosper, politics aside. Europe has lost substantially in terms of its standard of living in comparison to the Americans and seem to be unconcerned with that and otherwise satisfied. Great difficulties need to be addressed in the area of defence and the sources of basic resources. Areas that will cost more in terms of their standard of living in the future and take more of their focus. With a sizable population of 510 million people and a GDP output of approximately $16 trillion U.S. dollars.

In comparison the North American economy is far more robust than either China or Europe. 

GDP

• US GDP = $21.4 trillion
• Canada GDP = $1.7 trillion U.S.
• Mexico GDP = $1.3 trillion U.S.
• North America = $24.4 trillion

Population

• US = 331.5 million
• Canada = 38 million
• Mexico = 126 million
• North America = 495.5 million

Speaking individually of the three components of the North American economy we see the United States holds an outsized role due to their unique nature, culture and characteristics. Their dominance in Intellectual Property has and will continue for the foreseeable future. This is the critical element that I see in ensuring the competitiveness of this continent's economy for the remainder of the century. As we move into a software and Intellectual Property environment, the value earned through this will be substantial and dominant. The American political environment has accepted that American based companies dominating the country are not monopolies and are needed to compete on the larger global stage. Dollar for dollar their second place in manufacturing is not an accurate representation of their capabilities. In reality the manufacturing base is worlds apart from where the Chinese are participating. Comparing Chinese widgets and trinkets to American advanced devices, granted with many parts sourced from China, is not a one to one comparison. American understanding of the holistic nature of products and business shows that no one has successfully cloned an iPhone from China and succeeded in earning any value. 

Canada could have a role to play in the larger picture of the North American economy. Whether it should choose to do so is a question that will need to be asked and answered in a short period of time. First, Canadians like Europeans are satisfied with their lot and are not complaining about the situation. Currently Canadians attain only 69% of the standard of living of Americans. We should be unquestionably the wealthiest people in the world based on the size of the country and small population. Secondly the politics of the country are deeply distorted and contrary to an appropriate industrial policy. We seem to focus on labor intensive industries in the Ontario (38.3% of the countries population) and Quebec (23% of the countries population) provinces where the value of the country is funneled to devise means of creating work in industries that can’t compete and to satisfy what are called “strategic voters.” Statistics from the Fraser Institute and the Federal government, in 2019 Quebec received $13.1 billion in incremental support payments. Comparing 2019 total Federal payments to Quebec are $25.5 billion ($3,010.00 per person) and Alberta received only $6.3 billion ($1,464.00 per person). In addition to the bias in benefits paid to Albertans, predominantly higher individual taxes makes it a profitable endeavor for the government.

If that’s not all, the oil and gas industry has come under special focus by the Federal government in addition to the bias shown to individuals. From here.

The Canadian oil and gas sector has been a model of shared prosperity for all Canadians. Alberta’s cumulative net contribution to the Federal government from 1961 to 2017 is in excess of $600 billion[5]. Alberta has always been a ‘giver’ within confederation and never a ‘taker’ [6].

This amount seems low to me when we consider three of the most detrimental and abusive policies that were aimed at oil and gas. 

• A direct, and illegal, Federal tax on oil and gas production of 12.5%.
• Royalties paid to Alberta and Saskatchewan for title to the oil and gas were not tax deductible. All other industries, including oil and gas royalties to Native Bands were.
• In the 1980s shipments of oil to Quebec and Ontario were not priced at what was the “world price.” But were heavily discounted so that those provinces could afford to also purchase oil offshore at the “world price.”

This style of lunacy was the product of the prior Trudeau government. Therefore is probably the only reason we now have a Trudeau government. For example even with the downturn of the oil and gas industry, and throughout covid, it’s interesting to point out that Alberta did not receive any of that support outside of environmental groups to assist in the abandoned well clean up. Any American needing to have justification or understanding why they have two Senators who represent each state should learn the counterbalancing effects of such a feature. Without those two Senators they too would be subject to the tyranny of being ruled by the majority. 

This political influence was at its worst in the 1980’s. Today there is a much fairer deal. That is wholly attributable to the Stephen Harper government that preceded Justin Trudeau. Harper’s acceptance was tolerated by Ontario and Quebec until they got their political act together. Harper was instrumental in the Reform Party movement that came out of Alberta who’s claim was “we want in.” At least Canada can look back to Harper’s administration and understand what good government consists of. I don’t expect it to return. I do expect the 1970s and 1980s scenario of papa Trudeau playing out again. As a result Canada’s contribution to North American economic development will remain, at best, what it is today. 

Mexico as part of the continent is a strong export market for oil and gas. Mexicans are hard working people with very good values. Their economy is ripe to facilitate the movement of manufacturing from China for the purposes of this North American future. This is also the role that was seen in the recently signed USMCA which is the replacement of NAFTA. The details of that agreement are in favor of this vision coming true for Mexico with Rules of Origin which gives them advantages and particularly the Mexican people who are now subject to minimum wage requirements, collective bargaining and the elimination of Child, forced or compulsory labor. Whether the political will to commit to a North American policy exists in the corrupt nature of the government will need to be determined by the Mexicans. They have the opportunity in hand and the tools to make it so, I would hold out their role as described being more constructively implemented than what Canada will be able to do. 

Therefore what is the North American vision? From a population standpoint we are the weakest of the three trading blocs. Decidedly so against China. What is a weakness can also be used as a strength and it is here that North America excels. The mechanical leverage of oil and gas is determined to be at a minimum of 10,000 man hours per boe. We can expect that this mechanical leverage will continue to increase as it has throughout history. It will be in the extension of this mechanical leverage through the physical leverage of robotics and the intellectual leverage from software automation that industries will be able to compete on different criteria that neither Europe or China can. Europe and China are not seen as the dynamic participants in high tech industries. This could be for a number of reasons such as the monopoly that the U.S. currently holds. Or the more likely alternative, they can’t compete culturally. China does not protect Intellectual property. It is a culture of reverse engineering and copying of others. These work to a certain degree in industry however we see that the more complex systems are unable to be copied. Why is it that GM, Ford and Fiat / Chrysler are unable to produce commercially acceptable electric vehicles? “Bigger” is no longer better for anyone except the bureaucracy. It is a form of organization that long ago passed its best before date. GM’s establishment of its Saturn division to emulate Japanese manufacturing shows their record of cultural reform. Post Soviet Union, how are communist countries doing?

The level of automation and robotics that are driven by software and Intellectual Property may seem impressive in today’s market. That is by the efforts that have been made in the past. When I think of what software has achieved to date I consider that it has achieved little to nothing. Information Technology's increase in productivity has created what is called the productivity paradox. A minimal and negligible impact on the development of GDP. Application of IT for the wiz bang feature of the day will do little for the productivity or profitability of the oil and gas producer. Yet the pursuit of these wiz bang features has been the only activity bureaucrats have applied IT to. This has led them to believe that IT is a futile effort and pursuit which will yield little benefit. Which is true in their hands, not until IT is used in application to disintermediate, organize the firm to support profitable business models and other uses will IT show its real value. Read the Preliminary Specification and you will find that little to nothing in there has to do with wiz bang technology. 

China’s dependence on other countries for IP will soon be limited to just the low level manufacturing that they’re currently conducting. The treatment of foreigners as second class citizens, such as EverGrande defaulting on their foreign investors. These have set a new tone for how to deal in China. They are a bureaucratic, communist culture that copies others and wholesale betrays their foreign investors. The consequences of these attributes will not allow them to move to the higher quality robotic and Intellectual Property industries that North America will be able to compete upon. 

Europe has had a tendency to depend on the Americans to come to their aid when they’ve failed to tend to their business. Such as NATO, WWI, WWII and recently with Germany’s policy of foreign energy dependence. (See graph below.) This attitude permeates the minds of those that are willingly accepting the European Union dictates. Britain is an exception to the European attitude. Britain has always had a propensity to be able to punch above its weight and works well with their American counterparts. There is an opportunity to include them in trade pacts with North America and join in this overall vision now that Brexit is complete. They would be a valuable draft choice for the North American team. 

The vision that is seen for the greater competition by North America is to establish its oil and gas with profitable energy independence everywhere and always. Allowing the mechanical leverage to grow under the base of what is already established. To have Mexico undertake the transition of key, higher level manufacturing requirements from China and build upon those as critical parts of the continent's labor and supply chain. Where the continuation of the pursuit of the higher level products and services fuels the economy to leverage our throughput through automation and robotics throughout the continent. This is the possibility, how much of it becomes reality depends on the leadership that comes about in the next few years. It is not a woke agenda, it threatens the bureaucrats through disintermediation. It is the culture of the United States that was originally written into the U.S. Constitution. Combining this continent's comparative advantages in constructive and productive ways is the possibility to achieve substantial increases in our standards of living. Oil and gas needs to undertake their responsibility here and fulfill their role of profitably fueling this opportunity.

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined gettr and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

A Dynamic Oil and Gas Industry

 People, Ideas & Objects make the claim that we instill the oil and gas industry with the capability to be dynamic, innovative, accountable and profitable. Today we’ll isolate and discuss specifically the dynamism developed within the Preliminary Specification and user community. Today it’s clear to see the lack of a dynamic culture and begin to question why isn’t this mindset being used more often. I’ll describe how it is that we’ve approached and resolved this issue in providing our solution to the greater oil and gas economy through the Preliminary Specification, our user community and their service provider organizations. 

In Alberta the government has successfully implemented what I would call a checkstop program “where you have to show your papers!” Using the old German WWII analogy without the accent doesn’t necessarily translate well to text. Today they’re called vaccine passports and they’ve made it fairly simple to use to verify you’ve had your shots. As a member of a few clubs and organizations that control who can and can’t enter without an account or authorization through an RFID chip or other means of verification these checkstops are nonetheless dutifully manned by the current authoritarian who has the right of refusal of passage. These are powerful individuals that then ask for the person's photo ID, which would be redundant from a verification to the systems record on hand, and if masked allow the person to proceed. At some point in our lives I believe we’ll have to turn to productive work again. I can understand that this is done for the first time the member or individual passes through the gatekeeper. But why are we relegated to the constant monotony of doing this over and over? It would seem to me to be a simple update to their systems to recognize that if someone verified they were duly vaccinated, then their membership or authorization would be recognized as such and they could be verified at the point of entry through their membership or authorized security protocol and skip the rest? I understand that there would be the risk of someone having their membership lost or stolen. Or in the case of a membership, someone loaning it out to someone who may not be vaccinated! 

Whether this covid approach is a feature of being uniquely Canadian. A Chinese communist takeover or as I suspect, the fact that systems have been highly rigid and unbending, an organizational albatross that has overtaken what an organization is and how it functions. Where the person you need to see to make these systems changes remains secluded, unknown and invisible five miles away and obscured with multi-colored paper forms. Teaching everyone to accept what the situation is and to forget about reality and start the process of feeding the machine the output from that other machine. Such is the world we’ve created. We can choose to live in it, or we can say something not politically correct, and fix it. These are symptoms of all software systems. We have created an unchangeable environment that has locked us down from innovating and to the greater need of being dynamic throughout society.

The means and method that People, Ideas & Objects have used to resolve the issue in the ERP market of oil and gas is through the implementation of our user community. In doing so the first thing we did was shut off all our contact with the producers themselves. Our developers will seek and receive information exclusively from our user community. Our developers are deaf, dumb and blind to all others. Producers and others needing to have changes made to the systems of the Preliminary Specification will seek out the appropriate user community member authorized to deal in that specific process of concern. This may be directly through whatever means of communication, or it may be indirectly through the user communities work and ownership of the service providers that are implementing, managing and operating the software and services on behalf of the specific industry process the user community members are authorized. It is only the user community members that are authorized and capable of making changes to the underlying Intellectual Property of the software they’ve designed, developed and are managing in their service provider organizations. They have a vested interest in fulfilling their objective of providing producers with the most profitable means of oil and gas operations everywhere and always on the North American continent. 

I tell people that software is the worst business to get into. All the costs are upfront and all the revenues are on the back end, if you should happen to ever get there. Which sounds like some other businesses like mining and such. What mining has is a resource that’s known, it will at some point generate revenues, the question remaining is will it be commercial? With software you have something that might be a dud. And not from a commercial point of view but a revenue point of view. It’s therefore a hard slog to get to the point of revenue and very few make it beyond the point of greater than $0.01 in revenue. Once the software company achieves revenue in the form of product sales then the secondary difficulties of code and customers occur. As sales increase the number of customers, features and time increases the volume of code making it difficult to conduct changes to the application. Change demands extensive work on the code, which no one wants to pay for, see the first software business issue. Secondly the deployment of the software in terms of implementation and training of any changes at the clients becomes a greater challenge with the larger customer base. Which is another budgetary item that is debated between the vendor and customer. In oil and gas ERP this model is broken. 

If we look at the manner in which producers have dealt with what could be formerly called the service industry. The approach that was used by the producer bureaucrats to raid the value from that industry was developed during the 1990’s with the ERP software vendors. As of 2000 this more or less left IBM in the game who subsequently sold out in 2005. Today you can imagine the dynamism. Which has worked wonders for the bureaucrats in terms of the enhanced accountability to their shareholders. And why producers investors are currently demanding that the industry undertake the use of tier 1 ERP solutions such as People, Ideas & Objects use of Oracle Cloud ERP. This ERP solutions sub-industry has been the deadzone for the past sixteen years and was the walking dead for at least that long prior to that. 

Which brings me to the last point of being in the software business. Investors look at the overall situation in oil and gas, understand the proclivity of producer bureaucrats, see the small number of producer firms and they say they’d never invest in oil and gas ERP systems. I am unable to provide anyone with a return on their investment and therefore choose not to offer any equity. It’s futile. Tier 1 providers also high tailed out of the industry as they found producers incomprehensibly difficult to deal with. And banks never loan money to software companies. Our budget demands are excessive and must consider these points. In my preparation, I fail to understand any expectation that I would build the Preliminary Specification and manage an unmanageable organization's capital structure.

We’ve taken these facts and formulated a different approach to funding People, Ideas & Objects and our user community. To avoid these issues and achieve the dynamic nature that the oil and gas industry needs to attain; demands that the software and most specifically the ERP software must be designed to change. And therefore our revenue model, outside of standard operations and maintenance costs, will be based on the changes that are made to the software base. An additional cost for the implementations, maintenance and operations plus the anticipated development costs will be assessed for each year once the commercial software is complete. An equalization of those costs and an assessment of the next year's costs would be done at the beginning of subsequent years. The producers or the production of oil and gas has to have some skin in this game. No one else is going to come to their aid. (Please note the service provider organizations are wholly independent from People, Ideas & Objects.)

As we anticipate, expect and are building our solution for the entire North American based industry's use, we’ve therefore achieved the definition of crazy when we state such things. However we have to ask, who will be providing the industry with solutions? Will the industry continue without a radical change and where will the focus come from to do so, bureaucrats seem to be focused and busy on their personal lives? And who would be able to develop other, workable and new ideas to deal with industry's issues? A solution that needs to ensure they don’t use any of the legacy of Intellectual Property that has been posted on this blog and elsewhere for the past number of decades? 

The budgeted costs of our initiative are dispersed amongst all of the producers based on their North American barrel of oil equivalent capacity. Instead of each producer developing their own software solution, building their own accounting and administrative capabilities and capacities. What People, Ideas & Objects, our user community and their service provider organizations are offering is to establish the software and service providers on the same basis of the principles that underlie cloud computing. Making oil and gas “cloud enabled ERP software, accounting and administration.” Turning all of the producers' costs variable, based on production and enabling our price maker strategy to be employed. In addition we are using specialization and the division of labor to increase the industries throughput from the same resource base. The extensive overhead costs that are incurred by the industry today are therefore reduced by efficiently combining the budgets of all producers in the software development, administration and accounting processes. Redundant duplication of these same capabilities and capacities in each siloed producer are the secondary reasons for a lack of profitability. These areas are not distinct competitive advantages of the producers. Our value proposition eliminates these destructive costs being incurred by the inefficiencies currently employed by bureaucrats that are in addition to their uncontrolled overproduction. That’s how we define our success and how we’ve determined this software company makes it to the revenue side of the software equation, by building substantial value for the industry and all its stakeholders. 

The bigger picture may be lost in the details of what it is we’re doing. Software rules the world and more than anything it is locking us into the status quo. We have to break out of this in a deliberate act to avoid the pitfall of what I describe is a modern day software bug. We will establish the user community as it is configured in People, Ideas & Objects with the exclusive right to control the development of this Intellectual Property. They therefore are the only ones our developers can turn to. They are the only ones that producers can turn to. They are the only ones who will have the rights to establish service providers. They are the ones that are on the ground with the day to day activities in the industry with the service provider organizations they operate. They will be seeking and receiving input from producers. Developers will be at their disposal to make the changes they need and producers want in order to ensure that the industry does not fall back into a situation where the software is dictating to us what to do. Their objective is to ensure that we achieve profitable energy independence on the North American continent everywhere and always. So that everyone involved in the greater oil and gas economy benefits. As we see without “real” profitability everything just dies. User community members have distinct and valuable competitive advantages unique to the 21st century. These include quality, specialization and division of labor, automation, innovation, leadership, integration, issue identification and resolution, creativity, cooperate in the use of conflict and contradiction to conduct real collaboration, research, ideas, design, planning, thinking, negotiating, compromising, financing, reasoning, observation and judgement to name just a few. Leaving computers to manage the data and processing. These are the costs of doing business in the 21st century. I think we’ve established that our costs would be lower than what is offered today. That an appropriately funded community such as this would not just be dynamic but also lead the industry in terms of the accounting and administration of oil and gas. Where it would actively anticipate and drive change to ensure the industry remained dynamic, innovative, accountable and profitable. And this is what People, Ideas & Objects, our user community and their service provider organizations propose as the alternative to what is provided today. An altruistic and possibly naive vision that has been ostracised and vilified by the bureaucrats due to their disintermediation in the process, all while they’ve whittled away the value for everyone of everything.

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering? We know we can, and we know how to make money in this business.

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined gettr and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here. 

A New Year

 2022 will be our seventeenth year of writing here, what we affectionately call the ugliest website on the Internet, and in May we’ll begin the thirty-second year that I’ve been pursuing this, whatever this is. Marking time is the most significant and only achievement that I can lay claim to; therefore please be tolerant of my overt boasting. During the same period of time, our previous post documented the road producers travelled in terms of sourcing and expending the financial resources of others in their zeal to do nothing constructive. Where investors, bankers, the service industry, rampant overproduction and now working interest partners have and are being exploited for the value the producer bureaucrats desire for their personal betterment. Who’s next is the big question? I don’t know as I’ve always believed they would have been denied their bounty at each phase along the way. So far I’ve been wrong, or is it that we’ve all been wrong? To say that I see things in the industry differently is an understatement. Persistence is the key to People, Ideas & Objects success and we will succeed at some point. I just can’t for the life of me understand how the industry has become so distorted from reality today. In the act of marking time, investors began leaving the industry in 2015 which was seven years ago. And still nothing is done to recognize their investors' fatal lack of faith and address the specific issues they’ve raised. What we do have is a capital intensive, primary industry. Hence the cash flow will always be exceptional due to the history of prior investments. In addition these cash flows are representative of the industry holistically. The service industry provides oil and gas the ability to extend their organizations across vast geographies and specializations that would otherwise be internally necessary and impossible to attain. These cash flows were hijacked for personal bureaucratic purposes, and now with diminished financial performance and capabilities, pale in comparison to their demands.

We’ve chronicled the behavior of the bureaucrats to engage in a list of excuses, where they’ve sought to blame the difficulties they created on the basis of some contrived, as we call them, viable scapegoat. This list has been comprehensive and few have avoided the scowl of the chorus of bureaucratic allegations. What we do know is that it’s not the bureaucrats' fault. We must be close to the end of the list as it’s the investors who have become the chosen ones to fill the current category of viable scapegoat. This according to Harold Hamm of Continental Resources in a World Oil article entitled “Hamm says privately held drillers have more freedom to ramp up oil output.” 

The Oklahoma billionaire is acknowledging what has become a defining characteristic of the U.S. oil industry as it recovers from the worst effects of the pandemic. While publicly traded companies are pressured by investors to keep production flat and prioritize dividends and stock buybacks, private operators are adding more drill rigs across the country, responding to tight supplies and this year’s rally in crude prices.

Hostility abounds from these once proud producer bureaucrats. In another World Oil article entitled “Shale drillers face record cost pressures as banks shun the sector” it documents the banks are avoiding the sector and service industry costs are at record levels. 

HOUSTON (Bloomberg) --Oil drillers in the biggest U.S. fields are shouldering record costs at the same time that some banks are increasingly reluctant to loan money to the sector, according to the Federal Reserve Bank of Dallas.  

With what we’ve anticipated for well over a decade, expected and has come to be. The service industry has been severely deprecated as a result of the chronic abuse and treatment they received from producers over their entire history. Figure 4. from the IEA showing the Capital Expenditures for 62 U.S. oil companies reflects the level of field activity does not justify the “record” prices being paid. It reflects the extent of the damage that has been realized there. Field service capacities and capabilities are diminished. Their financial resources are extinguished in a manner that the producers should study to understand they are the precursor to their own financial future. Why would an investor put money in the oil and gas service sector to watch them cut up their equipment for scrap metal? The first time it happened they didn’t have a choice, the second time they’re not going to participate. This will only be resolved in a process where the oil and gas producers begin to understand the benefits and responsibilities of running a primary industry. Bureaucrats have fully comprehended the benefits. Now someone will have to show some responsibility by having the producers finance the rebuilding of the entire oil and gas infrastructure. And to do so at their expense. Everyone else has gone. This is a key part of the Preliminary Specification, our user community and service providers. For details please review the Resource Marketplace, Research & Capabilities and Knowledge & Learning modules. 

Throughout 2021 commodity prices have been healthier than at any time in the past seven years. The key to understanding producer bureaucrats' performance is they’ll always mess it up somehow. 2021 saw the trend of what People, Ideas & Objects call “profit hedges” that defined producers' performance as acceptable at prices that are substantially lower than what today’s commodity market offers. Hedges that state to an organization “not to conduct any risk or innovation. The company’s future is set and there is nothing that can be done by anyone to increase our performance, only decrease it by mistakes, so do nothing.” Unaware of any other thoughts outside their groupthink mindset that rules the oil and gas domain. We’ve seen the effect of the service industry being forced to cannibalize their equipment to survive. Producers will be paying the consequences of these (in)actions for this irresponsibility. We now believe producer bureaucrats have begun the process of cannibalizing their own working interest partners share of the properties they manage as operator. Not handing over the monthly cash proceeds of their net profit operations. In essence taking the cash flow of their partners. People, Ideas & Objects are otherwise incapable of explaining the record balances and rapid increases in accounts receivable and accounts payable over the last two quarters since the material nature of these hedging offsets began. We believe bureaucrats are seeking to harbour cash to pay their recognized, realized and unrealized hedging losses.

Luck favors the prepared mind. What is it that the oil and gas industry is prepared for? I’ve been working to resolve the issues that I felt were material to the financial and operational health of the North American producers since 1991. This effort was on the basis of the chronic overproduction of North American producers that caused the collapse of oil prices in 1986. An issue that has repeated itself many times since then in both natural gas and oil. Producer bureaucrats are the only ones who have personally benefited financially throughout this time at the expense of every other stakeholder in the industry. They’ll continue to do so until it becomes untenable even for them. There is no evidence in their actions to suggest otherwise. There is no preparation being made to do otherwise. There is no consideration of anything other than business as usual, a shift to clean energy to participate in a non-performing sector of the economy where accountability has never been expected because they’ll be saving the planet. Even in the face of absolute and total collapse of the financial support of the industry. Where the field capacity and capabilities are deprecated to the point where the current activity level of 25% of 2015 levels invokes record costs. If only someone would have suggested a solution to all of this! History shows that People, Ideas & Objects identified these specific issues many decades ago and published our solution in the form of the Preliminary Specification in August of 2012. Based on a decade of research into “what,” “how” and “why” the oil and gas producer and industry would need to be organized to function and operate to resolve these issues. What was seen as radical surgery and deemed crazy by the bureaucrats now pales in comparison to the radical surgery that is needed to fix the oil and gas industry. And to quote Forrest Gump, crazy is what crazy has done. Or something along those lines. What everyone now has is proof that producer bureaucrats can’t make money and can only destroy value in all its forms. Bureaucrats don’t care. People, Ideas & Objects, our user community and their service providers are prepared to implement the Preliminary Specification where we know we can, and we know how to make money in this business.

On the other hand we have no shortage of work to do. Much needs to be done in the next few years. The Preliminary Specification needs to be built. The engineering and geological explicit knowledge needs to be captured as Intellectual Property and developed. New oil and gas firms need to be formed, capitalized and organized. Assets need to be transferred to these new producers in innovative, strategic and tactical ways. In this process we’ll all be helping the current producers to travel faster down their chosen journey to clean energy by disposing of dirty oil. This transition to the Preliminary Specification is something that must be done to deal with the financial difficulties the industry is plagued with from the current administration. This also needs to be done as preparation for the future. And to learn from the experience of this transition as we’ll be faced repeatedly with situations that share this same scope and scale of change in the near future of this business. We’ll therefore be somewhat prepared and experienced in challenges of this nature. Please review our Production Rights to see how everyone can participate in making this new oil and gas industry happen. An industry where it will be less important who you know, but what you know and what you're capable of delivering, what the value proposition is that you’re offering?

Those interested in joining our user community are People, Ideas & Objects priority and focus. The Preliminary Specification, our user community and their service provider organizations 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, everywhere and always. In addition, our software organizes the Intellectual Property of the exploration and production processes owned by the engineers and geologists. Enabling them to monetize their IP for a new oil & gas industry to begin with a means to be dynamic, innovative and performance oriented. Providing a new investment opportunity for those who see a bright future in the industry. A place where their administrative, accounting, exploration and production can be handled for the 21st century. People, Ideas & Objects have joined gettr and can be reached there. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.