These Are Not the Earnings We're Looking For, Part LXXVI
Scrambling to find as many high quality viable scapegoats as possible seems to be the only strategy being deployed by our good friends the oil and gas producer bureaucrats. And their investors are the ones being offered up to the public for their looming failure to meet the markets demand for energy. Producer bureaucrats' flat footedness and lack of response to the need for additional oil and gas production can not be met and they’re very aware of the reason this is the case. To suggest they’re not capable of doing so would never be stated as that would be counter to their best interests. The fact is they’ve used and abused the industry for the past forty five years. Symptoms of their abuse have been evident since the 1986 oil price collapse and all of the subsequent boom / bust cycles since. The cultural response of the North American based producers developed in the late 1980s and 1990s to where the expectations were that outside investors would fuel all of their capital investment needs. To the point where this became their dependence as the business itself atrophied around their chronic mismanagement due to their chronic and systemic overproduction. We all remember the days when the producers that were viable were those that had abundant access to sources of capital. If they didn’t they wouldn’t be around long, and if they didn’t meet their production targets, investors abandoned them and they would quickly disappear due to their lack of financial viability. This is the dismal history of the North American producer up to the point of 2015.
After a decade of throwing additional and vast volumes of investment into shale, investors began to see clearly that their money was nothing more than fuel. Putting additional cash into the industry only created larger flashes that quickly died down with the only residual being the demand for more cash to put on to the next even larger flash. Not only was their investment being diluted and incinerated, the cumulative value of all the prior years industry “activity” wasn’t generating enough to keep the lights on at the head office. Investors felt it was time to stop this wasteful “activity” and instill some rational, inward thinking so that oil and gas producers would make the necessary changes. That was seven years ago, and the producers were given a list from the investment community of what was expected of them. One of those points is that the industry must become accountable and install tier 1 ERP systems such as the Preliminary Specifications use of Oracle Cloud ERP. Nothing on that list that the investors expected in 2015 has even been discussed in the industry. Nothing has been done but to invoke the holistic, catch-all strategy of “muddle through.”
This leaves the industry in a dire position financially and from a base of value to leverage its position forward that is structurally too weak and probably non-existent in most of the producers. Highlighting the status of the service industry is the only necessity here as the capacities and capabilities of these firms have been deliberately run into the ground in order to subsidize the lifestyles of these producer bureaucrats. Any source of value in these past seven years has seen these bureaucrats attack it as if it was a hungry mosquito. When investors left it was the remaining credit available on their bank lines. Then they continued their field operations and paid the service industry after 18 months. When these expired it was onto increasing production until oil hit negative $40. The list continued as the bureaucrats' needs and hunger is insatiable.
Where this leaves us today is with a seven year lead time with no work in progress. As in all industries there are lead times in which companies operate. Hitting the switch to increase production is what John Q. Public sees and expects but there are massive undertakings to get to that point. When investors and bankers are no longer willing, when cash and working capital has been as short, as we’ve documented in this series of seventy six posts, to non-existent. Which area is cut first, this year's drilling operations or the activities involved in year one of the seven year lead time needed to drill future wells. And in the second year of a lack of cash, what is the next decision regarding priorities: cut the first and second year of lead time or stop the drilling. We’re in our seventh year of no new investment and maybe the producers will begin to think about hiring those who were involved in the first through to the seventh year of the lead time needed to drill a well. If they can find them. It’s been a while since anyone has seen them of course. Have we ever discussed shale’s notorious decline curve before? We're not only behind in our lead times, we’re also behind in shale’s decline curve.
This is all “Ok” however. Producer bureaucrats now have what they need in order to make these past forty five years easily forgotten and eliminate the history of never making any money. Rahm Emanuel said it best when he coined the phrase, “never let a crisis go to waste” to take political advantage of a crisis situation. We’ve consistently documented their desire to blame, and as we euphemistically call what they do their excuses, but most of all the growth in the population of their viable scapegoats. We’ve also chronicalled their aspirations to get as much couch / recliner time as possible. Doing nothing is an art and science for these people. Evidence of this is contained in the fact that oil and gas is a primary industry. Where all of its secondary and tertiary industries have been financially pancaked by these producer bureaucrats greed and lust for financial gain and power. So yes, let's not think of that now, we have a crisis on our hands. Convenient isn’t it.
To quote another famous politician “At this point, what difference does it make?” We’re asserting the producer bureaucrats think it’s the windfall of all windfalls. They’ve proven to be incapable of managing an enterprise. Incapable of uttering anything close to the truth at any time and incapable of getting up off the couch other than to visit the Ferrari dealership. Although a crisis is a fantastic plan and one I’m sure will solve the problem for them, who else is it going to be good for? What right do these bureaucrats have to put us in this treacherous position, especially when People, Ideas & Objects, our user community and their service provider organizations have been actively warning about this as the ultimate outcome of their actions. Warning that societal damage is the outcome of the breakdown of such organizational dissonance and the minimum of 10,000 man hours / bbl of oil equivalent contained in each barrel consumed. Mechanical leverage is an issue that this blog has been actively discussing since July 11, 2008. They’ve had every opportunity since August 2012 to proceed with the development and implementation of the Preliminary Specification yet have chosen to do nothing but ostracize and vilify this opportunity since August 2003 when these ideas were first proposed.
Recently they had the opportunity to pursue “Profitable, North American Energy Independence -- Through the Commercialization of Shale,” in the People, Ideas & Objects July 2019 white paper. Unfortunately that involved them getting involved in effort and hard work. Then in as little as nine months they chose to produce oil at negative $40 and in 2021 summarily abandoned the oil and gas business to pursue clean energy instead of accepting any idea there's an issue or their responsibility in creating it. Since they wanted to leave the business it’s time we said goodbye to them. If they can’t accept the fact they’ve never made any money in the North American oil and gas business, what is the probability this crisis will facilitate their transformation of their business to the dynamic, innovative, accountable and profitable industry we need? This crisis has precipitated the need to increase production, they’ve not articulated the need to make money in the process, just for the investors to send cash. And they’re telling the public it's the investors fault they don’t have the money to drill. What we can say about their administration over the past forty five years is they’ve always done the exact opposite of what should have been done. Adding to all these difficulties we’re now hearing nothing but a litany of viable scapegoats of why they can not respond to the increased demand for energy! If the consumers can’t rely upon them, is that not the ultimate failure? Most importantly none of the producers have reached out to People, Ideas & Objects to inquire about the Preliminary Specification ever, and I just checked, not in the past month either.
What we need to do is to begin with the development and implementation of the Preliminary Specification, our user community and their service provider organizations as the alternative to this madness. This will be the quickest route through our difficulties and the most effective financially, giving us a highly performative industry for at least the next 25 years. One in which the North American producer is provided with the most profitable means of oil and gas operations everywhere and always. What surprise will the crisis management focused bureaucrats spring for us next year or the year after that. Do we really believe that we can trust them to do the right thing during their current manufactured crisis?
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. 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. 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 TBD 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.