People, Ideas & Objects et al's Marshall Plan, Part II

 In Part I of this series we touched briefly on the Preliminary Specification and the questions of “what” it was and “why” we were offering it. In Part II I’ll be detailing the answer to the question of “how” we are delivering the Preliminary Specification into the North American market. How is it developed, implemented into the producer firms and the associated infrastructure involved in the secondary industries and how will it operate once implemented? 

Issue

There is a culture that exists in North American based producers of acceptance of the status quo failure. Nothing is ever the responsibility of the producers, who refuse to recognize they’re operating a primary industry, they’re always quick to point the finger at the most plausible, viable group for any of their failures. This has been effective in isolating and extracting them from the day to day of the business and their involvement in the business. It’s the OPECs, the government, their investors, bankers, the service industry and now even the consumers themselves who fall prey to their accusations. It’s an inability to critically accept the leadership role and responsibility that involves managing this primary industry for the purpose of profitable operations. 

Today’s culture involves the bullying of others to do what bureaucrats deem is necessary to earn a reward of a few dollars sprinkled in those areas that producers are wholly dependent upon. Sitting on top of the revenues of the industry, revenues that represent the efforts of the producers but also the service industry and all other tertiary industries. Doling out what they feel are cash prizes to those that follow along with the plan and agenda. This would be acceptable if the plan and agenda was focused on achieving profitable operations for all concerned. It is the bureaucrats' plan to feed those who will blindly follow them into whatever direction they dictate. How else can you account for this bureaucratic obstinance which has also been represented in refusing to listen to their investors since 2015?

This culture has comprehensively failed in the shale era of oil and gas development. The service industry has been run through due to the lack of care and concern from the producers. The service industry is no longer capable of providing the means in which to extend the producer organizations with the geographical and technical extension of the producer organizations in terms of field operations. The comprehensive capacity of the service industry no longer exists due to the difficulties the producers placed at their doorstep. Much as the traditional market incentives of investors and bankers have fled the oil and gas producers. It is the same unfortunate case in the service industry. There is however a much larger difficulty due to the major differences between the producers and the service industry representatives. The service industry's only revenue stream is from the producers. Of which producers sliced the demand for their services to 25% of what it was prior to their difficulties. They then negotiated the prices of the service industry by bullying them to accept half the price or the producer would shift their work elsewhere. Leaving the service industry with a drop in revenues in the range of 87.5%. And to add insult to injury they did not pay them for this work for 18 months. Now they’re one of the producers viable scapegoats as to why there’ll be no response to the demand for more energy, it is the service industries lack of capacities and capabilities that is the producers primary target. Never any admission of responsibility or offer to deal with problems. The major difference for the investors and bankers of the service industry is that it is more severe than what producers experienced, it is a cyclical behavior throughout the producer population, it is systemic, cultural and most of all highly abusive of the service industry.

We touched on the issue of the service industry in Part I of this series. I only discuss this in more detail in Part II as it is the easiest for everyone to understand and relate to the damage that’s been done. It is the most tragic, unnecessary and difficult area of the industry that needs to be purposely rebuilt. It is also symbolic of all other aspects of the greater oil and gas economy outside of the bureaucrats, who assure me they’re fine, and thank you for asking. The entrepreneurial class, investors, bankers and those that have chosen to pursue careers in any discipline of oil and gas have also been betrayed by the producer bureaucrats' desire to fill their own pockets at all of their expense. Trust, faith and belief in what is said and done isn’t worth much coming from an oil and gas officer or director. 

Therefore from a cultural perspective. From a leadership perspective. Who will lead the oil and gas industry out of the situation it finds itself in today? Will it be the current bureaucrat which we identify as these officers and directors of the producer firms? If we are looking to these people to solve the difficulties they’ve created and feign they don’t understand, then I can assure you that we will be disappointed and we will be betrayed. We will only have ourselves to blame if we do so. The current officers and directors of the producer firms will be needed to manage the producer firms in the interim until the rebuild is complete, then we can safely cast them to the ash heap of history. 

Looking simply at the scope and scale of our domain of what we are proposing in the Preliminary Specification we are dealing with ERP systems, accounting and administration. This however does not preclude us from demanding that all aspects of the greater oil and gas economy must be involved with the further development and filling out of the overall detail that is the Preliminary Specification. It is the means in which all of these other areas can be restructured around the vision that is put forward and commence their organizations rebuilding on the basis of that vision. We are not, and can not bring forward any attribute of this failed legacy. The quickest route to reestablishing the trust and integrity where people will once again commit to oil and gas is through the elimination of those and their structures that caused this loss of trust. They can never be resurrected. They can never be compromised with. We must hold to this vision as the fastest method of rebuilding and the most integral method of eliminating them. 

Our “Marshall Plans” Response

People, Ideas & Objects priority and focus is our user community. We began its development soon after the completion of the Preliminary Specification. During the first quarter of 2014 we identified the primary cost of quality, usable software is the development of a user community which demands significant time be expended in order to allow it to develop. The other difficulty is providing those who join with a viable and usable business model as a guide or vision in which to build from. Our user communities establishment in early 2014 has enabled them to assimilate the Preliminary Specification into their thinking. This is the value that will pay dividends in terms of the length of time necessary to deliver the first commercial release of our product. A value that is a comprehensive reduction in time to resurrect the North American oil and gas industry through quality, user driven software development. People, Ideas & Objects suggests to the bureaucrats fury, that it’s no longer enough to own the oil and gas asset, it’s also necessary to have access to the software that makes the oil and gas asset profitable. Any attempt to do so otherwise in a highly structured, sophisticated economy without the use of software is bureaucratic folly.

Upon initiation in March 2014 of the People, Ideas & Objects User Community Vision which guides the user community member and provides them with an understanding of their role in the development, implementation and operation of the ERP systems, accounting and administration of the North American oil and gas industry. This is not your grandfather's user community and is indeed a very powerful community endowed with the ability to meet the tasks and objectives of what we’ve identified in the Preliminary Specification and the issues and opportunities in oil and gas. The first was their Charter.

Our user community seeks to find the right solution for the most profitable means of oil and gas operations everywhere and always. We’ve now seen what happens when profits are ignored in the industry. What oil and gas is experiencing is unquestionably the most difficult issue they’ve ever faced. Our collaborations are not to build consensus or compromise. On the contrary, we have many issues to resolve and some of the most complex that have ever been approached. The resolution of issues lies at the point of conflict and contradiction. It’ll be our user community's job to find those conflicting attributes and contradictions, and resolve them to build the industry software for the next generation, to build the dynamic, innovative, accountable and profitable energy industry we now need in North America.

And these are the components of how their Charter is enabled to fulfill the vision of the Preliminary Specification and the needs of the industries.

• Only the user community is licensed to make changes to any of the underlying Intellectual Property of the Preliminary Specification and its derivative works.
• People, Ideas & Objects licensed developers will only look to the user community. We are blind, deaf and dumb to all others.
• Our user community has their own budget. They are independent business people. Not "blind sleep-walking agents of whomever will feed them."

It is therefore the user community member who has acquired through education, training and experience an intimate understanding of a specific domain of an oil and gas process that will be the key point of contact for anyone and everyone in the industry to have their input heard and included in the development of this software, its implementation and operation. It is the user community member who has with their license been granted the exclusive right to a specific process domain managements in a service provider organization they will own, operate and control. Bringing forward that which they have known for many years. It will be in the service providers where the administrative and accounting resources of the producers are reallocated in order for them to specialize on the basis of the specific process they manage. (Recall too this is how the producer's overhead is converted to a variable cost, based on production.) It will be there in the service provider that the implementation and operation of the software will be undertaken and managed on a day-to-day basis. All under the organization's principal being the user community member who has the exclusive ability to make the changes to the Intellectual Property the software is derived from, and on the basis of the issues and opportunities they see within their service provider organizations. They will also have the input from the industry and all other interested parties that may have changes or issues being raised. This is an effective change management mechanism that allows the software to change and evolve on the basis of the development of the oil and gas industry, the professions, regulations and competitive advantages of the service providers. 

An example of a process domain for a service provider may be the calculation of the propane royalty obligations, and it may even be just a sub-process of this, with other service providers being responsible for other aspects. These will be done to ensure that the producers are paying the absolute minimum royalty necessary under the contract / royalty regulations. It will be the domain of the service providers to undertake the process management for the entire North American continents producer population of properties. In this case the calculation of propane royalties. Using specialization and the division of labor at high levels to ensure the efficiency and effectiveness of their process and quality of service is attained. 

The competitive advantages of the service providers are comprehensive and provide real value to the dynamic, innovative, accountable and profitable oil and gas producer and industry. They include as a partial list: leadership, issue identification and resolution, decisions, creativity, collaboration, research, ideas, design, planning, thinking, negotiation, compromising, innovation, financing, conflict and contradictions, observation, reasoning, judgment, quality, automation and specialization and the division of labor. The service providers are granted exclusive rights over the process they operate. We do not use price as a competitive advantage as the means to do so is counter to the best interests of the producer's profitability. I am not of the opinion that a service provider and user community member who is focused on these competitive advantages and building value for the producer can then be concerned with a competitor jumping in to slash the price of the offering after doing none of the work of developing these ERP systems. The value proposition of People, Ideas & Objects Preliminary Specification is based on the holistic long term nature of the service provider reducing the producers costs through expanding their throughput by specialization, the division of labor and automation. Price competition does not have a role in enabling this work. It will be on the basis of competition between the service providers in the overall user community members that compete on the basis of a shared understanding of what is effective and innovative, not what is ripe territory to establish a competitive offering based on price. 

Software such as People, Ideas & Objects will be delivering the explicit knowledge that is captured by the user community members during development, that which can be captured and used to be included in the software. That is only half the job however. The tacit knowledge is the more difficult aspect of what is done and that cannot be captured in any medium whatsoever. That is the knowledge that is contained within the population of the service providers as they are deployed in delivering their tacit knowledge with the explicit knowledge of the software. The user community members service provider is a software and service offering responsible for the implementation of the software into the producer firms and the operation on a day to day basis. The deployment of tacit and implicit knowledge has to be part of a comprehensive solution and what is structured to be delivered through People, Ideas & Objects Preliminary Specification, its user community and their service provider organizations. 

Therefore, in terms of “how” the industry, the secondary and tertiary industries are able to rebuild in a manner that deals with the issues and opportunities that exist in 2022 this is what is proposed by People, Ideas & Objects. The Preliminary Specification is a comprehensive detailed plan that deals with the reality of the issues that began many decades ago and have manifested into absolute destruction. The loss of trust and integrity in the leadership that brought about this damage is absolute. And this needs to be addressed, ultimately abandoned and rebuilt in the vision of the Preliminary Specification that is uncompromising with what has brought us to this point. The focus of the greater oil and gas economy is therefore directed towards our user community in terms of this rebuilding. It is the greater oil and gas economy who will be using this vision as their base of understanding, and are the ones that will be able to take their focus, needs and desires and build them into this overall solution. Ours is the rational approach to resolve these issues. Organizing ourselves to resolve them has to be the logical first step in any solution.

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

People, Ideas & Objects et al "Marshall Plan," Part I

 Today we begin with what we are calling for lack of a better description a series entitled our “Marshall Plan” for the North American oil and gas industry. This plan is to begin dealing with the opportunities and issues producers and the service industry face as a result of the financial damage and destruction that has taken place. During the 21st century Houston was still considered the center of the global energy industry. Now it is where CEOs go to tell consumers not to look to them for their energy needs. It is now evident to most that the world is entering an era where energy is becoming a tool for political means. Something that we have not seen since the 1970s and something that can only be avoided through energy independence on this continent. Otherwise we are exposed to the issues of compromising our principles and values. And we are potentially having to allocate resources based on an energy supply that may be politically constrained, or face the consequences of having our economy operating at a level below its optimal performance due to the lack of oil and gas. A product which provides a minimum of 10,000 man hours of equivalent mechanical leverage in each and every barrel of oil. Providing that mechanical leverage through an infrastructure and energy source that can not be replaced. 

The success of this plan is wholly dependent on the efforts of the entire industry making it so. This must be a deliberate effort by everyone involved in the industry to ensure that success is achieved. There can be no failure when we have no second chances and there can be no blaming, excuses or viable scapegoats for failure now or in the future.

The Issue,

People, Ideas & Objects, our user community and their service provider organizations have no solution for the larger societal issues involving war or economic fallout associated with the shortages of energy. This is a poorly entitled series attempting to put the industries difficulties into context. We are focused on the issues and opportunities in the oil and gas industry. This “Marshall Plan” is to rebuild the oil and gas industry to provide for “Profitable, North American Energy Independence -- Through the Commercialization of Shale” in the vision of the Preliminary Specification. Today we see the implications of North American producers not tending to their business. The fallout of energy shortfalls and the societal consequences are beginning to be seen as a result of the Russian invasion of Ukraine. There is no greater warning of what society's difficulties are when oil and gas enters the political argument. That is why we need to focus on what the objective for the North American oil and gas producers and the service industry needs to be as we move forward. Our current supply difficulties may be temporary and subside, however we need to understand the risks that are now clear and present from the position we’ve found ourselves in and that these risks should be considered ever present in our advanced economy. We hold the following position.

Vision without action is merely a dream. Action without vision just passes the time. Vision with action can change the world.

Joel A. Barker

Recent history between People, Ideas & Objects and producer firms is abysmal, in terms of their participation in our constructive engagement. We published our White Paper entitled “Profitable, North American Energy Independence -- Through the Commercialization of Shale” a widely distributed paper, and we were summarily rejected by them. At which point they ran the price of oil down to negative $40 in just nine months of our White Papers publication. And then in 2021, in a chorus throughout the industry, producers stated that shale would never be commercial and directed their organizations towards clean energy. This is an abhorrent record in light of the current situation. What we’ve recently seen as a result of the potential demand increase from the war is the producers themselves stating they can’t meet the increased demand for a number of reasons that continue to be false and are in fact them deflecting their responsibility through blaming, excuses and viable scapegoats. We don’t doubt the inability to meet the demand, we feel the failure to do so is wholly attributable to the leadership of the producer firms. The need to now turn up the productive capacity of the continent is a dire necessity to secure our economy and way of life. And this leadership is more or less collectively saying “Well don’t look to us for help.”

Our “Marshall Plans” Response

The producers ultimate capitulation of responsibility is of no surprise to us. Past behavior is a good predictor of what can be expected. It is therefore incumbent upon us to detail the need for and the method of employing what we call the Preliminary Specification within the North American oil and gas industry. Disintermediation is the larger force that is working in all industries this century and the one that the producer bureaucrats are resisting People, Ideas & Objects et al so strongly for. Whether it is “muddle through,” “building balance sheets,” “putting cash in the ground,” or their capitulation of any responsibility to make North American energy independent through profitable shale production. And therefore “clean energy is their business.” It has been the mouthing of words, and words that soothe those that may have an issue with the producer bureaucrats at the time. Words that are spoken with absolutely no follow through with any action on any of them in the past four decades. Maybe we should start believing what it is they’re saying. Today they’re saying they can’t respond. I trust them to do exactly what they say as it doesn’t involve any oil and gas related action on their behalf. What are we waiting for then and why are we expecting anything from them? It’s time to rebuild the industry in the vision of the Preliminary Specification, brick by brick and stick by stick. 

The Preliminary Specification was published in August 2012 and consists today of an ERP systems definition of approximately 200,000 words, defined in 13 specific oil and gas related modules, incorporating 3 marketplaces and integrating 5 organizational constructs including the Joint Operating Committee which is the legal, financial, operational decision making, cultural, communication, strategic and innovation frameworks of the oil and gas industry as its key organizational construct. Our focus and priority is on our user community as there is no quality, usable software developed today that hasn’t been driven by user involvement. It is the product of ten years of research into “what,” “how” and “why” a producer and industry needed to be configured as, and the processes that were necessary to achieve a dynamic, innovative, accountable and profitable producer and industry. Ensuring that North American producers attained the most profitable means of oil and gas operations everywhere and always. Based on a fully integrated development with Oracle Cloud ERP’s tier 1 application. The Preliminary Specification is a business focused vision that balances the needs of the oil and gas producers and the service industry between profitable production and facilitating and enabling innovation in the earth science and engineering disciplines throughout the greater oil and gas economy. 

Producer firms today, as they have for the past many decades have dealt with oil and gas commodities as scarce resources. Shales dynamics bring about an era of energy abundance where the commodities ability to overwhelm the market prices can be devastating throughout the greater oil and gas economy. The lack of production discipline by producers has caused untold unprofitability leading to the financial destruction we have witnessed in the past many decades and now a resource scarcity that is constraining the industry through the financial devastation that was realized throughout the producer population and service industry. A service industry that is not unwilling to do the work, it's that to a large extent they no longer exist. A protracted difficulty that is addressed specifically and resolved in the Preliminary Specification through the Resource Marketplace, Research & Capabilities and Knowledge & Learning modules. 

Our user community and service providers are the key enablers in turning the administration and accounting capabilities and capacities of the producers' fixed cost overhead into the administrative and accounting capabilities and capacities of the industries variable overhead costs. Variability based on production. These non-competitive overhead costs are incurred in each and every producer in an unshared and unshareable manner, are replicated in each and every producer and are the secondary reason for chronic unprofitability. If the property is not profitable, based on the standard, objective financial statements that are produced in the Preliminary Specification then it is shut-in and moved to the producers inventory of innovative works in progress to return it to profitable production as soon as possible. While shut-in the property incurs a null operation, no profit but also no loss, enabling the producer firm to enhance their corporate profitability by not producing unprofitable properties and diluting their profitable ones. A standardized and objective accounting provided by our user communities service providers is necessary in order for producers to know that the determination of unprofitability at their property was based on the same standard and objective criteria as all the properties in the industry. Only then will production discipline be accepted and instilled. A simple business solution however one which the industry has not operated on before due to the scarcity of the resource being the defining characteristic of the organizational structure. The following is a quote and graph from our White Paper “Profitable, Energy Independence in North America -- Through the Commercialization of Shale” p. 31.

What People, Ideas & Objects provide in our Preliminary Specification, if we could assume the accuracy of this graph's numbers, is the point at which the property would be shut-in would be at the breakeven point and below. The reason for this being the production discipline gained through knowing that producing any property unprofitably only dilutes the producers corporate profits. Producing below the breakeven point is the point where unprofitability begins. Producing below the breakeven point for one producer, in an industry who’s commodities are price makers, will have the effect where the price of the commodities will be dropped below the breakeven price for all producers. When all producers continue to produce below the breakeven price for four decades you have an exhaustion of the value from the industry on an annual and wholesale basis. Times were only “good” when investors were willing.

Just as profitability has been unattainable in the industry due to the chronic overproduction, or unprofitable production starting in the early 1980s. Innovation has been the domain of the service industry. This is a science and technology based industry and those in the service industry with their hands on the problem are the ones who are coming up with the innovations that have driven the industry forward. This innovation has stalled and needs to be rebuilt within the greater oil and gas economy in order that consumers can rely on a stable supply of energy at reasonable prices. Producers need to better understand their role in funding innovation in the lower tiered industries that they are the primary industry to. That is their job, it is the service industry that provides the geographic and technical diversity through the depth and scale of their offerings. They are extensions of the producers and have no other customers other than oil and gas. This has been lost in the past few decades in the producers bureaucratic culture and is now the impediment to forward progress and the ability for producers to increase their production deliverability in a time that would be otherwise profitable. Would any of that production produced during April 2020 be of value today at $120 prices when it was sold at negative $40 prices? The lack of any production allocation methodology or discipline has been the demise of the industry and it will return quickly once again in the hands of these producer bureaucrats. It is systemic, chronic and most of all culturally inherent in the organizational structure of producers and industry. It can not be compromised with and the fastest route to a high performing industry is to rebuild it in the vision of the Preliminary Specification. Today’s  abhorrent means and methods of overproduction will return at some point in the future as it has been the cause of every oil and gas price decline since 1986s oil price collapse. What the service industry also sees is the same thing that everyone sees. Producers setting a path to clean energy shows everyone that the producers are no longer serious about oil and gas, they’ve chosen another route.

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. Anyone can contact me at 713-965-6720 in Houston or 587-735-2302 in Calgary, or email me here.

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.

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

 The uncaring nature of producer bureaucrats towards their business profitability has been on display for decades. The state of their business is in decline and severely deprecated in terms of its capacities and capabilities due to the long term financial damage sustained at their hands. That their business is in decline is not a concern for them and that is evident in the response we received to our July 4, 2019 white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” This paper was the most widely distributed document that I’ve ever produced and was wholly rejected by the bureaucrats. Why? When only nine months later oil traded as low as negative $40. History shows that since their rejection of the opportunity People, Ideas & Objects, our user community and their service providers were offering. Instead of seeing the effort needed to make oil and gas profitable everywhere and always, and shale commercial, we witnessed bureaucrats 2021 statement that shale was never financially viable and that clean energy was their future. I find it interesting to question what it is in these three events that reflect what the bureaucrats' motivation and desire is. They don’t want to consider making themselves “Profitable, North American Energy Independence -- Through the Commercialization of Shale,” concern themselves or even care about the day to day of their operations as they slip into negative $40 oil prices and prefer to ultimately abandon the industry in pursuit of other industries of which they have no understanding, capabilities or capacities. Maybe Elon Musk should be looking over his shoulder for his next competitors in space? The absolute shame of these officers and directors of the North American based producers!

As Russia is emphasizing to the world the importance of oil and gas, North American producers have declared they’re sauntering off into the sunset with dreams of solar panels and windmills. Seeking the ultimate environment of unaccountability in the clean energy industry that has never and will never perform. An industry where no one has generated anything of value and lives off the good graces of government largess. Where the ultimate viable scapegoat of, “we haven’t solved the commercial side of this business yet, but we’re close,” will be adequate to keep them in their familiar personal lifestyle of comfort and grace. And lastly let's recall that nothing was submitted or approved in these fundamental transitions of the focus of these producer firms. Transitions that are the polar opposite of the oil and gas business. An opposite that is best represented in the bureaucrats' decades-long allegation that they had to make sure that petroleum prices remained low enough to ensure clean energy never gained a competitive foothold. What they perceived as a looming, threatening competition in the form of clean energy and one in which they were willing to destroy their existing businesses through low prices to stop, is now the viable scapegoat they willingly invoke to justify sauntering off to. Is today’s flatfooted response to deal with North America's demand for more energy, where it seems that all of the consolidated producers have claimed they’ll not be responding in any way to increase their production, just a continuation of the muddle through we’ve seen from them these past decades? 

Overnight Germany has come around to the lack of any logic in their prior misguided multi-decade energy policies. The rest of the world seems to be waking up to the fact that oil and gas is critical to our existence as well. With war breaking out in Europe over the supply and delivery of natural gas. It will be interesting to see the final outcome of this initial conflict. Isn’t it also good to know that we have a dynamic, innovative, accountable and profitable industry here in North America? The mainstream media have been mouthing the words of any and all such nonsense for so long they don’t know what the facts are in anything. It’s their opinion that North America will just export what oil and gas we have to solve the energy difficulties of Europe. The fact that oil and gas is now the focus of the world has not and probably will not permeate the minds of these bureaucrats. The reason things are quiet on their front, with no comment about the situation may be due to their concern about looking directionless, leaderless, unknowing what to do and most of all uncaring about whatever business they may currently declare themselves to be in. It just so happens they can’t remember at the moment. It could also be a concern about what business they’ll have to shift to in the next quarter if things change again. “Probably best then just to muddle through.” If I sound disappointed with the performance of the North American oil and gas producers, I don’t know what gave it away. I obviously don’t see the opportunity in front of these producers in the fact that Russia provides the potential of such a high quality, long term viable scapegoat for them. And in terms of discussing new, sustainable, viable scapegoats, producers were quick to establish the Biden administration as another reason they’re unable to respond, while at the same time including their shareholders holding back capital from them to expand drilling but lets not forget the service industry. What they see is the crisis they’ve always depended on to “strike up the band” and get their party started. This time they know however, they’ll need to "turn it up to eleven." From World Oil. and here.

U.S. shale has a litany of complaints with the Biden administration, from pipeline permitting to leasing, and is still producing less oil and gas than before Covid-19 struck two years ago, even though prices for both are much higher. Shareholder demands to harvest the elevated prices for dividends and buybacks is the main driver for their conservatism, but executives claim a long-term commitment from the U.S. government to back fossil fuels could unlock more capital investment in fresh production. 

Vicki Hollub, CEO of Occidental

The world’s energy markets can’t rely on major growth in the Permian Basin U.S. shale patch to ease oil prices, according to Occidental Petroleum Corp. Chief Executive Officer Vicki Hollub.

It’s a “dire situation,” she said, adding that supply-chain constraints are severely limiting companies’ efforts to grow in the world’s largest shale basin. 

The Permian is also suffering from labor shortages, she said. Companies also don’t have enough rigs to support strong growth, and they’ve already used up most of the drilled-but-uncompleted wells that provided a quick uplift in growth in previous up cycles.

“The call for increased production from the U.S. at this point, especially with supply-chain challenges, can’t happen at the level that’s needed,” Hollub said. 

 OPEC meets with U.S. shale

Outgoing head of OPEC Mohammad Barkindo met with U.S. shale producers Monday night in Houston and said both groups are aligned in how they see the challenges posed to the oil industry by underinvestment.

“There’s no doubt we need to engage the investment community, the financial community, to address the encumbrances that are turning out to be obstacles on our way to access capital,” Barkindo said in an interview following the dinner meeting.

“The world is gradually but dangerously running out of spare capacity,” he said. “This is a function of the massive underinvestment in the industry in the last 10, 15 years.”

And then finally some sanity and focus.

OPEC Secretary General Mohammed Sanusi Barkindo 

It’s an oil civilization, and we cannot see, in all projections, where this will diminish.”

When asked if OPEC was concerned about losing market share if the U.S. and Canada ramp up shale exports, Barkindo said he is more concerned about meeting global demand, and at the end of the day, all oil producers are in the same boat.

It is important to now discuss my primary disagreement with how the producer bureaucrats account for the capital costs of their production. People, Ideas & Objects assert that a capital intensive industry will have a large component of the cost that is passed on to the consumer being capital in nature. Producers believe that building balance sheets and putting cash in the ground is their primary corporate objective. Theirs is a point of view which seeks to have the property, plant and equipment account emulate the value that is reported in the independent reserves report. Ours is the appropriate use of accounting as a measure of performance in the timely and accurate recognition of all of the costs of exploration and production. Their perspective is derived from their misinterpretation of the late 1970s SEC’s mandate that Full Cost accounting be used to value capital assets in oil and gas. They’ve misinterpreted this as the value must not exceed the reserves value, however they feel they need to come as close to the reserves value as possible. By doing so with all manner of spending by the producer capitalized as property, plant and equipment. We believe the most competitive and performant producers would seek to aggressively reduce the value of their property, plant and equipment account in order to achieve the lowest costs of any producer. The natural inverse of their method of overcapitalization is the overreporting of profitability in equal amounts. Leading to the overinvestment that has occurred with the systemic and culturally persistence North American overproduction that has been evident since the initial 1986 oil price collapse. The source of this chronic overproduction is easy to trace when we classify overproduction as being the same as unprofitable production. By recording literally everything that is spent as a capital cost of exploration and production, only operations and royalties were deducted from revenues with a sliver of depletion being the capital costs recognized for the years production volumes against the decades their reserve volumes will remain for that property.

And then came shale reserves. Which are highly prolific, high in their deliverability, massive in their scale of reserves over conventional reserves. Shale also has a much higher cost structure and a roller coaster ride of a decline curve. This decline curve begins as early as 18 months and can see the production deliverability collapse without substantial capital costs being incurred to remediate the decline. Only then to face the same decline curve in as little as 18 months. It is the high capital costs of the drilling of shale wells and the enormous costs of fracturing the formation that costs are so high. These capital costs are allocated across the reserves that are exposed to the well bore. And it is here, with the massive volume of those shale reserves that consume these high capital costs down to the relatively small dollar amount for each barrel of oil equivalent that is produced. It is then shale's precipitous decline curve that demands additional, extensive capital costs. Which of course is added to the capital costs of the reserves. Whether that is drilling additional laterals and fracing those or just re-fracing the existing lateral. What we know is that shale producers have been able to build their balance sheets handsomely in the shale era by putting an abundance of cash in the ground through shale operations. This accounting treatment in the financial statements is what investors, much like myself, were never able to fully appreciate, quickly learned it was as they suspected, and caused investors to begin their strike of the industry beginning in 2015. 

In 2020 the value of the reserves of the producers took a bit of a hit in terms of their value due to the prices of the commodities being severely depressed. Our sample of producers in 2020 were forced to recognize their capital costs on a more appropriate basis and that saw on a straight mathematical basis the amount of depletion being recognized over 4.0 years. Down from 7.43 years in 2019 and what we have in 2021 of 9.18 years. Who says bureaucrats are not culturally constrained. We see here that there is no desire to reduce their costs to lay claim to the lowest cost producer by continuing with the 4.0 years or lower. The opportunity to recognize greater volumes of capital costs due to the higher commodity prices is evident but not taken by any of the sample of producers. Regression back to the mean is their method of accounting operations. Nothing can, will or ever change, it is standard operating procedure.

I want to draw special attention to Crescent Point Energy and their financial statements for 2021. Crescent Point has raised $16.7 billion in their short existence. As of December 31, 2021 they had achieved retained losses totalling $11.3 billion, yes even in this specious reporting environment. In 2021 they recorded “profitability” of $2.376 billion Canadian. Which is a result of a 2021 reversal of a 2020 impairment charge to the reserves of $2.514 billion. Therefore in reality they actually lost $138 million during 2021 which in this reporting environment makes their performance disconcerting. What we now know of all of the producer bureaucrats from the 2021 financial reporting is that this movement back from 4.0 years in 2020 to 9.18 in 2021 is a simple continuation of the past, culturally this industry can’t, won’t and will not ever change. 

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.

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

 As the bureaucrats find they can now ease back into their couches and relax again, they’re finding that all along their couches were actually recliners! Life is good again and others' absolute care and concern for things has proven to be unwarranted. They say they’re fine and thank you for asking, and somehow they’ll continue to muddle through. They think they’re in the catbird seat and will ride out the consequences of their inaction to their ultimate personal prosperity. The message we should take from the fourth quarter 2021 reports is that the probability they’ll do anything about their ERP systems is now an exponent of zero.

What we also can determine is that the damage and destruction that is present in the industry has had the greatest impact on the service industry. This is only reasonable considering the methods used by the bureaucrats to hoard the financial resources of a primary industry within the producer themselves. Those other secondary and tertiary industries who are wholly dependent on these resources, were on their own when the bust aspect of the boom / bust economy came into play, there just wasn’t enough to go around. The effect their treatment has finally caused has been tragic and the service industry will take some deliberate, long term action in order to resuscitate it to the level necessary for a viable, profitable, energy independent North American oil and gas industry. As we’ve discussed here for the last many years, the next shoe to drop after the decline in the financial performance of the producers was the capabilities and capacities of the service industry and then it would move on to where we find ourselves today, having a broad, general impact on society. 

People, Ideas & Objects have been pointing out repeatedly the impact that oil and gas has in terms of man hours of its mechanical leverage in our extremely advanced economy. We’ve seen in many of the recent press reports that bureaucrats are satisfied with their production forecasts and will continue with their quite limited efforts to increase production. As to who consumers should turn to source their energy needs? There are 750 million barrels of oil in the strategic petroleum reserve. That’s at least two months supply! And that Russian guy, Vladimir has some extra he might want to sell. Check with him. We saw the producers were unable to source their needs to drill adequate volumes of oil and gas wells due to the lack of capacities in the service industry. This quote from World Oil quoting EOG Resources. 

Most of the best drilling rigs and fracking fleets already are under lease, Chief Operating Officer Billy Helms said: “There are not a lot of new pieces of equipment that can come into the market.”

Needless to say this quote, among other similar quotes, shot past all the other viable scapegoats used by bureaucrats these past decades, to score number one on our list of viable scapegoats of all time. I guess what we will have to do if we should ever see the mythic oil and gas service industry employee again. Is to give them a piece of our mind for messing up the producers future. It’s here in the cold hearted thickness of not being able to look past their own skin, accept any responsibility for their duty, their mistakes or to work to mitigate any prior errors that consumers can seek the comfort they need in knowing that they will be alone freezing in the dark with the half dead breaking down their front door searching for food. After all, the producer bureaucrats will be fine, pointing out your failures from a safe distance.

It’s also at this time that “things” are prosperous for our good friends, the producer bureaucrats. People will begin asking them once again what about People, Ideas & Objects and their Preliminary Specification? There was a time a few years ago when we reached the peak of our impact in the market. We had traction and were farther ahead than we are today in terms of seeking funding for the implementation and development of the Preliminary Specification, our user community and their service provider organizations. This was when the bureaucrats went to town on our solution and claimed that it would never work. That it was a crazy solution and would not be viable in the marketplace. I don’t raise this point for the petty reasons bureaucrats will accuse me of. I raise it due to the fact that this was their allegation then and it will be their allegation once more as I suspect People, Ideas & Objects are on a trajectory that will soon exceed that previous high point. 

The point is raised due to the fact that the alternative they did pursue was nothing and were shown to be uncaring and unsympathetic to the destruction and damage being realized throughout the greater oil and gas economy in North America. Even with the full knowledge of the issue as we identified for them. That which has been predicted here at People, Ideas & Objects as a consequence of the bureaucrats inaction regarding systemic North American oil and gas overproduction. Overproduction is the primary issue resolved in the Preliminary Specification, our user community and their service provider organizations. An issue we’ve noted its origins in the late 1970s with symptoms beginning to show as early as 1986. Our solution addresses these core issues and provides the most profitable means of oil and gas operations. Recall at the time the bureaucrats belittled our solution and repeatedly laughed at our focus on profits, they stated that “no one cared about profits.” Profitability is the methods and means of the operations that the Preliminary Specifications value proposition defines. One which we have stated since its publication in August 2012 that we provide the most profitable means of oil and gas operations. A value proposition whose differential to the history of the past decade of the Preliminary Specifications existence would have provided potentially a $1 trillion in incremental value add if it would have proceeded. My value propositions assertion may be laughed at now and alleged to be crazy by said bureaucrats however can be easily proven valid against the base case of their performance which includes a history of negative $40 oil and other such antics. I personally find selling oil for negative $40 to be quite crazy! Dare they take the opportunity to once again attack People, Ideas & Objects when asked about the Preliminary Specification I would hope that people remember this short bit of history and the legacy of this management's performance. One quarter's initial performance in the fourth quarter of 2021, due solely to commodity price increases, does not entitle a bureaucrat the means to regress back to their culturally destructive methods.

The inability to address, acknowledge and take responsibility for the situation we find ourselves is disconcerting. The Cheshire smiles, winks and nods between said bureaucrats reflect their imminent return to the good old days is not supported by the facts on the ground. They will feel and be emboldened and entrenched by their perseverance through these past years of their difficulty and their capacity to cling to power. They’ll feel, act and behave as if they’re invincible and be as obstinate and uncaring as could possibly be. If someone suggests there’s an issue, they will have already acted on that. If a new development arises in a discipline, they’ve implemented it already. Their capacity for dishonesty saw no depth of deception was too deep when excuses, blaming and viable scapegoats convinced at least themselves. It is the only reason I can see for their current delusion. Issues such as the small and junior producers no longer being viable will not be their domain of concern, even though they authored it. They’re consolidated and entrenched in a centralized world where every piece of paper has a home and a body keeping it warm and moving it to its final destination. 

What could have been is not what I want to think about People, Ideas & Objects as. Our job is becoming more difficult and the damage that we foresaw more tragic. The inverse to this tragedy is the personal compensation these chosen few of inactive bureaucrats are reaping now that they continue unobstructed. What I think we can show in these next few posts is the level of accountability that had been sought in the past has been for naught. Regression to the cultural ways has caused them to return to their means of accounting deception that I’ve criticized in this series repeatedly. Profitability is stellar, as reported, it's just not fully a real profitability that would stand up in comparison to other industries performance in terms of competing for capital. I do admit there are small elements of real profitability however, did you hear commodity prices are up! Profits will soon not matter again, “its reserves in the ground and they’re now worth more than last time we reported so be happy, sit down and shut up” they’ll say. That’s where we’re headed, and now we can include the consumer in these one way discussions. 

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 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.

Resistance is Futile

 The evidence is everywhere that the industry is flat footed in their ability to respond to the increases in demand for oil and gas commodities. What capacity and capabilities that are present in the service industry have been locked down under contract by the consolidated producers. The ability to source the higher level technical resources necessary to conduct the more sophisticated lateral drilling and fracturing necessary is currently otherwise unavailable and it is undetermined as to how it will be resolved. If you're a small or junior producer, this is how bureaucrats play nice. The bureaucracy is seeking to be unimpeachable and will have no source of competition when the dynamic nature of the only innovative, dynamic, and entrepreneurial small and junior producers are removed from the competitive environment. When people are forced in the service industry to look for work in other industries for several years they generally find it and don’t necessarily have pleasant memories of how they were treated by producer firms. There’s also an organizational atrophy that happens when the losses are as steep and deep as those that were felt in the service industry. Convincing people to return will take more than one big paycheck. Operating a consistently profitable and prosperous oil and gas industry for everyone involved for a decade is the only incentive that will have any traction. In other words the shoe is on the other foot. It’s not so much what happens in the service industry. They won’t be knocking on producers' doors to find new business. What are the producers going to do about this situation that they’re responsible for creating. Production volumes are not responding to the marginal increase in activity in 2021. There’s also this table from the EIA. 

If my bureaucratic self fulfilling hypothesis that we discussed in my last post holds. The precipitating event that started this decline was the producer bureaucrats misinterpretation of the SEC’s imposition of Full Cost accounting in the late 1970s. The SEC’s objective was to limit the assets on the balance sheet to ensure they never exceeded the reserves value. It does not specify what bureaucrats misinterpreted, that spending of any volume or type should be classified as capital in nature in an attempt to emulate the value of reserves. This started the overcapitalization, leading to the over reported profits, attracting excessive investment, leading to the chronic over capacity. The first evidence of this overproduction came in oil during the 1986 oil price collapse. A price collapse that has been experienced in both commodities many times since. I began working to rectify the issue in 1991 with the resolution being completed in the form of the publication of the Preliminary Specification in August 2012. In protest to the actions of these bureaucrats, investors finally gave their ultimate message of disapproval by stopping the flow of new money in the industry. An industry that had become wholly dependent on the new money from investors for its day to day cash survival due to its wholesale destruction of all of the industry value and lack of real profitability. Their investor exit was in 2015 a full seven years ago. This damage and destruction has now extended to all parts of the North American primary, secondary and tertiary industries in the greater oil and gas economy. 

The damage and destruction may now be complete in North American oil and gas with the ability of producers to increase their deliverability being less than what shales notoriously steep and unforgiving decline curves are imposing. Given all that has happened and the motivation of the bureaucrats' self fulfilling prophecy encouraging their chronic inaction. Time, and specifically the lag time to fix things may be defined as this seven years back to 2015 in terms of our ability to “drill” our way out of this, in my opinion. What we need to include and add to the lag time is an unknown element of time necessary for the development and implementation of the Preliminary Specification. Focus is needed for concentrating on rebuilding what is damaged. As opposed to having the existing infrastructure continue to attempt to build its way out of its difficulty. What will be the fastest way that we can recover and move forward? I believe that by putting the industry on a higher performance trajectory is what's necessary. To fiddle with the declining trajectory of the current approach is failing. Attempts to maintain it should be done of course, however the efforts to rebuild should be the priority. What could be done in the next three and half years. What could even be done in just the next year if the understanding is that this was the priority of the industry. The point where the enhanced trajectory overtook the performance of the status quo would be rapid and we would be far further ahead in the mid to long term as a result. 

What we know is; that after forty five years the issue has manifest itself into a cultural, failed state. That we have the tools and technologies, the capabilities and capacities to perform through a new medium, the Internet, that offers greater organizational performance at this point in its maturity. It is the future means of industries and operations everywhere. The transition of all industries is inevitable. There is no going back. How and when does the oil and gas industry make the transition to the new Internet based performance trajectory is the question that needs to be answered? Is the current bureaucratic performance decline temporary, or will shale's decline curve only grow steeper? The question that someone needs to answer is, when we see the damage occurring, understand the source of these issues and the culturally systemic nature of them, see the trajectory of this damage accelerating, is now the time that our flat footed response is acceptable? Or will that day when we realize it is a flat footed response come tomorrow? Therefore, someone needs to answer today, when does this become a concern?

Based on this knowledge we now know the bureaucrats are avid risk takers in letting the dice roll on a big bet to see what the outcome will be. Or alternatively they have some nefarious self fulfilling prophecy of golden riches working for them. What People, Ideas & Objects and our user community need to be is the triggering event of the industry's new performance trajectory. The action that focuses the industry on this rebuild of a new performance trajectory through the development and implementation of the Preliminary Specification. A performance trajectory to profitably exceed the dynamic nature of shale and the energy needs of the North American market. Pursuing both the status quo and higher performance organizational objectives at the same time is no longer justifiable in my mind due to the risk of a potential lag time and our position on it if it exists. The focus needs to be shifted to rebuilding what the future of the industry needs to be while we’re beginning to show some of the difficulties we could be potentially facing. There’s always an opportunity to revisit these questions again in 2023 but with 10,000 man hours of mechanical leverage at a minimum per barrel of oil equivalent, or as we calculated 38.1 billion man days that are used in our economy every day in North America. That's a big bet on essentially society's overall success or failure that bureaucrats are making. 

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 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.

Bureaucratic Nirvana, Defined

 I have another hypothesis, this one I think may be right, it’s not that the others were wrong, it's that these are hypotheses. In order to put this one in context we need to take a trip down what appears to be a blind bunny trail to show that bureaucrats have an ability to deceive and obfuscate behind facades of their own making. We have to go back to the quote of one Barack Obama when he was first elected. He stated “This was the moment when the rise of the oceans began to slow and our planet began to heal.” I always point to this as the time when climate change was solved and we no longer needed to worry about it. If you think like I do that bureaucracies have long expired in their usefulness and are of no value any longer, this was the point in which “science” as we knew it ended. If you were a university Professor looking for funding, for any reason really, why not just publish a paper that supported the disastrous effects of climate change in your discipline and receive the grant you asked for. After all, most if not all scientific research and experimentation is done with Federal funding. If you were to write that climate change is a hoax you’d probably starve to death. This is how the scientific community achieves the 99% scientific consensus they claim and similar to the consensus the former Soviet Union election victories were for the communists. This scientific consensus is bad enough however, now we’ve been subjected to a litany of preaching from the politicians about their need to, and our need to listen to the science. There is nothing more corrupt than a politician capitulating on their duty and deferring to science, particularly when science was developed under their political influence. We elect politicians to make decisions based on our needs, understanding all of the factors necessary to make the appropriate, informed decisions. Not to defer to one specific group and listen to them exclusively as if they are the Holy Grail. Let's call this process a self fulfilling prophecy of questionable purposes. Now, back to oil and gas. 

This past year has been a bit of a rare opportunity for People, Ideas & Objects, our Preliminary Specification and user community. We have been in a protracted battle with the oil and gas bureaucracy on the frontier of a war that has been raging throughout the economy for a few decades now. This battle has pitted one side against the other in all aspects of life and there are advocates and adversaries on both sides. The battle is ours to fight and we can’t think of a more enjoyable activity or time as what this business opportunity is offering today. The war that is raging is the one that sees the forces of centralization going against those like us that want a decentralized approach. This past year has seen through the political stage the victories that the centralists have been able to score with the Democrats in the United States and with the Liberal Party in Canada. Why do I see this as a rare opportunity? They’ve been very successful in instituting their centralized ways throughout all manner of society. What people are now seeing is their desperate lunge to seize power and control for any reason at any and all cost. What they’ve accused the capitalist, free enterprise, and entrepreneurial people focused on building value through decentralized means with new and innovative products and services for the economy and their lives, as nazi’s and every other name in the book. Have now become the means and methods in which they’re clinging to power to ensure their centralized ways continue to dominate. Shepherded by the crew of Biden, Schumer and Pelosi in the U.S., and Pierre Trudeau's boy Justin in Canada. Using physical and “scientific” barriers and force as the means to institute their control. The Democrats are formidable in the U.S. and a force to be dealt with seriously. Justin Trudeau is someone who would have difficulty organizing a child’s birthday party on his own. Let's call this the context of the decentralization battle.

The same has been stated by People, Ideas & Objects about the bureaucratic administration of oil and gas. In the past decade we’ve seen the primary focus and objectives being placed on “building balance sheets” and “putting cash in the ground” through their producer firms. These lofty goals were reached by each and everyone of the producers in the industry and they continue to display the results of their achievements on their balance sheets today. These objectives were self-serving to the bureaucrats in that a bloated balance sheet account of property, plant and equipment enabled them to easily attain an equally distorted capital structure. With investors and bankers backfilling in a multi decade easy money environment to make good on the producers alleged performance. Today the game is up with investors and bankers disenchanted as much as anyone else with our good friends the bureaucrats. Unfortunately producers have now gained the added feature of a ticking debt bomb. The only legacy feature of their spending is that they’ve valued their debt at levels that are disproportionate to what their past and current performance can achieve. In an era of higher interest rates and inflation, how many people will be seeking to store their “cash in the ground” or “build a balance sheet” with heavily indebted oil and gas producers for the next decade or two? It’s difficult to see what the outcome of this battle will be, though bureaucrats are not scoring well in the overall war. What we do know is that storing cash in the ground to justify and hide producers' poor performance over the next few decades will be more difficult.

People throughout the greater oil and gas economy have spent their careers compromising with producer bureaucrats. We know what’s expected and how to deliver that. We’ve seen now that there really isn’t much in it for us and therefore the choice is to continue to take the compromise or do nothing. This decision is easier now as a result of the history of the bureaucrats' actions over the past. A few years ago when producers were not paying the service industry for 18 months, because they couldn’t get Wall Street to give them any new money. That left the bureaucrats with few options but to do the work with the service industry and then tell them, after the fact, they changed their payment policies to 18 months. The consequence is that now the service industry is operating at 25% capacity and record field costs are being realized by producers. The decision will soon be that they’ll do the work to drill the producers shale well, however they’ll need a $10 million retainer before they’ll start. Or, they’ll do nothing. It might be surprising to the producers how the facts of their past actions are so well remembered by others. 

I do not have to assure my readers within the industry of the following, but for those of you who are outside of the inner workings of the producers. I can assure you that the bureaucrats have every element of their organizations locked down in mostly manual internal processes. They are islands unto themselves, self-sufficient in all aspects of life, except cash. I do not want to take credit for this trend to lockdown the internal processes, however feel that the publication of People, Ideas & Objects Preliminary Research proposal in August 2003 and the subsequent Preliminary Research Report in May 2004 suggested two things that bureaucrats acted on decisively and quickly. The first was to remove me as a threat to their method of organization. Second was the commentary in the report that noted Professors Anthony Giddens and Wanda Orlikowski’s research of the “Theory of Structuration'' and “Model of Structuration.” These were discussed and suggest that organizations, people and society move together in terms of their progress, otherwise failure in all three occurs. The Model of Structuration suggests that Information Technology is a component of society and therefore is a defining and supporting attribute of the three. Our Preliminary Research Report suggested therefore the use of the current ERP providers was both a defining and constraining factor in the progress of oil and gas producers. If producers needed to break out of their performance trajectory they would need to first define their organization in their ERP systems so that higher performance trajectories were supported. Or people and society would progress forward while producer organizations remained static creating the failure that Structuration hypothesized. In order to make any change to the organization demands that the change be made in the ERP software the organization uses first. Otherwise the organization will quickly regress back to the methods as defined in the software used by it. What I can assure you is that since 2004 the ERP market has been stagnant.

This is why nothing has been done in terms of ERP adoption in the industry since that time. The bureaucratic interpretation of this knowledge was that by controlling the organization, by not allowing any development of the organization to occur through their ERP providers software developments, this would ensure that their bureaucratic methods would remain uncontested and the only method available to be used. They achieved this through their ability to keep the ERP providers constrained, limited in population and financially destitute. The bureaucracy has therefore been able to comfortably constrain their organizations in the centralized methods they desire without any challenge to their ways. Budgets remain controlled by bureaucrats and based on the few fourth quarter and annual reports of producers that have been published to date, there is no change that I see in any of their methods of accounting, reporting or control. And there will be no change that will be threatening them anytime soon. With $100 oil they can see they’ve weathered the storm and their perseverance will be rewarded with the financial resources to continue on their way. Instead of investing these resources in the critical infrastructure of the industry and what it needs, they will be free once again to personally feast as if there is no tomorrow. 

Is this money going to be allowed to stay on the table for bureaucrats to determine its disposition at their discretion? Have these past few quarters of general good behavior with their investors changed anyone's minds as to what the bureaucrats’ culture and behavior will be again? If they’re not happy with the suggestion of the $10 million retainer to have the well drilled then the producer's alternative will be to operate a profitable business from the real sense of the word profit. Something that bureaucrats have proven to be incapable of understanding, refuse to acknowledge, achieve and culturally have no propensity to do. A decade of real profits will be what’s needed to offset the reputation and stink that has been attached to the bureaucrats' method of management. For all the years of blaming, excuses and viable scapegoats as to why producers couldn’t do this or that for whatever reason, perform on that higher trajectory for a decade on the basis of their own resilience, perseverance and fortitude. Until that is done the litany of blaming, excuses and viable scapegoats, the poor performance of producer firms and the value destroyed by them will be all that is known or remembered of them. And why would this change?

We now move on to the self fulfilling aspect of their prophecy. The old saying of “fool me once, shame on you, fool me twice, shame on me” is appropriate here. We’ve all been fooled by these bureaucrats in a grand scheme of their making, for their benefit. Ok, we all have the big boy pants on and can take a licken. But we’re not stupid. And although the producers have been on their best behavior in terms of recognizing the need to satisfy their shareholders for a quarter or two. That doesn’t mean it will continue when they begin to receive the money from higher commodity prices. And now that the money from higher commodity prices is being realized by these producers. Under these conditions, those that failed everyone are still in control and will be reaping the benefit of their prior failures. Continued inaction, as noted in this WSJ article, will only serve to provide them with even more of what they did not earn. Is this scenario acceptable to anyone? Particularly when we know theirs is an otherwise untenable position? Where will their motivation to act come from when it hasn’t been present since at least 2004? The less they do the more they’ll be able to line their own pockets. Is this the meaning of what they’ve been telling us with their “muddle through” strategy? Do we trust them to do the right thing when faced with this dichotomy and after knowing their history? Why after all that has happened would they be compelled to do the right thing? Particularly when they don’t know what right means, have proven to be unable to achieve it and don’t care? This self fulfilling prophecy of inaction has been what I believe to be the ultimate bureaucratic objective all along and how we can best describe bureaucratic nirvana in oil and gas.

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 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.