OCI Preamble, Part II

 The following graph was provided by Les Borodovsky from @SoberLook. What this graph is representing is the status quo perception of costs and how management of production is handled in oil & gas.

The perception of the producer officers and directors is that their total costs of each barrel of oil produced in the various shale formations is in the range of $48 to $54. The operating and royalty cost of each barrel varies between $28 and $37. I would point out the $20 to $23 in capital costs are based on an allocation of their capital costs across the entire reserves of the property. We’ve argued that this allocation is unreasonable in a capital market where the demands for the performance of capital are far greater than what can be achieved when a producer is cycling their cash through their investments in a manner that retrieves their investment over several decades or more, or even if at all. This is further aggravated when shale exposes prolific reserves, however demands substantial incremental capital to offset shales inherent steep decline curves in order to maintain deliverability. 

As an alternative, People, Ideas & Objects recommend that producers retire their capital costs within the first 30 months of the properties life to provide for the reuse of the previously invested cash. In turn providing them with the means to meet their internal demands for future capital expenditures, shareholder dividends and bank debt repayments, and better match the rapid decline rates experienced in shale in order to compete on North American capital markets. This can only be done if the producer is selling their commodities at a price that is above their break even point which considers an appropriate accounting of the actual, factual costs of exploration and production. And to reuse their cash repeatedly on this basis and not every second decade. 

This graph reflects the Well Break Even and Shut-in prices of the producers current policy position. At any point, and as long as the commodity price covered the operating costs, the property would continue to produce regardless of the impact on capital costs. If a dollar of capital costs was being returned, or one dollar above the shut-in price, that would enable the production of the property to continue. Only at the point in time where the commodity price dropped below the operating costs would the producer allegedly shut-in their production. This is a fundamental misinterpretation of the term break even, it is the reason the industry is in the difficulty that it’s in and why the producers have continued to lose money for the past four decades. Break even is not what is being interpreted here. What in fact the producer is assuming is that as long as there is cash flow above the operating costs then they’re making money in their opinion and will continue to produce. What they’re stating is they may not be breaking even, and as a result over the long term, stranding unrecovered and unrecoverable capital costs in abandoned properties is acceptable.

What People, Ideas & Objects provide in our Preliminary Specification, if we could assume the accuracy of this graph numbers, is the point at which the property would be shut-in would be at the breakeven point and below. (Note that our breakeven point would be higher due to the competitive recognition of capital over a thirty month period.) 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 everywhere for all producers. When all producers continually produce below the breakeven price for four decades it exhausts the value from the industry on an annual and wholesale basis. Which I believe occurred some time in the 1990s and since then, times were only “good” when investors were willing.

To avoid the allegation of collusion officers and directors would have us believe that they were operating the industry within the law. Losses of catastrophic proportions have been realized, displacing and disrupting the financial resources of each and every producer over the long term. Today the financial, operational and political frameworks of the industry are in tatters. This is considered normal course business operations for the officers and directors. Imposing the destruction of their firm's assets, the capacity and capabilities of the oil & gas and service industries is the price that they believed needed to be paid as a consequence of its acceptance of a “boom / bust” business by way of “muddle through.” This is unnecessary and unacceptable when the Preliminary Specification is available to operate the oil & gas business as a business.

The inverse situation is provided by the Preliminary Specifications decentralized production models price maker strategy during the times we have found ourselves in during thirty of the past thirty six years in North America. In an environment where the Preliminary Specification will be operational, higher commodity prices would bring about production volumes that would meet the threshold of profitability and therefore previously shut-in properties would return to production. The enhanced commodity prices would allocate the necessary financial resources to search for innovative means for exploration and production. Providing the dynamic, innovative, accountable and profitable North American producer with the most profitable means of oil & gas operations, everywhere and always. 

The organizational objective is to satisfy the consumer demand for energy on the basis of abundant, affordable, reliable and profitable energy. The value proposition of a barrel of oil equivalent is in the range of 10 to 25 thousand man hours of equivalent mechanical leverage. Going without oil & gas is not possible in the most advanced society with the most productive economy. The oil & gas producers value proposition to their consumers is therefore by far the most substantial of any other business. 

People, Ideas & Objects feel that oil & gas has a unique characteristic that needs to be recognized and adhered to. These commodities are valuable and limited in the long run. How do we ensure that we can prove to future generations that we used our share of these resources appropriately. The first way is to show that all of them were produced profitably everywhere and always. And secondly by passing along a profitable, viable, efficient and effective oil & gas and service industry. To do otherwise would be unwise and unjustified. Most of all it is unnecessary when the commodities follow the principles of price makers. Consumers are aware that the only effective way that they’re going to have secure, reliable and affordable energy independence in North America is when producers are profitable. Why this hasn’t been done is a question that needs to be answered by those that have not done this, and had the alternative in the form of the Preliminary Specification available in hand.

Yet, just as producers were forced to shut-in production as a result of almost negative $40 oil prices and refineries refusing to accept feedstock, they would find compelling reasons to return any property that contained shut-in production back on production in order to satisfy consumer demand and to do so profitably. Operating the primary industry of oil & gas profitably, everywhere and always, will enable them to maintain the capacities and capabilities of the greater oil & gas industrial economy. That People, Ideas & Objects were subjected to abuse and punishment for this position and other content contained within the Preliminary Specification is evidence that officers and directors knew better, that our alternative was available and it was refused as it disintermediated the officers and directors method of management and personal compensation, they’ll now need to live with their legacy of inaction.

What officers and directors were able to do was run the entire oil & gas industrial complex into the ground over these past four decades and completely destroy a large percentage of the service industries industrial capacity, eliminating that industry's capital structures and any faith, trust or goodwill between them. Go find a willing drilling rig investor or banker of a few years ago who subsequently saw the drilling rig they invested in cut up for scrap metal while producer officers and directors whistled their uncaring and inconsiderate tune of “muddle through.” It is now incumbent upon the producers to provide the financial resources to rebuild the service industry. And do so on a philanthropic basis. The rule is “producers broke it, the producers need to fix it.” Producers used and abused the service industry and now they’ll be needing to provide the money and backbone involved in the rebuilding effort, otherwise they’ll only use and abuse the service industry after they’ve rebuilt it again. Maybe when producers have had to rebuild the service industry themselves, putting some skin in the game, they’ll respect it. 

With the costs associated in exploration and production, and particularly shale reserves it's no surprise that producers have consumed the cash that is generated and any that is provided from investors and bankers. What is surprising is that producers have done nothing over this period to mitigate the overproduction that has caused the decline in pricing, subsequent financial losses, destruction of the producers reserves and greater oil & gas industrial capacity. And here we find the motivation as to why these methods continue. 

The reason for this chronic overproduction is the producers have to generate the revenues to cover the out of pocket costs of the overheads they incur in the “high throughput production” model they employ. This model has these overhead costs of the firm being incurred whether there’s production or not, and if any percentage of their properties are shut-in it makes their operation a high cost operation at any level of production. At lower production volumes, it skews their earnings and overhead costs appear out of place. Therefore this behavior of producing at capacity should be expected to continue on both the oil & gas sides of the business. Even in spite of significant financial loss or the inability to meet market demands. 

Although most producers report overhead costs of less than 2% in almost all instances this is not representative of the situation. We believe based on our experience that overhead costs range between 10% and 20% of revenues. These itemized amounts are never detailed or discussed in the financial statements of producers. If they were itemized the disproportionate and creative levels of executive compensation would be evident. Overhead costs are capitalized across the industry in the region of 85% to avoid the necessary accountability for these costs. Avoidance of accountability is the motivation for doing so, the consequences of these actions are as follows, and it should be noted People, Ideas & Objects identified this anomaly in excess of a decade ago. Yet nothing was done.

When all of the overhead is capitalized to the extent that it is in oil & gas it creates that giant sucking sound around the producers bank. Overhead in most businesses is recognized and passed to the consumers of the firm's products. In oil & gas it is capitalized. Therefore the “cash float” that all businesses have to have in order to finance these costs doesn’t function or even exist when overhead is capitalized. Producer cash is essentially stored on the balance sheet for decades and is passed on to the consumer at some point. When that will be remains a mystery. The industry phenomenon of a working capital deficiency was traditionally filled by the astute budget manager providing the amount of next year's capital expenditures in the prospectus. Without support for the capital structure, no profitability earned and fundamentally inadequate revenues generated as a result of the decades long industry wide overproduction, we should understand the quality cash management skills being applied in the industry. When the business is a spending machine, what would you expect?

Our Preliminary Specifications decentralized production model is proposed and enables the dynamic, innovative, accountable and profitable oil & gas producer to implement our price maker strategy. This decentralized production model has been defined by Professor Richard N. Langlois as:

In a world of decentralized production, most costs are variable costs; so, when variations or interruptions in product flow interfere with output, costs decline more or less in line with revenues. But when high-throughput production is accomplished by means of high-fixed-cost machinery and organization, variations and interruptions leave significant overheads uncovered. 

Production discipline is attained through this process when the producer realizes that their maximum profitability is obtained through producing only profitable production everywhere and always. Therefore producers are incentivized to adhere to the principles of the Preliminary Specifications decentralized production models price maker strategy. Just as all businesses in the capitalist system follow these principles since the great depression of 1929. The individual decisions of each oil & gas producer, based on an actual, factual accounting of the profitability of the property, will determine if the property produces. That is how the oil & gas industry needs to deal with any low commodity price situation that it occasionally finds itself in. 

As properties begin to lose money in a period of declining prices, incremental properties are shut-in each month as they too may become unprofitable. The inverse of this is also relevant when commodity prices rise, producers will be raising production volumes when they attain profitability from higher prices and return their shut-in properties to the market. Shale based reserves will always overwhelm the oil & gas commodity markets with flush production and deliverability that are driven by shale's prolific nature. Production discipline based on profitability can only be achieved through the reorganization of the industry and producers based on the Preliminary Specifications decentralized production model as detailed in the Specialization & Division of Labor section above. Where overhead costs are made variable and producers are using the facility we’re building in the form of our Cloud Administration & Accounting for Oil & gas software and service. Which enables our price maker strategy to provide for the producers and industries profitability and in turn ensures consumers are always provided with an abundant, affordable, reliable yet profitable source of energy. 

The effectiveness of our method is reflected in our logic. Producer profitability is maximized when losses on properties no longer dilute profitable properties profits. Reserves are held for a time when they can be produced profitably. And those reserves costs will not have to carry the incremental costs of any losses that would have occurred if the property continued to produce unprofitably. Keeping the oil & gas as reserves reduces the producers costs of production and storage of the excess, unprofitable production. Commodity markets find the marginal cost when unprofitable production is removed from the marketplace. Marginal prices for not just the unprofitable production but all production. While shut-in any unprofitable properties will form the producers work-in-progress where they can innovatively approach methods of raising production volumes, reducing costs or expanding reserves. Using profitability is the only fair and reasonable method of invoking production discipline. If it’s profitable it produces. It should be noted here that the Preliminary Specifications service providers will be providing a standard, objective method of accounting process management. Therefore any producer that finds a property is unprofitable, it will know that shutting it in is the best remedy as the assessment of unprofitability is the same assessment that all other properties were evaluated under. 

OCI Preamble, Part I

 People, Ideas & Objects, our user community and their service provider organizations competitive advantage and value proposition is that we provide the dynamic, innovative, accountable and profitable oil & gas producer with the most profitable means of oil & gas operations, everywhere and always. We suggest it is no longer adequate to just own the oil & gas asset but also have access to the ERP software in the form of our Preliminary Specification which makes the oil & gas asset profitable. Setting the foundation for the industry to obtain the objective of profitable energy independence on the North American continent. People, Ideas & Objects propose to build this with Oracle, through Oracle Cloud ERP, and deliver to North American producers through our Cloud Administration & Accounting for Oil & Gas software and service.

Adoption and integration of the Joint Operating Committee as one of the seven Organizational Constructs of People, Ideas & Objects and our user communities Preliminary Specification. It is the industry's legal, financial, operational decision making, cultural, communication, innovation and strategic framework. The Preliminary Specification moves the compliance and governance frameworks into alignment with the seven frameworks of the Joint Operating Committee enabling speed, innovativeness and profitability in the North American producer firms. The six other Organizational Constructs include specialization & the division of labor, markets, Intellectual Property, Information Technology, innovation and Professor Paul Romer’s “New Growth Theory.” Each of these establish a legal, cultural or structural component of understanding and knowledge for our software developers, our user community and their service provider organizations, to the producers, those that work in the industry and the service industry to operate within and adapt. Aligning these Organizational Constructs within our Preliminary Specifications ERP software provides a resonance with the law, principles of economics and opportunities, particularly from the use of Information Technology such as we have done in extending the conceptual model of Cloud Computing to be offering North American oil & gas producers with our Cloud Administration & Accounting for Oil & Gas software and service.

In addition to the commercial focus of profitable production everywhere and always. People, Ideas & Objects et al provide an overall vision of how the North American producer will face their most difficult and challenging period towards 2050. The demand for capital will be high due to the need to establish and maintain profitable energy independence on the continent. To deal with the rebuilding, refurbishing and reclamation of the infrastructure. Ensuring our energy consumers maintain the most powerful and efficient economy through the abundant, affordable and reliable domestic oil & gas that is profitably produced. Ensuring they realize the full value proposition of the energy produced of 10 to 25 thousand man hours per barrel of oil equivalent. Setting out tomorrow, seeking to “muddle through” by “building balance sheets” and “putting cash in the ground” has turned out to be a financial catastrophe, hidden by specious accounting over the past decades. A financial failure has precipitated operational destruction throughout the secondary industries leading to a potential inability to meet the market's demands for energy. 

Industry demands for capital to fuel this future is untenable for any and all sources of capital. Producers have a reputation of unreliability with the investment community. Financial statements continue to be distorted and reflect no capital structure to speak of. Have never been capable of generating the required profitability to generate the profits to meet their capital demands and possibly the most detrimental characteristic of all, have no propensity to make the necessary changes. Profitability is the only means of capital large enough to fuel the needs of this industry's future capital demands. Only the Preliminary Specification provides the necessary structural changes to generate the industry wide profitability.

These are the areas that provide the most significant value increases for the dynamic, innovative, accountable and profitable oil & gas producers. 

Specialization and the Division of Labor

Our focus on the areas of specialization and the division of labor and how these tools will move the producer firm to higher trajectories of productivity and performance, and therefore reduce the costs of exploration and production in the industry. The need to introduce new and innovative methods, business models and efficiency will be inherent in the culture of the industry, not something that should be resisted as People, Ideas & Objects Preliminary Specification has been forcibly resisted for more than a decade. An elementary, yet highly effective example of specialization and division of labor is provided through this quotation from On Liberty by Thomas Paine.

In order to gain a clear and just idea of the design and end of government, let us suppose a small number of persons settled in some sequestered part of the earth, unconnected with the rest, they will then represent the first peopling of any country, or of the world. In this state of natural liberty, society will be their first thought. A thousand motives will excite them thereto, the strength of one man is so unequal to his wants, and his mind so unfitted for perpetual solitude, that he is soon obliged to seek assistance and relief of another, who in his turn requires the same. Four or five united would be able to raise a tolerable dwelling in the midst of a wilderness, but ONE man might labour out the common period of life without accomplishing anything; when he had felled his timber he could not remove it, nor erect it after it was removed; hunger in the meantime would urge him from his work, and every different want call him a different way. Disease, nay even misfortune would be death, for though neither might be mortal, yet either would disable him from living, and reduce him to a state in which he might rather be said to perish than to die.

What we do know is that today we stand on the shoulders of giants and benefit from a very sophisticated and complex specialization and division of labor. Today everyone in oil & gas has attained skills from education and training, and gained experience from years of working within their chosen field to conduct specialized work. To disrupt this in any fashion without a full understanding of the global aspects of how specialized this work has become would cause failure. At the same time, with the current corporate model proving to be unsustainable, the focus has been on cutting costs. Cutting too deep could have greater implications than what’s intended. The point is that today, to move to a higher level of specialization and division of labor will not be done, and can not be done, without significant and deliberate forethought. The principles of spontaneous order, serendipity and creative destruction have failed to provide any capacity increases in the past decades. We believe software is responsible, or more specifically, the lack of software development capabilities are responsible for constraining organizations. Oil & gas is at minimum a continental based economy. To organize this in a productive, profitable, specialized manner and divide the labor efficiently without the assistance of the Internet and deliberate forethought will limit our ability to progress.

Secondly we have to consider the role of software in society today. If we intend to move to a higher level of specialization and division of labor. Then the software that we use, and particularly the ERP software, is going to have to define and support those changes. Therefore we’re not only going to have to deliberately plan the next level of specialization and division of labor, we will need to build the systems that define and support it first within the software, before the implementation of any changes or benefits will be seen. This is one of the defined benefits of having the software development capability of People, Ideas & Objects, its user community and their service provider organizations. To conduct any form of organizational change demands the software be changed first in order for it to support the revised process. Otherwise the organization will quickly regress back to the process that is defined in whatever software is used. What People, Ideas & Objects considers a modern day software bug. 

Review of the Preliminary Specification shows there is a defined restructuring that takes place throughout the modules based on a higher level of specialization and division of labor of the industry. The oil & gas producer is a stripped down version of itself that has the C class executives, earth science and engineering resources, land, legal and minor support staff. And that’s it. The rest of the producer's administrative and accounting needs are provided by our user communities service provider organizations through our Cloud Administration & Accounting for Oil & Gas software and service. Moving the industry from a reliance on the producer's fixed cost, administrative and accounting capabilities to a reliance on the industries variable cost, administrative and accounting capabilities. Variable based on profitable production. And each of these service provider organizations are focused on one process, or one element of a process, that is organized and specialized to manage that process across the industry. 

For example, there may be a single royalty payment service provider organization that handles all of the industries Texas Railroad Commission royalty payments. Ensuring producers were always paying the lowest amount allowable of their royalty obligation. Where the cost of the royalties, and the incidental billing cost of the royalty service provider is billed directly to the appropriate Joint Operating Committee. Therefore eliminating the fixed nature of the operators administrative and accounting costs, and replacing them with the variable nature of the Joint Operating Committees administrative and accounting costs. As without profitable production the variable royalty payment process would not be invoked, no service would be rendered, no costs incurred and no service provider billing. This requires the termination of the use of fixed overhead allowances as the variable, actual, factual overhead cost will be known at each of the properties. Enabling an accurate accounting of the properties performance based on all of the actual variable costs of exploration and production. 

There are many advantages of moving to a system or methodology such as the Preliminary Specification. Cost and efficiency are just some of the reasons. The costs associated with the royalty payment service providers organization would be a small percentage of what is incurred by the industry today. By focusing on the most efficient way to process the industry's royalty payments, and only royalty payments, that specific service provider would become specialized and reduce their time and effort in doing so, yet increase the quality of the service of administering these tasks to a small component of what the costs are today. 

In Adam Smith’s pin factory, his research yielded a 240 fold increase in productivity from the specialization, division of labor and use of mechanical leverage that he made in the process of making pins. Having the royalty payment and other administrative and accounting processes in the industry subject to this type of analysis, complete with the software development capability and our user community of People, Ideas & Objects, similar results in productivity may be attained and continue to develop in terms of leveraging intellectual pursuits. All economic growth that has been achieved since 1776 is a result of the economic principles of specialization and the division of labor. The advancement of machinery employed in this process is how these changes continued to provide value to society. Today the application of software towards automation of our processes will yield similar benefits to what was realized in prior centuries from machinery.

When we consider the current corporate models attempts to provide the producers administrative and accounting needs for all that falls within their domain. And the understanding that is necessary to support those administrative and accounting tasks. The ability to build and maintain that capability and capacity is costing each and every oil & gas producer their profitability. What will come to be seen as an archaic business model will be the way in which the industry is operated today. It has to because it is unsustainable and a more effective and efficient business model based on higher definitions of specialization and division of labor will become the norm through the adoption of the Preliminary Specification. The industry's survival requires it. What we’re doing is moving from a reliance on each of the producers' fixed cost administrative and accounting capabilities to a reliance on the industries variable cost administrative and accounting capabilities. Eliminating the costs of each producer building, maintaining and incurring these non competitive capacities and capabilities in house. This is part of our shared and shareable model that we’re building on the conceptual model of Cloud Computing by providing what we are calling Cloud Administration & Accounting for Oil & Gas. An example of our Organizational Constructs implementation of Professor Paul Romer’s non-rival costs.

Our Decentralized Production Model & Price Maker Strategy

When we consider the next aspect of this change, our decentralized production model, this assures that we offer the most profitable means of oil & gas operation, everywhere and always. What we've experienced over the past four decades in North American oil & gas is unique in all organizations and of all business history. Although we learned during the great depression the economic consequences of overproduction, and experienced its consequences in oil & gas since the 1980s, no one seems to have explained it to the North American producer. Oil & gas overproduction in North America has been systemic and chronic throughout the producer population and will continue to be without an effective means and method of production discipline being imposed. The history over this period is stark and clear. In the late 1970s the SEC imposed its Full Cost Accounting and associated Ceiling Test requirements on producers trading shares in the American market. These requirements allowed producers to record costs in property, plant and equipment as assets up to the limit of the present value of their independently evaluated petroleum reserves. This allowed an unnecessary flexibility in the financial statements that created distortions since that time. Simply, shifting the accounting from an evaluation of performance to one of value, hence the producer's foolish objective of “building balance sheets” etc came about. This is the mindset of our good friends, the producer officers and directors. What we know of business is that overreported asset valuations lead to commensurate amounts of overreported profitability. Leading investors to rush in to capture those profits and hence a process of overinvestment begins. Overinvestment in the productive capacity of the oil & gas producers leads to overproduction of commodities that are subject to the economic price maker principles and characteristics. 

It is this reason that has caused the repeated and systemic collapses of commodity prices throughout this past four decade period. The first commodity price collapse that we can document was during the summer of 1986 when $10 oil prices decimated the industry for the better part of a decade. This is counter to the cultural belief that oil & gas commodities are price takers. These definitions are from investopedia.com

Price maker

A price maker is a monopoly or a firm within monopolistic competition that has the power to influence the price it charges as the good it produces does not have perfect substitutes. A price maker that is a firm within monopolistic competition produces goods that are differentiated in some way from its competitors' products. This kind of price maker is also a profit-maximizer as it will increase output only as long as its marginal revenue is greater than its marginal cost, so in other words, as long as it's producing a profit.

Price taker

A price-taker is an individual or company that must accept prevailing prices in a market, lacking the market share to influence market price on its own. All economic participants are considered to be price-takers in a market of perfect competition, or one in which all companies sell an identical product, there are no barriers to entry or exit, every company has a relatively small market share, and all buyers have full information of the market. This holds true for producers and consumers of goods and services and for buyers and sellers in debt and equity markets.

As evidence supporting People, Ideas & Objects claim of price taker characteristics I make the following argument in our User Community Vision. Officers and directors interpret substitutes to be; if they don’t produce others will, therefore substitution is everywhere. This is not what substitution means. Does it mean that Elon Musk could make it to Mars if he replaced rocket fuel with a hydro dam? Or could we use wind energy to lubricate our crankcase? How about storing nuclear fuel rods in the convenience of a jerry can as you travel outdoors this weekend. And if you’d be able to return alive from your weekend adventure you might make it back to the office in that new solar panel, or pine bark suit you just bought. Alternatively, if bottled water ceased to be produced people would switch to soft drinks, tap water, juice or other substitutes. Any overproduction of bottled water would see inventories swell and the price remain the same, as would the price of the last bottle of water found anywhere in the world.

The connotation of the economic term price maker has caused producer officers and directors to conclude this is collusion. We argue otherwise when the Preliminary Specification uses the Joint Operating Committee and will produce detailed, actual, factual financial statements for each property. Producer firms will definitively know the “real” profitability of each of their properties. A task that is not done today and more importantly can not be done today. And therefore producers will independently decide to shut-in their unprofitable properties to ensure they attain the highest level of corporate profitability. Invoking the necessary industry wide production discipline. Saving their petroleum reserves for a time when they can be produced profitably. Keeping their production and inventory costs lower by not incurring the costs of unnecessarily producing and storing unprofitable production. Ensure their reserves don’t have to recover the incremental costs of their prior losses as additional earned profits. And most importantly ensure that the marginal production is removed from the commodity markets allowing them to find their marginal price. 

While the property is shut-in the producer can apply their innovativeness, another Organization Construct of the Preliminary Specification, to return the property back to profitable production as soon as possible. People, Ideas & Objects and our user community are the appropriate business approach to the chronic and systemic overproduction of oil & gas and the persistent obtuseness of the producer officers and directors, not collusion. Profitable operations in a capitalist society do not necessarily denote collusion. Without “real” profitability there is only waste and deterioration as we’ve experienced these past decades. Without investors and bankers who were duped by these specious financial statements, there was no sustainable value generated, only destroyed.

The definition of collusion is provided by Wikipedia. 

In the study of economics and market competition, collusion takes place within an industry when rival companies cooperate for their mutual benefit. Collusion most often takes place within the market structure of oligopoly, where the decision of a few firms to collude can significantly impact the market as a whole. Cartels are a special case of explicit collusion. Collusion which is overt, on the other hand, is known as tacit collusion, and is legal. 

By definition then the Preliminary Specification price maker strategy may fall under the category of overt or tacit collusion. Which is legal. Each of the producer firms will be making independent business decisions of whether or not to produce at each and every one of the many properties that they own. Those decisions will be made on the actual, factual accounting that provides the information for that decision. The decision is to make a profit, if the property is shut-in due to unprofitability it will incur a null operation, no profit but also no loss. Achieved when the Preliminary Specification has made all of the producers costs variable based on profitable production. The decision to avoid a loss of corporate financial resources and assets, in the form of petroleum reserves, when producing an unprofitable property at a price that does not cover the marginal cost, in the long term perspective of marginal cost, (as per Wikipedia “analysis is segregated into short and long-run cases, so that, over the longest run, all costs become marginal,”) is a rational business decision, not collusion. This also provides, for the first time in the history of the industry, the ability for producers to indirectly control their overhead costs based on their profitable production profile.

OCI Abstract

 People, Ideas & Objects Preliminary Specification provides a comprehensive vision of the future oil & gas industry, producer and service industry provider. The Preliminary Specification is delivered through our Cloud Administration & Accounting for Oil & Gas service. A fourteen module ERP software system that uses Oracle Cloud ERP which defines and supports the Joint Operating Committee, three marketplaces and five other organizational constructs of the dynamic, innovative, accountable and profitable oil & gas producer. Our solutions competitive advantage is that we provide the North American oil & gas producer with the most profitable means of oil & gas operations, everywhere and always. Establishing a foundation for future North American energy independence.

People, Ideas & Objects vision is comprehensive and detailed in the 375,000+ words contained within the modules of the Preliminary Specification. Our software defines and supports a structured reorganization of the industry and producer firms. Through our decentralized production model, we implement a price maker strategy that converts the industry from a cash flow focus to one of “real” profitability everywhere and always. Once the industry is profitable we then deal with the resource constraints of the earth science and engineering talent through our Resource Marketplace, Research & Capabilities and Knowledge & Learning modules. It is through specialization and the division of labor that we’re able to expand the throughput of the industry from this constrained resource base. Similarly the devastation realized in the service industry is a constraint to production deliverability and needs to be purposely rebuilt by producers. Then and only then would we be able to approach the objective of achieving energy independence in oil & gas from the Canadian and U.S. marketplaces. Establishing the industry on the basis of profitably and removing the resource constraints of engineers & earth scientists, service industry capacities & capabilities which exist today are the necessary precursors to achieving energy independence. The vision of what Oracle, People, Ideas & Objects Preliminary Specification, our user community and their service providers set out to achieve.

It is reasonable to look to energy independence as an overall objective. Shale reserves provide for that. However, the way in which the industry is managed today makes that objective unreasonable and unattainable. Officers and directors have destroyed the financial, operational and political foundations of the industry. Today we see the producers have lost financial and operational control within their organizations and within the service industry of which they are solely dependent upon. Who provide these producers with the geographical and technical diversity necessary to carry out their operations in the field. We now have producers who are unable to function operationally at the capacity necessary to meet the long term demands of their consumers. 

Without significant capital to restructure and increase industry throughput. The current officers and directors are unable to achieve energy independence. They’ve never been concerned or capable of earning “real” profitability. Without establishing the industry on a foothold of profitability first and foremost. There is not enough capital in the universe to achieve energy independence in North America while remaining in the hands of these officers and directors. 

The next twenty-five years in oil & gas will be the most dramatic in its history. The demand for energy will ensure that prices remain high. Yet with the abundance of shale reserves ensures the costs of providing that energy are much higher than the costs of conventional reserves. And with many people joining the middle class we need to consider how the industry approaches this new energy era. Does anyone believe the current officers and directors, with the financial destruction they’ve caused in the marketplace today, will be the solution? And does that future involve an Information Technology perspective that is just a cost, or should it be a vision such as the Preliminary Specification provides today?

The key to providing this solution is that the Preliminary Specification is based on seven organizational constructs that include the industry-standard Joint Operating Committee. The legal, financial, operational decision-making, cultural, communication, innovation, and strategic framework of the industry. When we take the compliance and governance frameworks of the hierarchy and align them with the frameworks of the Joint Operating Committee we attain a speed, innovativeness, accountability and profitability that is desired in our oil & gas organizations. Our other Organizational Constructs include the reintroduction of specialization & the division of labor, establishment of markets, use of Intellectual Property laws, Innovation, Information Technology and Professor Paul Romer’s “New Growth Theory” regarding non-rival costs. Each construct establishes and contributes to setting a new cultural foundation to the producer firms and industry operation. A culture based on performance and profitability.

After all, as you’ll see, we are not talking about minor changes to the floor plan of accounting. We are exercising wholesale changes to the oil & gas industry by adopting the Preliminary Specification, and fully utilizing the Joint Operating Committee and these other Organizational Constructs. Change that is as significant as that which is represented by the changes in energy prices, the global energy supply and demand structure, shale reserves and IT leveraged change or disintermediation. Based on our research on innovation of Professor Giovanni Dosi and as applied by People, Ideas & Objects to the oil & gas industry, Professor Dosi asserts that the makeup of industries and companies are attributable not only to the endogenous force of competition. Innovation and imitation also make up the fundamental structure of an industry. “Market structure and technological performance are exogenously generated by three underlying sets of determinants.”

Each of the following three determinants are evident in the marketplace of an oil & gas producer today, as reflected in:

• The structure of demand.

Satisfying the demand of the global energy marketplace is critical to the advancement of all societies. American, western, Chinese and developing societies face real challenges in providing adequate long-term sources of energy. The long-term demands on the energy producer over the next 25 years have never been greater.

• The nature and strength of opportunities for technological advancement.

Which leads one to believe mankind has never faced the level of opportunity and acceleration that is possible today. The industrial mechanization of the past 100 years combined with the prospective mechanization of intellectual pursuits combines to markedly appreciate the value of human life. The availability of abundant, affordable, reliable and profitable energy will be critical elements of this advancement.

• The ability of firms to appropriate the returns from private investment in research and development.

The oil & gas industry is moving closer to its earth science and engineering principles. Innovation, research and development in both the producer firm and the service industry are and will become more commercial in nature. It is on the basis of the success or failure of these factors that will determine the success or failure of the producer firm within the industry.

The role of software in society is becoming more pronounced. Today we are still in the beginning stages of what can be done. For an industry such as oil & gas to continue without the software development capabilities that People, Ideas & Objects are proposing, and the organizational structure focused on the Joint Operating Committee, North American based producer prospects look dim. People, Ideas & Objects claim that we provide the innovative oil & gas producer with the most profitable means of oil & gas operations, everywhere and always. First by providing our software in the most cost effective manner. That is, charging our subscriber base for the one-time costs of our software developments on a shared and shareable basis. A fundamentally different value proposition coincidental with the value of Cloud Computing. To the assertion that we are establishing a Cloud Administration & Accounting for Oil & Gas software and services capabilities and capacities in North American oil & gas. 

And secondly, that in order to attain a higher level of economic output requires that the oil & gas industry employ higher levels of specialization and division of labor. To organize that specialization and division of labor in a continental economy requires the use of the software specified in the Preliminary Specification. There are no other means by which to organize a higher level of specialization and division of labor. Serendipity, spontaneous order and in many ways creative destruction have ceased to function. Officers and directors have now proven the producer firms inability to change or accommodate the speed of the marketplace. Therefore our claim to be the most profitable means of operations is valid. The only manner in which to move from the high levels of organizational methodology we currently enjoy is to design and support a more sophisticated specialization and division of labor. And that will be detailed and managed through the Preliminary Specification. We need to take control of the production of the software in order to take control of the means of energy production. That is what People, Ideas & Objects user community-based software developments are about. 

Thirdly, our development of the decentralized production model, as detailed in the Preamble, provides the oil & gas industry with the capability to allocate oil & gas production on the basis of profitability throughout the industry and obtain “price-maker” strategies. For producer officers and directors to continue to assert that oil & gas commodities are subject to the economic principles of “price takers” is a continuation of their failure. Production discipline provided from the Preliminary Specification is the necessary mechanism in the prolific and costly era of shale-based reserves. Otherwise, the industry and producers will continue to lose money due to their many decades-long behavior of chronic overproduction and oversupply in both oil & natural gas.

When it comes to undertaking a large project such as People, Ideas & Objects Preliminary Specification. And we have budgeted the project at $15 billion in its initial commercial release. Is a need to maintain a sense of urgency for the people involved through to the end of the project. As we know, most people will remain motivated as long as the money keeps flowing. Therefore, how do we ensure that the money keeps flowing? It is through the fact that we provide the most profitable means of oil & gas operations that we can motivate the producers to maintain their sense of urgency in keeping this project funded and moving forward to its conclusion. The alternative is the current officers and directors version which has effectively eliminated them from consideration. In the future, it may not be enough to own the oil & gas assets. It will also be necessary to access the software that makes the oil & gas asset profitable, that is the importance of software in today’s society. Our value propositions monetary value over the current offering is valued in trillions of dollars for the next 25 years and provides the greatest return over any other investment industry could choose. 

People, Ideas & Objects are actively disintermediating the oil & gas industry and as a result have created the adversarial position this role demands. Therefore we have come up with an innovative method in which to fund our budget which we describe as “Profitable Production Rights.” Which provides the license holder of the Profitable Production Right the ability to simultaneously benefit directly from both participation in oil & gas and the Information Technology industry. Profitable Production Rights licensees hold the exclusive rights to access People, Ideas & Objects Cloud Administration & Accounting for Oil & Gas. Therefore any producer in need of an organizational method that includes the software and services will need to have secured the appropriate amount of Profitable Production Rights to process their production, etc.

From the fourteen modules Preliminary Specification, there is an overall vision of how the innovative oil & gas producer and the Joint Operating Committee would function in this new energy era. I had two comments made to me when I wrote the Preliminary Research Report. The comments were that “this solves every administrative issue in oil & gas for the past fifty years” and “it's an entirely new discipline.” Both were related to the significance of using the Joint Operating Committee as the key organizational construct of the innovative oil & gas producer. What I think that we can say as a result of completing the Preliminary Specification is that both of these comments underestimate the significance of using the Joint Operating Committee. What we’ve discovered is that the Preliminary Specification certainly resolves the administrative and accounting issues when the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks are aligned with the compliance and governance frameworks. However, when it comes to the operational concerns of the oil & gas industry, it will provide the frameworks and means to solve those problems too. And although People, Ideas & Objects have used them to highlight today's operational issues they’ll also provide solutions for tomorrow's issues and opportunities.

Changing the innovative behavior of one producer carries a scope of change that is as broad and as diverse as is contemplated in the business world. Change at this scale in many instances can not be managed within the organization but needs to be managed through the forces of creative destruction in the greater economy. Producing natural gas at a loss was the beginning of this process. We have now seen natural gas producers continue to lose money for more than a decade while the Preliminary Specification was available to be developed. Yet nothing was done to address this issue. At the height of the issue, we saw the officers and directors pray for a cold winter, abandon shale and reorganize as clean energy producers. Solutions to the actual problems have not been discussed or provided outside of People, Ideas & Objects, and the low natural gas price issues remain unaddressed in early 2023. The fact is officers and directors can’t, won’t and will not ever change. Over the early years of the natural gas price declines the relatively higher oil prices were able to cover many of the sins in the natural gas marketplace. For the past nine years, low oil & gas prices have put the industry and many of the producers in financial jeopardy due to both sides of the business's poor performance. An anomaly that hasn’t happened before. We believe these are the beginning stages of the forces of creative destruction. People, Ideas & Objects offers the Preliminary Specification, our software development capabilities, our user community and their service providers as an alternative organizational structure for the oil & gas investor to instrumentally rebuild the industry. 

Producer officers and directors have a propensity to collectively race into the “next big thing” in terms of their capital investments. Abandoning their prior “next big thing” investments with little thought or concern that they’ve never attained commercial success. Just as sheep they move from failure to failure in lockstep with one another. 2021s producer declaration that shale would never be commercial was quickly followed by their new focus and direction on clean energy. This after decades of low oil & gas prices being justified by the excuse that it was necessary to ensure alternatives didn’t get a competitive foothold. Only to shift the producers oil & gas revenues, generated by prior oil & gas investors, to clean energy in an unauthorized manner as they would have otherwise run out of “next best things.” 

Today the landscape is littered with the destruction and damage that has been authored by officers and directors and comments such as clean energy is their future does nothing to support a robust industry. Raising issues such as it should clear out the last remaining holdouts who were firmly committed to petroleum engineering and geology at the university. Any possible new investments in drilling rigs or frac capacity will have added just one more to the thousands of reasons never to invest in the service industry when producers are this abusive. And shown those trapped in an oil & gas career not to start a family or take on a mortgage in such an insecure economy, but to continue to look for work in other industries first. The positive from all of this is the officers and directors are fine and they thank you for asking. With consistent cash flow they’ll continue to provide themselves with the healthy compensation they’ve been able to “earn” over these past decades. These officers and directors are the only people who have benefited financially from oil & gas which to them is a feature, not a bug. 

I’ll only point out here that overproduction was the root cause of the Great Depression. Oil & gas overproduction has been the method of destruction for four decades. The first of possibly dozens of resulting commodity price collapses occurred in the summer of 1986. This Preliminary Specification was originally published in August 2012 and deals specifically with oil & gas overproduction. And on July 4, 2019 People, Ideas & Objects published our White Paper “Profitable, North American Energy Independence — Through the Commercialization of shale.” Which was widely distributed and received the thumbs down from our good friends, the producer officers and directors. Their absolute response came nine months later in the form of negative $40 oil prices. Only to declare shale would never be commercial and to move on to clean energy with oil & gas revenues. Our conclusion is the only conclusion one can discern from this. The officers and directors don’t appear to understand business, or maybe it's just the oil & gas business they don’t understand and they don’t know what business it is they’re in. 

A time of dynamic change driven by organizational changes focused around an innovative Joint Operating Committee. How can a firm that has been developed in an era of cost control transform itself into a dynamic, innovative, accountable, profitable and earth science & engineering capability-focused producer? In many cases the will to do so might exist, however, with the speed and unforgiving nature of the business cycle not much time will be provided to those that attempt the transformation. We see in this world the capital markets reflecting many interesting phenomena since the financial crisis of 2008. To suggest any trend or definitive result from these would be premature. It's just a different world in terms of being an oil & gas CEO or CFO than it was before 2008. And early 2023 appears to continue with wars, market surprises and disruptions that affect the producer firms.

It was in late 2022 at the Oracle CloudWorld Conference that Oracle accelerated the value that firms gain from ERP systems. Introducing advanced, integrated services that established reductions in costs and time of any firm that used their products. Examples include their integration with J.P. Morgan Chase Bank which enables users of the bank's credit cards to designate the destination of the charge within their companies accounts. Oracle Cloud ERP would then verify the charge was consistent with the company's policies and process the charge to J.P. Morgan Chase Bank on the basis of its eligibility. This eliminates the costly and time consuming task of filing expense reports that each of their staff need to undertake, and the time for others to process and review the expense reports. Considering the impact across the firm for the entire year, what this innovation and integration will yield in terms of gains include greater productivity in terms of time, lower cost and an overall reduction in everyone's frustration.

Oracle has not stopped there. This is a major initiative of theirs and what I see as the focus of their firm's future developments. What they have is the world's premier tier 1 ERP system. This is the route in which to leverage that value further to bring about the most customer value. These features are available globally and for all industries who chose to use their products. As People, Ideas & Objects have chosen to build upon Oracle Cloud ERP we will be providing these services to North American oil & gas producers. Oracle's developments will be incremental to the specific oil & gas attributes that we’re building to deal with the issues and opportunities of the oil & gas industry. Providing People, Ideas & Objects, our user community and their service providers the chance to build similar, unique time and cost saving attributes.

A New Direction

 I can remember how I felt back in 2007, 2008 and particularly throughout 2009. The evidence of the economic difficulties were being experienced broadly across all industries and the need for oil & gas to act to build the Preliminary Specification was beginning in my opinion. The Preliminary Specification was three to five years from being completed, I was four to six years into its content creation and had an immense amount of work left to do. The feeling that I was late and would fail to deliver on time was weighing heavily on me. Fast forward a decade and a half, we appear to be headed for more serious economic difficulties, ones that will devastate most businesses and the great majority of those who did not react appropriately to 2008s warnings. Artificially low interest rates over the past two decades have given license to those who thought they were producing value, such as oil & gas producers. The bill always comes due for these periods and the banking situation in the U.S. is showing me that time has arrived. Therefore the consequences of those actions by those who did not understand and ignored the lessons of 2008 will now have to be paid. 

Unfortunately there is little that can be done now. Other than the slim possibility that businesses and individuals are able to rapidly pay off their debts by selling assets at today's market values and do so quickly, otherwise they may be too late and will have no choice but to face the music. Times such as these, that are best described as capital asset deflation, little can be done to stop what’s about to happen. The world has a total of $300 trillion U.S. dollars of debt. This is measured as 349% of global gross domestic product. As interest rates rose the cost of holding the debt should have been offset by selling the assets associated with it before the assets went underwater. Generally speaking that’s too late now and whether interest rates continue to increase or decrease or hold doesn’t matter. It’s out of the regulators and the U.S. Federal Reserves hands. The market will be setting the terms and conditions from this point forward. And interest costs will become more of a burden as the assets pledged for the debt will no longer generate adequate income or compensate for the amounts of outstanding debt. Therefore investors and bankers will be wanting higher interest rates to cover their losses. Which turns this into the downward spiral until we can restart the process once again. Why the Fed had to have two decades of ultra low interest rates will be a question for the history books. An answer that may be provided a century from now. 

For me the sense of urgency that I felt in 2009 returns to bring the Preliminary Specification up to date. A process that I started around this time last year. And then restarted again in October 2022. The restart being the result of the changes that Oracle made to Oracle Cloud ERP which I feel are so significant that they must be included in the Preliminary Specification to provide an understanding of the general business functionality and process management through Oracle, and People, Ideas & Objects will build the oil & gas attributes to work seamlessly with Oracles. The higher levels of automation, specialization and division of labor will be noted throughout our writings to get a better feel for the significant advance Oracle has and will be making in the future. People, Ideas & Objects are very excited about what Oracle is doing and are pleased that we can build upon the value that Oracle Cloud ERP is bringing to all industries.  

I think the one industry that is poorly prepared for the Capital Asset Deflation we’re heading into is North American oil & gas. They operate a capital intensive industry, which they’ve made far worse by “building balance sheets” and other such nonsense, and will therefore be experiencing greater exposure. Producer debt levels are commensurately higher due to over reported asset values and their inability to ever make any “real” money, their capital structures being unsupported and seemingly oblivious to basic business principles. I have no doubt though that those paper thin, well built, “balance sheets” will prove their worth in this storm the producers are heading into. 

Therefore my argument is going to be drowned out by the screaming and yelling of those who are about to find out how bad oil & gas has been managed. I have a job to do to get the Preliminary Specification in the best shape that I can for the time that I feel we’ll be called upon. I feel a sense of urgency to get this completed as my priority. Time spent on this task will mitigate the amount of time that will be spent overall in terms of delivering the Preliminary Specification to market and reduce the amount of any confusion, errors or omissions. Therefore as of today the reviewing of the Preliminary Specification will continue as my priority.

The other task I’ll be concerned with is the promotion of the Profitable Production Rights Licenses as the means to fund the development of our software and our user community. I’m a bit disheartened however that my career in terms of screaming at bureaucrats may only resume in another life.

Operations Management Module, Part X

 Performance Evaluation

This last sub-section of the Operations Management module brings together an advanced toolset that producers and Joint Operating Committees can use to develop and test new criteria for better performance. The combination of the Analytics & Statistics, Performance Evaluation and Artificial Intelligence module within the Operations Management module is advantageous due to the combination of the financial, operational and technical data and information. This data being the engineered and documented data that is the output of the process of building the Preliminary Specification and establishing the objective and standard qualities necessary for its unimpeachable nature of what is presented and understood by its users.  

Working on the performance aspects of the producer and Joint Operating Committees the user of the Operations Management module doesn’t need to be making decisions that are based on bad data or information. The reliability and understanding of the conclusions made are only as good as its data and the information quality that exists, its consistency and what users believe the data represent. To suggest that Artificial Intelligence will be of any value when the data and information that it uses is questionable, is only the latest iteration of an Information Technology widget as the solution to a business problem. People, Ideas & Objects approach to Artificial Intelligence is fundamentally different. 

As I indicated in the Pro-forma Worksheet section of the Performance Management section of this module. The use of decision making based on factors outside of the framework of the accounting system, which is imposed when using the Pro-forma Worksheet, would lead to incorrect assumptions and hypotheses. This is of particular concern in using the Performance Evaluation section to make the performance based decisions on the actual, factual data but not using the strict interpretation of the financial accounting system and therefore leading to incorrect decisions being made on clean data nonetheless. However taking the SEC’s perspective is not how innovation is developed. New and creative perspectives and ideas need to be developed and understood for their stand alone value in order to see their worth. Once proven in the Performance Evaluation section, testing the theory in the Pro-forma Worksheet would then provide its business understanding and implications. 

This is the point of divergence between what the investors believe they see in oil & gas, and what it is the officers and directors are producing. The SEC sets out through its coordination with accounting standards bodies and the audit firms to provide a generic understanding of financial accounting in North America. Such that when an investor analyzes an annual report from company A in industry B, they’re able to use the same understanding and apply it for comparison to company C in industry D. They then will be able to make the appropriate decision as to where to invest their money for the optimum return. When company A in industry B has gone off the cliff in terms of the generic understanding of financial accounting, have begun using their own criteria to make their performance exaggerated, then investors appropriately feel betrayed. 

The purpose for this use of a standardized reporting system is substantial. It eliminates the need for each and every investor to spend the time to review each and every document of each potential investment they consider. When they understand the general framework of how the North American reporting system operates, they can defer to it and not have to spend the time reviewing the details at great cost to themselves and at the same time incur an unacceptable cost for the firm to be catering to each and every potential investor's question, their concerns and needs. Markets operate on information. Information in the form of price, when the understanding of how that price is generated then the market is able to operate efficiently. 

It is the implications of the changes that are being made within the Pro-forma Worksheet that need to be considered in all cases. It is doubly so when the mixture of many changes being made may have an overall negative effect on earnings that need to be avoided. Or the changes that generate any detrimental consequences need to be removed. When producers have the ability to see what their investors in oil & gas understand. Adjust their decision making to ensure profitability everywhere and always, the consequences of those decisions being made will be able to avoid future difficulties and errors with their investors. 

Analytics & Statistics, Performance Evaluation Modules

These two modules consist of the tools that are able to provide their users with the ability to perform statistical analysis on the data and information they’re authorized to access in their domain. The Performance Evaluation module is for the Joint Operating Committee and Analytics & Statistics provide the same tools for the producer firm as a whole. The difference is the domain of the data and information is constrained in the case of the Performance Evaluation to the members of the Joint Operating Committee.

The means to build a library of tools to use personally, as a team, a Joint Operating Committee or producer firm is available in each of these modules. The use and reuse of these formulas will assist in providing accuracy, understanding and value to each organization. The domain of an individual's data would be prescribed by their authority and responsibility within the organization of concern, and managed by the Oracle Autonomous Database role definitions.

Artificial Intelligence

ChatGPT has demonstrated the concerns that I have about Artificial Intelligence and its value. Producer firms have been using Artificial Intelligence in their organizations for up to three years now and I am unable to notice any marketable increase in their performance. I often tell people who seem so enamored with AI, the ones that were all over Facebook, that they should go write a software program. Find out how difficult it is to actually conduct anything serious in technology and then reconcile their vision of AI with that reality. 

Our approach in the Artificial Intelligence module is one of cost mitigation in this initial phase of the introduction of the technology. The costs and resource uptake involved in Artificial Intelligence is high. As with innovation the costs need to be controlled and monitored effectively with the appropriate organizational means. In People, Ideas & Objects Preliminary Specification AI is a shared and shareable resource due to its high development costs and the demand for high cost, quality resources that may in fact be displaced from productive activities. If each producer sets out to incur these costs on their own we’ll find the other factor consistent in today’s AI implementations. There are currently only 1% of these initiatives that are considered successful. 

Separate and distinct from the Analytics & Statistics module. Artificial Intelligence in the Preliminary Specification is a shared and shareable resource that is available to the Producers and Joint Operating Committees to use. Based on the development of a packaged, proven number of algorithms that are tried and tested before availability. Artificial Intelligence is potentially a powerful tool that can add significant value to a science based industry such as oil & gas. However, each and every producer throwing extensive resources at this unproven technology will, I believe, maintain its unproven nature. Ensuring that it never will become an effective tool when it fails to deliver any value at significant cost. With the high cost of AI and its success rate below 1%, sharing the costs of the infrastructure of these non-competitive resources, producers will be able to deploy it as they discern its value. 

Therefore if we provide a means in which the contributions of a service provider were available, where collaboration across the industry as to the application and use of the AI algorithms, what are the possible enhancements etc. The need to control the costs and share in its success / failure can be managed once across the industry instead of at each individual producer. When and if the success and value of the AI resources should break out into a meaningful and highly valuable discipline the industry will be able to take advantage of what it has learned in this initial phase, turn it into a competitive advantage and build from there the individual capabilities in-house what is deemed necessary. If it is deemed a success there would be an initial infrastructure in place from the collaborations and markets established through these service providers and therefore something in which to build upon. Today there appears to be only science fiction. 

There have been too many times that we’ve been led to believe that some whiz bang IT product was going to make the world spin to the left. AI appears to be today's approach. People, Ideas & Objects approach is to initialize the technology within the science and technology based industry of oil & gas, control its costs through the Organizational Construct of making it a non-rival cost, or part of Professor Paul Romer’s “New Growth Theory.”   

Operations Management Conclusion

Producers within oil & gas are faced with an interesting dichotomy. One in which profitable operations are the only acceptable means of production everywhere and always from this point forward. Much has been wasted in the past decades and the capital structures of the producers are unsupported. Damage and destruction is extensive and only a comprehensive rebuild of the industry and its secondary industry based on the Preliminary Specification is able to resolve the existential organizational issues facing the producer officers and directors. Continuation of “muddling through” does not appear to be capable of dealing with these issues or resolving the most difficult future the industry has ever faced. The other side of this dichotomy of providing profitable oil & gas operations everywhere and always is that the consumer needs to be provided with reliable, secure, abundant and affordable energy resources. With the objective of North American energy independence being fulfilled for the remainder of the 21st century. With 10 to 25 thousand man hours of equivalent manpower contained in each barrel of oil equivalent. The supply of this resource is a necessity to our civilization.

We’re not going to get there with the chronically unprofitable production of the past four decades. The investors have bowed out and the only source of capital large enough to fulfill the task to fund these capital demands is the profitability of the industry. In other words the oil & gas business in North America is going to have to be operated as a going concern. Only the Preliminary Specification has the plan in which to make that happen. We have no right to pass an industry on to the next generation until we can prove that we’ve produced the resource responsibly. Which means all of it was produced profitably. Each barrel of oil equivalent should be profitable from the “real” sense from this point forward as the resource is irreplaceable and is the blood of our economy. If we lose the script now it would not be difficult to foresee foreign sources of oil & gas demanding North America to play second fiddle to China, Russia or others in terms of our supply demands? 

People, Ideas & Objects Operations Management module is designed to provide producers and Joint Operating Committees with a means to monitor and control their operation. Establishing a sound base of data and information necessary to ensure that decisions and actions are conducted with precision and profitability in mind. Where the financial, operational and technical data of the producer or property are available for use. Technologies involved in the Internet of Things are deployed and operational to the advantage of these users. And resources are deployed based on the budgets and plans that are generated and set through this module. The Operations Management module is the aggregation of and accumulation of the efforts that are being undertaken in the Preliminary Specifications other 13 modules and presented in a format where the information can be used effectively for profitable decision making.

Operations Management Module, Part IX

Conclusion to the Research & Capabilities, and Knowledge & Learning modules

These two unique modules are designed to deal with the distinct competitive advantage of the producer firms through what can only be seen as the most difficult and challenging period of oil & gas history that begins today through to 2050. To establish a footing of profitability everywhere and always will be a challenging transition when the business discipline takes center stage in the decision making process. And it will be there that better, actual, factual, standardized and objective information in terms of comprehensive financial statements and other information will be provided for each Joint Operating Committee by the Preliminary Specification enabling those decisions to be made through this Operations Management module. When there is none of this business information available these resources have resorted to their own means of determining what the situation is and the status of the industry today is the consequence. 

To suggest this occurred by accident would be incorrect. There is no doubt in my mind that the lack of any funding of even reasonable levels to the ERP providers in oil & gas was deliberate. The self-serving means of those officers and directors who have chosen not to be accountable for their actions. Discovered they were best able to attain their lofty objective through purposely inadequate ERP systems, disorganization, their excuses, lies and viable scapegoats. When was the last time officers and directors took responsibility for any aspect of their authority or the business they’re responsible for? They’ll state that “oil & gas is such a complex industry,” hide the details, confuse the point and claim they don’t have the data, which as stated they don’t. Convenient and easy. 

In 2015 their investors said enough and ceased to continue funding the industry any further. An industry that was and is incapable of supporting itself through “real” profitable operations. An industry where officers and directors are satisfied personally with what is generated in terms of cash flow from investors prior investments, keeping them enthused for another year. They’ve lost the common sense of what it is that a business should do and how it would do it. Establishing corporate objectives such as “building balance sheets” and “putting cash in the ground” as reflections of how obscure and indecent their lunacy has become. 

Nonetheless the industry is in a state where its issues throughout North America are serious and demand resolution. The seriousness of the difficulties we face is not only the volume of issues, but their consequences. I’ll first put an apt quote from Professor Richard Langlois’ paper “Transaction Cost Economics in Real Time”

F.A. Hayek (1945, p. 523) once wrote that 'economic problems arise always and only in consequence of change.' My argument is the flip-side: as change diminishes, economic problems recede. Specifically, as learning takes place within a stable environment, transaction costs diminish. As Carl Dahlman (1979) points out, all transaction costs are at base information costs. And, with time and learning, contracting parties gain information about one another's behavior. More importantly, the transacting parties will with time develop or hit upon institutional arrangements that mitigate the sources of transaction costs. p. 104

• The protracted oil & gas downturn, covid and other concerns leaving inappropriate staffing levels available in the industry. 
• The inventories of work-in-progress within the industry and producers are shallow and will demand excess attention. Issues such as shales decline curve and the cannibalization of the processes that support normal operations. What capacity is the industry capable of operating at?
• Capacities and capabilities in the service industry are a severe detriment to the needs of the producers in the normal course of business. Service industry representatives are not motivated to rebuild the infrastructure that producers destroyed during the past decades and most particularly during the COVID epidemic. 
• The service industry will not rebuild their industry to have it ruined again by producers. Their thinking is if the producers had some skin in the game then they’ll think twice about destroying that industry again. Therefore the producers broke it, the producers can fix it. Oil & gas producers are the primary industry and all others participate in secondary or tertiary industries. 
• Rebuilding, refurbishing, reclamation and infrastructure need to be undertaken on a scale never done before. Just to maintain the status quo production. The status quo is unacceptable to the most powerful economy in the world, and if we become dependent on foreign sources of energy we may no longer be able to claim the title of most powerful economy. 

The serious nature of the consequences of continued inaction on behalf of the officers and directors will have a severe impact on all those involved in North American society. The officers and directors are fine and they thank you for asking. They are oblivious, uncaring and fundamentally inactive. “Mudding through” and “doing nothing” are the only strategy and tactic I’ve ever seen from this bunch. They can sit high above and continue to criticize the Preliminary Specification because it was rude, or it didn’t have that feature or they didn’t like that one and wait for exactly what it is they’re thinking of when they’re “muddling through.”

However we are undertaking a comprehensive rebuild on the basis of the vision of the Preliminary Specification. We won’t be compromising and dealing with them in much detail. We’ll ignore what we feel are their cultural influences and establish the performance based culture that we are seeking. A comprehensive rebuild at this time will be less onerous, it will take far less time than attempting to deal with their compromises and culture. And our user community will be far more successful building from the ground up in terms of breaking away from the losing traditions of today's oil & gas producer. 

I’ll reiterate that the Intellectual Property that underlies the Preliminary Specification is comprehensive. Any effort by the producer officers and directors to circumvent it in any way our IP will be dealt with. They are unlicensed, unauthorized and warned not to use it. Other software companies whose revenues are dependent upon their Intellectual Property respect other software vendors Intellectual Property. Therefore we feel the appropriate level of assurance that none of our IP will be used by them. The implications of this are broad and consequential to the producer firms as they are therefore unable to breach what we have set out in any attempt that they may make to establish alternative ERP systems. As indicated earlier in this conclusion to the Research & Capabilities and Knowledge & Learning modules. Producer officers and directors are probably satisfied with that as it reinforces their method of operation in somewhat of a permanent state. Or until someone makes the decision for them to build the Preliminary Specification with our Profitable Production Rights initiative. 

Finishing off the Research & Capabilities and Knowledge & Learning modules we have a quotation from Professor Richard Langlois that builds off of Harvard Professor Carliss Baldwin’s “Knowledge begets Capabilities, and Capabilities beget Action.” There is also the quotation from Professor Richardson that capabilities are the “Knowledge, Experience and Skills” (1972, p. 888) to which we at People, Ideas & Objects have added “Ideas.” And this next quote from Professor Langlois helps to bring the clarity we need.

In a metaphoric sense, at least, the capabilities or the organization are more than the sum (whatever that means) of the 'skill' of the firm's physical capital, there is also the matter of organization. How the firm is organized - how the routines of the humans and machines are linked together - is also part of a firm's capabilities. Indeed, 'skills, organization, and technology are intimately intertwined in a functioning routine, and it is difficult to say exactly where one aspect ends and another begins' (Nelson and Winter, 1982, p. 104). p. 106

Operations Management Module, Part VIII

 Knowledge & Learning

We should begin the discussion of the Knowledge & Learning module with an appropriate quote from Professor Richard N. Langlois in “Transaction Cost Economics in Real Time.”

In this sense, the ability of a large organization to coordinate the implementation of an innovation, which is clearly an advantage in some situations, may be a disadvantage in other ways. Coordination means getting everyone on the same wavelength. But the variation that drives an evolutionary learning system depends on people being on different wavelengths - it depends, in effect, on out-breeding. This is something much more difficult to achieve in a large organization than in a disintegrated system. Indeed, as Cohen and Levinthal (1990a, p. 132) point out, an organization experiencing rapid change ought in effect to emulate a market in its ability to expose to the environment a broad range of knowledge gathering 'receptors'. p. 120

In terms of Organizational Constructs the Preliminary Specifications Knowledge & Learning module relies heavily on the Joint Operating Committee, specialization and the division of labor, Intellectual Property, Innovation and Markets. Five out of the seven shows a high dependence on cultural influences. This tells us that the implementation of this module will be difficult as the cultural forces that exist will resist these changes. To which we'll apply our standard approach of ignoring them as we’re rebuilding the industry. And secondly the form of the module will have strong cultural support once what exists is forcefully ignored. 

Whereas the Research & Capabilities module is a producer-facing module that captures and documents the distinct competitive advantages of the firm's earth science and engineering capacities and capabilities. The Knowledge & Learning module is a Joint Operating Committee module designed to manage the specific properties organizational needs. 

People, Ideas & Objects have used specialization and the division of labor throughout the Preliminary Specification as an Organizational Construct to focus the producer and Joint Operating Committees organizations on what they do best. These specializations are broad and diverse throughout and include allowing computers to just store and process information while having humans do what humans do best, which is comprehensive and not just shuffling data about. We have specialized the process of innovations development within the producer organization to ensure they’re constrained, focused and their costs are controlled with results and deliverables. The Knowledge & Learning module specializes in the Joint Operating Committees ability to take the producer firms that are working interest owners of that property. And select from each of those firms what specific capabilities and innovations are available, at what capacities they’ll be needed by that property and for what role they’re required. Organizing them and deploying them to ensure that their field objectives are attained.

It should be noted here that the information, the capabilities that populate the Knowledge & Learning module for each Joint Operating Committee. Is not the full complement of what the producer has developed in terms of their capabilities. Each of the producer's capabilities when developed and made available will be selected or tagged with the type of capability and its application. Therefore a capability involved in multilateral fracing will not have been populated to a producing zone, operation type, region, etc to the Knowledge & Learning module of a Joint Operating Committee without those characteristics. It will only receive those producer capabilities for the purpose that they are undertaking. 

It is this process of specialization in the earth science and engineering resources that will cause producers to incur uncommercial operations under the current management. Having the full breadth of skills in house will demand too extensive of an infrastructure and resource uptake for producers to remain viable. Particularly during the era of the looming constraints of these resources. People, Ideas & Objects have therefore eliminated the “operator” designation and created the “pooling concept” in order to resolve these resource and specialization issues. This reorganization is necessary as the demand for these resources is subject to a number of changes that are outside the producers control. The current brain trust is retiring and the intake from the universities are not replacing them quickly enough. Higher throughput needed for energy independence and the demand for incremental earth science and engineering effort increases with each barrel of oil produced. A method is necessary to deal with this issue and People, Ideas & Objects are using the only viable alternative to elevate an organizations throughput through specialization and the division of labor.  

The question then becomes what amount is charged to the Joint Operating Committee for these resources hourly charges through our Work Order system. What we have developed is a unique factor that represents the value of each individual producer's performance, innovativeness and value in terms of their earth science and engineering capacities and capabilities. Revenue Per Employee will be used to determine the charge out rate of any of these individuals who will work at a Joint Operating Committee through the Work Order system. A senior engineer will be charged at x% of Revenue Per Employee and a junior engineer will be charged out at y% of Revenue Per Employee. The diversity in calculating the Revenue Per Employee numbers throughout the North American producer population provides for a remarkable variance. It is the only factor that I can point to that differentiates the quality of the producer in terms of performance. Any overt attempt to increase the producers Revenue Per Employee factor would only create incremental shareholder value and spark a competitiveness within the industry to increase this factor. A floor price for these resources would have to be established for the start-up and small producers due to their initial limited production.

Preparation and development of the specific capabilities of the producer, and most specifically their innovations. Are processes that are controlled and managed within the Research & Capabilities module. Seeking to reduce the costs of innovation by controlling, testing and developing them before they’re deployed too soon. And to ensure that the producer organization is not consumed by too many similar innovations being conducted repeatedly throughout their organization. Once the innovative procedures are documented in the Research & Capabilities and are ready to be deployed. It is through their availability to the Joint Operating Committees that each of the properties working interest producers will be able to access those capabilities and select them to be deployed. It is the Knowledge & Learning module that is the method that innovations, capacities and capabilities are deployed within the property. Using the fully tested and documented processes which each of the Joint Operating Committees producers have established and made available for use.

What may appear to be freewheeling markets to some of the existing officers and directors of the producers today is nothing more than the difference between using the market to provide for what it is the producers need. As opposed to what it is that is tightly controlled within the producer organizations under the “operator” designation today. Freewheeling markets may be an apt description of innovative developments as they are perceived as being messy. However they should not be considered to be uncontrolled in the Preliminary Specification. I would suggest that in the Knowledge & Learning module the ability to maintain high levels of operational control is available through these interfaces. In the Operations Management module we see many aspects of the operations that are not currently provided. The data and information of the financial, operational and technical domains have all been engineered in the People, Ideas & Objects et al software development process to ensure their high levels of integrity and accuracy. The level of documentation of capacities and capabilities are done for a variety of different reasons and the purposes in doing so are comprehensive. The ability to deploy the producer's resources through standardized and agreed methods of what the program will consist of once the selection in the Knowledge & Learning module has been made. And lastly the control of the operation through the Work Order, AFE, Job Order and other means. This will appear messy at times, however reliance on the process will ensure the outcome.

Principally People, Ideas & Objects believe that higher commodity prices are a reallocation of capital that will be necessary to fund the innovations and capital deployment for that very long list of capital projects that need to be undertaken in North America. “Muddle through” doesn’t appear to have been able to identify they have a problem and the firm's officers and directors continue to sail through clear blue waters, or so it would seem. Conversely the Preliminary Specifications price maker strategy is designed to ensure that the actual, factual costs of oil & gas exploration and production are recorded within each Joint Operating Committee to ensure that they remain profitable at all times. If they are no longer profitable, these properties are shut-in so that they’ll generate a null operation, no profit but also no loss. At which point the Joint Operating Committee can turn to the Knowledge & Learning module to determine what is the best course of action that is available to remedy its lack of profitability, and return it to profitable production as soon as possible. In an environment of ever increasing costs the accuracy of actual, factual, standardized and objective accounting information will be critical.

A question that I would ask at this point is whom do you want to participate as partners in Joint Operating Committees. There has been an interesting trend in oil & gas of renewal over the past decades. What was in the 1970s and 1980s a landscape dominated by large corporations quickly saw independent and start-up producers become the dynamic growth arena in the 1990s. Today many of the producers from the 1980s and 1990s that set out the independent producers movement in the oil & gas industry are no longer with us. The past few years has seen high levels of consolidation being the means in which to survive the difficulties in oil & gas leaving even fewer producers than before. Consolidation has been highly beneficial for the clean energy industry but not much else. Now that officers and directors realize their misdirection into other industries was a mistake, will they ask for forgiveness? Will that allow us to trust them that much more? What we believe the Joint Operating Committees would best be represented by would be the start-up and small producers having the opportunity to participate. They are the ones that have driven the change in the industry and it is the change in the industry that is most needed today. Innovation demands that we expand the reserves base, increase revenues and reduce costs. What is it that we’ve seen out of the consolidated producers is foolishness, misguided adventures and nothing much else.