A Decade Passed
On August 9, 2023 People, Ideas & Objects marked the 11th anniversary of the Preliminary Specification. We are pleased to be in the position we are due to our work in resolving marketplace issues for North American oil & gas producers. Our dealings with producers are difficult and rife with conflict and contradictions. Throughout our history we’ve experienced none of the behaviors that we would expect from our approach to providing the most profitable means of oil & gas operations everywhere and always. Why is this? What’s wrong with profitability? Why would producers continue to produce a property unprofitably for years or even decades at a time?
During this past decade, these producer firms have destroyed their financial, operational and political foundations. They’re now incapable of meeting the needs of their shareholders and bankers, incapable of sourcing the manpower to deal with today’s market demands, a service industry that has lost much of its capacity and capability, officers and directors seemingly unaware that tomorrow only brings greater challenges and today’s energy consumers will be looking to producers for more at a time when their cupboards are bare. Whatever objective producer officers and directors were pursuing it will cost society detrimentally and unfortunately put our way of life in jeopardy. I cannot understand what their objective was. The Preliminary Specification is the solution to avoiding all of this. All concerned, who have been fundamentally betrayed in this process, would have gained substantial value from this alternative. Everyone in all corners of the greater oil & gas economy can now fully understand and appreciate why profits are necessary. And today we can recognize that the Preliminary Specification is in its second decade.
What are the consequences of the inactions of North American oil & gas producers? To summarize the status quo as I see it today.
Producer firms have diminished and in many cases unsupported and non-existent capital structures.
Either through chronic losses or specious accounting which saw everything as a capital asset and never recognized as a cost, in a capital intensive industry. Conversely, creating equally inflated earnings.
A capital intensive industry would imply the costs passed on to consumers would contain significant capital costs.
Instead bloated asset values are now supported by excessive leverage.
Abandonment in 2015 by their investors due to the producers' inability to deal with unacceptable profitability and accountability. A signal of supreme dissatisfaction.
Abandonment by their banks who recognized similar issues.
An inability to accept the global role of high-cost, swing producers on global oil markets. To believe that markets would accept any level of output with no consequences. Never learning the business basics of overproduction.
Where the great depression was largely caused by overproduction.
Where July 1986s oil price collapse saw the first of dozens of commodity price collapses due to North American oil & gas producers' chronic overproduction.
I count six “good” years in the industry out of the past thirty seven years. Scoring the true effectiveness of "muddle through."
In 1991 I began the pursuit of what has become several attempts to resolve the chronic overproduction of oil & gas. I've set out to develop software systems to alleviate systemic oil & gas overproduction.
In May 2004 published our Preliminary Research Report that set the foundation for the Preliminary Specification. A total of ten years of research to determine “what, how and why” the industry and producers would need to operate and eliminate their issues to provide for the most profitable means of oil & gas operations. Leading to publication of the Preliminary Specification on August 9, 2012.
Throughout this period producers have only sought to violate our Intellectual Property. None of them inquired constructively about the solution.
July 4, 2019 People, Ideas & Objects published a paper “Profitable North American Energy Independence -- Through the Commercialization of Shale.” The paper has been well received by the market, receiving significant distribution.
Producers expressed no interest in the paper’s proposal.
We ultimately received the producers' final response to the ideas contained within the Preliminary Specification and the July 4, 2019 publication. When officers and directors allowed oil prices to drop to negative $40 in April 2020.
Seeking to remain unaccountable, ERP systems and accounting are unable to provide the detailed and accurate information to base appropriate business decisions upon.
Creating a culture within producers that achieves profitability and success by just spending money.
No measure of performance is evaluated, understood or earned.
Creating an environment where the difference between profitability and unprofitability is not understood, attained or cared for.
A slackness pervades the overall culture when anything and everything is reported to be profitable.
Arguing otherwise will cause career ending repercussions.
Throughout 2020 and 2021 declarations that shale would never be commercially viable and asset sales of shale properties were announced with many producers exiting from that business.
Maintaining their cultural propensity to bail and abandon prior investments instead of remediating or attempting to make something of their “failures.”
Alleged “shareholder driven initiatives” to reconfigure the producer organizations as clean energy providers were announced as the new frontier for oil & gas producers.
Overnight they began listening to their shareholders about clean energy? An industry that is scientifically and commercially unviable, as pointed out in our July 4, 2019 publication. An industry with a history of repeated failure, poor accountability and massive government involvement. A bureaucrat's dream.
Contrast this with the fact that they've ignored and continue to ignore investor concerns regarding profitability and accountability issues for almost a decade.
For decades producers claimed they needed to ensure oil & gas prices remained competitive so that alternative energy could never get a foothold.
Now it is these same officers and directors who take producers' cash and oil & gas revenues to fund their unaccountable activities. This is in an industry that has never performed even with government subsidies. An industry they have no understanding or competitive advantage.
Choosing an alternative business direction shows they’ve never had the focus and drive necessary to remediate and rehabilitate the oil & gas industry. By abandoning shale they’ve proven they have no right to lead.
Consolidation is their solution.
Difficulties in sourcing field resources have become a primary concern.
Producers have repeatedly betrayed service industry firms and their staff. Nothing is being done to remediate these relationships.
The resulting field capacity and capabilities damage and destruction have severely impaired producer's future deliverability.
2022 Lockdowns are lifted and consumption resumes leading to price increases at the pump. Consumers are concerned about their energy supply.
October 2023 saw nothing done to deal with these issues and opportunities. Consolidation continues as evidenced by mega deals such as Exxon - Pioneer.
With higher oil prices will it be reasonable to leave the industry in such incapable hands?
It is their specious and unrepresentative financial statements that are as useless as their business objectives of “muddle through,” “building balance sheets” and “putting cash in the ground” are. Only they had the authority, responsibility, accountability and resources to act. Action via “muddle through” is exactly what they did, even while the Preliminary Specification existed and damages increased.
Consider the following. What has been the historical norm established since the great depression is the exit of the management class from the scene when their administrations become untenable. As I understand it, the traditional message of investors withdrawing their support signifies dissatisfaction and the demand for change. Which occurred in 2015 and was the point when producer firms became “untenable.” Why I’m writing this in August 2023 is that the traditional tools of a market economy have failed and are being exploited by these officers and directors to benefit themselves exclusively?
Bankruptcy or business failure is no longer possible as it reinstates officers and directors and eliminates angry shareholders. Forces banks to dilute their loans and start again for the requisite period of time between bankruptcies deemed acceptable. The game is played with such skill and brashness now that officers and directors declare pre-bankruptcy bonuses.
Serendipity is where organizations change with the times. Unfortunately our advanced, software driven world encases organizations in metaphorical cement. Only through active ERP software change can organizational change occur. This has been the reason that no change has occurred in any ERP systems for producers. Maintaining officers and directors' administrations in perpetuity. All Tier 1 ERP providers left by 2005. And a Tier 1 ERP solution needs to be implemented by the industry as an explicit demand from investors.
Spontaneous order occurs when people see an opportunity in the market and act. In highly diverse continental markets where people are connected through electronic means the ability to see and organize markets efficiently and effectively has been rendered obsolete. Things need to be actively pursued to succeed. Bureaucratic inactivity is the method of operation by officers and directors of producer firms.
Creative destruction has been massaged from producer firms' financial statements. Producer firms have massive capital costs in property, plant and equipment. These are not representative of the firm's performance but attempt to represent the producers' value. The result is a homogenization of producers. Each firm has the same cookie cutter financial statements that only differ by the size of its production profile. Can anyone discern from financial statements who is the hero and who is the zero? Outside of bankruptcy that is.
Another behavior of these officers and directors we can reliably count upon is their ability to retreat in the face of criticism or opposition to their (in)actions. Only to eventually resurrect their prior behaviors through the “muddle through” culture they’ve fostered and enabled. Reimposing previously unacceptable behaviors quickly. Dishonesty, blaming and viable scapegoating have been in officers and directors' toolkit for decades. There are a litany of reasons why they can't do anything. Things don’t work in their favor or obstacles are in their way. The defining characteristic of this behavior is that all producers will sing from the same hymn sheet in perfect harmony.
With the authority and responsibility to control large amounts of money, they are unaccountable, uninterested, unprofitable, culturally conflicted, unmotivated and uncaring. The eleven years of the Preliminary Specification attempts to enable the most profitable means of oil & gas operations, everywhere and always is all the evidence anyone now requires to discover the otherwise permanent issue our society faces. The inability to appreciate or concern themselves with the fact that each barrel of oil is equivalent to 10,000 to 25,000 man hours of mechanical leverage in the most advanced economy the world’s ever known is irrelevant to them.
This is evidence that exists today. This is the dark and dreary future they created and sent us down to. It could have been so different if the alleged leadership did their job and made the appropriate changes at the appropriate time. 2015 when investors withdrew their funds was the point where action was definitively necessary. Now that we face such an issue that change needs to be forced upon the producer's directors and officers. They are not responding to the usual forces or following traditional behaviors in times of financial duress in our economy. They are entrenched and have proven to be untrustworthy and unworthy of our continued support.
Possibly, they are preparing the groundwork for ultra high oil & gas prices by realizing the damage they've done. Then they’ll be able to rally the cause of solving consumers' energy security concerns by doling out dollars from a primary industry here and there. This is to those that will be subjected to their classic methods. Making themselves out to be the savior of the damage no one will remember they caused. (I would point out the October 11, 2023 blog post detailing the anomaly in natural gas pricing over the past few decades. Identifying why that money was not realized should be their first concern.)
My day-to-day interactions with those in the oil & gas industry are remarkable for their consistency. The industry may be undergoing an existential crisis as I’ve described which contrasts the officers and directors' calm and reasoned approach to the situation in their utterance of “muddle through.” I would argue the destruction and frittering away of the value of an asset each month for decades may be described by officers and directors as an opportunity cost, and if that were correct it would not be a concern of management. However that argument needs to be reevaluated by producers. This is evident in the fact that as monthly losses are incurred at each and every property in North America, we are moving into the second decade of the Preliminary Specification. Of which I am able to report that I have had zero expression of interest in the development or interest in the remedial efforts necessary to establish the most profitable means of oil & gas operations, everywhere and always, by any and all officers and directors of North American producers. It is the fact that the Preliminary Specification disintermediates them from their lofty positions of power that concerns them. Enhanced profitability in the form of the Preliminary Specification as an ERP system, which is standard fare for any organization, is demanded by investors to be from a Tier 1 provider such as Oracle Cloud ERP, would attract interest from any common sense business person. Therein lies their conflict.
With higher oil prices providing increased revenue, is it reasonable to leave the industry in such unqualified hands? Have they learned that the need for profitability is paramount? Do they understand the differences between a profitable and high performing organization? Do they have a plan to overcome their culture that resists changes to increase profitability? What assurance is there that they'll remain focused on oil & gas, or maintain their current desire to satisfy shareholders? For years we have detailed that a profitable operation would provide a producer firm with all the financial resources it needed to as it required. Yet nothing is done.