With the decentralized production model the producer firm could potentially be sitting with a large inventory of properties that are shut-in due to their inability to be produced profitably. That’s where the Preliminary Specification comes in handy once again. It has been designed to instill within the producer firm the innovativeness necessary to compete in the 21st century. Innovation is a replicable process and those have been included within the Preliminary Specification. So when a property is shut-in due to financial losses. The ability to begin the processes of innovating to increase the properties reserves base, bring its costs down or production up can begin. This will bring the property back into a profitable situation and therefore can be returned to production. Any properties that do fall into an unprofitable situation can be addressed through the various processes of innovation that the producer firm will be structured to approach as a result of using the Preliminary Specification.
The decentralized production model has also reorganized the producer firm to a much smaller footprint to enable a greater focus on the earth science and engineering capabilities, and land and asset base of the firm. These are the competitive advantages of the producer firm and should be their primary focus. How quickly the producer responds to a Sarbane’s Oxley situation is mostly irrelevant to the performance of the producer. Therefore as we mentioned yesterday the industry has been structured to provide the administrative and accounting capabilities through service providers who are focused on the process and use the industry as their client base. It is in fact the service providers competitive advantage of how they respond to Sarbane’s Oxley. This therefore sees the producer firm stripped down to the C class executives, the earth science and engineering resources, some land and legal, and support staff. The service providers bill for their administrative and accounting services directly to the Joint Operating Committee on a monthly basis and only if there is production.
This methodology would currently remove all of the production from the market as none of today’s natural gas production is making any money. The gas prices would certainly respond quickly, violently, and without hesitation to this change. Gas could then return to the market as it surely would qualify as profitable, and an equilibrium would then be achieved. What the producers have to understand is that it is profitability at the property level that is the factor for determining if the property will produce. Not at the producer level. By taking each property and assessing its profitability the prices will be much higher and there won't be the averaging that will occur if the assessment is made to determine if the producer is profitable. If it is assessed at the producer level, producers will attempt to average their properties profits and losses to show a net average profit. This would be an advanced form of cheating to achieve a higher production profile. Not the production discipline the market requires or is desired. Cheater’s however have always existed in the marketplace. The industry will have to establish the means to control those that do cheat. Maybe they will be able to do that through the Joint Operating Committee which is the operational decision making framework of the industry. And since the Preliminary Specification uses the Joint Operating Committee as the key organizational construct of the dynamic, innovative and profitable oil and gas producer it will have the means in which to deal with these cheaters. Another problem solved.
The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative and profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.