Let’s get to the real issue that has to be dealt within the Financial Marketplace module of the Preliminary Specification. The cash. With each Joint Operating Committee being funded and operated through its own bank the cash of the producers will be scattered through a variety of accounts that are held within the various Joint Operating Committees they have an interest in. Or will they. Through this post we will trace the cash that is generated through the properties and the various operations that occur in the day-to-day of an oil and gas operation. What we will find is that from a cash balance point of view, the balances that the producer holds will be fundamentally unchanged between the People, Ideas & Objects method of conducting business and the way in which it is done in the majority today.
What happens today is the net proceeds from the operation of the property are determined, each working interest share of those proceeds are calculated, and depending on if the property is generating or consuming cash a check or invoice is sent. The difference in the People, Ideas & Objects system is that in the case where the property is generating cash instead of issuing a check, the balance will be transferred. In the case of where the property was consuming cash it would still send an invoice, and there would have to be some operating advance provided for the Joint Operating Committee to deal with the short falls while these invoices were being processed by the producer firms. In times when there are capital expenditures cash calls will offset the demand for cash.
One of the other key differences in the People, Ideas & Objects application modules is that the Joint Operating Committee is open to contributions from all of the participants. Producers are pooling their resources in order to fulfill the requirements of the property and that demands that everyone participate in some form or fashion. Each month these contributions are equalized in the process of determining the net cash payable or receivable and will be accounted for in the joint venture billing in that manner. These equalized amounts will affect the cash balance in terms of the size of the payment and a producer could be compensated for the two components through the joint venture billing process. One would be the net proceeds of the property. And the second aspect would be the amount of their contribution in excess of their working interest.
We have specified the Oracle Fusion Application Financial Management Suite as part of the Preliminary Specification in previous modules. For purposes of these cash management activities we will of course again be using the Suite for these purposes. I would caution readers that the manner in which these accounts are cleared have not been worked out. That is the purpose of the Preliminary Specification. These are still early days and it is problems such as these that need to be resolved with the $100 million budget. Today, the optimal method of dealing with clearing the balances in the joint account is through clearing accounts in the general ledger. There is no reason that we can’t modify that concept to allow for the contributions of all of the producers within a Joint Operating Committee to contribute to the joint account, be equalized and then cleared.
From another perspective, the interfaces to the variety of banks and producers accounts for deposits and withdrawals will be an area that will need to be worked through. Although this is not offering a technical issue as all of this is being done today, the volume of transactions will be high in comparison to today’s traffic. Banks are well prepared for this. Producers not so much. Particularly in the area of Compliance & Governance. Having automation of this type and at this level will make many people wince. They can continue with the paper based systems if they choose, the practical solution is that we build these systems with the appropriate internal controls to ensure that the process is managed efficiently and effectively and without the risks associated with this type of activity.
For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.
Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.
The Preliminary Specification is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for People, Ideas & Objects products remains at the sole discretion of People, Ideas & Objects.