The End of Summer

Its the beginning of a long weekend and what amounts to the end of summer for the oil and gas industry. It'll be time to get back to work on Tuesday and that goes for this blog as well. We're going to start reviewing the Preliminary Specification once again and we'll start on Tuesday with the beginning of the Security & Access Control module. This will provide readers with an opportunity to go through the Preliminary Specification in detail over the next few months and get a good understanding of the what and how of the product. The topical discussion that we have been having will also continue as I think that we have been able to show the value of the product in the marketplace today. So the blog will consist of a bit of both, the Preliminary Specification and topical discussion for the next few months.

If I had a topic to close out these summer months on it would have to be natural gas prices. I really like discussing this topic. The Preliminary Specification provides solutions to the operational issues that occur in the oil and gas industry. The natural gas prices are one of the critical operational issues that are addressed by our product. Who wouldn't want to discuss them. The bureaucracy has an inability to even discuss the problem and choose to ignore the consequences of these low prices. I would expect that this winter we will see no marked improvement in the natural gas prices, and no further actions by the bureaucracies.

The amount of time that the natural gas prices will remain depressed will be based on two factors. One the duration of the shale gas reserves. And the length of time that the bureaucracy remains in control. Its as simple as that. We can't expect anything to change on the basis of prayers or wishes from the collective bureaucracy. No matter their faith. However by adopting the Preliminary Specification we can remove the bureaucracy from the scene and affect the prices by removing the marginal production from the marketplace. In that way we have the opportunity to produce the shale gas reserves on a profitable basis.

Everyone is aware that the issue regarding natural gas prices is over production. The prolific nature of shale gas reserves and their abundance have depressed prices. Making all production unprofitable. The removal of 10 - 15 % of production would be all that is required to restore prices to what is recommended by the industry as what is required for a healthy industry, $6.70 / mmbtu. However whom is to take the production cut is unknown and certainly “not in my backyard” is the standard operating procedure. Therefore it continues. The concern of the producers is that the high overhead of the firm will be exposed with the lower production volume. That high overhead being a fixed cost of business and is unable to be reduced without significantly diminishing the capabilities of the firm.

The Preliminary Specification takes the producers fixed costs of the overhead capabilities and makes them a fixed cost of the industries capabilities. They are then charged on a variable basis to the Joint Operating Committee when there is production. If there is no production then there are no charges for the overhead or production costs and the property only has the costs of capital uncovered during times of shut-in production. Removing the bad optics of high overhead and low production volumes from the producer during times of shut-in production.

Making the overhead of the producer variable is the appropriate step in allowing for the producer to shut-in production. It is this feature of the Preliminary Specification that will enable the producers to reduce their production during times of overproduction and to successfully produce the shale gas reserves.

The Preliminary Specification provides the oil and gas producer with the most 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.

Service Providers for Earth Science and Engineering

Just as there are service providers who are providing services in the administrative and accounting fields for oil and gas producers and Joint Operating Committees. It is anticipated and designed into the Preliminary Specification that similar requirements will be needed in the earth science and engineering disciplines. The critical nature of the resource shortfall in these professions dictate that a solution to these medium to long term shortfalls arise. People, Ideas & Objects have identified the issue and resolved it through the software in the following manner.

The source of the issue is the manner in which each producer is building their earth science and engineering capabilities. Just as in the administrative and accounting areas none of these resources are shareable between the producers. Each producer is building unique capabilities for just in time deployment for any of the properties they are responsible for. This generates unused and unusable earth science and engineering capabilities that are trapped within each producer firm. Looked at from an industry wide point of view these trapped resources are substantial.

The solution is to use specialization and the division of labor to free up the trapped unused and unusable resources in each producer firm. Instead of each firm generating the capabilities to meet the demands of all of their properties. They focus on key competitive specializations in the earth science and engineering areas. They also coordinate with working interest partners who are able to bring other specialized capabilities on an as needed basis. If any additional capabilities are required they can bring those in from the Resource Marketplace module.

It is there in the Resource Marketplace module that specialization and the division of labor have enabled a marketplace for the generic earth science and engineering tasks. A place where the majority of the day to day technical work can be completed on behalf of the producer or Joint Operating Committee. This enabling the specialization that the producer firm is able to undertake. This specialization and the sourcing of other specializations from working interest partners and the marketplace are how the Preliminary Specification eliminates the trapped resources within the producer firm. And how the unused and unusable resources are freed up on an industry wide basis to be used on a shared basis throughout the industry.

Providing the capabilities for all that is required of a producer within the domain of a producer will become increasingly more difficult as time passes. As the excessive demands of these professions continue, the need to specialize and divide the labor further, within the producer firm itself, will require the producer to have such a broad scope of earth science and engineering operations as to be uneconomic no matter how large the production base. This “hoarding” mentality, that it has to be done from within the organization, is quickly becoming unfeasible, if it already hasn’t. People, Ideas & Objects suggest it is the source of the shortfall in these resources today.

The solution in the Preliminary Specification, although controversial is the only reasonable approach to dealing with the problems of an industry that is accelerating in terms of its scientific basis. Specialization on key determinants will be the differentiators that earn the producer profits that they desire. Continuing to “hoard” these resources will only lead to further difficulties for all producers as the demand for the resource base escalates.

The Preliminary Specification provides the oil and gas producer with the most 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.

Producing Shale Gas Profitably

The fact of the matter is only People, Ideas & Objects have a viable plan for the industry to produce the shale gas reserves profitably. The prolific, however high cost reserves provide an opportunity for the industry to fuel the North American continent for the foreseeable future. That is if it is a viable business. Today it is an activity that keeps bureaucrats gainfully engaged in what they do. We are in a transition period where the business is unable to sustain itself with profits, and indeed is cannibalizing itself with losses. Investors have had enough and are on strike, unwilling to participate with more capital to fuel the bureaucrats furnace. Even with the investors striking there is an imbalance in the supply and demand of natural gas. What needs to be done is producers need to reduce production. Everyone knows that, yet no one has done it in the three years that prices have been depressed.

The problem with reducing production in the high throughput production model that is employed today. Is that it only makes things look worse. Overheads look even more top heavy than they do at full capacity. Layoffs are one of the solutions to the poor optics but that only masks the problem. The problem is that each company must maintain certain capacities with respect to what they are capable of achieving as an organization. Cutting staff only reduces the capabilities in certain areas. What is needed is a different way in which the oil and gas producer achieves, accesses and develops those capabilities. In the Preliminary Specification those capabilities are developed on an industry wide basis, not an individual producer basis. This reduces the redundancies of each producer building the same capabilities within each firm and having no ability to share these resources.

By having the service providers staffed by the resources of the producer firms. These service providers can then reorganize themselves based on the specific processes that they specialize on. Using the entire industry wide data set as their client base they would be able to use specialization and the division of labor to provide efficiencies and effectiveness that was far greater than that of the largest producer today. The quality of their services would also be enhanced.

It is assumed in the Preliminary Specification that the oil and gas producers competitive advantage is their asset base and their earth science and engineering capabilities. Not their administrative and accounting functions. Taking the administration and accounting processes of the entire industry and setting them with the service providers would provide each producer with the appropriate administration of their assets. Any oil and gas producer that is competing based on their more efficient administrative capabilities should have their head examined. These are generic aspects of the business that all producers need to have taken care of. They are not critical to the business.

Each service provider, and there would be hundreds of service providers, but only one for each process. Would become highly specialized in their domain of knowledge and capabilities. Providing services to producers of all sizes. Bringing to the industry the state of art in terms of what is possible for that process. In addition they would be backed up by the People, Ideas & Objects software development capability that would enable them to make the changes to further their specialization on a constant basis. Competition between the service providers would be at a high level. It just wouldn't be at the direct level of competing for the business of the process. Each service provider would in essence have an industry wide monopoly on the process that they managed. It would be in that they way that they could achieve the most from specialization and the division of labor.

The Preliminary Specification provides the oil and gas producer with the most 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.

A Prayer for Natural Gas Prices

If we could now all bow our heads. But seriously, that is the extent of the planning and management that is currently ongoing in the natural gas business regarding the prices. The bureaucracy have completely given up any pretense of concern or regard for the business in which they operate. They couldn't care less about the losses that are being incurred as a result of the low natural gas prices. And its not that the summer saw any marked depletion in the shale gas reserves. These reserves will be around for a while longer. I am surprised that the bureaucracy have gotten away with such blatant disregard for so long. Bureaucracies are leaderless. I guess expecting some leadership from them is the foolish thing.

How the oil and gas industry continues in the 21st century has to be as a dynamic and innovative industry. What it is today is the furthest thing from that. And it is paying a large price for that lack of leadership. We have calculated the opportunity costs for 2012 at $94 billion when we compare the status quo to what is possible with the Preliminary Specification. Making the investment in People, Ideas & Objects one of the highest return investments that the industry could make. This is the power of software and why the industry has to begin to respect the capabilities of the technologies when combined with innovative business models.

The Preliminary Specification solves the natural gas pricing problem by removing the marginal production from the marketplace. 15% of the production in the 2012 scenario that provides for the opportunity costs. Producers are able to remove the marginal production from the market without the associated losses on other operations, or the losses on the shut-in properties. And they are able to keep the shut-in reserves for a time when the prices return to the point where they can be produced at a profit. Additionally the production that is removed from the marketplace helps to reduce the downside in natural gas prices and normalize the marketplace in terms of supply and demand.

It does this with two fundamental mechanisms that are unique to the Preliminary Specification. One is the manner in which the overhead or the resources of the industry are organized. And secondly on how the costs of the resources are allocated when the production is shut-in. The first element is how the resources are organized in the industry. The oil and gas producer is a stripped down version of itself that consists of the c class executives, the earth science and engineering resources with some legal and admin support staff. The remainder of the resources of the producer are reorganized into service providers who are focused on a process or sub-process that uses the entire industry as their client base. Then they can use the tools of specialization and the division of labor to provide the most efficient and effective service in terms of lease rental payment, production, revenue and royalty accounting, etc. When the service provider provides their service they then bill the Joint Operating Committee a fee for their service.

If the property has been determined to be marginal at the current prices it is shut-in until prices rise. The associated costs of production and overhead are all stopped. There will be no charges from any of the service providers to the Joint Operating Committees for the months where there is no production for production, revenue and royalty accounting, etc. Thus enabling the property to be subject only to the cost of capital during times of shut-in production. The cost control for the production, revenue and royalty accounting is with the service providers and they can budget on an annual basis that they will experience an approximate 10 - 15% production decline at anytime. Therefore the ability of the producers to remove any amount of excess production from the marketplace at any time would exist without the associated losses in operations. This would alleviate the downswing in pricing that is currently being experienced and allow the shale gas reserves to be produced at a profit.

The Preliminary Specification provides the oil and gas producer with the most 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.

Leadership Within the User Community

In addition to having the power, the user community will provide the leadership for the industry in terms of its direction and implementation of the solutions it determines. With participation being as broad and as diverse as the industry itself, representation will include all areas of an oil and gas producers domain. Additional representation will be made from the service industry and the service providers. Anyone dissatisfied with the decisions that were made within the user community would have to blame their lack of participation as the cause of those decisions being made. With the role of leadership comes the responsibility to lead.

Some will argue that the movement of the leadership of the industry to the user community is unnecessary and should not happen. I would suggest that they reread the Preliminary Specification. It is within the domain of the software to take the leadership role within the industry. For the industry to acquire the capability to suspend marginal production can only happen if the Preliminary Specification is operational within the industry. I say “only” on the basis that the bureaucracy has shown no capacity to do so yet. It is within the software that the leadership is exercised and the software is driven by the user community. Therefore the user community will be the ones that provide the leadership to the oil and gas industry in terms of its strategic and tactical business direction. The alternative is that it continues to lose money in the natural gas business for as long as the shale gas reserves exist.

What I am arguing is that participation is the means in which the leadership is exercised. Its a different mode of operations is what is occurring. Instead of being an opaque unknown, it will be a transparent and visible process that is seen throughout the user community. This is the nature of business in the 21st century. Software and by extension user communities are a necessary ingredient in the capabilities of the industry. That they haven’t been up to this point reflects poorly on the implementation of the technologies. It is necessary to have these capabilities tightly integrated within the DNA of the industry, the service industry and the service providers. That is what the Preliminary Specification does. And it allows for those capabilities to be used in a manner that will provide for the most profitable means of oil and gas operations.

Arguments to the validity of these points will continue for some time. Software doesn’t command that much respect in the oil and gas industry. Certainly not to the point that is discussed here. There will have to be an education process undertaken to provide an understanding of how these changes are implemented in the software and user community. The point about profitability resonates with the investors however. And that is our focus in sourcing the funds, or the direction of the funds to complete the first phase of these developments. Developments that will be solely the result of the user community.

There are times when “things” change. And there are times when those that accept those changes and move forward in the new ways as a result. This is one of those times and one of those places. Oil and gas is being disintermediated by People, Ideas & Objects Preliminary Specification. New leadership will find the user communities ways and means of making the changes they want in the industry. Those who are unable to accept these ways will be left behind and will have to accept a different future for themselves. That is the way that change is implemented and growth occurs.

The Preliminary Specification provides the oil and gas producer with the most 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.

The Power Within the User Community

A decade has passed since we began writing about developing software for the Joint Operating Committee. And it has been one year that we have actually had a product, the Preliminary Specification. I am a fan, let me restate that, I was a fan of research. After nine years of it I have had enough. If I never see another paper I will be fine with it. What gets me out of bed in the morning is checking my stats. Its a simpler life, but just as satisfying. Discussion of the product will keep me going for a few more years. I hate to admit it, but I started developing oil and gas ERP systems in my first company in 1991.

The Preliminary Specification provides an overall vision of how the industry could operate in the 21st century. An ambitious plan. However, one that is needed for the times that we live in. People who work within the industry who can see this vision can align themselves to it and begin the process of orienting themselves and their commercial lives around it. This is how the changes will take place. Individuals acting in their own best interests. Joined together through the user community. A place where they have the means to effectively provide for the most profitable means of oil and gas operations.

Its up to the user community now to take the Preliminary Specification and make it theirs. To mold it into the systems that they can use on a day to day basis. One in which they can address the issues and opportunities that arise in the oil and gas industry, the service industry and the service providers. The service providers potentially being a part of their own commercial operation. Where their dual revenue streams are split between user community contributions and service provider fees.

The impact that the user community has on the oil and gas industry will be significant. We can see already in the Preliminary Specification how it solves the operational concerns of the industry today. How will it solve the issues of tomorrow. This will be the role of the user community. We’re not talking about a committee of people who are endlessly publishing technical requirements that no one will look at. We are talking about the people who are responsible for the systems that will be built. Any change by the user community will see an immediate change to the software by the People, Ideas & Objects software developers. That’s the point. Instead of producing reams of paper that no one will look at. They will have the power to effect change. And the power to effect change on a grand scale. As we can see the changes that are made in the Preliminary Specification impact the industry significantly.

That is why this user community is different. It has a role to play in the development of the industry. And it has the power to affect the changes to develop the industry. Participation has to be as broad and diverse as possible to ensure that all points of view are represented and that changes are in line with the industry needs. One thing we can be certain of in the future. And particularly with the dynamic and innovative oil and gas industry. Change will be the constant that requires the user community to be creative, dynamic and innovative in its ability to provide direction and solve the issues of the industry in the future.

The Preliminary Specification provides the oil and gas producer with the most 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.

In the beginning...

What would we do without the Joint Operating Committee. It was in August of 2003 that I was preparing my proposal for my master’s thesis and it was on using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. I finished that work in April of 2004 and rewrote it for commercial publication in the May 2005 Preliminary Research Report. It has been a roller coaster ride since. What we were able to provide in the May 2005 Preliminary Research Report was that the Joint Operating Committee was the natural form of organization for oil and gas and that innovation can be reduced to a quantifiable and replicable process.

Since that time it has been an effort to undertake the research necessary to solve the following. If we moved the compliance and governance frameworks of the hierarchy to the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee what would it look like and how would it work? This research was extensive and began with this blog in late 2005 continuing on into the summer of 2012. It was in August of 2012 that we finally published the Preliminary Specification, the 175,000 word eleven module summary of what that system would look like in the oil and gas industry.

The implications of using the Joint Operating Committee are significant. I don't think any position within the oil and gas industry will remain unaffected by the changes from the software. By developing this software we move away from the current corporate model. Which is a contrived and makeshift organizational construct that is patchwork and make do. To one, the Joint Operating Committee, which is the unique and natural way in which the industry has used to deal with the partnerships that are systemically used in the industry. We are moving directly in line with the culture of the industry and the Preliminary Specification has a certain harmony as a result. Things are done with the understanding that that is the way they are done in the oil and gas industry.

There is also a focus on the business of the oil and gas business. When you analyse the current corporate model the focus and drive of much of the administrative and accounting needs are on the tax, SEC and royalty needs of various external stakeholders. With the Preliminary Specification the focus is on the business of the oil and gas business with the compliance and governance being as a result of the activities in that business. Not a driving force in the business.

It has been a year since the publication of the Preliminary Specification. And as I noted a few days ago the acceptance of the marketplace has been better than expected. It is our first year in a ten year plan to have the system operational in the oil and gas industry. And by all accounts we are on track. We are continuing on in our second year with the same activities as we were in the first. Getting the word out that the Preliminary Specification can solve the operational concerns of the oil and gas industry. And provide the most profitable means of oil and gas operations. With natural gas continuing to disappoint, and many producers seriously looking at what they can do about it, maybe they will begin to see some of the solutions that we have put forward here as the way forward for the industry.

The Preliminary Specification provides the oil and gas producer with the most 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.

A Dynamic and Independent User Community

One thing we should note here is that we haven't discussed any of the technologies that are available in the marketplace. And we certainly will not start now. We are focused on the business issues of the oil and gas industry. And the associated needs of the service industries and service providers that are in support of the oil and gas industry. We are a software development firm and we will provide the technology that meets the business issues that the user community demands. That is our focus. Not on the technology.

We have discussed in previous posts how the user community will provide us with the direction in terms of what, why, where, when and how the software needs to be. That this user community will be dynamic and mirror the activities and thinking that is occurring in the industry itself. That is what I would like to see. The user community having the ability to know what the industry will want and need and to anticipate those needs, and have the software delivered to the producers and service providers just in time. This is what is possible today and I set this as an objective of the user community to achieve.

In a dynamic and innovative oil and gas industry, a dynamic user community with a software development capability as defined by People, Ideas & Objects is what will be required. The foundations of the oil and gas industry will include the user community and software development capabilities. They will be a critical part of the industries needs in the 21st century. We see today that with the ability to resolve the natural gas pricing issues, the Preliminary Specification provides a framework for the user community and the software development capability to address the needs of the industry in the future. And it all comes down to the Joint Operating Committee as the key organizational construct. Recognizing that has been the critical piece that has been missing in the software up until now.

Taking this infrastructure and putting it on its own financial footing is a key part of its ability to becoming dynamic and independent. As defined in our Revenue Model we can not be subjected to disruptions in our funding for either the user community or the software development capability. Disruptions in funding could divert our focus, or affect the capabilities of either group. It is in the best interests of the oil and gas producers to review the Revenue Model and understand how we address the funding of these groups and avoid these issues.

The fact of the matter is, is that software and the user community will be taking up a much larger role in our lives in the future. What has happened in the software development community for the past 50 years has been a great experiment. There have been advantages for certain but the real value is about to be realized. What we are beginning to realize is there is a maturing of the technologies. What was once potential is now doable. And the infrastructure is there to accommodate what is doable. So now we will see what was possible only a few years ago become the norm. And that will require that we have a stable and healthy user community and software development capability that we have been discussing here. For without these things, the industry will find that the issues and opportunities that seem to be at their fingertips, just can't otherwise be resolved or realized.

The Preliminary Specification provides the oil and gas producer with the most 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.

Intellectual Property in the Preliminary Specification Part II

One of the areas that Intellectual Property (IP) will affect the industry will be the way in which everyone who works within the industry is connected to the IP. As IP becomes more important in the day to day of each and every individual in the industry. Their access and use of it will make up their relationship with their employer or customer. That is to say the relationship will be defined by a license for copyright and patent purposes. And contract law for brand management with respect to trademarks.

Users of the People, Ideas & Objects software will be subject to an End User License Agreement (EULA). And like many of the hundreds of EULA’s that you have agreed to in your life these will not form any significant part of your relationship with your employer or customer. The access to the software will of course be free to any user. The access to the producer and Joint Operating Committee data is as a result of having a relationship with them and they granting security access to you through the Security & Access Control module.

That brings us to the user community. People, Ideas & Objects are user based software developments. Our user community will be our competitive advantage in the marketplace. Key to that community is their use of the Intellectual Property that makes up the Preliminary Specification and its derivative works. This will be done through a specific license with each member of the user community and People, Ideas & Objects. It will be this license that defines the relationship with the individual in the user community and their involvement in these developments. This, by their choice, could be a material commercial arrangement in which they establish a foothold in the user community and a service offering as one of the many service providers to the oil and gas producers.

Members of the user community are compensated for their time and efforts in the user community. This is not a volunteer situation where we expect people to contribute time and effort for the community spirit. People will be compensated commensurate with their education and experience on an hourly basis for their contributions. These costs are also part of why our costs are larger than any software development initiative before. No one has based their developments on the user community as we are on ours.

There is another reason that the user community must be paid for the work they do in these developments. It is to acquire the Intellectual Property that is derived from the Preliminary Specification and other areas. This IP must be acquired so that it centralized in one location from a legal point of view. All IP will become part of the copyright that is owned by me. There it will in turn be available to everyone within the user community and service providers through the above noted license that they have been granted. Without this we would have to deal with thousands of IP trolls who would have developed an idea for this or that and would obstruct each and every producer with a license agreement for their idea and an invoice. If you feel your ideas are too special to be handled in this manner then you should feel free to launch a competitor to People, Ideas & Objects. This is the way that we have chosen to deal with it here.

Building a service associated with the software that includes participation in the user community will provide a commercial opportunity that, I think, will be valuable. The oil and gas producers will have the best people providing them with the capabilities to work with the software and to change the software. An ideal situation. If you want to be part of that, that is what I am working towards.

The Preliminary Specification provides the oil and gas producer with the most 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.

Intellectual Property in the Preliminary Specification Part I

One of the controversial areas, or maybe I should restate that. One of the more controversial areas in the Preliminary Specification is the manner that it deals with Intellectual Property. Intellectual Property is becoming a more important element of what and how an industry operates and that applies to oil and gas, the service and the service provider industries that are the targeted market of the Preliminary Specification. The manner that it deals with Intellectual Property is fully contrary to the manner that the oil and gas industry operates today. That is to say that it recognizes, promotes and markets the Intellectual Properties of others and respects them.

To compete in a technically diverse industry such as oil and gas. And to have that industry foster innovations from everywhere and at all times. Requires that the industry see that the IP that is generated within the industry respected by those that make up the marketplace. That has not always been the case in the oil and gas industry. There is an attitude that companies are better off not recognizing the IP and sponsoring competition based on the IP efforts of others. This strategy may have been successful at one time, however, I think it is questionable in today’s marketplace, and it will certainly be a failure in the future. It takes too much effort to develop on the behalf of the inventor to come up with anything new. That effort is not as easily replicable and cannot just be passed about its competitors. The industry, I think, is better off working with the inventor, developing their capabilities to achieve scale, and obtaining the benefits of the ideas in that manner.

By not recognizing the IP of the inventors in the industry for so long the oil and gas industry has created a larger problem for themselves. Companies and individuals with the ideas needed to move the industry forward see that their ideas won't be respected. That they will be just passed on to their competitors by their customers the oil and gas companies themselves. This has the effect of diminishing the number of startup and innovations within the industry. People know that they will not receive the benefits of their labor. And anyone who has gone through the efforts of developing some IP will tell you, it is amongst the most difficult business process to manage.

After all what are the competitive advantages of the innovative and profitable oil and gas producer. They are their oil and gas asset base, and their earth science and engineering capabilities. Contained within those capabilities are the abilities of their resources to use the abilities of the service industry to conduct field operations. They have to have the capabilities of others to do this work. That is significantly different than having the Intellectual Property necessary to do this work. For example, having the IP for the best drill bits will not provide the oil and gas producer with any competitive advantage over any other producer. However having the capability of knowing who has the best drill bits, where to get them and how to get them delivered provides great value. The oil and gas producer by sponsoring competing firms to “wash” the Intellectual Property of individuals and companies from one firm to another is a useless, time wasting activity with negative long term repercussions.

The Preliminary Specification recognizes and encourages the efforts of the inventors and those within the oil and gas industry with marketplaces for their ideas. A place where ideas can begin and find a market quickly. And a place where oil and gas producers can find new ideas that will help them to be more innovative.

Dealing with IP in the manner that the industry is today is counter to the way that society is moving. IP is becoming stronger and industry needs to deal with this fact. These changes implemented in the Preliminary Specification are therefore necessary for the innovative and profitable oil and gas producer to compete and prosper in the 21st century.

The Preliminary Specification provides the oil and gas producer with the most 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.

Shale Gas Reserves

Wikipedia lists Canada and the United States as holding 1,238 trillion cubic feet of estimated recoverable shale gas reserves. That is a fantastic number that is beyond recognition of anything that we are dealing with before. The volume of proven natural gas reserves is 386 trillion cubic feet. Current consumption of natural gas is 29.9 trillion cubic feet per year. Therefore there are approximately 41 years of reserves of natural gas at current production rates. Without shale gas, there would be 13 years of reserves at current production rates. One can certainly see why the natural gas prices are so low, however, the economics of supply and demand are not in line with the business needs. What this abundance requires is a new business model. One that considers how the industry will produce these reserves profitably.

It would be reasonable to assume that the shale revolution is not finished. As innovation occurs more reserves will be moved into the estimated recoverable and proven categories. Another area that sees an abundance of reserves in the United States is coal. The U.S. has the greatest coal reserves in the world. This is important as they offer a competitive alternative to natural gas in the $3.00 to $4.00 range. Natural gas has many other competitive advantages and should command a premium in the marketplace, making the industry realize its recommended price of $6.70 / mmbtu as a minimum.

$6.70 is a world away from the prices that are being realized by the producers today. And they are not something that companies are going to experience in the near future either. There are no plans or ideas in which to deal with the issues of the natural gas marketplace. More shale gas production is coming on stream everyday. Making the problem even more difficult.

Producers are structured to maintain their capabilities in terms of the administrative and accounting requirements of the firm. And those costs need to be covered by cash flow and that requires production. Otherwise the performance of the company looks top heavy with staff. Laying off staff only diminishes the capabilities that are otherwise necessary for the company to maintain irrespective of the production profile. Therefore companies within the industry continue to produce at capacity.

The alternative in the Preliminary Specification sees a few changes in the way that the industry operates. Instead of each company building individual silos of capabilities for administrative and accounting capabilities. The industry as a whole builds the capabilities for administration and accounting. This is done by moving the resources of the producer, outside of the C class executives, the earth science and engineering resources, some legal and support staff into service providers. These service providers are focused on individual processes and subprocesses that enable the service provider to use specialization and the division of labor to bring efficiencies and effectiveness to their customers, the Joint Operating Committees. By charging the Joint Operating Committees for the costs of these administrative tasks, the producer is enabled to shut-in production if commodity prices drop below the marginal cost. When production reaches the point where it becomes marginal and is shut-in. All of the administrative and accounting charges from the service providers cease for the period that the production is shut-in. Leaving only the costs of capital uncovered. This also removes the marginal production from the marketplace, putting an effective floor on the natural gas prices in the future.

Proceeding further into the 41 year life of the shale gas reserves. Without the ability to deal with the marginal production as prescribed in the Preliminary Specification is foolhardy. Producing gas is not an activity that we undertake as if we were in daycare. Its a business. And we need to approach this new era with a business model that will enables the industry to make the types of profits that recognize the risks associated with it.

The Preliminary Specification provides the oil and gas producer with the most 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.

One Down, Nine To Go

I’d like to take a moment to recognize that the Preliminary Specification is approximately one year old. Looking at the blog I posted the last of the final specifications on August 9, 2012 and established the wiki on August 22, 2012. And what a year it has been. I am pleased at the response that the Preliminary Specification has received. It could have gone one of two ways. It could have fallen flat and languished in obscurity. Or as it has done, grown throughout the oil and gas industry. We have seen tremendous growth in the number of people who are viewing the material. The ideas are beginning to resonate.

The marketplace for these ideas seems to be predominantly in North America. Fully 79% of our audience is derived from there. Europe collectively comes in a strong second place with the rest of world being more random than anything definitive. China is nowhere to be found. I often wonder what it would take to distribute these ideas as far and as fast without the Internet. It would not be possible, and we are benefiting to a great extent.

I expect that the leadership with respect to the development of the Preliminary Specification will begin in the United States. And we will continue to concentrate our efforts there. As we dovetail with the objective and goal of attaining energy self sufficiency for the continent. Organization is the first step in such an enterprise.

This also marks completion of the first year of our ten year plan. By all accounts it was a very successful year and I am impressed at how easy things have become. It makes the hard work that went into the research and development of the Preliminary Specification seem so distant. This next year will see much of the same as this last year. Building the community, getting the word out until we have some substantial momentum in the marketplace. Then we'll see what the user community can really do.

The Preliminary Specification provides the oil and gas producer with the most 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.

Alignment With the Industry Goals and Objectives

One of the key aspects of the Preliminary Specification is that it aligns with the goals and objectives of the oil and gas industry on a go forward basis. Particularly in the North American marketplace. The needs of the industry in the next few decades will be particularly acute. The demands will require the industry to push the science of geology and engineering far beyond what is known today. And what is known today has put the industry second only to the space industry in terms of technical complexity. A very complex and dynamic future awaits those that are able to compete in the innovative earth science and engineering disciplines.

How we approach this future is of critical importance. The need to address this point is the first order of business. We can't go into this future operating with the same old bureaucracies and led footed organizations. We are sitting here in our third year of depressed gas prices with no plans and no discussion of this even being an issue! What are we doing? It is astonishing to me that we would continue to proceed with the same old strategy of muddling along with so much at stake and the dynamics of the industry being what they are. This is not your fathers oil and gas industry.

What is needed is an organizational construct or business model like that which is prescribed in the Preliminary Specification. One that can deal with the issues and opportunities as they develop. So that when the natural gas prices begin to decline the collective action of the producers stem the downfall in the prices and the industry as a whole remains profitable. Or one that deals with the appropriate tools of specialization and the division of labor to increase the productivity of the critically short earth science and engineering resources over these next few decades. And these are just todays problems. The Preliminary Specification as a business model for the innovative and profitable oil and gas producer provides the means to deal with the future problems and opportunities as they arise.

Currently the bureaucracies are standing in the way of the progress of the Preliminary Specification. Thats what bureaucracies do. There is little for them in this new business model and they know it. Its not that they have an alternative, its just that the status quo suits them fine. Now is not the time for the oil and gas industry to sit still and stagnate. The need to address the organizational context and business model of the industry is the first order of business and our number one priority. To do anything else would be putting the cart before the horse. We must organize ourselves first. And that requires that we define and support that organization within the software that the industry, the service industry, the service providers, the Joint Operating Committee and the producers themselves use.

Today people don’t see technology as being the effective tool that define and support our organizations. And in a way it isn’t. Its the business model that uses the technology. We need to use these tools of the 21st century to deal with the problems and opportunities of this century. The Preliminary Specification does this effectively. With $94 billion in opportunity costs for the 2012 calendar year we can see the dynamic effect it can have on the industry. With these types of opportunity costs and the ability to approach the future with the appropriate business model the cost benefit analysis is clear.

The Preliminary Specification provides the oil and gas producer with the most 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.

Our Development Plans Part III

Today we want to discuss the point where the Revenue Model intersects with the user community. Yesterday we noted that the power in which the strategic and tactical control was exercised was within the user community. That if the industry needed to change, that change would need to be initiated by the user community in order for the software to change and then the industry could change subsequently. There is an important component of the Revenue Model that ensures that the user community remains independent and enabled to make these changes. That they don't become blind sleepwalking agents of whomever will feed them.

Ideally you want the user community to be able to think of the changes and the needs of the industry, and act before the demands are realized by the producers. Providing the software just in time when the producers needs are being realized. This requires the user community to be very aware of the issues and opportunities that are present in the oil and gas industry. That they are able to plan and execute what is required and deliver that in the software when it is needed.

It also has to be stated that this can't be done in an environment where the user community is looking for its next meal. It would be of particular concern as to what the cost of that next meal would be in terms of what is agreed to. This is not how the user community should be run. The compromise and distortions in the direction of the user community that would occur so that it could be fed would lead it to be of little value to those outside of the group that was feeding it.

That is why the Revenue Model has been developed in the manner that it has. The user community is one of the major costs of the development of People, Ideas & Objects. And it is the nature of the user community, and its ability to meet the demands of the producers in its unique way that is of value to the producers. That is why it needs to be funded in the manner as specified in the Revenue Model. Assessing fees and penalties based on production is a fair and reasonable means of raising the funds for development. Collecting fees and penalties from 2010 forward from all producers ensures that no producers are able to avoid providing their share of the costs of development. Everyone participates based on their production profile and from the same point in time. Therefore no producer undertakes a greater share in the development than any other producer. Early participation will however eliminate future penalties.

As can be expected, there will need to be representation from all corners of the industry in the user community. In order to capture the needs of the industry the user community will have to look like the industry in most every way. And there will be significant opportunities for people within the user community. As I see that and the service providers being two areas that are dynamic and innovative for at least the next decade. As it should be asked of the user community what will the applications look like in ten years. It will be as a result of their input that answers that question. A truly interesting journey.

The Preliminary Specification provides the oil and gas producer with the most 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.

Our Development Plans Part II

The Detailed Specification is the output of the resources that we are seeking in this next phase of development. Will consist of the detailed information of what the system will consist of in its first commercial release. It will be the result of the collaborations of the user community in determining their wants and needs in the oil and gas industry. Consisting of screenshots and process management information. It will be user defined information that is captured in a number of software development tools.

The key deliverable to give the developers will be the “user story”, from Wikipedia

In software development and product management, a user story is one or more sentences in the everyday or business language of the end user or user of a system that captures what a user does or needs to do as part of his or her job function. User stories are used with agile software development methodologies as the basis for defining the functions a business system must provide, and to facilitate requirements management. It captures the 'who', 'what' and 'why' of a requirement in a simple, concise way.

Defining the needs of a system of the size of People, Ideas & Objects needs to go through this process of the Detailed Specification to help manage the scope of the application. What is necessary in the application can not be left open ended when the developers sit down and begin their work. There must be a defined product that they are setting out to complete. That is one of the purposes of the Detailed Specification.

Capturing the needs of the users, the producers, the Joint Operating Committees, the service providers and the service industry into these specifications will also eliminate the redundancies in developing similar systems for similar needs. The output from this phase of development will be large. The more people that we have looking at the output of this phase and the more errors that we can correct, the better the systems will be and the less overall costs.

It is imperative that people understand that People, Ideas & Objects are user driven developments. We have chosen this methodology as this provides the highest quality of systems available. Participation should be looked upon as an opportunity to make a difference in the development of the industry, its profitability and its innovativeness. How the industry solves its problems and addresses its opportunities should be as a result of the actions taken by the user community to change the software to meet those challenges. Users are in control of the tools that make the industry what it is.

This is the importance of user communities in the near future. What they may have looked like in the past was more predefined by the softwares needs or the organizational context. With the People, Ideas & Objects user community the organization is defined and supported by the software. And the user community defines the software. So the shoe is on the other foot as they would say. I think that you can see with the Preliminary Specification how the software definition redefines how the industry operates. This power is being placed in the hands of the user community. User community participation is now at the top of the food chain.

The Preliminary Specification provides the oil and gas producer with the most 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.

Our Development Plans Part I

Once we have secured the budget to complete the developments of the Preliminary Specifications. The next stage in our development. We will begin the determination of the detailed work of what the initial software release will look like. This Detailed Specification will be the result of the user communities involvement and the result of many hundreds of man years of work. It will detail in very specific terms what the systems will do and how they will do it. Based on the Preliminary Specification and the user community needs, which includes the participating producers. It will provide the means or the specification for the first iteration of the software.

Participation by the producers in this phase of the development will be critical. The changes that are being made as a result of Preliminary Specification are significant. It is imperative that a producer and Joint Operating Committee be part of those changes from the beginning. When they have an opportunity to participate and have input into those changes. Waiting for the second iteration to participate may be too late. By then producers who have been using the software may be considering changes that are based on the changes in the first iteration and these changes will be too much for a producer that did not participate in the first iteration to handle. Locking out those who did not participate by way of a business model that is too complex to change too.

The other aspect is that participation enables the producer firm to make the changes to their organization that will work with the software. Allowing them to ease into the integration as opposed to having to remake the organization all at once.

Participation in the developments of People, Ideas & Objects software will be the beginning of the producers use of these new software development capabilities that are a necessary aspect of the producers capabilities. This capability will be a new tool in the producers strategic and tactical arsenal. One that allows them to approach the opportunities and issues on a much larger scale than what they are currently able to approach.

I think that one thing that we will find in the future is that the impact of change will be dramatic. There won’t be subtle changes anymore. The upside as a result of changes will be significant. And the impact of inaction will be very detrimental. We may be seeing that already in the marketplace today. A producer that chooses to proceed into this type of future without the tools to deal with the organizational context may be subjecting themselves to the unnecessary impact of inaction.

Participation in the software developments from this point forward should therefore be something all producers subscribe to. The Preliminary Specification prescribes a cultural shift in the ERP systems that is sound. A business model that is developed for the oil and gas industry. The risks in participating are the time and costs that could be potentially lost, however the upside could be significant. There are opportunity costs and other savings that are real today that are not available in the current corporate model. Based on any reasonable criteria a producer would decide to join, but then there is the bureaucracy.

The Preliminary Specification provides the oil and gas producer with the most 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.

An Industry Wide Reorganization

I might have stated in yesterday’s post that the changes made as a result of implementing the Preliminary Specification were small. I’m sure everyone appreciates my humor. There is little in terms of anything in oil and gas that is not changed as a result of the Preliminary Specification. And many of the changes are significant. This is what we are dealing with. Today technology is disintermediating all industries and it is the Preliminary Specification that is rooting out the bureaucracy in the oil and gas industry. In addition however, we are moving closer to our cultural norm, the Joint Operating Committee. It is therefore a positive change on both of these fronts.

Should people be concerned for their jobs as a result of the changes in the Preliminary Specification? Only if they are not productive or part of the solution. Those that are cogs in the wheel of the bureaucracy should begin to consider where they will fit into a new dynamic and innovative industry. One in which the old ways of CYA and other such antics will provide less upward mobility. There is a role for everyone, and I think an enhanced role. There is a decidedly stronger division of labor between what the computers will do and what the people will do in the Preliminary Specification. The computers will do what they are good at processing, storage and the like. And people will have to move to the higher forms of work that are needed to be done. The innovations, collaborations and thinking that computers can’t do. That’s the future that I see.

The organizational context that exists in the industry today is the same that existed in the 1960’s. The only difference is that it is a little faster as a result of computers. There has been no innovation or rethinking of how the industry has been organized in the last fifty years. And maybe its the same as when the industry began. Does that not seem a little strange in light of the changes that have occurred in society? Isn't it time that we looked at the ways that we structure ourselves from an industry point of view? There is significant value in moving to the Preliminary Specification. Only the bureaucrats stand in our way.

We need to leave many of our preconceived notions of what and how we do business today. The Preliminary Specification provides the flexibility for producers to capitalize on the opportunities and deal with the issues that exist in the industry today, and those that will arise tomorrow. It is a fundamental redesign of the industry, the producer firm and the Joint Operating Committee. It also impacts the service providers, a sub-industry that is developed as a result of the changes in the Preliminary Specification and the service industry.

So much of what we need to do has to be pre planned and implemented into the software that defines and supports our organizations. Things can't “happen” the way they used to when so much is dependent on software. Without the software there to make it happen, nothing will happen. Spontaneous order, an economic principle from the 1930’s, may have seen its last days.

The Preliminary Specification and the People, Ideas & Objects software development capability provides these tools to the innovative and profitable oil and gas producer. Its a different world, one where access to the kind of software defined in the Preliminary Specification can make a dramatic difference to the outcomes of the oil and gas producer.

The Preliminary Specification provides the oil and gas producer with the most 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.

Organizational Flexibility

When we look at the oil and gas industry in terms of the organizational context. Today’s corporate model provides little flexibility in dealing with the issues and opportunities of the industry. The approach that a producer can take in how they deal with a problem is limited to the resources that are within their sphere of influence. In other words they can only control those issues and opportunities that are available to them through their own people. In terms of approaching the natural gas pricing issues, or the availability and long term resourcing of earth science and engineering resources they can only do what they are able to do with the resources they have at their disposal. They are organizationally constrained by the corporate model that limits their actions to those within their own four walls.

The Preliminary Specification in many ways opens up the producer firm and Joint Operating Committee to a type of collective action that can be undertaken on behalf of the industry. Whether that is by removing natural gas production from the marketplace without the associated financial losses being incurred. Or benefiting from the specialization and division of labor that is used across the industry. There is a greater number of tools available to the producer and Joint Operating Committee as a result of the use of the Preliminary Specification than with the use of the current corporate model.

This collective action requires the producer or Joint Operating Committee to act in their own best interests and have faith that other producers and Joint Operating Committees will do the same. An example would be their belief that the efficiency and effectiveness of using service providers who use specialization and the division of labor will provide better services for oil and gas administration and accounting functions. Then they could realize the benefits of greater service offerings and lower costs of operations, something that has been missing from this area for years.

Producers have certainly tried to benefit from the specialization and division of labor within their organizations. The problem has been that the demands are so specific and the data set are so small. Each producer has had to build the capabilities needed to meet the requirements of an oil and gas producer operating in the 21st century. If we take the capabilities that are built within each producer firm and replace them with an industry wide capability that is provided through a variety of service providers. Then the efficiencies and effectiveness can begin to be built within industry wide capabilities for the benefit of all producers who participate.

The transition from the single producer capability to the industry capability would be seamless and simple. It would start with a service provider specializing on a process such as eligible capital costs for gas cost allowance purposes. As individual companies release their work to the service provider, the service provider becomes more specialized, taking on greater volumes of work. Producers begin to see the effectiveness of the overall industry capability and begins to release more processes to other service providers. Until such time as the majority of the administrative and accounting processes of the oil and gas producers and Joint Operating Committees within the industry are being handled by service providers.

The organizational flexibility that is provided as a result of the changes that are discussed here generate the $94 billion in opportunity costs for the 2012 calendar year. They may seem like small changes however the implications, and the capabilities that are gained as a result of these changes are substantial.

The Preliminary Specification provides the oil and gas producer with the most 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.

Innovation, A Methodology of Production Allocation

In yesterday’s post I asked the question of how the production would be allocated when the natural gas prices were higher than the marginal costs. In an ideal marketplace the demand would be higher than the supply for the commodity and the majority of the production would be cleared by that demand. However with the shale gas formations prolific nature, that may not be the case and there may be surplus capacity in terms of deliverability in the marketplace. This would keep natural gas prices, in an environment where the Preliminary Specification was operational and therefore there was no downswing in pricing, around the marginal cost with surplus capacity available at all times. So the question remains how does the marketplace allocate the capacity in terms of production.

The answer to the question is that the producer that was most innovative would be the one that would always be on production. They would have the lowest costs of production and they would therefore be profitable at all times and could sustain production profitably under any scenario. It is those producers with unique and specialized skills in the earth science and engineering domains that will dominate the production of natural gas. As they will be the most profitable. Innovation is the means of competitive advantage for the oil and gas producer.

The Preliminary Specification is designed around the principles of innovation. What an innovative organization consists of and what an innovative oil and gas producer requires in order to compete in an innovative industry. Key modules for the implementation of these principles are the Research & Capabilities and Knowledge & Learning. They have been based on the research of Professors Giovanni Dosi, Richard Langlois and others in terms of what is necessary for an innovative organization.

An example of the innovation capabilities within the People, Ideas & Objects Preliminary Specification is the Work Order system. What will be needed in the industry for it to become more innovative is the amount of research that is undertaken. We see like minded groups of producers working together conducting research in the earth science and engineering disciplines becoming a common practice. This type of activity has been systemic in the industry for many years. What is needed is an order of magnitude more of this in order to solve the problems of the industry. To help in that the Work Order provides an interface that allows the producers that desire to work together to sponsor and create these working groups without the traditional bureaucratic nightmare that they cause. When the financial facilities enable and support the initiatives of the industry, innovation can be fostered at a much faster rate. These are the types of “things” that are undertaken in the Preliminary Specification.

Most importantly People, Ideas & Objects move the entire industry towards the cultural influence of the business. That is the Joint Operating Committee. By moving the compliance and governance frameworks of the hierarchy into alignment of the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee. We achieve a speed, innovativeness and accountability in our organizations. It is this cultural shift that provides the greatest benefits to all that work within the industry. With the Preliminary Specification we will finally be recognizing the unique nature of the industry in our business dealings and be able to accommodate its needs.

The Preliminary Specification provides the oil and gas producer with the most 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.

Discussing Natural Gas Prices

The persistence in natural gas prices is contrary to what we were led to believe by the bureaucrats who run the oil and gas industry. It was believed that they had fixed the problem and that prices were to resume their continued increase throughout the summer months and into the winter. We can draw a number of conclusions from the fact that the natural gas prices have not behaved in the manner that the bureaucrats set out in their annual reports and annual general meetings. That is that the problem that is at the heart of the low natural gas pricing situation remains unaddressed, and the bureaucrats do not have a plan.

I am at a loss to find any discussion of the natural gas prices and the impact they have on the industry. We know that these prices are not sustainable. That they are creating losses at all of the producers. Yet in terms of a discussion of what to do about the problem there is nothing. This would be acceptable if the problem was of a short term nature. One in which the prices would turn around on their own and resume their traditional pricing structure of say 6 to 1 in terms of the oil price. The reality of the situation is that the short term perspective does not consider that there has been a fundamental change in the marketplace. That change being the shale gas reserves and deliverability in the North American marketplace.

So as the bureaucrats pray for something to happen the natural gas prices continue to keep producers on a starvation diet. What is needed is a plan. A plan for the long term. For as soon as the prices rise above the marginal cost there will be an abundance of production to meet that demand. So how will the producers allocate their production? And how will a natural gas producer make money in the business in the future.

The Preliminary Specification enables the producer to deal with the environment where natural gas prices are variable and may dip below the point where they don’t cover the marginal cost of production. Allowing the producer to shut-in production until prices return to the point where a profit can be made. This is done through a variety of changes we make in the way that business is conducted by the producers and Joint Operating Committees.

First we take the producer and strip their organization down to the core consisting of the C class executives, engineering and earth science resources, some support and legal staff. The remainder of the administrative and accounting resources are deployed into service providers who are focused on the processes across the industry. Their use of the industry as their client base enables them to use the toolset of specialization and the division of labor to efficiently and effectively provide for the needs of their clients, the Joint Operating Committees. Each month the service providers will bill the Joint Operating Committee for their services. If the property was shut-in during the month, then no service fees are incurred and no billing is created. Leaving the property without any production, administration, accounting or overhead charges for the month. The only costs that are uncovered are the costs of capital.

The producer therefore does not incur any additional losses on their reserves and contributes in a significant way to the increase in natural gas prices by removing production from the marketplace. Downward swings in the natural gas prices will be limited to the marginal cost of production. Production discipline by the producers will be imposed as losses on production are far more detrimental than shutting in of production. Using the marginal cost as the point where production ceases will limit the losses in the industry.

During times of shut-in production the producer can focus on that shut-in production and innovate on the earth science and engineering domains to bring their marginal costs down and return the property to profitable operations sooner. This is the plan of how the Preliminary Specification would operate in the natural gas business with the shale gas reserves. It would seem to me to be a better plan than that which the bureaucrats are selling.

The Preliminary Specification provides the oil and gas producer with the most 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.

A Quick Review of Our Revenue Model Part VII

People, Ideas & Objects focus is on its users and the business issues and opportunities that they face in the 21st century. We are not providing “new” technology for technology's sake. With respect to our revenue model, technology has a substantial impact on our product delivery.

Traditional ERP vendors in the oil and gas marketspace have “sold” a solution to the oil and gas producer and then supported the application through an annual service contract. These competitors are selling a product that does not consider changes to the business environment. Contrast that to the People, Ideas & Objects revenue model that is dynamic in that we are focused only on changes in the business environment. It is these changes that are the source of our revenue stream. Without changes to the software, there would be no developments and no fees would be assessed in the current year by People, Ideas & Objects.

It is a fundamentally different point of view. The traditional ERP vendor is constrained by their code and their customers. Any changes to the code needs to be populated to the variety of customers who use their software. Therefore there is resistance to change by the vendor. People, Ideas & Objects uses the cloud computing infrastructure where changes can be populated to the user base quickly and efficiently. We are oriented to the changes in the oil and gas producers business environment. It is these changes that drive our revenue.

Our focus is to provide a software development capability to the oil and gas industry, service providers and service industries. One that enables the industry to make the changes necessary when the business opportunities and issues arise. We believe that proceeding through the 21st century without a team of committed and capable software developers that are working in the core ERP area will seem reckless in a few years.

Effective 2013, commitments from producers / investors for their participation in the Preliminary Specification are being solicited. When People, Ideas & Objects have received commitments totalling the Preliminary Specifications estimate, we will call on those commitments to begin the process of development. We are looking to secure resource and financial commitments. The financial commitments are based on your current production profile. We also ask that for each $1 million in financial commitments, 2 man years of user community contributions are committed to the project.

The Preliminary Specification provides the oil and gas producer with the most 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.

A Quick Review of Our Revenue Model Part VI

Another element of our Revenue Model is the means in which People, Ideas & Objects is capitalized. Traditionally software developers are stand-alone organizations with their own banking, regulatory and venture capital influences. People, Ideas & Objects is taking a project management perspective in providing this software solution to the marketplace. The differences in our capital structure are significant, with our Revenue Model being a critical element in defining and supporting these differences.

The fact of the matter is, by having user based developments defined and supported by various communities. To then have various venture capitalists, or other groups involved in a traditional capital structure, influence whether or not the software was built to specification is too large of a compromise to be viable. Therefore People, Ideas & Objects is funded by its Revenue Model and focused on its users; making it more of a project management type of venture.

To be clear the scope of People, Ideas & Objects is beyond what venture capital groups would be willing to fund. That is to say if the producers / investors are unwilling to invest in this software development, based on the value proposition put forward, no venture capital groups would touch this type of venture. Amortizing the costs of this development over the production profile of the industry is our value proposition. Complicating our capital structure only complicates and compromises the deliverability of the software.

To suggest that People, Ideas & Objects can be structured without the traditional involvement of investment capital might be naive for me to consider. However I do know, that it would be naive to suggest that the systems as described in the Preliminary Specification could be built with the influences of a traditional capital structure. Therefore, it is with that in mind, and to ensure that the Preliminary Specification captures the full scope of the technical and geographical concerns of each subscribing producer / investor. That producers / investors would be wise to support these developments to ensure their concerns remain the appropriate priority of this software development.

One area where our capital structure is not a concern is in the hosting of the application on the cloud computing infrastructure. I have addressed these needs by separating these business concerns from the software development activities. As I have documented in our Hardware Policies & Procedures, the hardware infrastructure is directly managed by the producers / investors themselves. The purpose in structuring the hardware in this fashion is to eliminate the producers / investors regulatory concerns in running their ERP systems, and to ensure that all parties have a vested interest in the infrastructure. In the process of meeting those concerns the business of the firm that hosts the application will have its own capital structure that will not in any way affect or influence the software developments or communities of People, Ideas & Objects.

We have talked about the risks of becoming blind sleepwalking agents of whomever will feed us. An issue when we are discussing systems development. People, Ideas & Objects Revenue Model shows these risks are real and require a new approach to funding these software developments. It serves no one's interests, People, Ideas & Objects, the Community of Independent Service Providers, Users or Producers / investors to proceed without dealing with this issue. It is best to identify these conflicts and compromising situations now, while the influences are manageable.

Producers / investors are expected to fund the software developments on the basis of their production profile. Rental fees are assessed on all producers / investors starting January 2010. This eliminates the possibility that some producers / investors will pay disproportionate shares of the development costs through early participation. All producers / investors will be required to have their rental fees, and penalties, paid in full from January 2010 to the current year in order to access the applications. These methods and penalties eliminate all incentive to delay and avoid financial participation by producer / investor firms.

Financial participation is how the communities are supported and hence able to avoid the trap of becoming blind sleepwalking agents of whoever feeds them. People, Ideas & Objects are user focused developments. The choices that a software development project can prioritize are many. Users are one, technical efficiency another and there are many other possibilities. For users to support the producers / investors to focus on their competitive advantages of their asset base, oil and gas leases and earth science and engineering capabilities. Users need to have the software tools and means of production, (the financial resources to build those tools) within their control.

This discussion does not preclude the producers / investors participation in these communities. Producers / investors, on the contrary, are critical elements of the user community. These developments will need their full participation and contribution. What is necessary to proceed is the appropriate “political environment” in which users are able to define, build and use the software tools they need to do their jobs.

The Preliminary Specification provides the oil and gas producer with the most 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.