There’s math, and then there’s strategy. The situation we see where the oil and gas firm that runs into difficulty financially, or operationally begins to rationalize their asset base. They think they need to raise money by selling some assets. So they naturally think they'll sell some of their “midstream” assets. The gas plants, gathering and processing facilities that earn only a fee for service on the customer products processed. These assets, when looked at from a financial performance point of view, don’t come close to even being on the right street where the ballpark is on. Therefore they get sold for the high replacement cost that they would receive and the seller thinks they made a good deal. The fact of the matter is that the majority of the smaller producers may have been selling the C3+ products directly to you for fire sale prices because they have no capacity to deal with them. You being the only one in the area with processing facilities were able to negotiate a very good bargain and acquire the majority of the natural gas liquids in the area for literally the royalty costs. Now that the plant is sold, those products are lost and that production is gone to the new owners of the plant.
The majority of the oil and gas producers that I have seen and studied take a while to fully understand what exactly is happening. What seems to be a jumble of activity for no apparent reason can, upon further study, become a symphony of brilliance assembled by someone of such great vision it can be truly breathtaking. Selling a gas plant out from the middle of this shows that the seller can’t see the vision and the assets are no longer going to perform as expected. Having tools like the Analytics & Statistics and Performance Evaluation modules in the hands of people who may not fully appreciate the vision of how the firm was built could have detrimental effects to the overall health of the firm.
If we go back to something we reviewed a while ago about the decision rights we find this quotation from Professor Richard Langlois.
The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). p. 9
In People, Ideas & Objects we have moved the knowledge to those with the decision rights, which reside with the Joint Operating Committee. And as opposed to contradicting ourselves, we find clarification of this issue in the following fact. The decision rights held by the Joint Operating Committee are the operational decision making authority. The strategic decision rights regarding ownership and divestiture are held by each individual producer regarding each of their working interest shares. Therefore there is no risk that the property is going to be “harmed” in any material way by making a strategic decision of that type in the Performance Evaluation module. It is beyond the scope of the authority of the Joint Operating Committee. It is fair to assume that the scope of the authority of the decision made through the Performance Evaluation module will be limited to the operational concerns, and be mitigated on the downside to the short term. That is to say any negative decision would be reversed as soon as it is realized.
I think nonetheless it would be worthwhile to have a strategy review “attached” to each decision based on the Analytics & Statistics and Performance Evaluation based decision. That the decision has some analysis that is purely qualitative to counter the quantitative elements of the modules. If this qualitative analysis could be embedded into the modules for documentation purposes that would build value in these modules specifications.
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.