Onward and Upward!

My hopes that maybe the bureaucrats would be held accountable for their actions have fallen to the wayside once again. It is clear that the ability for them to snow the investment community continues. And on the other hand, although our readership is impressive, we are not reaching enough of the people we need to in order to make a difference. We will however continue to build on what we have here and be the thorn in the bureaucrats side. The lack of oil and gas profitability will continue until such time as the Preliminary Specification is in place. Shale reservoirs ensure that this will be the case. There are a number of other issues that the industry refuses to face, such as yesterday’s discussion of the service industry and the potential decline in its capabilities as a result of the current actions of the bureaucrats. And of course none of the past problems, like the difficulty in transitioning the earth science and engineering brain trust from those that will be retiring soon, are being addressed. I hear that recent university graduates in these disciplines are quite good baristas. Check them out at the local Starbucks.

I get complaints from some people that they are unable to read this blog while at work. I can only assure them that it's not as a result of anything on our end. Some of the producers may be blocking access at the firewall. Which sounds familiar to me. Nonetheless it would be helpful to this cause if we could expand the readership by sending our url’s to others who may be of like mind. One caution is to ensure that you know they are not going to use it against you. We have a job to do and it is going to be done on the basis of everyone doing things that are done differently than the way we do them now.

Our friends the bureaucrats also seem to be relying on a low interest rate environment to maintain the false economy that exists and which they seem to prosper in. Without the demands of an alternative investment that pays 7 or 8% for sitting on your money. The bureaucrats know there is nowhere else that you can invest. Therefore your stuck with their poor performance as the best that there is. What the investors in Encana have realized with the 90% decline in that shares price. Is that there is a potential loss that can occur as a result of sticking with the producers.

And I was thinking more about Encana since their quarterly report. They've lost 90% of their share value due to the fact that they were an almost 100% natural gas producer. They recently acquired an oil producer to offset this exposure. The point is that the natural gas market has been down for more than five years. Shale gas has destroyed the pricing of that commodity for these past five or more years. Maybe it takes five years for the effects of these poor prices to have the types of share price declines that Encana has experienced. If so, and with oil being down for almost one year, we have four more years before the entire industry loses the 90% of their market cap. A reasonable assumption.

I don't see anyway out of the oil and gas industries difficulties without the Preliminary Specification being put in place. And it will take a few years to do that. But then I am biased the bureaucrats would assert. The issues are bad today. And there are many issues that were unaddressed in the recent past that still need to be addressed but have been forgotten. And there are many difficulties in the very near future that I can see. What we do know is the “muddle along strategy,” which has poorly served this business for so long, will still be ineffective. All of these issues are challenging the capacity and capabilities of the industry, and therefore our way of life. And therefore should be considered by the bureaucrats in that context. It is however late July and their cabin’s are in their prime season at this time of year. People, Ideas & Objects have a tiger by the tail, as they say. And therefore we will live to fight another day.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

"Implementing Effective Cost Control"

Another casualty of the downturn in oil and gas is the service industry. Just as the people who work directly for the producers, the service industry are dependent on oil and gas producers for their revenues. Oil and gas being a primary industry receives their revenues from the oil and gas sales. These oil and gas sales represent more than just the money that the bureaucrats are entitled to. It has been the experience of the past decade, when prices where higher, that these same bureaucrats were calling the service industry as being lazy and greedy for the prices that they charged to conduct field operations. Not realizing the difficulties these bureaucrats impose on the service industry by cutting field operations to the core one year, while the next two years doubling, tripling or quadrupling their capital expenditure programs. Feast or famine is how they have to deal with this in the service industry and that is how they have learned to survive in this environment dictated by the bureaucrats.

It’s 2015, is this the appropriate manner in which to operate the oil and gas industry? How is it that the service industry is able to innovate and provide for the ability to develop the technologies that producers are so dependent upon? Technologies such as horizontal drilling, multi-stage fracing, or to pick just one company Packers Plus. Based on the history of Packers Plus and my own here at People, Ideas & Objects. The declaration of war against the bureaucrats in oil and gas is a necessity. You really are treated like garbage if you have an idea. That’s because ideas belong to the oil and gas industry. In the bureaucrats mind that is. For you to secure an idea outside of the “legitimate” areas of ownership leads to punishment until one side in your war wins. This is how the industry is operated, surely no one believes the producers are actively working hand in hand with the service industry to develop new products and innovations? That’s a hollywood fiction.

It was Encana, the large Canadian natural gas producer that was calling the service industry lazy and greedy when prices were high. That was back when Encana’s stock was in the $90 range. With the recent announcement of their losses in their second quarter report. Their stock is performing well at around $7.50 but all of this decline has been attributable to the 1,400 people that they've laid off and the fact that the service industry is greedy and lazy. A company that has lost 90% of its market cap is a real life zombie. Two more years and they will be in receivership, with their assets picked away at by crow’s looking for a deal.

The fact is the service industry needs to be able to rely on the oil and gas industry for their revenues. In order for the service industry to perform in the best interests of the oil and gas industry, those revenues need to be stable and secure. The fact that oil and gas is a primary industry means that the responsibility for this falls on them. After all they are wholly dependent on the service industry and you do reap what you sow. This is the manner that the Preliminary Specification deals with the difficulties that we face in the future. The Research & Capabilities and Resource Marketplace modules provide for this environment to be created and managed. Is it so unreasonable, in this day and age. To expect that the producers will control themselves and not overproduce. By implementing the Preliminary Specifications decentralized production model they can do this. And make the prices that are necessary to support both industries in an appropriate manner.

As it stands now, with this downturn, people are leaving oil and gas and the related service industry for good. They've seen the character of the bureaucrats before and know that this downturn will be no different. What will be different is their actions. Instead of waiting for the next upturn. They're going to take what they may have been able to secure and are moving on to some other more secure industry. This is happening wholesale in the service industry, and to the people who work in oil and gas. Many of which I know are burnt to the core. Add on top of this the fact that the bureaucrats, when faced with the results of their own stupidity, always hightail it to greener pastures and you have to ask yourself. What and who are left?

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

Administrative Nightmares

Ask a bureaucrat why they haven't shut-in the unprofitable production these days and you’ll see the thousand mile stare followed by a frustrated and angry response that you don’t know what you’re talking about. Its the question that needs to be asked and the honest answer from the bureaucrats is they don't have a clue which properties are profitable. Their entire operation, from an accounting point of view, is a giant fudge factory. They employ the accounting and administrative people to conduct the necessary activities on behalf of the “joint account,” or what is commonly referred to as the accounts of the Joint Operating Committee. And because there are partners in most of those “joint accounts” they are authorized to charge for overhead on percentages of capital spent, a number of fixed dollars per producing well per month and a few other ways. It is generally agreed that none of these overhead charges make up for the real costs to account and administer a property. They are estimates based on best guesses that have been in place since, I think the 1950’s.

There is no consideration in these overhead charges for natural gas operations or oil operations. Anyone who knows the business will understand the complexity and difficulty involved in natural gas, from an administrative and accounting basis, is an order of magnitude more complex than oil. These overhead estimates are also the same irrespective of the volume of production from the well. What bureaucrats want you to believe in this quarterly report season is that the costs to carry the people on the payroll have been the source of their difficulties. Laying these people off will be the natural resolution to their difficulties. My argument here is all a moot point the bureaucrats will state. As the people in head office, the accountants and administrators, costs are capitalized anyway. Which is very true, so why lay them off. Could it be that you're just looking for a scapegoat?

The point of this post is to document the difficulty in determining the profitability of an oil and gas property under the present systems. Producers can determine the revenues, royalties and operating costs of the property and use that as the basis of determining what is providing some contribution to the margins. But these calculations are unable to determine the costs to administer and account for these properties and they never include the costs of capital that was incurred to explore and develop the property. Those are what are called sunk costs in the business. It is these sunk costs and the overhead that can be widely variable between properties and producers in determining a Joint Operating Committees profitability. That is, when and if they could ever be calculated properly by the producer.

To account for the administrative and accounting costs on a property basis has never been conceived of before. The necessary armies of accountants, with very sharp pencils, would be thick and deep. Therefore the need for overhead allowances has been the most practical application to deal with the way to administer oil and gas. That was the case in the 1950’s and 1960’s and has been continued throughout the last 50 to 60 years. However, we have these computers now and if we organized ourselves around the possibility of using them to do the things that they do well, and have the people do the things that people do well. We could determine with exact detail on a monthly basis each well's performance in terms of revenues, royalties, operations and exact accounting and administration costs, and just for fun I'll throw in the fact that we can determine what a reasonable person would determine the costs of capital was for the month as well.

By having our service providers replace the accounting and administrative resources of the producers. They will use their staff, who are the reallocated administrative and accounting resources from the producers, and our software to provide the administration and accounting of a specific process on behalf of the entire industry. It will be in that way that they can charge for their services to each Joint Operating Committee, or well, the exact costs of what they incurred to process that Joint Operating Committees specific administrative or accounting process. If the well wasn’t on production then none of the service providers would have done any work and none of the service providers would have issued an invoice to any of the Joint Operating Committees for any accounting or administrative work. That way if the well wasn't earning a profit the producers could shut it in and wait until such time as the commodity prices rose to the point where they could make a profit, or alternatively they could put that Joint Operating Committee in their inventory of engineering and geological workovers and try to innovate to bring it back to profitability sooner.

The way that the industry is currently structured is to accommodate the world as it exists in the 1950’s. Computers are around today but the organization and methods are still stuck in the 1950’s. The Preliminary Specification will change this by providing full income statement and balance sheet reporting for each individual Joint Operating Committee and well. We need to make these changes in the Preliminary Specification in order to provide the dynamic, innovative and profitable oil and gas producer with the most profitable means of oil and gas operations.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.  

The Probable Scenario

If we fast forward three years to the year 2018. We find that this oil and gas price decline / overproduction has passed and all is well in oil and gas! The bureaucrats are congratulating themselves with handsome bonuses for surviving what may have been the most difficult period in the industry. Things could not look better. Restructuring of the junk bond market has made ample investment capital available and those drilling locations have been dusted off and negotiations for drilling rigs have begun. Bureaucrats are on the record in their last quarterly report that their production profile will be 15% higher than what it is currently.

What did you expect? A change in the methodology, strategy, operations or attitude of the bureaucrat? I was on record for this past year that they can't, won't and will not change their ways. This was in contrast to the constant barrage of news and information that the industries production profile would decrease and pricing would recover. I suggested it would never recover, and for proof just look at natural gas. Suggesting, in our scenario above, that in three years oil prices will recover to the point where drilling plans will be dusted off and drilling rigs will be contracted was the most optimistic that I could possibly be about the current situation. I give this scenario around 3% probability of becoming reality in 2018. More likely we will see the court's full with bankruptcy claims of the producers, their banks and the junk bond investors.

Oil and gas has a problem and it’s primarily the bureaucrats. However there are secondary elements to it as well. Shale being the biggest of the secondary elements. It is very expensive. It is prolific. Its flush production overwhelms the commodity marketplace. And is for all intents and purposes a non-commercial exercise. But is it? Today the U.S. derives 58% of its natural gas from shale. And for oil it's at least 25%. The moral of the story is we are junkies and we are hooked on the most expensive stuff their is.

The fact of the matter is that the next leg down in this industries destruction will not be on the oil side. Natural gas volumes in storage will be filled to capacity upwards of a month before the fall demand begins. That will take upwards of 14 bcf / day, or almost 20%, of the U.S. demand off of the market during that time. Where oh where will the producers put it? Expect our friends the bureaucrats to do the most intelligent and constructive thing that is humanly possible at that time. Remember, they don't care about the business so they will say this a temporary situation or an anomaly. Or you could short natural gas futures contracts.

We come back to this. The producer need a means in which to allocate production. The only reasonable and fair methodology is on the basis of profitability. If the property is profitable, then it produces. Otherwise it remains shut-in where the reserves can be held until such time that it can be produced profitably, it removes the marginal production from the commodity marketplace which increases prices and ensures that the producer only produces profitable properties and doesn’t have those profits diluted by having to cover unprofitable properties. The only way that this will happen is if the industry adopts the Preliminary Specifications decentralized production model. This can be done by funding our budget.

BP’s earnings will be released today. It will set the tone for the industry in terms of earnings reports for the producers. Expect to see those magic profits we've talked about here before, maybe for the last time. Hedges will have expired and lower overall prices will become evident in the next quarter's report. Bloated balance sheets will need to be addressed by then as well. What will be interesting about today’s quarterlies is that these companies will have to be honest about their future projections. This could trigger some big blow downs in the stocks of the producers. Also expect to hear the keywords “implement cost controls” from many producers. These are the three magic words that show investors you're focused on their interests. These three words have been able to save some otherwise dismal companies from facing the music this quarterly report season.

Things are happening quickly now for the oil and gas producer. As I stated we are at the end of the beginning of maybe the worst era in oil and gas. And it is all the bureaucrats fault. This situation is all avoidable and fixable. I have been “harping” about this and promoting the Preliminary Specification for many years. Years in which the pain being experienced by everyone could have otherwise been resolved and avoided. Instead thank your bureaucrat, and listen to them carefully in the conference calls and see if you can hear the waves from the lake where their calling in from.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

Never Means Never

Oil, and to a lesser extent, natural gas prices are suffering from the market’s surprise that “more” oil or gas haven’t been removed from the production profile. North American production being up over one half million barrels is confounding the marketplace. If you've been reading this blog for the last year or more, I've been suggesting that this would happen. The bureaucrats can't, won't and will never change. They also don’t care. I found this interesting quote that provides some understanding of why this happens and some insight into the future direction of the oil and gas bureaucrat. It’s from Henry Kissinger who states.

When enough bureaucratic prestige has been invested in a policy, it is easier to see it fail than to abandon it. 

We also have this “never means never” dilemma facing the raising of our budget. The bureaucrats fight us at every opportunity that they can. Their actions against us are subtle and more oriented to my frustration level than anything else. You see the difficulties in other technology companies having their products implemented in the marketplace. Uber is being aggressively pursued by the New York Mayor. Hillary Clinton has commented that she’s not a fan. The vested interests that are aligned against those with alternative business models have difficult protracted battles ahead of them. Our ability to raise our budget is something that on most days seems to slip further away. Unlike Uber we can’t be operated as an app on someones phone. We have a much broader scope and scale that needs to be developed in order to provide the solutions that the market needs. We do however provide a substantial value proposition once we've developed those application modules of the Preliminary Specification. And that is the choice, a profitable industry with our solution, or continued financial destruction with the status quo.

The real key to our future and the quality of our product is our user community. We continue to focus on its development over the next few years as we await developments on our budget. The question I guess is how much pain can the oil and gas investor handle. The user community will never commit to us in the volumes necessary until such time as the financial resources are secured. We can however communicate with the larger community and get the word out about what it is that we are doing. Have the people in oil and gas understand the process and methods we are using to solve the issues in the industry. Have them informally prepare themselves for the day when we do finally receive our budget and then they can join the community. This is highly constructive work that we are doing today and the audience that we are reaching is growing and is substantial. Without the Internet this would have taken an immense effort and a reasonable budget to accomplish. Today that is not the case. And we can continue to do this for the foreseeable future and make this all happen. I'm not surprised that I am not the only dissatisfied person in oil and gas, I am however surprised at the enthusiasm of our targeted user community. This is doable.

One thought that I continue to speculate on and maybe the oil and gas investors can think more about. Is regarding the raising of our budget needs. Imagine what would happen to a producer's stock if they funded their share of People, Ideas & Objects budget. What would happen if the investment community put pressure on the board of directors of a producer to forward their share of our costs. Understanding the impact of the Preliminary Specification, the going concern concept and the efficient market hypothesis. Would that producers market capitalization then reflect the value of the producer as if they were operational on the Preliminary Specification on a proforma basis. The theory is put into practice every day. And if the bureaucrats were smart, they could maybe earn an extra year or two of quiet vesting of their pensions while we were busy doing our work. Think about that.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

The Asset Swagger

In oil and gas assets are things that you collect on your balance sheet. The more that you have the bigger the swagger that you can carry off as you walk down the street. These are the governing principles in oil and gas. Shale properties are pursued by bureaucrats because they are consistent with the governing principles of the industry. They are costly, leading to higher balance sheets. Have steep decline curves, which lead to less and less recognition of any depletion of those assets in subsequent years. They are the perfect asset to pursue.

I'm paraphrasing here but I think this is the general operating procedure and logic being employed by the bureaucrats. It seems to be the only logical reason why we are doing what we are doing. At the end of the year the firm will be so much bigger because we blew so much investor money that they'll be impressed. So the bureaucrat thinks. Now that’s performance.

I have argued here on many occasions my difficulties with the capitalization policies used in oil and gas. The SEC dictates that either full cost or successful efforts define the maximum amount that a producer can record as their assets. Either method bloats the balance sheet by including everything under the sun as an asset on the balance sheet. But what accounting firms and bureaucrats don't seem to understand is that the SEC defines the outer limit. Any reasonable business person would look at the balance sheet of a producer and state that it is overstated, or more appropriately, bloated. When did reasonable lose its application to assets in oil and gas? I think it was around 1978.

Assets are not collectables, they are costs that need to flow to the income statement. For a healthy firm and industry, the sooner the better. There is no reason for an industry to be carrying the last two decades of capital expenditures on its balance sheet. The only reason that you would do so is to make the bureaucrats look like they're “performing.” Sure the producers have been reporting profits, but if you never recognize the cost of capital, in a capital intensive industry, you're going to report profits. Note too however, these profits as a result are of the paper variety. If these profits were real, the producers would be flush with cash. Almost no producer has positive working capital. An industry that operates on negative working capital! And they provide no return to their investors, in general. Clearly the overproduction has been endemic for decades fueled by the deception of a profitable industry.

This is a fine critique but what are the alternatives. There are two things that we will be doing in the Preliminary Specification. First is we will be including the cost of capital and actual overhead into the calculations of prices necessary for the Joint Operating Committee to earn a profit. These price calculations will be done on each and every property and well in the industry. They will be accurate and timely. On the basis of these calculations the producers will then be able to determine if the Joint Operating Committee can be produced in the current commodity price environment. If it can produce a profit, then it will produce, otherwise it will be shut-in.

The second element of our policies is that we will employ a different capitalization policy. One that recognizes the costs of exploration and development in a more timely fashion. What is generally considered controllable equipment in the industry, pump jacks, tubing, wellheads, etc will be capitalized. The uncontrollable, and more specifically the intangibles like drilling day work, cementing, logging and fishing will be expensed in the current period. Irrespective of the results of the well. This change in policy will be consistent with the SEC requirements as it does not overstate the assets of the firm.

What these two policies will do is draw down the bloated balance sheets of the producers. Retiring these bloated asset costs and having them recognized for the costs of the business that they are. There would be no more fooling ourselves that producers are profitable. We would need substantially higher prices in order to achieve this profitability. A mechanism, the decentralized production model, is provided in the Preliminary Specification to bring prices to the level where they are covering the costs of the industry. This capitalization policy would also return the capital to the investors who have invested in the industry in good faith over the past decades. That is because the oil and gas industry is a capital intensive industry and oil and gas exploration and development is expensive. Giving the commodities away cheaply as we are doing now is only bankrupting the industry and leading to any number of bad decisions by industry and consumers. This is foolishness and it has to stop.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

The Vested Pensions Business

We are nearing the end of the beginning of this oil and gas crisis. I have seen many downturns in my 38 years in the business. I remember the decline in oil prices in the 1980’s being the worst. It lasted for a long time and had an affect on people’s thinking about the industry for a generation. This is not a downturn like anything that I have seen before. This is the first crisis that has occurred in oil and gas. One that is particularly difficult because it could have been avoided with action from the current installed bureaucrats. What is clear by their behaviour in the past. Is that they can't, won't and will not do anything to correct the situation. It was their expectation that they would ride out another year telecommuting from their cabins at the lake. It's time to cut and run on these bureaucrats, they will never sort this out. It was clear to them that they had this scam running for another year, at least. The problem is the industry is deteriorating under the bureaucrats feet and it should be obvious to everyone by now that they just don't care. Its pensions, fully vested pensions, that’s the business to be in.

Our solution to the issues in the industry have been summarily rejected by the bureaucrats. It is clear when you read the Preliminary Specification that they are relics of the past century and have been dispatched to the history books in the process of implementing our solution. Which interferes with the business of vested pensions. Our solution requires significant changes to be made to the industry. With the level of distress that I see being generated in the near future. Our changes will be able to be implemented. In a normal environment we would have to compete with the status quo environment. With all hell breaking loose, people will be looking for alternatives. That makes our job much easier than having to compete with people who are comfortable in their lives and competent in their jobs.

The prototypical producer in the environment where the Preliminary Specification is operational. Will be a stripped down version of its current configuration. Consisting of the C class executives, the earth science and engineering resources, some land, legal and support staff. The administrative and accounting resources of the producer will be reorganized to service providers who are focused on a process or subprocess and will use the entire oil and gas industry as their client base. It will be in this way that we move from the producers administrative and accounting based capabilities to an industry based administrative and accounting based capability. By doing so we render all overhead from these administrative and accounting costs to be variable in nature, as opposed to their fixed nature as they are today.

With the administrative and accounting costs taking on the variable characteristic very little of the producers costs will remain fixed. Rent, lights, power etc for the head office but those will be for a smaller configuration than what they are now. The majority of their current overhead, the people and their associated costs, will be variable in nature in the following manner. With the service providers they will operate based on the activity they receive from the Preliminary Specifications task and transfer network. If a well is on production, then production is reported and the service providers that are required within those processes, revenue accounting, paying royalties, production allocations, etc are involved in those tasks. They will conduct their activities and issue a billing for the administrative and accounting activities they conducted to the Joint Operating Committee. Not the producer. If there was no production, none of the service providers will receive anything from the task and transfer network and therefore no activity will be incurred by the service providers and no billing to the Joint Operating Committee.

The producer will, as a result of this, know with better clarity than they do now, exactly what their profits are for any specific Joint Operating Committee. An allocation of capital, revenues, operating costs, royalties and actual overheads incurred by the service providers will give them a precise accounting. It will be on the basis of this accounting that if the property is not producing a profit. A profit that also considers the costs of capital and actual overheads. Then the property would be shut-in or suspended until such time as the commodity prices would provide profitable operations. While shut-in, nothing will be generated from the property to trigger any of the administrative and accounting service providers to conduct any of their activities in the task and transfer network. Therefore creating a null operation, no profit, but most importantly no loss either. Only the cost of capital is uncovered during times of shut-in production.

As a result of our decentralized production model. The producer saves these reserves for a time when they can be produced profitably. The commodity marketplace supply is reduced by the marginal production, leading to higher prices. And the producers report higher profits on lower production profiles. Profitable properties are not having to make up for unprofitable ones. This industry based organizational structure is what is required to deal with the abundance of the high cost, highly prolific shale based reservoirs. Dumping overproduction onto the marketplace just doesn't seem to be working. Unless, you're in the fully vested pension business that is.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

Its the Bureaucrats Fault

Needless to say I see the situation in the industry to be rather dire. The capacity for producers to continue on in the manner that they are will be able to be assessed as soon as the second quarter reports have been digested. These will be published in the next two weeks and many will start to show the seriousness of the issues in oil and gas. Bureaucrats were granted a pass a few months ago. During annual report and annual general meeting season they said they had the situation well in hand. This was on the basis of their reports being based on derivative income and no one questioning their capitalization policies. We have learned since then that most of their hedges have been expiring. And just last week Morgan Stanley was questioning why producers were not writing down more of their shale based assets. The situation, as represented just two months ago, may not be in hand in May of 2016. It is therefore time to revisit the decision of leaving the bureaucrats in power from now until May 2016 when we know that things are not as they were represented. Remember misrepresentation is fraud.

But then again maybe the producers will report record profitability this quarter. The point is I think people are watching and the fact that the bureaucrats are doing absolutely nothing about the business of the oil and gas business is very disconcerting. They were going to leave it alone for the remainder of the 2015 calendar year and just earn another years salary, bonus and vesting of their pensions. After all that is all that matters. It is irresponsible what is going on and they should be held accountable for their actions. This is a serious matter. The oil and gas industry is not the candy business. They have a duty to fulfill and this current era of unprofitability will lead to declines in capacity and capabilities.

The bureaucrats will never make the necessary changes to deal with the issues in the industry. They never have had the capacity to implement change. Muddling along has been the strategic operating procedure that has worked in every instance before. And maybe it will work again. Or we can develop the systems in the Preliminary Specification, organize the user community and service providers and structure the industry in a manner that deals with these issues today, and whatever issues and opportunities come our way in the future.

The Preliminary Specification provides the producer with the capability to implement the “price maker” strategy. Simply they do not produce any property that can’t be produced profitably. By suspending unprofitable production they save those reserves for a time when the commodity prices are higher and the property can be produced profitably. They reduce marginal production from the commodity marketplace leading to higher commodity prices. They are able to be the most profitable that they can be at lower production profiles. The profitable properties are not having to carry the unprofitable ones. This logic is contrasted to the high cost, low price, overproduction the producers are involved in today.

The bureaucrats can’t change to this simple idea in their current configuration. They employ the high throughput production model which requires full production at all times in order to cover the significant overhead costs. And of course we know where the most significant elements of the overhead costs are, the bureaucrats. So there'll be no more discussion of this point.

We can provide this change by implementing the Preliminary Specification which uses our decentralized production model. We'll discuss the model and our implementation more tomorrow but for today lets point out that the second quarter reports will be out soon. They should be the justification for action. That all is not well in oil and gas. Something needs to be done. And I guess you know what I would recommend.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

The Issue

The issue in oil and gas is that it is unprofitable. There have been changes in the industry in the past decades that remain unaddressed by the current bureaucracy who operate the industry. These changes, which include the move away from the scarcity of the resource base, to an abundance of the commodities in North America. Require new business models in which the oil and gas industry can operate. The bureaucracy will have none of it, and refuse to make any changes to their existing business model. They are fine with the status quo, as the structure of the industry serves their personal interests. Outside of the personal interests of the bureaucracy, no value is realized by anyone. Profits are the source of an industry's health. Other than paper profits that are derived by never recognizing the capital costs incurred in the exploration and production process. The industry is as unprofitable as an industry could conceivably be. Surviving on other people’s money for the past decade. A never ending downward slide in the quality of the capital that has been sourced by the industry has occurred since 2008. Relying mostly on junk bonds these past few years, this avenue may too be closed to them as the junk bond markets fall into distress as a result of the quality of their investments in oil and gas.

As a result of this lack of profitability governments are short changed on their tax base, investors realize no share in earnings and no upside in their investments, staff are cut and the service sector has their revenues slashed or are faced with cannibalizing their assets. Only the bureaucrats are happy. The changes that are occurring in the industry as a result of the shale discoveries are what makes all the difficulties ever present. The over production as a result of the shale discoveries will continue for as long as there are shale reserves. In natural gas that is best measured in centuries. At the same time the costs of these reserves are amongst the highest of any form of oil and gas resource. High costs, low prices and overproduction would lead most people to adjust their business model. The self interested bureaucrats have no motivation or desire to make any changes. They are fine, thank you.

We discussed the difficulties that the industry was having and how the bureaucrats needed to make the changes by adopting People, Ideas & Objects Preliminary Specification. It contains the decentralized production model that enables the “price maker” strategy for the oil and gas industry. Producers will suspend production that can not be produced profitably. A simple idea but one that can not be implemented in the current bureaucrats business model. What is needed is the budget to build the Preliminary Specification and for development of the user community. And at the same time have our service providers develop alongside of these. This change would solve the problems, for that there is consensus. There is consensus that this change will eliminate the need and the desire for the bureaucracy as well. Hence why no money has been forwarded to People, Ideas & Objects.

Information Technology is providing the means for many changes in many industries. The disintermediation of many industries has occurred, is ongoing and eventually will affect all industries. Oil and gas is not immune. However, I would suggest that the oil and gas instance is acute as a result of the unaddressed changes that have recently shaped the industry. It is a financial basket case. It will not survive for long in the manner that it is being operated. It is also the most important industry in terms of our advanced societies survival. A robust and healthy, or profitable oil and gas industry is necessary for the continuation of our species.

If we secured our budget today, we have many years of work ahead of us. Don't expect “instant” miracles from us. We have a significant undertaking to accomplish and that takes time. More time than the industry has money? Probably. It will be a difficult transition.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

User Community Business Opportunity Part III

Members of the user community are business professionals in the oil and gas industry. Operating primarily in the domains of administration and accounting. You and your team from the service provider that you own and operate will provide the oil and gas industry with the management of their process that is your exclusive domain. Although there is no direct competition for the process you manage. There is significant indirect competition from all of the other members of the user community and the service providers that they own and control. The competition comes in the form of the means of automation, the manner in which work is divided between computers and people, how the division of labor is implemented in the service provider and the level of specialization they are able to achieve in the processes they manage. This is the competitive environment that you will compete in. You won't be faced with someone who shows up one day, taking your ideas, and establishing a similar service at half the price. The “me to” types of competitors are unable to provide any value or profitability to the oil and gas producers. Their focus is on the cost of the service and the oil and gas producers will not become more competitive based on the lower costs of the user community and service providers.

The simple fact that we won't license anyone to operate in your domain or in the process that you manage is the way that you can be assured that your focus remains on the competition at the higher level attributes that I mentioned. And without a license the people that may want to infringe on your territory will be unable to access the software needed to manage the process on behalf of the oil and gas producers. With the decentralized production model, the industry configuration of the user community and service providers enables the price maker strategy for the producers. This is the source of the majority of the value that is earned by the producers. There is also significant potential value to be earned through the user community and service providers applying their toolkit of a software development capability, further automation of the process, specialization and the division of labor. To have this focus distracted by having to compete in the short term on the price of the service, because someone wandered into your domain, can't, won't and will not happen with the licensing of the Intellectual Property that is the basis of this community.

One of the things that we are doing by establishing this community is we are in essence setting up a sub-industry. A sub-industry that resides between the technological industry and the oil and gas industry itself. Specialization and the division of labor evolve by way of filling gaps. There is a gap between the technology firms and the oil and gas producers. They don't speak each others language or understand one another's needs. SAP thinks producers should get closer to their customers. After 38 years in oil and gas I don't think I've ever met a customer of an oil and gas producer. Its this type of disconnect that we are resolving by establishing People, Ideas & Objects, our software development capability, the user community and service providers to fill the gap between oil and gas producers with the technological firms. We are focused on providing the oil and gas producers with the most profitable means of oil and gas operations. Which means we are business professionals first and foremost.

There is therefore a secondary requirement that the user community and service providers need to have as part of their toolkit. They need to understand the technologies that they are using at a very high level. It is highly probable that the user community participant will be, at times, entering the code base to make changes. This probably won’t go beyond XML however, to edit XML you need to understand the rest. Now nothing will immediately be changed as a result of the user community participants code changes. All changes by everyone will have to be processed by a committer on the People, Ideas & Objects software development team. There will be a process in place. In order to have this capability, of editing XML, the user community participant is going to have to know XML, Java and relational theory as well as most of the people who work in the technologically based companies. Oracle is a big part of our solution and they own most of these technologies. Therefore to collaborate with them is a necessary part of your role as well. To relay what the business needs are in the technology.

That is why we have asked that the user community participant have the background in technology that we are asking. If you don't have the understanding of those technologies there is time at this point to get them. Many universities offer courses in these areas and I highly recommend that people take the time to learn these technologies. I think know it will be a necessity when we get to where we're going.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

User Community Business Opportunity Part II

People who are interested in becoming participants in our user community need to assess the risks that we described in yesterday’s post. Those risks include the high probability that People, Ideas & Objects may not obtain its funding. In order to assess this probability a potential user should make an assessment of the situation in oil and gas today. Are the producers earning the profits that they report? And is the situation of chronic and systemic overproduction sustainable? What will be the outcome of a continuation down this road? The people who may be interested in the Preliminary Specification as an alternative need to read the document to determine whether it is a viable solution. And if it is, assess if it is the means in which to resolve the industries difficulties. Are the calculations of the value proposition between the two different business models as stark as the $45.7 trillion reflects?

This is a difficult assessment that needs to be made by each potential participant in the user community. I am putting out a vision of the industry based on what I think the issues are and how I think they should be solved. I expect that people who are going to participate in this software development, the user community and service provider, need to fully understand what it is we are doing and how we are going to do it. Organizing this will need to have many people on the ground knowing where to turn and how to get to the final destination. There won't be much hand holding, if at all. We will need people who are fully apprised of the direction we are moving and believing that what we are doing is in the best interests of society, the industry, producers, the Joint Operating Committees, the service industry and the people who are involved in oil and gas. Being fully informed and having an opinion as to our future is necessary for each of us to move forward.

This is not your traditional software development. Usually the decision is made to implement SAP, the “experts” come in and spend a few months talking nothing but acronyms, and then someone says we'll need some users. Its at that point the budget is breached and the software is turned on and the user is expected to figure out the new applications in isolation. At People, Ideas & Objects we are spending as much time as we need to develop this user community. Providing them with a comprehensive vision of how the industry should operate through the Preliminary Specification. Empowering them through the licensing of the Intellectual Property throughout the lifecycle of the applications. And ensuring that they are the ones that remain in control of the business models and critical aspects of the applications. This is very different software for a very different industry structure with a very different outcome. Providing the oil and gas producer with the most profitable means of oil and gas operations.

Until we are granted the funds we need to develop this software and support the user community. It is important that we continue to keep those that are interested in the user community as confidential and secure as possible. The bureaucrats would love nothing more than to punish people for their participation here. So they're always on the look out for anyone who would be so unwise as to volunteer their name. It will not be me who speaks their name in any way and for that you can be sure.

People have complained about the onerous process of making application to become a user community participant. Yes it is onerous. That is due to the significance of the role you will be taking in the process of changing the industry. The quality of people that we are looking for. And the difficulty in organizing these developments and the need for this information to help in the logistics of this development. The more we know about you the better we are able to make the appropriate assessments and the better we can place you in the appropriate areas. I know these take time, but time is what we have while we wait for the frustration level of the investors, or whoever will fund us, and give up on the bureaucrats. Contrary to what we are used to doing in oil and gas today, we are focusing on the long term solutions for the industry.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

User Community Business Opportunity Part I

Our user community preparation continues. We cannot begin development of the Preliminary Specification until we have the user community in place. Since the majority of the participants in the user community will be working part-time throughout our development. And will only commit full time to this project when the need for the service providers begin. Much can and needs to be done before we even get to any of those points. People, Ideas & Objects do not have their budget secured. Nor is the probability high at this point that we will have it secured. This project has a high risk of it forming. Nonetheless the organization of the user community can begin and involve nothing more than putting in place some of the pieces that will be needed when and if the time does come.

People, Ideas & Objects are relying on the user community to be the source of the quality of the software that we develop. We are looking for individual participation in the user community. Those people with the skills, experience, knowledge, ideas and understanding of the oil and gas industry from a hands on point of view. We will not be turning to the Accenture’s, KPMG or Deloitte & Touche’s of the business world to source our users. Our expertise must be derived from the people on the ground. This is a different approach to the way that applications have been developed in oil and gas before. We are building this community to include approximately 3,000 users in order to obtain the broad scope of the Preliminary Specification and achieve the diversity of understanding contained within the industry. Nothing of this size has been approached before.

The user holds a unique role in the ecosystem that will be developed for this software. Working with our developers to determine the wants and needs of the industry and then designing and implementing those within the application. We have budgeted one third of our overall costs to go to the user community. This community is a permanent fixture within the industry and will continue to develop new applications and prepare changes to the existing base. During any year we expect to incur approximately 600 man years of the user communities time in the development of applications. Therefore it would be reasonable to assume that this would average approximately one day each week in terms of time commitment during development from each user community participant.

The remainder of the time the user community participant is going to be active operating the service provider that they own. This will be closely tied to the area of expertise that they have within the People, Ideas & Objects application and the specific process that they have developed. They will provide the producers and Joint Operating Committees within the industry with the software from People, Ideas & Objects and the necessary services to support the process they specialize in. Each service provider will be responsible for a single process or subprocess in the application and will use the entire industry as their client base. This is a fundamentally different approach to the business of oil and gas. Since most of these processes will fall under the administrative and accounting domains, the people that are currently employed in the producers that are conducting those activities will be moved from the producers to being employed by the service providers. The payments made by the producers in terms of payroll and benefits to their former administrative and accounting personnel will now form the revenue base of the service providers.

The user community will be designing the Preliminary Specification processes on the basis of this industry configuration. The use of automation, specialization and the division of labor will be the competitive advantages of each of the service providers. Licenses for the service providers will not overlap from one process to another. Each firm will have the exclusive domain of the process they are licensed for. Some exceptions will apply particularly in the production, revenue and royalty accounting areas. It is this design that will be fundamentally different than what exists today. You may manage a simple process and the volumes of data that you deal with will be large. However that does not make the process management easier. I expect that the level of understanding and sophistication regarding each process will explode in terms of innovation and value add for the producers and Joint Operating Committees. And of course, we do all of this in order to make the decentralized production model the effective business model in the oil and gas industry.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

500,000 Barrels of Oil Per Day

That’s one half of one million barrels of oil per day. The increase in production of the United States since the decline in oil prices began late last year. I have stated here many times that these bureaucrats can't, won't and will not ever change. And they only prove me right as time goes by. In terms of natural gas production it continues to increase even though prices collapsed five years ago. Shale gas production alone is up over 30 BCF per day since 2010 and the current U.S. production is 72 BCF per day in total. See any trends here? Shale is making oil and gas a business where there is an abundance of supply. However that supply is very expensive and very unprofitable. This new shale environment contrasts the manner in which the existing producers were developed. Then it was an era of low costs and scarcity of the resource. Have you ever seen a Leopard change their spots? Well you won't, and you certainly won't see a producer transform themselves from scarcity to an abundance business model with the current bureaucracy in place. You have to remove and replace them with a new business model that deals with the shale reservoirs. A business model like that of the decentralized production model of the Preliminary Specification.

A little off topic but relevant to the point of the bureaucracies. Does Fed Chairman Janet Yellen remind you of the 1984 analogy in the Apple Super Bowl ad. Droning on and never saying anything pertinent or of value. I have to ask, when is the women going to run into the theater and smash that screen with her hammer. As bad as her performance as Fed Chairman has been is the response of the business community in general. When did we hold a government employee as the key focus of our decisions. Somebody please smash the screen and break this mind numbing nothingness. Its difficult to see the producers lined up in rows in the theater watching Janet Yellen beak off about nothing. But how exactly did we start listening to economists again? It was September 2008 when they were saying the world economy was fine and all was well. That was the time they destroyed their credibility with me and I have ceased to listen to them. It is a dismal science.

If you think that bureaucrats will change and the business will become their focus again there is nothing I can do to convince you otherwise. There is more than enough evidence for everyone and anyone to determine that the oil and gas business is being fundamentally destroyed by the current bureaucrats. They have no plans, ideas or desire to fix what ails the industry. The only inspired activity they have shown in the last ten years is to engage me in battle. Other than that it is a self interested group who are doing nothing but ensuring that they are compensated well, their cabins continue developing, their pensions are vested and they have an escape plan for when it all does fall apart. In terms of the value generated for society little is being produced by the oil and gas industry outside of this and the value that the commodities provide the consumer.

It will be the individual actions of you the potential user community participant that breaks this monotony of destruction in the oil and gas industry. There has to be a group of people with the power and capabilities to make the changes in the industry to eliminate this 1984 scenario. The user community participant has the power to effect change in the industry. Using the tools of the Intellectual Property that is derived from the Preliminary Specification and the software development capabilities of People, Ideas & Objects. As well as your key role in the ownership and development of the service providers who will deliver the software and services to the producers and Joint Operating Committees. It is you the user who can make the industry dynamic, innovative and profitable again. Your participation is needed. If I haven't convinced you yet, pull up YouTube and search for Janet Yellen. Force yourself to watch a half hour of any of her speeches and then read this again. The only thing that I can guarantee you is that the bureaucrats won't, can't and will not change. And production will be up another 500,000 barrels by this time next year.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

Not a Technologically Focused Solution

Its a difficult thing to state as the head of a software development firm. That we are not a technologically focused solution. There are many of those solutions in the marketplace and the bureaucrats are pleased to be working with those providers, and losing money doing so. We are living in exciting times from an Information Technology point of view. It is the beginning of the Information Technology revolution that we are experiencing in this day and age. There have been many attempts to implement these technologies into the marketplace of oil and gas producers. Most have failed due to a focus on the elements of some technological breakthrough that was going to solve the producers difficulties. All these other applications were attempting to make it so, however the technologies were too immature to undertake the load that they needed to carry. And technology is not part of the solution.

If we are not a technology focused software company then what exactly are we doing in business. People, Ideas & Objects have always focused on the producer firm and most particularly the Joint Operating Committee as the key organizational construct of the dynamic, innovative and profitable oil and gas producer. If you read the Preliminary Specification we have included some discussion of the specific Oracle applications we will use to support our modules. This is to give the reader a better understanding of the overall technological architecture of our product. But the Preliminary Specification deals specifically with the issues and opportunities of the Joint Operating Committee and producer. It details the “what if” we did use the Joint Operating Committee as the key organizational construct of the producer. “How” and “What” would the producer, Joint Operating Committee and industry operate? This question is answered in the Preliminary Specification. It is about the ways and means of how people will work in the business and in the industry. It is not about technology.

The second aspect that proves our claim that we are not a technologically focused solution is that our primary focus is, and always will be on the user, or as we call them the user community participant. They are the ones that we have endowed with the power and control over the Intellectual Property that makes up the Preliminary Specification. Anyone who wants or needs to make a change in the software that runs the industry, there is only one group in which they need to see, the user community. Our developers will respond to the user community only. We are deaf, dumb and blind to all others. This commitment to being user community focused runs throughout People, Ideas & Objects. Review of our Revenue Model will show you that the ability and capability of this focus will continue. Our capital structure will not be compromised or redirected away from the user community focus. A difficult requirement which affects our development budget and the manner in which we are structured. This renders the shares of People, Ideas & Objects of little value as they will not be sold. And therefore my compensation comes about as a result of the Intellectual Property royalties that I earn. It is in our genetic code that the capital structure will not circumvent or reprioritize our direction away from the user community focus.

We provide the oil and gas producer with the most profitable means of oil and gas operations. That is the guiding principle of People, Ideas & Objects, our user community participant and the service providers who are involved in the community. This is what we sharpen our pencils for. The industry has to become dynamic, innovative and profitable. In order to do that it must be able to change the organizational methods it operates under. That requires that the industry acquire a software development capability consistent with what People, Ideas & Objects are providing. Our user community and service providers are a big part of that technological offering. However, they are also the other half of the equation. They are the service oriented part of the necessary solution to the success of our software. Technology is not going to resolve these problems. Its going to be the people who have the Information Technologies that are made available to them. And that is what I have done with People, Ideas & Objects. I have secured the Intellectual Property necessary for this ecosystem to operate. I have endowed the user community with the power and control of that Intellectual Property. We are now developing the user community, and as soon as our budget is secured, we will develop the software development capabilities to fulfill our value proposition to the oil and gas industry.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

Commodity Prices

It’s been a bad week for oil and gas prices. It would seem to me that the bureaucrats who used the recent strength in these commodity prices, when in March they moved from $50 to $60 in May. While at the same time they were trying to convince their shareholders that all would be well “next year” at their annual general meetings. Selling this impossible scenario as the theme to cover for their poor performance of 2014. We have also recently learned that those “earnings” that were sold to the investors in the 2014 annual reports, were supported handsomely by $90 hedges. Now not only are the prices going down, again, and substantially, but the producers hedges have been expiring and they are fully exposed. There must be something about chronic overproduction of commodities that prices just fail to appreciate.

Its not that I feel any great enjoyment at the misery that is being experienced in the oil and gas marketplace today. People are getting laid off in the producers, service industry and elsewhere. Investors are losing significant money, and as we have documented in this blog, they are losing far more than what the producers are reporting. It didn’t have to be this way but bureaucrats will be bureaucrats. Natural gas prices have been declining for over five years. Plenty of time for the Preliminary Specification to have been developed. Its just that for that niggling fact that the Preliminary Specification does eliminate the calcified bureaucracy as the only reason that it hasn’t been developed.

The fact is though that low commodity prices are the greatest gift that I could ever ask for. I can now say that I got lucky. It provides the justification to go through the changes to make the Preliminary Specification the manner in which the industry operates. Our value proposition is the reason why and secondly, these bureaucrats will never change. They can't and won’t. We have seen a level of disintermediation in other industries such as the makers of cellular phones. This past week Microsoft says for all intents and purposes they are out of the smartphone business. Nokia, which they bought were the dominant brand less than ten years ago. Its not just these industries that have been disintermediated. Look at all the industries that are now being lined up to have the process undertaken by some upstart. Uber, AirBnb and Lyft are what are now called Unicorns. Private companies that are able to raise money on the basis of billion dollar valuations. Something that has never been seen before. And there are now over 100 of these beasts.

Oil and gas is being disintermediated by People, Ideas & Objects Preliminary Specification. We are developing the software, the user community and service providers that will remove and replace the bureaucracy from its comfortable position in oil and gas today. We will be changing the organizational structure of the industry to one in which the producer firm can compete based on their competitive advantages of their earth science and engineering capabilities, and their land and asset base. We are using the Joint Operating Committee as the key organizational construct of the dynamic, innovative and profitable oil and gas producer. It is the legal, financial, operational decision making, cultural, communication, strategic and innovation framework of the industry. When we align the seven frameworks of the Joint Operating Committee with the compliance and governance frameworks of the hierarchy. We achieve a speed, accountability, innovativeness and profitability in our producer organizations. We also enable the decentralized production model that provides the individual producer with the price maker strategy needed in today’s shale enabled oil and gas business.

Key to this transition is the user community that we are in development of. It is these people who will be the critical resource that makes the Preliminary Specification the software that it can be. Software that isn't defined, designed and developed by the user is useless. And that is why we have endowed our user community with the power to effect the changes necessary in the oil and gas industry.

We can continue on in the losing ways of today's oil and gas industry. I’m sure we can all assume what will be said by the bureaucrats next annual report season, or even the next ten after that. They are on record that the business was going to improve and they had it under control. Well it doesn't look so to me. To learn what is really happening map the last five years of natural gas prices as being what the future holds for oil prices. That’s what is going to happen until People, Ideas & Objects budget is funded and we are able to bring this solution to the marketplace. With our value proposition creating upwards of $45.7 trillion in incremental value over the next 25 years, I would think that it's time.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

Why Not the Government's?

Many people have suggested that the various governments in North America. That are in oil and gas regions have a net benefit as a result of People, Ideas & Objects value proposition. Which is correct in terms of both royalties and taxes. There would be much to be gained in terms of these government's getting behind People, Ideas & Objects and funding some of our budget. It would be reasonable to assume that at least one third of the value that we generate would be redirected by producers to the various governments in the form of additional royalties. And the taxes that would be paid by the producers, based on the most profitable means of oil and gas operations, we can only assume it would be significant as well.

The problem with the idea of taking money from the government in order to fund our developments is that I will never accept it. There is nothing wrong with the money per se, other than the fact that we provide oil and gas producers with the most profitable means of oil and gas operations. And we are serious about that. Royalties and taxes are two of the highest individual costs that a producer incurs. The ability and the capability to reduce these costs to the lowest possible level at all times will be People, Ideas & Objects, the user community and service providers focus. We therefore can’t be conflicted by the fact that governments were, and are potentially continuing to fund our development needs. I feel it would be a conflict of interest for us to take their money.

I have mentioned a number of times that I had an audit firm before I started down this software development avenue in 1991. It was good work. Most importantly, I guess, I was good at it. My key client was the Alberta Government and I conducted audits on the natural gas producers in the province of Alberta. Confirming their royalty submissions to ensure that they were consistent with the regulations. I was assigned to work on Amoco and Imperial Oil (Exxon's) submissions which were the two biggest producers at the time. We all know Imperial’s love for meetings and their point of view about their bottom line. It was during this time I learned that there was many different ways of looking at the situation. I say that jokingly in that I learned the methodology of looking at things from the Imperial point of view.

Now there are regulations, acts and bureaucrats who offer opinions on what is what and that is how the world turns. And if you accept that as fixed then you are not doing your job. On behalf of the oil and gas industry I do not accept that the regulations, acts and bureaucrats opinions are fixed in terms of royalties and taxes. There can never be a point where they are fixed. The creative process of exploration and production demands that this posture be taken in terms of how these costs, the highest costs of the producer, are handled.

Based on my experience the differences are significant. I am no longer subject to any confidentiality agreements regarding any of the producers that I audited so I am able to state anything and everything at this time. I don’t need to go into details but Imperial did not spend much on natural gas royalties. Sure they were the largest producer, and it seemed to me that they made sure they employed and deployed each molecule of natural gas within their operation four to five times before they sold it or ultimately consumed it. Figure that one out. Attaching the royalty only on the net, net, net, net sales of the firm. Receiving massive royalty deductions for their natural gas used in their heavy oil operations by deeming the source of the fuel from their own natural gas production. The point of this is that it makes a substantial difference. And one that we could not guarantee that we were undertaking on behalf of the producers if we were also receiving some of our funding from the governments that took those royalty dollars from the producers.

We will implement a capability that will replicate the “Imperial way” within the People, Ideas & Objects software development team, user community and service providers. One where our service providers who are managing a royalty or production related process can apply the regulations and acts in the best interests of the producers. But also look at the business from the point of view as to what the producer is doing and why the governments should be supportive of these activities. Negotiating and communicating with them to initiate better policies and procedures to ensure that the oil and gas industry develops in the appropriate manner and that we provide the oil and gas producers with the most profitable means of oil and gas operations.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here. 

The User Community Participant and Service Provider Business Opportunity

We discussed the ability of the U.S. to become the swing producer in both oil and natural gas. How this is the appropriate strategic position for the country to take and how that would operate with the decentralized production model and price maker strategy of the Preliminary Specification. These changes require a new and substantially different organizational structure. Key to this structure is the ability to turn all of the costs of the producer, including their overhead, into variable costs. This is done through the use of the user community and service providers. Today I want to discuss in more detail what that situation would look like and how people would interact with producers when they operate in the user community and as a service provider.

It is the user community participant who will have worked with our developers to design and determine the needs of the oil and gas producers and Joint Operating Committees in terms of their data and process management needs. Going through the lengthy process of considering what those needs are and creatively developing and designing the specific solutions. This community has been estimated and budgeted at almost 3,000 part time participants with 600 full time resources per year being utilized by our developers. It is these user community participants who will be the principals who have organized the service providers. These service providers will then take the area that they have specialized in their software development with us and begin the task of creating the service that supports People, Ideas & Objects and provide the software and services to the Joint Operating Committees and the oil and gas producers. It is in these service providers that the current administrative and accounting resources of the industry will be reallocated to. There they will work for the user community participant who will also continue to work part time on an ongoing basis with the People, Ideas & Objects developers to continuously improve the applications and services that they provide.

The reallocation of the current administrative and accounting resources will also bring across the revenue stream to the service providers. The estimated value of that revenue stream is a large portion of the current G&A costs of the North American based producers. And I have estimated that the service provider's revenue stream would be in the range of $40 to $60 billion annually. Our budget for user community participation in the initial development stage is $667 million. This is over the multi year effort. There are significant revenues that the users and the service providers are able to generate. We support our user community participants with the budgeted $190 / hour fees. We however expect that our user community participants will make the necessary commitments and investments necessary in establishing the service provider organizations. It is also anticipated that there will be many processes under management by the People, Ideas & Objects application modules. However, we expect to see many of the user's partner with one another in order to establish stronger and more viable service providers.

User community participation in the development of the People, Ideas & Objects software is of critical importance to us. As you can see they hold a specific role within the industry in terms of how the applications are created, developed, implemented and managed. Most importantly they hold the keys to implementing the necessary changes by being the ones who are in control of the Intellectual Property. This is facilitated through the license that they will have with People, Ideas & Objects. It is important to review the user community vision that we have and understand the power that this group holds within the industry and how it is exercised. They are omnipotent. And that is how we will make spectacular software. The first thing we have to do is to secure the intellectual property. And that has been done. The next thing is to enable a community of users to use that Intellectual Property in the manner that provides the oil and gas producers with the most profitable means of oil and gas operations. And as you can see we are doing just that.

The Preliminary Specification and user community provides the oil and gas producer with the most dynamic, innovative, profitable and successful means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don't forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.