Third Friday Off

No posting today.

An Interesting Dilemma

In terms of building value, the oil and gas industry has been anything but. The money goes in and is never seen again. The bureaucrats take from the banks and investors, spend like drunken sailors, lavish themselves with handsome compensation, destroy the business on a deliberate basis, if I understand “market rebalancing” correctly, and then? What is the next step? I always thought the point of everyone getting in their car first thing in the morning and going to the office was to build value. That the purpose was to increase the worth and welfare of organizations, people and society. This is a matter of perspective as well, possibly, and maybe I need to reorient mine to a more realistic possibility. I don’t think so either.

Cash is king. Meeting payroll has become the task that will never be satisfied as we look at the next six months of difficulties. Extreme difficulties. The difficulty with a cash crisis at this level is that everyone knows it's a cash crisis at this level. Which means that everyone grabs their wallet and hangs on tight to it. Leaving only production, and more specifically new production, as the bureaucrats only source for more cash. This will be difficult to do as well.  As bad as the oil and gas industry currently is, the abuse they have levied on the service industry has been epic. They probably don’t have any gas for their trucks to get to the site to do the job. Nor do they have the food energy to do it anyway. Remember how Encana called these people lazy and greedy just a few years ago. Despicable. The point is the only way the service industry is going to conduct any field operation is with cash paid up front. And only after their years of accounts receivable have been cleared.

As we stated yesterday, Northwestern has the exceptional situation where they have the cash to survive the next six months. This assumes prices remain as they are in the mid $40 range. I wouldn’t be surprised if they toppled back to $26 which would make this the greatest disaster in corporate history. I have been arguing about this situation for many years now. I have spent 25 years coming up with the solution to this problem. The Preliminary Specification deals specifically with the issues facing the industry today. It also renders the bureaucrats redundant. And therefore I have experienced the most abusive treatment at the hands of these bureaucrats that I know anyone else ever has. Am I the only person that saw the difficulties and the flaws in the business model of the oil and gas industry? Maybe. I am however the only one that did anything about it.

Now the producers have put themselves into a situation that is very difficult. The Preliminary Specification costs $6 billion U.S. and has to be paid up front. If you thought we would go forward on a pay as you go basis then you thought that I was a fool. Would you build the Golden Gate Bridge on a pay as you go basis? People, Ideas & Objects budget is beyond what the industry can afford now. So what do they do? Our value proposition is in the range of $25.7 to $45.7 trillion and is proven to provide that value to the producers. It is the best investment the industry can make. It is the best investment any producer could make. Without the Preliminary Specification they have proven that our value proposition is unavailable to them in their current business model. We went through this in the 1980’s and 1990’s. And we’re going through it again. Only now with the added feature of shale based reservoirs to make systemic overproduction a permanent feature of the industry. This has been going on for six years in natural gas and over two in oil. And no resolution.

The producers can cobble together the last cash they have to pay for the development of the Preliminary Specification. And end the reign of the bureaucrats and set the industry on the path of generating value again. Or sit and deteriorate further and faster each passing day. It’s an interesting problem. Who’s going to come to their rescue? They blew every bridge that existed between them and those investors and banks that might have helped. Now they have no way of getting to the bureaucrats, and certainly no desire to get there.

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. 

Energy Self Sufficiency?

It has come to my attention that there is some confusion regarding the determination of profitability in the oil and gas industry. Some people are assuming that if we only produce profitable production then the North American industry will never grow to the size where they can service the North American marketplace. That to achieve self sufficiency in terms of our energy supply would never be possible under the Preliminary Specification. That last sentence I think captures the issue correctly and sets the point for this post. I disagree on both sides of this issue. That we will never achieve energy self sufficiency if the current producers continue to incinerate investor capital. And that the only way we are going to achieve energy self sufficiency is through a dynamic, innovative, accountable and profitable oil and gas producer.

We’re producing all of our natural gas consumption and approximately half of our oil. Therefore in order to double our output of oil production we would need approximately the same amount of investment that has currently been incurred, invested again. That may be simplistic, but for the purposes of this example adequate in terms of logic. We currently have disenchanted investors and bankers. There has been chronic investment in oil and gas for the last few decades. Even when commodity prices were high the amount of the annual investor squeeze didn’t seem to abate in the least. Is it on the basis of this poor performance that we should consider the industry should achieve energy self sufficiency?

Let's take for example the first quarter report of a producer. A random sample provides that the first producer to report is Southwestern Energy Company. They received a 15% bounce in their stock on the basis of the publication of that report. I think the key attribute of the report is that Southwestern was able to tap their line of credit for $2.6 billion before the bank was able to evaluate them. Precluding them from the cash crisis that is the oil and gas industry. However that will be temporary in nature. The results of the lifetime of the company are not that positive. They are now reporting the cumulative losses have totaled $2.3 billion. Meaning that most of the investor money that was given to them was wasted. The key however is to look at the remaining asset value of the company. It still maintains net property, plant and equipment of $6.5 billion. These are the bloated asset balances that I consistently argue against. If the company wasn’t capitalizing everything they touched, these costs would have hit the income statement by now. And under any reasonable assessment, the company is losing money today and is questionable as a viable going concern, in my opinion. The $6.5 billion would be added to the cumulative loss for a total of $8.8 billion.

This is a matter of perspective. I see the company unable to have earned a profit during its lifetime. Its current operations are unable to sustain the organization without investor or banker support. That support has now terminated. Looking to achieve a doubling of output from this base of producer in order to attain energy self sufficiency is delusional. The increased output would cause further erosion in the price of oil and make the situation worse.

The Saudi’s have a three year plan to continue to satisfy their customers. Meaning they will continue to produce at the level they are at or above for the next three years. Southwestern doesn’t have that opportunity. Although it has net cash of $1.4 billion remaining. Just the line of credit will require a commitment of over $800 million in order to keep that facility in place. Operations are going to take at least $400 million during 2016 and the current portion of long term debt could take another $800 million. Overhead costs will therefore put them into a tight cash situation within as little as six months. Remember, they were one of the very few who were able to access their credit facility before the banks review began this April. Many producers were not as fortunate as Southwestern was and we will see which producers that was in the next few days.

The policies of the current producers is that they are unable to economically sustain their current production profile. Or what they call “market rebalancing.” If they let the industry economically deteriorate to the point of destruction of productive capacity, then prices will rise at which time they can start fleecing a new batch of investors and bankers. Brilliant. And it is on this basis that the United States and Canada will become energy self sufficient?

The only way we can achieve the objective of energy self sufficiency is to set out a new basis for the industry. And that is that if the property can produce a profit based on a detailed actual accounting that evaluates all of the costs reasonably. Then the industry could grow its production profile. As the highest cost producers in the world this will not be on the basis of setting out production profile goals. It must be on the basis of operating a profitable industry first and foremost. Only then can the industry conduct itself in a manner that provides society with the energy resources that it needs to fulfill its promise.

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 Material Balance Report

My frustration with the status quo is at fever pitch. I find it best to fight this battle with ideas from the Preliminary Specification. Today I want to discuss the Material Balance Report which resides in and between the Accounting Voucher and Partnership Accounting modules. Traditionally the material balance report was a document used in the downstream part of the oil and gas business. It was used to balance the systems that a refiner and marketer would employ during the month. Either storage or tank car, gathering and processing systems were balanced across what the owner was responsible for. These were required to balance each month and provide a basis of the reporting that is done by these owners.

The issue that the Material Balance Report in the Preliminary Specification resolves is the automation of the administration and accounting processes involved in the production of oil and gas. Today production accountants are employed by the operators to conduct this work and prepare the information to the various stakeholders. These include working, royalty and regulatory interests. Additional information is derived from these such as marketing, revenue and royalty accounting. The process of production accounting is complex and involves the reconciliation of many variables across a plant or system. These can take upwards of a number of months before all of the actual facts are provided to the accountants and they are able to submit the final production numbers. This entire process is currently highly labor intensive. Each change has implications for all the people within the process to amend their information. Several amendments are required in order to eventually balance the system. And what can seem like a complex, disorganized and difficult process is really quite simply the balancing of the production of the facilities, realizing the appropriate prices and inventory implications.

What if we balanced the oil and gas production across the North American producer population. Where the integrity of that system, after a reasonable time had passed to collect the facts, was unimpeachable in terms of the integrity of the production information. I know that the Alberta Government has balanced the province of Alberta’s oil and gas production in this manner for at least the last few decades. And they assess any shortfalls on the producers who they think are responsible for the royalties on those “missing” production volumes. And if we had this level of production data within the People, Ideas & Objects application. Where the industry has their cloud computing provided. Then on the basis of the quality of that data we could automate the subsequent processes that are dependent on the volumetric production data. This can be done.

There will be a variety of modes in the Accounting Voucher that is a Material Balance Report. The Accounting Voucher is the mechanism that we are using to ensure the integrity of the system. The Material Balance Report is a part of an Accounting Voucher with the inherent necessity to balance the financial elements of the voucher. The production volumes will be balanced via three modes known as system balance, partnership balance and material balance.

We are not dictating production allocation methodologies. If a Joint Operating Committee has adopted the chemical composition as the basis of allocation then that is what the production accountant will use. If there is an agreement amongst the participants in the Joint Operating Committee as to what the production allocation will be, then that will be the basis of the allocation. Whatever the current policy is, or future policy of the property is, that will be the allocation method that will be used. What the Material Balance Report provides is the assurance that it is balanced within the property, within the royalty and working interests and the overall production environment as a whole.

I understand the scope and scale of the undertaking of this task that we are setting out for ourselves. To build a system today that does not automate these processes to the highest level, and then iterates on that would be a wasted opportunity. We have budgeted the necessary resources to approach the engineering required to achieve this objective. A budget that is well beyond what is possible for one firm to pursue. It is also something that a single producer is unable to pursue on their own. This must be done from an industry wide perspective so that each producer can benefit from these software developments. Based on my background in oil and gas I know that this can be done. And I know in the Preliminary Specification it will be done.

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.

Game, Set and Match

I kept quiet last week out of a false sense of respect for the bureaucrats. It's not everyday that you have your future painted in such stark and bleak terms as it was last Sunday. We didn’t see any real action in the price of oil, yet. The Kuwait labor situation kept the price high for a while longer. These temporarily higher oil price dynamics should prove to those last few doubters that oil and gas falls under the category of price makers. We had all that build up to the meeting of Opec on Sunday. That an agreement between the parties would eliminate the problems in the marketplace and it would bring sunshine and rainbows to oil and gas again. Didn’t happen. Now we here that the meeting wasn’t that important and that ya da ya da ya da. T. Boone Pickens even tweeted

“#OPEC #Doha sideshow a joke. More significant: Major bullish outages in Kuwait, Venezuela, Nigeria & Ecuador past 7 days. Those matter.”

Well actually those outages have mostly been resolved, and the meeting does matter because it affects the prices today, and what they will be in the future for as long as we can see.

What the outcome of the meeting was is that there is no outcome. Further that some countries, like Saudi Arabia, may increase production by as much as 2 million barrels per day. The Saudi Prince is taking over administration of the Saudi strategy. The Saudi oil minister was mute after the meeting. Leaving the comments to the young Prince. The Prince will be making a major speech on Saudi oil policy soon in his National Transformation Plan and we will see the extent of their commitment to their customers. Just to note, this is no time to be proposing plans, now is the time to accuse others and hang on to fleeting rumors. Anyway, if the Saudi's were to concede the market to the high cost shale producers, eventually they will have low oil prices and no customers. Their current strategy has them holding on to their customers. Theirs is a rational strategy. The North American producer is clutching at straws trying to find some solid ground in which to secure a foothold. Last week we heard that there may be a meeting in Russia in May to reset the production freeze. That Iran is now considering joining in that agreement to freeze production. These are the rumors that you want to base the future of the industry on.

There is no solid ground in the North American oil and gas marketplace. If you take the People, Ideas & Objects hypothesis that the SEC accounting is at fault. That the bloated balance sheets have led to inflated profits, which have led to overinvestment, which has led to the current overproduction. Then the fact of the matter is that after six years in natural gas, and now for over two years in oil. These companies have extinguished every nickel that was ever available to them. They have raided the kids piggy banks and they’re begging for money down at the homeless shelters. Taking this scenario one step further, the companies with bloated balance sheets have borrowed extensively against that spend fest of a balance sheet. Meaning that they are now all highly levered. So badly leveraged that the cash generated, even in a low interest rate environment, cannot pay the interest. They are unable to weather the slightest of storms for any period of time. In the meantime they criticize the Saudi’s for losing money. The Saudi’s have all the money they need to weather this storm for at least three years. What are the bureaucrats going to do for this period of time? Blame others and hang on to rumors?

This is a failed business model. It doesn’t work. The Saudi’s know it. And the North American oil and gas producers better stop coming up with excuses as to why the “other” guy has bigger problems. The biggest international issue in oil and gas is the imminent demise of the North American industry. We can run around in panic or start dealing with this constructively. Ask yourself why is People, Ideas & Objects, through the Preliminary Specification, capable of providing the most profitable means of oil and gas operations, having such difficulty convincing an industry that is in this state of financial affairs? Is it because I’m unkind to bureaucrats? I think someone should be telling the truth about the situation that is going on in the marketplace. It’s because the bureaucrats don’t care! And that is unacceptable.

If you believe that this will be resolved in 2016. It won’t. It won’t be resolved until 2025 which will be the day that North America stops any and all oil and natural gas production. For good. Then of course it will be someone else's fault just as it is someone else’s fault today. When are we going to put the big boy pants on and act accordingly? You don’t like being talked to this way, tough. I don’t like seeing a major industry flushed down the toilet due to bureaucratic laziness and self interest. Particularly when it’s unnecessary.

And let's not argue that we’re profitable. The cost to produce in North America is well over $100 / barrel by my calculations. Those numbers floated around that say producers can produce at $30 / barrel are what are called “recycle costs.” Show me the video of the CFO of any firm stating unequivocally that his firm’s costs are $30 / barrel. Recycle costs are fairy tales. Not one accountant was employed in their production. Not one CFO will stand behind them. They are fudge. Not one historical fact is included in them. Not one actual cost was employed in the development of them. They are myths. Based purely on the fact that today’s price of $40 means we can produce profitably at $38. And tomorrow when the price is lower the cost will be lower, just like that.

We’ll be seeing the extent of profitability starting this week with the 2016 first quarter earnings. If all these producers were making profits at $30 then it should be clearly evident. Otherwise we can continue down the road with the story of the day scenarios for as long as the bureaucrats want. The fact is these stories are getting tiresome and their switching from one to the other as soon as they are proven wrong is beginning to be noticed. And these financial statements will show there is just no cash. Action is needed now to fund the Preliminary Specification. We have many years of work ahead of us and much to do.

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.

Our Work Order System

Within the Preliminary Specification, in addition to the Job Order we discussed yesterday, we also have what we call a Work Order system. It serves two roles in the dynamic, innovative, accountable and profitable oil and gas producer. The first is that it captures the costs of the technical resources of the producer and charges them to the appropriate cost centre of the producer or Joint Operating Committee. Secondly the Work Order provides a means in which producers are able to quickly organize an ad-hoc working group to study or research specific elements in the technical fields. The simplicity of the concepts surrounding the Work Order are complicated in the Preliminary Specification when we move to use the Joint Operating Committee as the key organizational construct.

As we have discussed in the past few weeks the sources of revenue of the oil and gas producer under the Preliminary Specification consist of oil and gas revenues, and the deployment of their earth science and engineering capabilities to the Joint Operating Committees that they have an interest in, and to other producers who may be looking for the specialized capabilities of the producer's talents. Therefore we need the Work Order system to collect the costs of these resources and either bill them to the joint account or an internal overhead account. Or alternatively they will be part of the Cost of Goods Sold in the sale of these capabilities.

Staff of the producer firm will need to be charging their time to an overhead account or Joint Operating Committee AFE or lease at all times that they are on the job. This will record their time, their payroll costs, and the fees at which they can be charged to the Joint Operating Committee. It will also be necessary to determine what a charge out rate will be for these resources in the event that they are billed to a third party producer. Under the Preliminary Specification this system will be intuitive and simple to implement for each of the staff. Through a smartphone app they will be able to detail exactly what work they are doing and who is responsible for their cost while it is being incurred.

As with everything that we do in the Preliminary Specification. We are never limited to the sole producer in terms of the application of our domain. Frequently we need to look at the situation from the point of view of the industry. And that is the case with both roles of the Work Order. The Work Order that would be billed to a Joint Operating Committee will need either an AFE or a lease code to ensure that approval of that time is authorized. This authorization would occur at the time the user logged on to the specific Work Order. The Work Order that the staff from producer A may be working on an AFE for a Joint Operating Committee of producer B that producer A has no working interest in. The need for the Work Order to scale across the industry is a feature of the Preliminary Specification. This is also a critical element of the second use of the Work Order.

What we learned in terms of what an innovative oil and gas producer needs is captured in the Preliminary Specification. One of those needs is that the base of the industries research needs to expand. Critical to this expansion is the ad-hoc working groups that independent producers set up to study specific elements of interest. It is People, Ideas & Objects opinion that we need an order of magnitude increase in volume of these working groups to be established to enhance the innovative foundation of the industry. It is also our opinion that the impediment to this is the bureaucratic nightmare such a volume of ad-hoc groups would create for the industry. Participation in these is low due to the high level of moral questioning undertaken by the accountants trying to reconcile the costs to how the deal was structured. Leaving the earth science and engineering people to swear never to attempt to do such a thing in the future, and reinforcing the love affair between accountants and engineers.

What the Work Order does is establish an interface that is industry based in terms of its domain where the elements of the “deal” can be captured in the Work Order. Company A will contribute the seismic, company B will contribute cash, company C will contribute the staff, etc. All will share in the outcome, the results and the data. An accounting nightmare. However, once a deal is captured in the interface of the Work Order, the participants will know that the accounting will be processed on that basis and none of the accounting questioning, if any, will be about their moral fibre. Then the ability of the industry to accelerate its innovativeness on the scientific basis will begin.

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 Job Order System

It's a battle of ideas so far this week. I mentioned the Work Order and Job Order systems of the Preliminary Specification and how they enable the producer and Joint Operating Committee to implement the tacit knowledge of the producers within the Joint Operating Committees. I wanted to discuss these further and reflect on how they enable greater levels of innovation to be generated through the industry. We’ll discuss the Job Order today and the Work Order tomorrow.

The Job Order system is a means in which the Joint Operating Committee is able to document the command and control of their operations. Within the Preliminary Specification we resolve the demand for earth science and engineering resources, the talent that will be retiring in the next decade, and the demand of the sciences to expand based on a further specialization and division of labor. Hypothesising that these two elements will disable most producers ability to attain what is commonly known as “operator” status. The breadth and depth of these resources within one firm will require such scope and scale that their costs will no longer fit within the commercial environment.

We resolve this through the concept of pooling these technical resources through the Joint Operating Committee. As each producer within the partnership focuses on their specialized and key competitive advantages in the earth science and engineering capabilities. It will be necessary to pool the specializations of the producers in order to attain the “operator” status from many producers. Including producers who are not party to the Joint Operating Committee. Therefore a means of command and control over any operation within the Joint Operating Committee is going to be necessary from that Job Order system. A system that spans the organizations represented in the Joint Operating Committee.

In order to facilitate this there needs to be a command structure that is put in place over the technical resources that are dedicated to the Joint Operating Committee. Within the Preliminary Specification we call this the Military Command & Control Metaphor. A bad name I know but it will be up to the user community to come up with a better one. This will allow the technical resources to recognize a chain of command and to enable the designation of authority and other attributes necessary for the organization to function and document the activities within and throughout the operation.

Multi-lateral and Multi-frac wells are rather large and expensive operations. For that matter drilling a conventional well is a large risk for most producers. The need for operational control is not a nice to have, but a necessity. Innovation is not the counter to tight operational control. If anything you can’t have innovation in a free for all. The need to have integration of the oil and gas and service industries to the level discussed here in the Resource Marketplace module is a large and expensive undertaking. In terms of operational control the “Capabilities Interface” of the Research & Capabilities module provides a means to have everyone on the team operating from the same hymn sheet. Everyone knows what the plan is and everyone knows what everyone else is doing. Now we need a means in which to execute the plan. In the “Planning & Deployment Interface” as well as in some of the other interfaces, users will have access to the “Job Order System” of the People, Ideas & Objects application. This will provide the ability for a member of the operational team, with the operational authority as designated in the Military Command & Control Metaphor, to issue a Job Order to execute a certain operation. Simply nothing is done during any field operation without the Job Order being issued.

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. 

Our Price Maker Strategy

The overproduction in both the oil and gas market will continue for the following reasons. Bureaucracies don’t change, ever. Shale formations are prolific. Introducing the motivation to expand the value of the firm substantially by increasing shale exposure. And the accounting for the past 40 years has created a culture where the balance sheet stores the capital costs incurred forever. Leaving the revenues to never recognize the high costs of capital of the business, overstating the reported earnings, leading to overinvestment and overproduction. A trend that we saw play out for almost two decades in the 1980’s and 1990’s. Now People, Ideas & Objects have come up with the Preliminary Specification and its decentralized production model. These, in addition to many other attributes, provide the dynamic, innovative, accountable and profitable oil and gas producer with a price maker strategy. What is this, and how does it work.

Price maker is the economic definition of the marketplace for the oil and gas commodities. These commodities have been misunderstood by the producers to be price takers. That any production of theirs will not have a material effect on the price of the commodity, therefore the structure of all of the producers is to produce at 100% capacity. This is the high throughput production model which seeks to cover the high costs of their overhead with full production. Price makers will only produce volumes of production if the production is profitable. Applying these principles to the price taker marketplace of bottled water we find that no matter how much bottled water you produce the consumer will always pay approximately the same for the product. Whereas the oil and gas commodities prices have collapsed upwards of 70% and more on the basis of as little as 2% overproduction. Characteristics of a price maker. Oil and gas commodities are price makers and the Preliminary Specification corrects the industries misapplication of price taker. For further clarification of the technical requirements of price taker and price makers, see the economic definitions here.

The next change we need to make is to the accounting for oil and gas. In order to determine if the Joint Operating Committee or property is profitable we are going to have to have a clear and concise accounting. We have as the basis for this the foundation of the Statement of Expenditures for capital costs, and the Statement of Expenditures for operations in the oil and gas industry. These are enhanced in the Preliminary Specification by the removal of overhead allowances and replaced with the actual overhead charges of the service providers that we will discuss in a moment. These service providers will be charging their actual overhead costs of accounting and administration to each Joint Operating Committee on a monthly basis. Therefore we will have a clear revenue, less royalty, operating cost, overhead and capital allocation to determine the profitability of the property. If it is profitable based on this detailed, actual cost accounting it will continue to produce.

The structure of the producer and the industry are changed in order to obtain the price maker strategy for each producer. The prototypical producer will be a stripped down version of the current organization. It will consist of the C class executives, earth science and engineering resources, landman, some legal and support staff. The remaining accounting, administrative, production administration, land administration and exploration administration resources are reallocated to the service providers that we mentioned before. The service providers are headed up by the user community members of the People, Ideas & Objects user community. They focus on one process and service the entire industry as their client base. Therefore if the property is unable to produce a profit, based on that detailed, actual accounting, the property is shut-in. The service providers therefore do not receive any information from our task and transfer network in which to work on that property. Therefore there will be no billing from any of the individual service providers. The Joint Operating Committee will therefore be recording a null operation. No revenue, royalty, operating costs or overheads. Some capital costs may be incurred during times when a property is shut-in. These null operations will replace the losses that are being incurred in the industry today and are diluting the profitable operations of the producer. These null operations will also stop the costs of the current losses having to be recovered from the existing reserves, in addition to all of the properties capital costs that exist today. They will remove the commodities production from the commodity marketplace allowing the marketplace to find the marginal costs, based on a detailed, actual accounting. And will raise the prices realized for the producer on the other profitable properties that they are producing.

The bureaucrats need to be in control of the industry. The Preliminary Specification disintermediates the bureaucrats in the manner that Uber eliminates the need for taxi commissions and taxi dispatchers. The Internet doesn’t exist, and will never exist in the bureaucrats world. So we must wait until they tire of beating me or retire from the scene. One way or the other the Preliminary Specification will be the method that the industry operates. Just don’t mention that to the bureaucrats.

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. 

Processes and Capabilities

Working to win the battle of ideas in these next few months we were recently discussing how the Preliminary Specification was built on the foundation of innovation. Using the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable producer. Whereas People, Ideas & Objects aligns the compliance and governance frameworks of the hierarchy with the legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks of the Joint Operating Committee. Doing so provides the oil and gas producer with the speed, innovation, accountability and profitability that we seek in our organizations. How this is done is partially through the Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification. It is through these two modules that we manage two large processes within the producer firm and the Joint Operating Committee.

The first key process is the development and deployment of the innovations that are generated. What is unnecessary and should be avoided at all costs is each Joint Operating Committee field testing their own ideas on what to do to expand the sciences and the capabilities of the producers involved in the Joint Operating Committee. This would be redundant and lead to a disorganized mess in no time. Having anything of value generated would be happenstance. With the ability to deploy any innovation further within any of the producer organizations coming close to a lottery in terms of its probability of success. That is not how the industry can move forward constructively. The Research & Capabilities module enables the producer firm to structure a division of labor between those that will develop the research and innovations within the producer firm, and those that will implement and deploy the innovations within the Joint Operating Committees. This deployment is through the Knowledge & Learning module.

The other key process that is managed in these two modules is the removal of a major conflict that exists within each oil and gas producer. That is an organization must either move the knowledge and capabilities to where the decision rights exist, or alternatively move the decision rights to where the knowledge and capabilities reside. In oil and gas the producer designated as operator has the knowledge and capabilities to operate the properties. They however do not have the decision rights. Those decision rights are held by the Joint Operating Committee in the operational decision making framework. These are defined by agreement at the beginning of the project and are voted on by the representatives of each producer at the Joint Operating Committee. To remove this conflict we can either move these decision rights to the operator. In which they would have de facto control of the property. Or we can move the knowledge and capabilities to where the decision rights reside. In the Preliminary Specifications Research & Capabilities and Knowledge & Learning modules we enable the process to move the knowledge and capabilities of the producers to be available to the Joint Operating Committee.

Finally I want to revisit the question that we answer in great detail in the Preliminary Specification. And that is, what are capabilities? We have a variety of excellent academic definitions of the capabilities of a firm which include the following. Quotes are from Professor Richard Langlois “Transaction Costs in Real Time.”

‘Routines,’ write Nelson and Winter (1982, p.124), ‘are the skills of an organization.’ p. 106

What we capture in the Research & Capabilities and Knowledge & Learning modules is the explicit knowledge of the organization. The tacit knowledge can not be captured, however is deployed through our Work Order and Job Order systems.

Such tacit knowledge is fundamentally empirical: it is gained through imitation and repetition not through conscious analysis or explicit instruction. This certainly does not mean that humans are incapable of innovation; but it does mean that there are limits to what conscious attention can accomplish. It is only because much of life is a matter of tacit knowledge and unconscious rules that conscious attention can produce as much as it does. p. 106

Much knowledge - including, importantly, much knowledge about production - is tacit and can be acquired only through a time-consuming process of learning by doing. Moreover, knowledge about production is often essentially distributed knowledge: that is to say, knowledge that is only mobilized in the context of carrying out a multi-person productive task, that is not possessed by any single agent, and that normally requires some sort of qualitative coordination - for example, through direction and command - for its efficient use. p. 359

Although one can find versions of the idea in Smith, Marshall, and elsewhere, the modern discussion of the capabilities of organizations probably begins with Edith Penrose (1959), who suggested viewing the firm as a ‘pool of resources.’ Among the writers who have used and developed this idea are G.B. Richardson (1972), Richard Nelson and Sidney Winter (1982), and David Teece (1980, 1982). To all these authors, the firm is a pool not of tangible but of intangible resources. Capabilities, in the end, are a matter of knowledge. Because of the nature of specialization and the limits to cognition, organizations as well as individuals are limited in what they know how to do effectively. Put the other way, organizations possess a pool of more-or-less embodied ‘how to’ knowledge useful for particular classes of activities. pp. 105 - 106.

Professor Carliss Baldwin provides us with a further definition of capabilities as “knowledge beget capabilities, and capabilities beget action.” Lastly Professor Richardson also notes that capabilities are the “knowledge, experience and skills.” (1972, p. 88) I would note that People, Ideas & Objects have added “ideas” to that to read “knowledge, experience, skills and ideas.”

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. 

How'd This Happen

As I write this it’s unknown what the outcome of the meeting of Opec members is. The outcome is irrelevant to People, Ideas & Objects, our user community and service providers. We will continue to harp away at the issues that we see in the industry until the Preliminary Specification is adopted. I would also suggest that the outcome of the meeting is irrelevant to the North American oil and gas producer. If Opec should decide to reduce production and prices doubled, we would only be back at this same situation as today in as little as two years. The systemic overproduction of oil and gas in North America has not been resolved. It hasn’t even been discussed or raised as a concern in the industry. It is a non-issue as far as the bureaucrats are concerned. All of this is Opec’s fault.

To the issue of the day and how we ended up in this situation where oil and gas production is so far in excess of what the market can handle. Even in natural gas, which I guess would be Opec’s fault as well. I see two components driving the overproduction, the accounting policies of the SEC, and the muddle along strategy of the industry. These two conspire to ensure that systemic overproduction in the industry is obtained at shareholder and investor expense. And that nothing will be done about it, other than sitting around and waiting for the “market to rebalance.” We saw this in the late 1980’s and the 1990’s in oil. When overproduction caused the prices to be depressed and incapable of providing returns to the shareholders. I thought at that time if we could fix this method of operations in oil and gas, we could have a healthy industry in both oil and gas at all times. That is the Preliminary Specification and what I did not know until well into this century is that the bureaucracy are incapable of action and generally protective of their turf. That only bureaucrats make money in a downturn which is the only concern in the industry.

How do accounting policies of the SEC cause systemic overproduction? By capitalizing everything that is ever spent by the oil and gas producer on to the balance sheet under property, plant and equipment. The balance sheets of these producers bloat year after year as a result of their enhanced spending binges of investor cash. Making them appear to the untrained eye to be well capitalized and healthy. Whereas to the critical eye they are nothing but testimony to the bureaucratic spend fest, and if these statements were fairly stated would reflect highly leveraged organizations. Conversely, realizing only small portions of the property, plant and equipment costs each year as depletion on the income statement has the effect of overstating the earnings of the producer. After two years in the industry you wouldn’t know if the financial statements you're holding are from the company run by the greatest oil man of all time or the village idiot. These overstated earnings make it appear that oil and gas in North America is a good business to put investor money. Therefore it flows into the hands of those that have achieved ever greater status at spending velocity. This money goes to find more oil and gas, and as a result, all of the oil and gas production is immediately put on the market. Eventually overproduction occurs as it did in the 1980’s and 1990’s, and today. Only today we have the high cost shale formations that flood the market with the commodity much faster and makes the industry overproduction more obvious.

Producers have been raised to believe that the annual capital issuance is a given in the business. They don’t understand that if they let the property, plant and equipment costs flow to the depletion account on the income statement they would have a clearer accounting of the situation. They would also be earning less. Or I would suggest they would begin to report the correct amount of earnings. As more and more of the assets flowed to the income statement the cash that was tied up in the investment of the property, plant and equipment would be released back into the organization. Enabling the producer to self finance its exploration and development. As a result there should be no need for annual stock offerings to meet the capital budget each year. Having the capital budget financed through the organization. By not doing this in the past, the oil and gas producers have trapped all the value of the shareholders investments in the properties they own. And are therefore subsidizing the consumers of energy by not generating adequate revenues to offset all of the actual costs and earn appropriate profits. Or in other words oil and gas prices need to be higher in order for the North American producers to be classified as a viable business. This is the way things have been managed  since 1978 and what seems like the way the business is done is culturally ingrained. It is fundamentally wrong and leads to periods of time such as we have today.

The second attribute being the muddling along strategy of the producers. Which is really a capitulation of any active involvement or analysis of the business. It is what it is. And shoot the guy who says anything different such as the treatment that I’ve received.

It should be noted that the discussion last month of a supply freeze from Opec had a remarkable effect on the prices of the commodity. It’s almost like it was exhibiting a price maker characteristic. If only someone would have thought of that and developed a means in which the oil and gas producers could use a price maker strategy in North America. Until then we’ll have to live with the price maker strategy of the decentralized production model of the Preliminary Specification. I do find it comical the number of people who were declaring that the overproduction issues in oil and gas were over. Just like that, without any fundamental change to any fact, they were able to deem that the entire industry was going to be sunshine and rainbows starting this week.

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. 

You Reap What You Sow

This Sunday is the day that all the Opec countries have agreed to meet to discuss production freezes. I don’t expect too much to come from the meeting but we may be surprised. With the state of financial affairs in the North American producers, taking the pressure off of the high cost producers would be bad timing for Opec at this point. After all, the countries that are meeting are still making money. It's the shale producers who are not, and that was the point of Opec’s strategy, to cause North American producers pain and have them adopt the swing producer role in the global markets for oil. The difficulty is that you can’t tell the North American producer this. You have to force them out of business first. Then when they put themselves back together, maybe they’ll adopt the Preliminary Specification and the swing producer role.

The price of oil certainly has behaved as if something good was going to come out of the meeting. And maybe it knows something that we don’t. If it does the bureaucrats have won a reprieve and will be able to keep their lofty positions in the industry for a while longer. If there is no agreement then the price of oil is going to drop precipitously next week and the failure of the bureaucrats will be fully exposed. Is this the best they have? Hoping that the markets are turning upward on the basis of chatter out of Opec? I think the people who had the faith that these bureaucrats had good governance of their investments will begin to think twice about this.

Now I have called this point in time on several occasions. And since I’m writing about the possibility again it would seem that I was wrong before and may be again. I think that my timing has been off but my message is accurate. I do find the timing of this meeting to be rather opportune in terms of leveraging the bad news to the investors of the North American oil and gas producer. It is as little as a week or two away from the earnings release of the first quarter financial reports of 2016. Followed quickly by the annual shareholders meeting. Now I don’t expect anything to come about as a result of these meetings. We have gone through several years of poor performance and nothing has happened so far. Why would it happen this year. This is however the one time of the year where the bureaucrats do have to be accountable to their shareholders and face them directly.

Those bureaucrats that do survive the annual meeting will be treated with the nine months or so of bliss that they’ve always enjoyed in this industry. It's the rest of the year in which they can do as they please, and that’s why they’re probably still around. It’s not that they do anything during these nine months, it’s actually that they do nothing, and as a result nothing changes. We could see some more layoffs and certainly a lot more losses but those are other people’s problems right now. There is the east wing of the cabin to concern the bureaucrats with now.

The banks have all but shut down the last financial spigot into the industry. The cash necessary to produce no longer exists and therefore a heavier reliance on the service industry to extend terms on their services will be demanded. Extending credit on receivables over several years is very common in most industries, the bureaucrats will state. Anything to make payroll. We saw a number of equity and bond issues in the beginning of 2016. Oddly enough, none since. Maybe the investors don’t see the benefit of investing in oil and gas anymore. Left to their own devices the bureaucrats will need to get the cabin ship shape in record time. With all the labor that has been laid off in oil and gas, finding good qualified labor to build that east wing of the cabin should be no difficulty.

Everything for them is looking like a pleasant summer after all. Just need to get past the pesky shareholders in a couple of weeks and we’re home free. All the bureaucrat has to do is stay at the cabin for the entire summer and wait until their paychecks bounce and then submit their resignations. Pensions will kick in and that will be that. A job well done.

It was Opec that was the one that was going to be hurting as a result of Saudi Arabia servicing their clientele as their priority. Leaving the swing producer role to others. They and the other Opec countries are not draining cash to produce. Their countries may have costs that are causing them to draw down their reserves, but if you want to include the U.S. debt and deficit in what the producers need to cover as their costs then we’ll need a bigger boat. Optimism in the face of such a looming disaster is comical to me. What the oil and gas industry needs is a plan to deal with its overproduction for the long term. The Preliminary Specification does that and needs to be adopted. It should also be understood that we have years of work ahead of us! I can’t just flip a switch. As I said many times I have received no support whatsoever from the oil and gas producers. And we have 5,000 man years of work to do.

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. 

Just the Facts Ma'am

No one wants to get into a knock down, drag out battle. Well I do, and I will be taking it to the bureaucrats. Those in the oil and gas industry that know that something is wrong don’t necessarily want to get involved in a fight. Which is fine, they can enjoy the show and be entertained by the events and actions that take place here at People, Ideas & Objects. We aim to please. I certainly don’t expect anyone to pick any side in this argument. There is no need for that. I only ask that people look at the facts of what we’re fighting over. The Preliminary Specification, and whether it should be the manner in which to operate the industry. Something interesting happened at the beginning of the year. Our logs show that people have shifted from looking at the Preamble, Abstract and Executive Summary to digging in deep to the Preliminary Specifications individual modules. Good news for us.

I’ve had the benefit of seeing what people think of my writing. When the people in oil and gas are confronted with mandatory participation in a consultants meeting that suggests putting a doodad on your desk to indicate your busy, as innovative. They know that high priced consultancy is earning its big dollars and will be back next year with something just as innovative. And then I come along and ask people to read 175,000 words, or two textbooks worth of text, about my ideas. There is a stark response by the people who have put that effort in. In most cases it's printed, indexed, highlighted, penciled over, dog eared and completely worn out. It has been this way since my first publication in 1996. People are starving for something that solves their problems. And when they see it, they want it. We’re not many in terms of numbers yet, but we will be, and when we are, we’ll be rabid. For that I can guarantee.

The other interesting aspect of my writing. Is that we are establishing a sub-industry between oil and gas and the Information Technology industry. If you take that same Preliminary Specification to the people in Information Technology and ask them to read it. They would read it, glaze over and shrug. They have no understanding whatsoever of anything within my writing that is of value. It’s kindling for them. And that is why we need to sit between the oil and gas, and technology industries. To communicate and provide an understanding between the two. Because the two don’t understand each other right now and a lot of time, money and effort is being wasted on both sides by hard working people.

There has been a divide between the IT people and the rest of the world since its inception. I’m not of the opinion that this can continue in the manner that we have for the past number of decades. Something has to change. And that change is the development of the sub-industry that is People, Ideas & Objects, our user community and service providers. We are the hybrid of the two industries and the means in which the two communicate and achieve their goals and objectives. People who are selected within our communities are those that have their experience in the oil and gas industry. That is our primary concern in terms of understanding. We need to know the oil and gas industry and know it well. I have also set out that our people within the user community be educated in the Information Technologies to a certain level. These are specified in the user community vision.

Everyone can use an iPad, a smartphone and a computer today. We need people who can look into the source code of People, Ideas & Objects and feel comfortable there. If that’s not you today, then you need to get there through the courses that are recommended in the user community vision. I can assure you that you will never have the access necessary to change the source code. You will however need to understand what is happening in that code and understand the fundamental concepts underlying those technologies. This is important to the quality of our product. That the implications of the technology be understood when we are finding that things are not as they maybe should be.

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. 

That Was Quick!

My outreach to the powers that be landed with a thump yesterday. There will be no acceptance of the olive branch that I extended on Monday. I thought with the state of affairs in the industry it might be time to get to work. It’s not. I guess when you beak off about the bureaucracies lack of action, to put it as mildly as I can, for many years, you become known for that. The word hostile comes to mind. I seem to have bent some noses out of shape, and not just a few. If you were responsible for running the industry into the ground would you be happy to be called out on it? The thing is I’m only too happy to be the one to have taken this fight to the bureaucrats and held them accountable for their lack of action. We have a significant issue in the industry. It needs to be fixed. If we don’t fix it, it will lead to serious consequences. If some people find me offensive, well actually a lot of people apparently, that means I’m doing my job. This fight isn’t over, and maybe it's just beginning.

The situation is that “market rebalancing” will work and the industry will get back to its normal course, the bureaucrats want us to believe. That is the mood throughout the industry and the investment community. They are bending over backwards at this time to give the bureaucrats every opportunity to remedy the situation. At the same time the bureaucrats are showing that the cupboard is bare in terms of resolving anything. No ideas, plans or actions. This is setting the stage for a fundamental betrayal that the investment community will realize when the bureaucrats “market rebalancing” can’t, won’t and will not ever work. April 17, 2016 is Sunday, that’s when everyone meets to discuss production freezes. There’ll be no action as a result of that meeting and oil prices will decline on Monday. Does anyone think the Saudi’s are going to blink now that they have all the pressure on North American producers?

What I have done is got ahead of myself in thinking that the story about “market rebalancing” had run its course and that the investor's patience had run out. Therefore we’ll have to wait for these events to occur. Being persona non grata in the industry is liberating. I know any attempts at further outreach would be futile and to be honest it contradicts my nature. I much prefer the fight I think we are about to enter. This is going to be a classic and I suggest popcorn and refreshments. The bureaucrats think the situation that we are in will resolve itself as it has so many times before. If they muddle through they’ll get to the good times. I see this as the end of the manner in which the structured hierarchy is capable of generating value in today’s economy. Disintermediation is transforming the organizational structures of all industries around the Internet. Maybe the oil and gas industry is immune, no one knows.

Cash is going to be the determining factor. When Uber replaces taxi’s in the cities it operates in it's not because the taxi’s were broke and not a viable going concern. They had their taxi commissions ensuring that everything was tilted their way to ensure a prosperous industry. What Uber provides is a better system to get from point a to b. Oil and gas producers are not in the situation where they’re viable. As much as their bloated balance sheets might tell them so. Cash is so tight, and this will be so evident in the first quarter reports of 2016 that producers will be unable to continue for long in the current fashion. Overproduction is killing the commodity prices and they can’t stop producing because if they did, the cost to carry their overhead would put them under right away. That’s why in the Preliminary Specifications decentralized production model we convert the producers fixed costs to variable, based on production. Then if they shut-in production due to non-profitability their costs on that property go to zero. All of their costs.

Like any junkie, more is all the bureaucrat wants and shale delivers the hit. Flush production from shale field operations will continue to keep the continents deliverability high as a result. The overproduction is systemic in the oil and gas industry as a result of the “capitalization of all of the costs” theory of accounting of the SEC. Adding shale to the overproduction issue only increases the difficulties in the industry. We’ll have a financial catastrophe on our hands in as little as six months. Then, as is happening now in the service industry, our capabilities to function at the level that we are will begin to diminish permanently. The point is we have to get to that level before they’ll accept their medicine and implement the Preliminary Specification. Until that time I’ll remain persona non grata and do what I can here. There’s a problem out there, somebody needs to point it out. I’m just too happy to be the one.

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. 

Pooling Technical Resources in the Joint Operating Committee

Continuing with the presentation of our side in this battle of ideas. We have discussed the level of capital expenditures in the oil and gas industry that are necessary for the next 25 years. The amount of work that needs to be done is believed to be the greatest volume that the industry has ever faced. I have read that the amount of that investments total is $20 to $40 trillion. These values have formed part of our value proposition as they have to be part of the returns that investors expect to see in the future. Arguing that in today’s oil and gas industry these would otherwise remain on the bloated balance sheets for decades on end, never being returned to the investors. Nonetheless, whatever the amount of effort that will be undertaken it’s going to be significant. Therefore the scientific basis of the industry will be relied on heavily to ensure that consumers demands are met.

Innovation will therefore need to be a foundation of the industry, if the consumer is to be satisfied. The Preliminary Specification is designed around innovation and is a critical element of the software that we are building. In the Preliminary Research Report we asked if the scope and understanding of the process of innovation can be reduced to a quantifiable and replicable process? The answer was yes it can. Innovation is very much an engineering process. Then during our ten years of research we determined what is necessary within the industry and the producer in order to facilitate that innovation. Innovation must have the appropriate structures to enable it. These elements have been included in the Preliminary Specification.

As we look forward to the next 25 years it is clear that the industry will need to increase its throughput in order to deal with the demands for its products. Looking at the manner in which producers are organized today and expecting them to do more on the basis of the same structure would be foolhardy. The need to reorganize them in order to achieve further specialization and division of labor would be necessary to expand that throughput. And to deal with the issues of the retirement of the earth science and engineering brain trust that is advancing in age. At the same time the demands of the sciences scope and scale will increase the footprint of a producer's need to achieve what is known as “operator” status. Putting that ideal of “operator” in jeopardy as a commercial operation. Therefore the need to collaborate with the partners in the Joint Operating Committee to pool their disparate resources in the sciences and engineering capabilities to achieve the needs of the property is necessary. A system such as that would have to be purpose built, and is included in the Preliminary Specification.

The producer therefore becomes an entity with two distinctive sources of revenue. Oil and gas production will be the primary revenue source. And the secondary being the use of their enhanced and highly specialized capabilities that are provided not only to the Joint Operating Committees they have an interest in, but also to producers they have otherwise no other relationship with. Providing their capabilities to other producers who are seeking to attain the full scope of what is required to ensure what is necessary to conduct safe and successful operations. The Preliminary Specification includes these in the Research & Capabilities and Knowledge & Learning modules. The billing and capture of these costs and revenues between these parties to ensure that the focus remains on each producer's own unique competitive advantages and their innovative development are handled in the Partnership Accounting module. The producers competitive advantages being the unique and specialized earth science and engineering capabilities they have. And their land and asset base.

This is only some of the innovative aspects included in the Preliminary Specification. We’ll discuss more of them as we proceed through the battle of ideas. Without the software that defines and enables the capabilities discussed here they won’t happen. Especially when the coordination across the industry is necessary. Spontaneous order, an economic phenomenon which we had come to rely on to deal with the development of our organizations and industries has been short circuited by the nature of software. In today’s society without the capabilities of People, Ideas & Objects software development, user community and service providers the industry will remain as it is today until we deliberately set about to change it by adopting the Preliminary Specification and maintaining the software development capabilities for the long term.

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. 

An Olive Branch

One of the most effective tools that the bureaucrats have used against People, Ideas & Objects is their lack of support. It's difficult, if not impossible to move an initiative forward without the support of the targeted market actively supporting it. As a result we have been rendered to the limited resources of myself. Progress may have seemed slow, however we were able to publish the Preliminary Specification in December 2013. Since then we have had a good battle with the bureaucrats. And now the oil and gas marketplace has deteriorated due to overproduction to the point where it is now the material issue facing every individual and every producer in the industry. Nothing is going to happen in oil and gas until this is resolved. As we’ve watched the oil price deteriorate this last week, acknowledgment that something needs to be done is beginning to form in people’s minds. That there is no plan to deal with this issue and “market rebalancing” is not working. We are at the beginning of the loss of faith in the people who manage the industry.

One thing I learned about myself in the 1980’s and 1990’s is that I am a fighter. That I like to fight, mostly about the issues, and I’m pretty good at it. Taking this initiative from the idea of using the Joint Operating Committee in August 2003 to today has required a good fight. The fight however has just begun. And just as much as the day I started I can’t wait to start building this system. We have catered our appeal to the members of the investment community and the people in the industry who have been adversely affected by the overproduction. I want to add to that group the bureaucrats we have challenged over the past number of years. They’re going to need a fighter in their corner in order to make this transition happen, and they’ll need the Preliminary Specification.

Supporting People, Ideas & Objects Preliminary Specification will create an alternate method of operating the industry. One that renders the current one obsolete. We have room for the people who are the movers and shakers in the industry. Those in the administrative, accounting and operational areas. We have no openings whatsoever for bureaucrats in terms of the type of work that is done today. Based on what the current projections of the number of producers headed to bankruptcy court, there may be limited opportunities where they are now. From my point of view, People, Ideas & Objects “possible” is better than the current “nothing” in my books. And that is what is being offered today.

We have 5,000 man years of work ahead of us. Everyone in the industry is going to have to be focused on this initiative to make it successful. Even those bureaucrats who may be precluded from the situation in the future. Everyone will have a role to fulfill and a job to do. This is not going to be easy. But nothing worthwhile is.

To say that this has been a difficult battle would underestimate the time and effort that went into it. Which leads me to the question why have I spent the past 25 years doing this. In terms of cost there is nothing more that could be assessed that hasn’t been put in. Every day I wake up with this idea in my mind and every night it’s still there. Developing the Preliminary Specification was ten years of research. Taking the Joint Operating Committee and determining a business model that was viable for the producer and the industry. Detailing the system requirements for a system that meets the producer, Joint Operating Committee and industries needs. And that today is the Preliminary Specification. It seems simple now, however, it was very long hard work.

I take it on faith that there is a plan for all of us. I’m just doing my part, and in reality I enjoyed the intensity and reality of the journey that this initiative delivered. There needs to be a community spirit and a larger group of people involved now in order to make it real. The only way that is going to happen is with the cash resources of the producers. The bureaucrats have traditionally stood in our way. I’m extending an olive branch to them here today to try and take this to the next level.

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.

Third Friday Off

Our Paradox

The only resources that hold us back from ensuring that the Preliminary Specification is implemented, and the industry can deal with its issues and opportunities for the next 25 years is that critical resource we all know as cash. Our Revenue Model sees the production profile of the North American oil and gas producers paying a proportionate share of our budget based on each of their production profiles. It is producers that are the beneficiaries of the value proposition of People, Ideas & Objects. Therefore who else would be motivated to pay our costs. We believed for three years that the investors in these producers would act to stop the destruction in the industry. I now know why the bureaucrats treat their investors so poorly. The bureaucrats have done everything that they could in order to avoid dealing with People, Ideas & Objects and the Preliminary Specification. It was Winston Churchill who once said “You can always count on Americans to do the right thing, after they’ve tried everything else.”

The bureaucrats have tried everything else. The price of oil and natural gas will never be commercial for the foreseeable future under their current administration. It’s a painful and eventual walk for each and every producer to bankruptcy court. The banks and bondholders will end up holding the industry's interest and they know nothing of the business from an operational point of view. Where we’re at doesn’t end well for anyone in the industry under any scenario that the current administration have offered over the past number of years. The method that the industry is organized needs to change to ensure that it is viable and is able to meet the needs of the energy consumer, its investors and the people who work in the industry for the next generation.

The only alternative being proposed is the Preliminary Specification. To come up with an alternative might take as long as ten years to determine. And it won’t be coming out of any committee that the bureaucrats might strike to study its options. That is a non starter and there is no time for those luxuries at this point. For lack of a better term, we are stuck with the Preliminary Specification. We’ve muddled along long enough to know the current bureaucracy is not working. Therefore our paradox is that we will actually raise the cash that we need from the people who we have been at war with this past decade. Will they see things our way now that all other methods are hopeless? We shall see.

We have had our budget known in the marketplace for a little over two years. It is controversial for a variety of reasons, the first being sticker shock. Did we believe that this problem could be solved with a handful of people and a few dollars? The important point is to ensure that we keep their eyes focused on what is possible when we have the system operational in the industry. And don’t ask me when that’ll be until you’ve given me the full budget. There are too many contingencies, if’s, and’s and but’s to sort out as it is. Not having the budget in hand when we sit down to deliver that bad news, and yes it won’t be tomorrow, isn’t going to work.

The other aspect of our budget is that we are expecting people to commit their careers to the new way of doing business in the oil and gas industry. How are we going to make sure that the users, developers and service providers are “all in.” By having the producers show that they are as committed to having this succeed by ensuring the financial resources are put into place, first. Until that happens we won’t be able to control our destiny and we won’t be able to secure the people that we want and need.

If the industry wants to participate in a positive outcome for the industry. I don’t see any other choice being available today, and I don’t see anything becoming available for at least a decade. It truly is do or die for the oil and gas industry as we know it. And therefore for our way of life. If the producers want to enter this by hedging and short sheeting the bed than they are sure to fail in some manner. If they feel they need to succeed as I do then they have to go “all in” as well and make sure this initiative is a success and that their contribution will be whatever is asked of them.

It would be my current suspicion, and for this I am going on instinct. That if People, Ideas & Objects did secure their budget that the Saudi’s would change their production profile to one which would enhance the markets prices. Just a guess. Giving them some additional revenue during the time that this software development initiative was being developed. The issue I have with this, and another reason we need the entire budget up front, is the barely 5 second attention span of the producers today. It is a manic response between elation and depression on the basis of whether the oil price is up or down at any time of the day. If the Saudi’s did act as I suspect they might, keeping the producers attention would be difficult.

These are the terms that I enter into in raising the funds necessary for this initiative. We are accepting money now and will begin our work as soon as we can with the money that does arrive. If we had the support of some producers then we could unleash the marketing resources that will raise our budget needs. As it stands we don’t have that money and are not looking for that from anyone other than through our Revenue Model. The producers participation is needed now and we will be able to complete this initiative the sooner that we’re able to start.

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. 

Time For Change

The investment community telling People, Ideas & Objects that we haven’t done enough is the same as saying “what have you got.” Which is the question that I expect to be hearing from some of the more enlightened producers who know they have to act. They’re certainly going to be as disappointed as the investment community were when they see only the Preliminary Specification. “Where’s the iPhone app that solves all their problems? You should have had this completed by now!” They will state. When just the week before they were taking the baseball bats to me out back. Let me state for the record once more. I have never received a penny of producer or oil and gas investor funds during anytime that I have been in this business. And this is not necessarily an anomaly in the software business.

The Preliminary Specification may seem a small contribution to the overall difficulties that the industry is facing. It however solves those difficulties. It is timely in that it has been available for more than three years. It takes the Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. It then determines what the producer and industry need to look like in order for this change to take place. Then sets out the definition of the systems that need to be built. It also sets in place the structure of how the “sub-industry” that People, Ideas & Objects, our user community and service providers will need to develop to meet the needs of the Preliminary Specification, the producers, oil and gas, and service industries. Being designed to solve the overproduction problem that is so prevalent today. But also to provide a framework in which the administrative, accounting and operations issues and opportunities for the next 25 years can be acted upon in a timely manner. Eliminating the culture of muddling along in the oil and gas industry.

I expect there will be what is called a capitulation in the investment marketplace regarding oil. That the bureaucrats don’t have it worked out. That the prices will not recover until something serious changes within the industry. And the rest of the world turns its back on supporting the stories, the ideas and the industry overall. Whatever is needed, they will conclude, the current bureaucracy doesn’t have it. There is no sense in pouring more and more money into a sinking ship. This happened in natural gas and you notice that no one discusses that marketplace anymore. It has been fundamentally destroyed by the bureaucrats over the past six years. No one cares what happens there, it’s irrelevant to the rest of the world. This will be the same situation that will now occur in the oil marketplace.

In the past the bureaucrats could get away with communicating this stiff arm of a strategy of “market rebalancing” to the investors and banks. They would look proactive by laying people off in the downturns because only one side of the business would traditionally be down, while the other side could continue to carry the freight. Now with both sides of the business down, and seriously due to the prolific nature of shale reservoirs, they’re stuck. It is my argument that the industry was never profitable. That is being proved more and more each day and we will come around to a clearer accounting of what has gone on. However, it has also never generated any cash. The annual cash flows of the producers always included the increases in bank debt and annual financings as part of those numbers. Take those out and the producers would be barely keeping the lights on. And that was when oil was $100 and gas was $15. Today cash is being sucked out of these producers at such a rate that no one will have anything left by the end of 2016.

So maybe I haven’t done enough, and the Preliminary Specification is all that I have. What other choice do you have? The industry is now on its own and needs to fix this itself and there is no one in the world that is going to help the bureaucrats. They can jump ship, and that’s what I expect a lot of them will do. Leaving the mess for us to clean up after them, of course, what else should we expect.

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.