Swing Producer, Embrace It

Earlier this week Russia and Opec were unable to come to an understanding regarding production cutbacks and broke off talks. It would almost seem like the Saudi’s were serious about maintaining their market share! Recall this is their stated position regarding their continued overproduction. Once they lose the customer, by cutting their production, they’ll never get them back. They feel that the U.S. shale producers, which are the high cost producers in the oil and gas industry. Are the ones who need to assume the role of swing producer. Opec feels they will produce at full production at all times. And the high cost production, or North American production, will fill in to meet the market demand as required. This will enable the swing producer, us, to maintain the prices that will ensure we earn a profit. The high cost shale producers can ensure that the commodities prices are high enough to earn them the profits they need, and Opec who is the low cost producer despite what you might hear otherwise in the North American press, will be profitable as well.

There is a lot of resistance to this logic in the North American oil and gas, and financial communities. Whether it is that they are being dictated to from Opec, or its perceived as a secondary role to be a swing producer, I couldn’t tell. With the devastation that is happening in the North American oil and gas industry, is it wise to continue to argue the point? Why not just accept that the position the industry needs to take is the one of swing producer. After all it's not just oil that is in need of a production allocation methodology. Natural gas is far further along the business decline created by the abundance of shale reservoirs. The current high throughput production model that the industry operates on is bankrupting the entire industry.

For society to rely on an abundant energy supply to make it through this century we are going to need a healthy and profitable oil and gas industry. We haven’t had that for many years, or even decades. What we have is a very sick industry that can’t and won’t change to accommodate the realities on the ground. The industry has appeared healthy for the past decade due to the accounting methodology used to capitalize everything under the sun. This has bloated the balance sheet of all of the producers and recognized almost none of the real costs of exploration and production on the income statements. Inflating the earnings of those producers at the same time. As a result you have what people thought were healthy balance sheets with abundant assets. But that’s all you had. No cash, no working capital or anything else. The industry was never profitable and always relied on other people’s money.

In order for the industry to become healthy, dynamic, innovative, accountable and profitable they need to adopt the Preliminary Specification, our user community and the service providers. By doing so they will be able to employ the decentralized production model as a replacement to the high throughput production model and begin to allocate production within the industry based on profitability. If the property is profitable, it will be produced. And by profitable we will take into consideration the actual costs of capital for that property. If it isn’t profitable then it will sit in the producers shut-in inventory and be subject to their innovative earth science and engineering capabilities that are designed to expand the properties reserve base, increase its production or reduce its costs and return the property to profitable production.

People, Ideas & Objects value proposition is in the region of $45.7 trillion over the next 25 years. It is comprised of the capital that will be invested in the business and returned to the investors over the next 25 years. It is also comprised of the capital that has been invested in the business, that is sitting on all of those balance sheets and will therefore be returned to the investors in the form of dividends. And lastly it reflects the increase in revenues and profits due to the fact that the marginal production will be removed from the commodity marketplace. Increasing the commodity prices. Saving the reserves of the producer for a day when they can be produced profitably. And increasing the producers profitability by ensuring that only profitable operations are produced. Therefore even if the producer has to shut-in half their production, they will still be more profitable using the Preliminary Specifications decentralized production model.

Adopting the swing producer role in the global oil and gas industry should at least be a survival instinct. However, these bureaucrats, it would seem, are hell bent on destruction. As long as they don’t have to work too hard, as is the case today, everything is fine. We are at the beginning stages of this decline. A decline that can not be sustained for very long by these producers based on their poor financial health. This quarter will identify those who the downturn are affecting the most with the trifecta of difficulties being faced by the producers. Those being the bank reviews, the natural gas storage and the third quarter report conspiring to break the story that “all is well.”

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. 

Your Motivation to Join

The probability that our budget is raised in this next quarter is slim, but possible. What we can expect however is that the people who are concerned about the industry. Will continue to stand up and identify themselves as those who are able to represent the producers and investors. And wish to proceed with these software developments, the user community and our service providers. We can certainly engage with these people and proceed with the appropriate discussions. There has to be a fee levied in order for these groups to join the conversation. Otherwise we will never stop talking, and never have the appropriate people in the room.

That should clear the room in the short term. What we also need to be doing in the next three months is focus on our priority regardless of the outcome of our budgets development. Our priority of course is the development of the user community. It seems that we don't discuss the user community specifically in our day to day posts. However, I can assure you that it is our priority and we are working as hard as we can on its development. The reason for this focus is that this is a difficult and time consuming process. One that currently takes very few resources and can therefore be done before we secure our budget. It is also the critical first step in our development of user based ERP software developments. Without the user involved in defining and developing the software that they want and need. Then the software will become just more of what already exists in the marketplace. And what would the purpose of that be. When we secure our budget, our speed and capabilities in terms of our development will be constrained by the size and capabilities of our user community. Therefore it is prudent to eliminate some of these constraints while we can.

Our appeal to our user community is the business opportunity for the user to be affiliated with People, Ideas & Objects. As a user their time and efforts in being involved with our developers and during their research into “what” and “how” the software will do is compensated. This compensation is budgeted at $190 / hour. Secondly, the user community participant is the individual we are looking to, to establish the service providers who will provide the People, Ideas & Objects software, administration and accounting services to the producers. The service providers are established as a result of the changes in the industry configuration to enable the price maker strategy of the decentralized production model. And as a result they are the replacement to the current administrative and accounting personnel of the producers. In terms of a business opportunity, we see many thousands of users and service providers, and they will have the current G&A costs of the producers, estimated to be in the region of $40 to $60 billion, in annual revenue.

Disintermediation is a phenomenon that is occurring in every industry. For oil and gas People, Ideas & Objects are providing these Information Technologies to leverage the old ways out, and to bring in the new. Included in all industries disintermediation is the reduction of bureaucratic methodologies. And hence the industries are able to operate in a smoother manner. This disintermediation also applies to the administrative and accounting areas of an industry. And it is reasonable to assume that the numbers of people currently employed in administration and accounting would be smaller in the People, Ideas & Objects environment we are working on. However, there will also be greater capacities in the oil and gas industry, there will be redundancies that will be eliminated through the process of our development. Not everyone will be able to function in the Information Technology environment that we are creating, in my opinion. I also believe there will be a natural selection by those that have the ability to take these more advanced Information Technologies, individual's comfort level with change, the opportunities that are presented through People, Ideas & Objects and continue to remain employed in the administrative and accounting areas of oil and gas. This will provide for greater efficiency in the administration and accounting of oil and gas, leading to higher profits for oil and gas producers, but also higher profit margins for the service providers.

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. 

Parallels to the Former Soviet Union

With commodity prices as low as they are. The discussion in the marketplace has turned to the fact that producers will continue to produce as long as their cash costs are covered. This is the beginning of the destruction of the industry. Cannibalizing the business to pay for the overhead is a strategy of fools. It won't be too long under this scenario that we will find that oil and gas is unable to meet the demands of society, bureaucrats will then shrug their shoulders and say, oh well. This irresponsibility and capitulation by these bureaucrats shows that they are only interested in their own “take.” The laying off of engineers and earth scientists has also begun in earnest. What we saw in 1986 was the bureaucrats began competing with one another in terms of the depth of their cuts to their staff. A “watch this, I can cut even deeper than you” attitude. This trend will become evident in this upcoming quarter as they try to show who is the most prudent, and cash conserving, of the bunch.

Remember these engineers and earth scientists are highly educated. Probably average ten years of specific oil and gas experience. Are in their mid thirties and are facing a layoff! Not because of anything they did, only because the bureaucrats were too self interested and uncaring about the business to concern themselves with the long term. Remember too that I have been writing about these issues for almost ten years. Plenty of time for the powers that be to have done something. These engineers and earth scientists may be fully committed to the oil and gas industry. Have it flowing in their blood and are willing to cut the bureaucrats some slack. However, the poaching that technology and other industries may do of highly educated and dedicated people, as these other industries pick up, will be one of the key reasons that the capacity and capabilities of the oil and gas industry are permanently degraded.

Under the current scenario we will however have a fully staffed bureaucracy at the controls. And as the prices turn up, as the Saudi’s strategy has become successful and the shale era slides into the history books as the latest .dom, real estate, shale bust, we can sit back and think that with the endowment of those shale resources, with all that value that was unlocked by those brilliant technologies. We didn't have enough sense to make two nickels to rub together. It will be at that time the retirement of this brain trust, I’m talking about the bureaucrats and being sarcastic here, will occur and the complete collapse of the industry will have taken place. There are always imports from less reliable countries that aren't as advanced as we “enlightened” people are.

This doesn't have to happen. And by no means should it happen. But it is. In the Preliminary Research Report (2004) I noted that there were similarities between the former Soviet Union and the way in which the industry was operating. The Soviets collapsed due to the inability of letting markets decide what to do. The same thing is happening here. The bureaucrats don't do anything. They produce whether or not they should or shouldn’t. No one looks to the price as the determining factor as whether or not they should produce. Who cares what we get for the product, just produce it. It was foolish in 1986 and it is really foolish today. It will lead us to our demise in the same manner that the former Soviet Union faced. Complete collapse.

The Preliminary Specifications decentralized production model implements the price maker strategy on an industry wide basis. Using the profitability of the property as the determination of why a property should be produced or shut-in. A producer can maximize their profits at any level of its production profile due to the nature of all costs becoming variable in the industry under the Preliminary Specification. If the property doesn’t produce, then it incurs no costs, not even overheads. Therefore maximizing the profitability of the producers profitable properties, saving the reserves for the day in which they can be produced profitably and most importantly, removing the marginal production from the commodity marketplace.

Funding the Preliminary Specifications budget is how we will avert the nightmare scenario the bureaucrats are leading us down. The stock market is repricing itself on the expectation that interest rates will be rising over the next few years. This means that all asset classes will have to perform at higher levels, and that can be most easily achieved through lower asset values. This is killing the bureaucrats stock portfolios and their pension plans. They therefore are going to want to hang on for a little longer than they originally planned for. So the total destruction of the industry is pretty much assured if we keep them in control.

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. 

Money and Power, Part II

We are working to provide society with the energy it needs to ensure that it fully develops. We are concerned that the issues the oil and gas industry faces will lead to declines in its capacity and capabilities. Leaving people with poor choices in terms of their standard of living. With 5,000 man hours of physical labor contained within each barrel of oil, we do not want to see people being forced to reduce their consumption of energy. This is why we are developing the Preliminary Specification. People, Ideas & Objects, our user community and the service providers are committed to this and are focused on providing the oil and gas producer with the most profitable means of oil and gas operations.

Yesterday we noted the loss in market capitalization of the top 14 producers as a result of the decline in oil prices this past year. That was a little over $700 billion, and if we took into consideration the rest of the industry, and called it a rounding error, that number may well be $1 trillion. I really like the ring when anyone say’s trillion. This is the value that would be returned to the producers if they were to fund our budget and set in motion the means to provide the oil and gas producers with the most profitable means of oil and gas operations. That is a fact, the stock markets take all known information into consideration. This is how Uber has a $50 billion market capitalization. The future holds that promise. And with the Preliminary Specification under development, the oil and gas producers would be able to overcome their issues and provide for profitable operations to their investors. Recovering the previous loss in market capitalization.

Then if you take our value proposition. Which is valued in the area of $45.7 trillion. Note I could easily round this up as well to $50 trillion, but I'll stick with the $45.7 trillion. $50 trillion makes it sound less viable! These are calculated on the basis of the price increases of oil and gas as a result of the price maker strategy of the decentralized production model of the Preliminary Specification. Doubling, and in the case of natural gas at least tripling, the value of the commodity in the marketplace is what is needed on a go forward basis. Taking the present value of that over the next 25 years provides us with the incremental value of $5.7 trillion. The other $40 trillion comes from the fact that the pricing model that we employ includes the costs of capital in each volume produced. Producers are hoarding assets as if they are vintage relics of a bygone time. Hanging on to them until the next millennium. These capital costs need to flow to the income statement, and will do so within three years under People, Ideas & Objects. This will force the industry to recognize the costs of capital on a go forward basis. These costs have been projected to be $20 to $40 trillion in the next 20 years. And it will also remove the capital costs that are currently sitting on the balance sheets of the near bankrupt producers. Forcing the industry to finally account for those costs.

So there you have the deal of this century. We fix the industry and what currently ails it. Provide it with the means to deal with its problems in the future by destroying the bureaucrats “muddle along” strategy. Give the investors back the money they have lost in the reduction of their market capitalization in the past year. And provide a sound and profitable business that generates real earnings for the next 25 years. One that you can invest in profitably. And all that has to happen is that our budget of $4 billion, not trillion, although that would be a deal even if it was trillion, in investment is provided.

If I were an oil and gas investor I think I would jump on that. This past century of passive investment has led us to some dismal times in the economy these days. I wonder if business in the 21st century will continue to follow this model of passive investments? It would seem to me that we provide a good example of why the old model should be tossed. There is the potential of another alternative as well. That greed may have infected the bureaucrats who want a bigger cabin and faster boat. And therefore would consider funding our budget themselves on the basis that they could stick around for a little longer, just long enough to get those new toys.

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 Three Horsemen

Members of our user community all share in People, Ideas & Objects concern for the capability of the oil and gas industry to meet society's needs in the mid to long term. The difficulties that the industry are entering into. Those that we detailed yesterday that include an investment community that has been abused by the bureaucrats, the bureaucrats themselves in all probability moving on to greener pastures when it becomes untenable for them and the commodity price declines. The industry's business model is flawed, incapable of addressing these three issues and these issues are more than what it can handle without losing much of its capacity and capabilities for the long term. This puts society and our way of life in jeopardy, and we are committed to ensuring that this does not happen.

We are doing this by providing an alternative business model for the industry to function. One whose focus is to provide the oil and gas producer with the most profitable means of oil and gas operations. By defining and supporting the producers with our software, based on the Preliminary Specification, our software development capability, the user community and our service providers. The Preliminary Specification is different. It avoids the corporate model that is in use in the industry today and uses the industry standard Joint Operating Committee as the key organizational construct of the dynamic, innovative, accountable and profitable oil and gas producer. The Joint Operating Committee is the legal, financial, operational decision making, cultural, communication, strategic and innovation frameworks of the oil and gas industry. By moving the compliance and governance frameworks from the hierarchy into alignment with the Joint Operating Committee we are able to achieve this new organizational performance.

By implementing the Preliminary Specification we address these three issues specifically. Looking at the prototypical producers in the People, Ideas & Objects et al business model. They will be stripped down versions of their current configuration. Consisting of the C class executives, the earth science and engineering resources, some land and legal, and support staff. The remainder of the administrative and accounting resources are reallocated to service providers who will focus on one process or subprocess and use the entire industry as their client base. It will be in this way that the service providers can use their competitive advantages of specialization and the division of labor, automation and have the computers working for us. The producers will also be able to focus on their competitive advantages of their earth science and engineering capabilities, and their land and asset base.

Our service providers will charge the Joint Operating Committee directly for their service fees for any of their services. Therefore the specific service provider who calculates royalties will charge the specific Joint Operating Committee the costs of processing their royalty calculations. Then the producer will receive a detailed set of financial statements for each Joint Operating Committee that includes the revenues, royalties, operating costs, depletion and the actual costs of the overhead necessary to produce the property. If the property is reporting that it is unprofitable the producers can shut it in and reduce their losses on operations. If a producer was producing 100,000 barrels per day with 20,000 of those being unprofitable. They could shut-in those 20,000 barrels and the producers profitability would rise substantially. That is because they would not be incurring the financial losses on the 20,000 barrels, and their overhead would have been reduced from a producer producing 100,000 barrels to a producer producing 80,000 barrels just as their royalties and operating costs have. This is achieved due to the fact that none of the activities in the Joint Operating Committees of a shut-in property will trigger any of the service providers to conduct any of their services for the months that the property is shut-in. Rendering no billings to come from the service providers and a null operation, no profit but also no loss to be incurred and reported by the Joint Operating Committee.

The Preliminary Specifications decentralized production model makes all of the producers costs variable. It will also reduce the amount of commodities in the marketplace, enabling the price maker strategy that we provide. If all producers only produce profitable properties then a reasonable and fair production allocation process has been implemented within the industry. The producer will also have a stable of 20,000 barrels per day in which they can apply their innovative earth science and engineering capabilities to increase their reserves, deliverability or reduce their costs and bring the production back on to profitable production.

This solves the three major issues that the industry faces in the mid to long run. It returns the industry to a business model, based on profitability, that the investors need to see in order for them to return and invest in the industry. It removes and replaces the bureaucrats with their self interested business model and wishes them well in their retirement. And it returns the oil and natural gas commodity marketplaces to the marginal cost necessary to fund the needs of the industry in the mid to long term. This is what we, People, Ideas & Objects, our user community, and service providers are working on. Join us and solve this critical and difficult situation with us.

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. 

Let's Move On, We Have a Job To Do

There should be little doubt in anyone’s mind that oil and gas is in serious jeopardy. We have been writing about the difficulties in the industry for the past number of years and offering our Preliminary Specification as the solution. The time is upon us for the investor class, or the bureaucrats themselves even, to act by funding our budget and proceeding with the changes to implement the Preliminary Specification, the decentralized production model and the price maker strategy. I have never seen or could have imagined the level of difficulties the industry is currently in. This next quarter will be very difficult. Leading to several years of devastation in the industry. Like the failure of the former Soviet Union's socialist ways, we may be seeing the parallel situation playing out in the bureaucracy of oil and gas. Nothing was produced in the USSR because everyone was in bread lines waiting to purchase bread. The situation in oil and gas is the opposite, no one can stop the overproduction because its someone elses fault. 1986 was a bad recession in oil and gas. I can remember the effect it had on the people that were “lucky” and didn't lose their jobs. This lingering effect took many years, and sometimes decades, for people to overcome the impact of the difficulties the industry faced then.

That is our history and what is presented as the way the business is. No one questions if it is valid in 2015. I say its BS and is unacceptable in this day and age that an industry relies on the barbaric tools of laying people off to deal with the business cycle. Particularly when the Preliminary Specification specifically deals with the issues of overproduction. What I suggest we need to do is look beyond our history and the bureaucrats status quo and see what is really happening to the industry as a result of the inactions of the powers that be. There will be bankruptcies. The people in New York who were bullish on oil and gas as little as three months ago are already licking their wounds today. Carlyle Group’s Claren Road Hedge Fund is facing significant redemptions (of up to 48% of the funds value) based on losses from investments in Greece and energy. This fund was valued at $11 billion just a few months ago and is now at $2 billion. October reviews of the producers reserves by the banks that have loaned money will be a nail biting exercise for bankers and producers alike. KKR owned Samson Resources will be filing for bankruptcy in September. Predictions of oil hitting $30 are common, as are the thinking that this will be a long term difficulty. We're not talking about natural gas prices today.

Taking these financial losses into context, the financial community has long memories. It was those that believed that the industry needed to be built out in the 1990’s that made the investments then. Thinking that their day would come when commodity prices rose in the early 2000’s soon found that the bureaucrats were in the trough feeding first, leaving the scraps to the investors. Now that prices are in a downward cycle, and shale has introduced a new dynamic, these bureaucrats couldn't care less. They have their lakefront cabins and pensions in place. What the investors have discovered about oil and gas is that there never was any room for them at the table, once they had invested their money that is. All they can do now is sit back and admire their oil and gas investments bloated balance sheets, full of assets that represent their investments which have not and may never show a hint of profit.

The point here is that the investment community will be hard pressed to invest in an industry that has been so poorly managed. Thousands of monkeys on typewriters came up with a better plan. Even though the investors had cut off most of the funding in the financial crisis, the bureaucrats found other ways to keep their money mills churning to keep themselves fat and happy. Its not just the commodity price decline that will be the issue that is played out in the industry in the next few years. It is the reputation of those that managed the industry in the past few decades. All the way back to 1986 will be in question, and the answer for the people who will be asking, will not be kind or in the favor of the bureaucrat.

The bigger issue here of course is that the oil and gas industry is the most important industry in the world. It is the energy that fuels our society and how we maintain our civility. It sustains our way of life. With a disgruntled investor group, a complacent bureaucracy that will in all likelihood just quit when they are held to account and a commodity super cycle downswing all at the same time is more than what the industry can handle. We risk the ability to maintain our capacities and capabilities to meet the needs of society and our way of life in the mid to long term as a result of being in this difficult time. We need to be smart about this and overcome our history, our behaviors and begin the development of the industry that will fuel society and our way of life for the remainder of this century. We know, and there is no doubt about this, that the bureaucrats have proven themselves incapable, incompetent and undesirous of doing so. Lets move on, we have a job 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. 

"You're Gonna Need a Bigger Boat"

That’s what Police Chief Martin Brody said to his boat captain “Quint” in the 1974 movie Jaws. “You're gonna need a bigger boat.” I use that reference in terms of our budget. If we expect to conduct all of the things that we say we are going to do with just that budget, it won't be enough. We'll need significantly more money than what is currently defined in our budget. I agree with this point of view, and would provide the following information to show that there are other resources that will be available to make these changes effective.

First of all our budget addresses the software development and user community costs during the initial commercial release. Our budget is to build the Preliminary Specification in its initial form. There will be subsequent costs being incurred for software development and the user community in each of the years following the commercial release. In addition there will be costs involved in managing the application that have not been identified or addressed at this point. These costs will be covered through an assessment on the producers each calendar year. These costs will approximate the scale that they are in the initial commercial release. And that is $1 to $1.5 billion / year.

That addresses the needs of the software development and general support of the software. There are many other attributes of the business model of the Preliminary Specification that need to be addressed. The service providers are not included in any of the cost estimates in our budget. Our budget only covers the costs of the user community. The user community participant is the key individual that creates the service provider based on the work that the participant does during the initial phase of the software development. I consider this work to be part-time for the user community participant. The majority of their time will be consumed operating the service provider when we are operational. The service providers revenues are derived from the individual Joint Operating Committees that are charged for the administrative and accounting service charges for the month that they are conducting these services. It is anticipated that these service charges will replace the estimated $40 to $60 billion in annual G&A costs that the oil and gas producers incur today.

The user community participant therefore has two distinct revenue streams. One is from People, Ideas & Objects for the software development specific work that they do. These revenues will continue past the initial phase of software development and will be permanent in the user community participants business. The second source of revenue is from the ownership and operatorship of the service provider that is licensed to implement a specific process in the oil and gas industry. These two revenue streams are complimentary as the work in the service provider defines and supports the process that is part of the work that the user community participant will work to detail in a constant, iterative manner with our developers.

You can therefore see that there are other resources that are available to make the transition to the environment detailed in the Preliminary Specification. The user community participant, I assume, will also be interested in making investments of time and money in the development of their service providers. These will be done on their own accord. Our user community has been defined as a population of 3,000 individuals. With the full time needs of 600 man years per year being used by our development team. It would be difficult at this time to estimate the number of processes and activities that the service providers will be licensed to conduct on behalf of the industry. However 3,000 seems like a low number. Therefore based on simple mathematics and averages the annual revenues of a service provider would range in the area of $13.3 million to $20 million each. Remember we are replacing the administrative and accounting resources of the individual producers to create the administrative and accounting resources of the industry. These revenues are annual and would provide the user community participant with the majority of their earnings and their capital gains.

Its a different environment that we are creating here. That is a certainty. With these changes in place we are able to provide the decentralized production model to the profitable oil and gas producers. That will be the reason or justification for doing this. Turning the oil and gas industry into a price maker is the opportunity, these are the resources that we have to make that happen and the producers, with trillions of extra revenues in their pockets, will be grateful for it.

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. 

Motivation

How long can an industry continue without addressing an issue as serious as its profitability. We have seen natural gas producers such as Encana lose 90% of their market capitalization in just five short years. We are now less than one year into the decline of oil prices. It will therefore be as little as four more years until the value of the industry be will all but wiped out. The bureaucrats have been put on notice. Continuation down this road will be unsatisfactory. Waiting for prices to recover, or the muddling along strategy no longer works. Natural gas has shown that shale makes this an era of abundance. A business model that deals with this abundance is therefore needed in order to rid the industry of its price taker strategy and implement the price maker strategy of the decentralized production model of the Preliminary Specification. Everyone now knows this. How much longer will the bureaucrats hold on to their losing ways? And what will be the mechanism that is used to raise the budget for the Preliminary Specification in order to make these changes?

It is the competitive spirit that keeps the producers overproducing in the marketplace. The rush to secure acreage in the shale areas. The need to drill out that acreage in order to earn it. The need to produce in order to pay for the continuation of the financial treadmill. There is nothing wrong with this treadmill other than it's currently unprofitable. If only the producers would hold back their unprofitable production so that prices would cover the marginal costs. You first, says one producer to the other. There has to be a substantial and positive reason in which the producer would curtail production. Otherwise they're just shooting themselves in the foot.

With the decentralized production model the motivation for the producer to withhold production is to attain the most profitable means of oil and gas operations. Then only their profitable properties are produced and these are not offset by the losses of the unprofitable properties. Any shut-in properties report a null operation, no revenues, royalties, operating costs or overhead in the months they are shut-in. At the same time the reserves of these shut-in properties are saved for a time when they can be produced profitably. And the withholding of the marginal production removes it from the commodity marketplace. Increasing the commodities prices, and rendering your profitable properties that much more profitable. This is the motivation of the producer to make the necessary change to the Preliminary Specification.

Our calculations show that for the North American marketplace. For both oil and gas over the next 25 years. The present value of these changes is $5.7 trillion in incremental revenues. Plenty of motivation for the producers to consider the costs of our budget. However our claim is for $45.7 trillion in incremental value. That is because it is our opinion that oil and gas producers are vintage collectors of their assets on their balance sheets. Once an asset reaches a producer's balance sheet, it seems to stay their for eternity. Recognizing the costs of capital in the calculations of oil and gas prices, which we will do in terms of determining the profitability of a property. We'll therefore return the capital to the shareholders who are being so badly abused in this business. It will also generate the cash flows necessary to keep the service industry on an even keel. Not having to abuse the throttle of industry activity between its extremes of full and off. Allowing the service industry to develop in a natural manner. And for the people who work in the industry. They will be able to invest in their careers and not be subject to layoffs like untrained and unskilled laborers would be.

Planning is a management activity and responsibility. I have been promoting the Preliminary Specification and decentralized production model for many years now. The bureaucrats don't manage. They see a problem, they therefore lay people off. You can do that from the summer cabin. Its irresponsible and incompetent. They have to go.

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. 

Profitability is the Issue

It is now clear to most everyone that oil and gas has a very serious problem. It's times like these that make it worthwhile to be able to provide a solution to the serious problems that our organizations face. And that is what our user community participants will have in hand by joining this user community. They will be the ones that develop the specific solution, based on the Preliminary Specification, that the industry needs to move forward in the 21st century. A solution that’s value proposition reflects the seriousness of the issues the industry faces. Providing real value to the work that is conducted here at People, Ideas & Objects, the user community and the service providers that will be created by the user community.

This won’t be the same oil and gas industry when we're finished. The producer itself will be much more flexible, capable and dynamic in their operations. Having offloaded all of their administrative and accounting processes to the service providers who in turn collectively provide the industry based administrative and accounting based capabilities. The producer can scale up or down their operation based on the profitability of their properties. This will immediately increase or decrease their administrative and accounting costs based on their production profile. There will never be the concern for developing the firm's administrative and accounting capabilities in line with the anticipated production profile. The administrative and accounting needs of the industry and each individual producer will be determined, managed and implemented by the user community and the service providers.

The producers will then be focused exclusively on developing their earth science and engineering capabilities, their land and asset base. These are the competitive advantages that provide the real value for the producer. You should quickly sell the stock of any producer who is claiming their administrative prowess as a competitive advantage. Compared to our service providers, the producers today have no scale in any of their administrative or accounting processes in which to apply the service providers competitive advantages of automation, specialization and the division of labor. The service providers global scope and scale of using the entire industry as their client base enables them to apply these tools in innovative and value creating ways for themselves and their clients, the oil and gas producers.

People, Ideas & Objects, our user community and the service providers claim is that we provide oil and gas producers with the most profitable means of oil and gas operations. Profitability is the issue that the industry is having. And no one can compete with our business model. For you to participate in the user community is your opportunity to enable this new environment to be established in the industry. Real, substantial work that will deliver so much value for our organizations, society and the people who work in this industry.

What we do know is technology is changing the face of business today. But it's not technology that is the main driver in these changes. It is the business model that is supported by IT that enables the changes to be made. And that is what we are doing. We have provided the user community with the power to affect change in the business model and Intellectual Property that makes up this environment. We are also providing them with the software development capabilities to implement those changes. It is the user community who are determining what is right and what is needed for the next great leap to come from the oil and gas industry. An entire new way of doing business.

I want it noted for the record here that at no time in this post did I mention the bureaucracy. I apparently can constrain myself from doing things to a certain extent.

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. 

We Have Options

One thing that became evident during this second quarter reporting season is that this downturn in oil and gas will not be resolved in the short term. If you read the earnings press release from Shell it's clear they are expecting difficulties for many years to come. The same can be said about the general tone of the discussion in the press about the industry. Recent discussion by Nouriel Roubini on Bloomberg was particularly dire. Nouriel is historically very accurate and doesn’t hedge his commentary. He is the only economist to have predicted the difficulties that occurred in the 2008 financial crisis. The point he made on Bloomberg is that shale based oil and gas will keep prices low for many years. He also says that there will be demand difficulties created by the decline in the Chinese economy. This doom and gloom scenario is what has been the concern of this blog for many years. I don't see it getting any better without fundamental changes in the way the industry is operated. Shale brings about a new era of abundance demanding that producers adopt the price maker strategy available from the decentralized production model of the Preliminary Specification.

These difficulties certainly don't have to be like this. The number of layoffs announced in the past week, although surprising, will become commonplace in short order. Layoffs make the bureaucrats feel even more important as fear can be instilled in anyone in very short order. That oil and gas treats its people like unskilled and uneducated labor when it faces some difficulty. Shows the breadth and depth of management thinking in the current bureaucrats. I have been arguing for years to have the price maker strategy of the decentralized production model implemented. If the bureaucrats would have begun what they should have they would be looking like intelligent, hard working and caring managers. It’s not only obvious that the industry will be faced with a significant decline for an extended period of time. It is becoming quite obvious to everyone that the bureaucrats just don't give a damn. Why concern yourself with the business when it's so easy to just lay people off when you screw up?

What to do in a situation where up is down and there are no side ways. We have all invested heavily in our careers and have the right to expect that we'll be rewarded for that. To be subject to layoffs and downturns at this time and in this place is despicable. I know that many people have had enough and expect to look elsewhere. We can only wish you well. For those of you, like me, that see the bigger picture and know that oil and gas is a critical element in the way our society functions. I think that People, Ideas & Objects has something for you. Our user community is the effective management of the industry in this new dynamic we are creating. It has the power to manage the industry through the user community participants ownership interest in a service provider. It is also empowered to make the changes to the Intellectual Property that makes up the software and services that this user community creates. It is how we remove and replace these bureaucrats for good.

In a way the bureaucrats are fighting for their own survival. They don't want any part of what we're doing and that has been the case since August 2003 when I first proposed these ideas. They knew then that I was bad news and they are still fighting to keep control for themselves. What is becoming clear to everyone concerned is that they are not doing their jobs. They are more interested in their own “take” and are managing for their retirement and potential exit from the industry. This is irresponsible, and they will get away with it. What we need to do is to work to prepare the solution defined in the Preliminary Specification and ensure that its funding is secured in a timely basis. And we are doing that.

If you were recently unemployed and have an interest in what we are doing have a look and see if there is something that you can do to help out while your between jobs. We have an immense amount of work to do and the fun has really only begun. I wish you all well in this terrible and unnecessary environment and look forward to the day we have this solution prepared.

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.