Showing posts with label Material-Balance-Report. Show all posts
Showing posts with label Material-Balance-Report. Show all posts

Thursday, December 12, 2019

The Preliminary Specification Part CCCXIX(a) (PA Part XL)

I am pleased to announce a revision to the Preliminary Specification. It involves the Partnership Accounting and Accounting Voucher Modules and more specifically our implementation of our Material Balance Report. One of the features of the Partnership Accounting module in combination with our Accounting Voucher is that we have undertaken the objective of automating the production process from field data capture to the financial statements. We were limited in how we were going to achieve this lofty objective outside of detailing the Material Balance Report in our two modules. Our user community will show the way. Today we have a development in this area that I think will provide our user community with the means to implement an effective and innovative solution for producers and industry for the 21st century. It will involve the real time capture and use of the field data, in the many forms that it can take. What we are noting here is defining more of the physical infrastructure and overall vision of how we resolve this difficult area of the industry. And make it a contributing factor to how a producer achieves their most profitable means of oil and gas operations, everywhere and always.

This has now become an area where People, Ideas & Objects overall vision will be able to achieve the significant innovations we’ve set out for ourselves and our user community. The ability to approach this area has been beyond the scope and scale of individual producers IT capability and budget. It will continue to be well beyond the resources of any individual producer. However, our approach of engineering this solution on behalf of the entire industry, to develop, implement and manage, by way of our user community and their associated service provider organizations, makes the possibility not only real, but a definitive task that we must complete successfully. Significant value can be generated in this area of the industry by eliminating highly redundant and excessive costs associated with what are current borderline manual systems in place today.

So what’s changing in the Material Balance Report, the Partnership Accounting and Accounting Voucher Modules and the Preliminary Specification that makes the opportunity all the more real. One word, Starlink. Starlink is in essence Elon Musk’s plan to make all his SpaceX dreams come true. It will be the source of the funds he needs to make reusable rockets, voyages to Mars and so many other ideas of his commercially viable. So what does this have to do with oil and gas? Starlink is a network of 30,000 satellites, almost 500 have already been deployed, that provide an always on and available anywhere Internet service. Situated in low orbit across the globe they will provide Internet availability almost everywhere. The limit is the southern and northern pole regions which cannot be well serviced. The service area extends to the top of the Canadian provinces such as Alberta. Therefore anything that is situated anywhere in Alberta, or the lower 49 states will be able to be serviced by Starlinks satellite Internet service.

General availability of the Internet everywhere and always will be a substantial increase in the viability of the commercial Internet of Things (IoT). Monitoring and controlling the industry's facilities will be enabled in a matter that is far more integrated and comprehensive than what is available today. All oil and gas facilities will be able to be connected, except for those in the Arctic, Northern Territories and Alaska. The physical requirement will be a “pizza box” sized receiver that will communicate with the satellites. What will the role of SCADA in the future of the Internet of Things be? Our user community will be provided with a blank slate in which the vision of these two modules will guide them as to what they are to achieve. The possibility is significant and could resolve many of the issues that are inherent in these processes. Working these out and engineering a solution for the 21st century is the opportunity here and we should look at this in that manner.

People, Ideas & Objects and our user communities solution will need to be engineered from the ground up. I mean that from both perspectives. Sticking with what drives the industry today is inadequate when the costs of the system as conceived here in the Preliminary Specification will reduce much of the producers and industries high monthly incurred costs. Our user community will be able to undertake the design of the systems, develop the software based on the needs of the industry and producers, integrate and implement them with their service provider organizations and support them throughout the various product life cycles involved in the overall solution. This is the future and where the industry needs to go. The current producers are stuck in their self inflicted financial destruction and therefore the need to rebuild the industry is upon us. Our user community will lead us through this difficult time and task. If as a potential user community member you’re interested in this specific area, or in other areas of the Preliminary Specification, and you’re not working on your application to the community, I think the state of the industry should inform your sense of urgency.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North American energy independence. People, Ideas & Objects have published a white paper “Profitable, North American Energy Independence -- Through the Commercialization of Shale.” that captures the vision of the Preliminary Specification and our actions. 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.

Friday, May 04, 2018

Our 12th Module, Part V

Implementing blockchain technologies within the Preliminary Specification is mandatory for the oil and gas industry and producers. With the volume of transactions that are managed through People, Ideas & Objects system a means to provide the safety, security and documentary evidence that the blockchain provides is the only reasonable way for the industry to proceed. We are not providing a solution that is available tomorrow but one that will build value for the industry in the mid to long term. Therefore the adoption of Oracles technologies including their Oracle Blockchain Cloud Service (BCS) and Oracle ERP Cloud in combination with People, Ideas & Objects Preliminary Specification, our software development capabilities, our user community driven development and service providers fit well with the needs, opportunities and issues that the industry and producers face today and in this time frame.

Might I be so bold as to suggest. It is clear in evaluating the financial statements of the producers for the 1st quarter of 2018. That the accounting games are still being played and the lack of cash in the industry continues. No cash is being generated from operations. Nothing is being provided from the investment community and no banks are jumping back on the bandwagon. Therefore no one’s buying the industries story. Producers continue to manage as if the status quo is the only operational choice they have. This as far as any objective person can see is a dead end. I would therefore ask, what would happen if the industry proceeded with the developments of the Preliminary Specification by providing the funding for our budget. Would that change the perspective of the investors and bankers that the status quo was being discarded for the mid to long term future? The future that is defined by People, Ideas & Objects Preliminary Specification and therefore prove to the investors and bankers that the industry was a viable choice for their investments once again?

One of the areas that will benefit the most from blockchain technologies is our Material Balance Report. It resolves the processes involved in the measurement and reporting of production of oil and gas on a monthly basis. Capturing the production data in the field through field data capture and automating the subsequent processes all the way to the financial statements. Within this broad definition we have introduced the Material Balance Report as the means in which the producers within a Joint Operating Committee are able to balance the reporting of the various disparate groups that are involved in these processes between field data capture and financial statements. Introducing the ability through the report to material, system and partnership balance the production. The user community through their work will need to determine at what point and where the production volumes within the Joint Operating Committee for a property, plant or gathering system can then be recorded within the blockchain that supports these transactions. Once that production data has been captured, verified and secured then the processes and automation that we note in the Accounting Voucher and Partnership Accounting modules would commence.

Within those modules we address the never ending amendment process that plagues this area of reporting. This is a natural part of the oil and gas business and will continue for some time, I would imagine. What needs to be done in the case of volumetric amendments is that they are written in similar fashion to the blockchain. This somewhat denotes that there is a specific blockchain for the industries production volumes. Which would aid significantly in the global reconciliation processes that are instituted within the Preliminary Specification through the material, system and partnership balance reconciliation process to ensure the integrity of the reporting is either consistent with the facts of the production, or the agreements that governs the Joint Operating Committee. Whichever of those two is in effect. As I noted before it will be the user community that determines the use of the blockchain and whether we are using one or many blockchains within the Preliminary Specification. If there were many one could understand the need for blockchains for volumes, prices, fees and distributions.

The use of Ethereum’s blockchain has the added advantage of implementing smart contracts. Therefore if there was an Ethereum blockchain for processing fees then the smart contracts could be used to process the appropriate fees on the volumes that were processed through those owners assets. On a fully automated basis. This is the concept that the Material Balance Report is designed to capture. Control the production volumes and ensure that the numbers reported, which includes the amendment process, captures the integrity and unimpeachable level of confidence in the volumetric data. Therefore by doing this we are able to automate the remaining processes on an iterative and continuous basis. Providing the ability of the industry to increase the throughput of the industry through enhanced specialization, division of labor and automation. From the Ethereum website

On traditional server architectures, every application has to set up its own servers that run their own code in isolated silos, making sharing of data hard. If a single app is compromised or goes offline, many users and other apps are affected.
On a blockchain, anyone can set up a node that replicates the necessary data for all nodes to reach an agreement and be compensated by users and app developers. This allows user data to remain private and apps to be decentralized like the Internet was supposed to work.

The Preliminary Specification, our user community and service providers provide for a dynamic, innovative, accountable and profitable oil and gas industry with the most profitable means of oil and gas operations. Setting the foundation for profitable North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in our future Initial Coin Offering (ICO) that will fund these user defined software developments. It is through the process of issuing our ICO that we are leading the way in which creative destruction can be implemented within the oil and gas industry. 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.

Wednesday, April 29, 2015

Our Solution Part VIII

We have been highlighting the major points of difference between the Preliminary Specification and the status quo bureaucracy in a series entitled “Our Solution.” Today I want to have a look at the Partnership Accounting and Accounting Voucher modules Material Balance Report which is a critical process / document within the specification. The purpose of the Material Balance Report is to balance the production and flow of products within a Joint Operating Committee. It is also designed to balance the production of the industry by using the information within each Joint Operating Committee as the inputs for an overall industry wide balancing. By doing so, the information that is contained within each Joint Operating Committee will become unimpeachable in terms of its accuracy. This system balance, as we call it, will provide each producer with the understanding that their production is accounted for accurately.

There are many sub-processes that are derived from the information that is contained within the Material Balance Report. These include all of the production accounting, revenue and royalty accounting, nominations, marketing data, inventory and many others. Since we will have balanced the Joint Operating Committee with the “system balance” across the industry. We will have also balanced the production, inventory and sales volumes across the partnership with the “partnership balance.” And have balanced the material with the “material balance” that deals with the allocation of production of by-products back to the individual Joint Operating Committees. This will provide an integrity in the value of the information contained within the Material Balance Report. This integrity enables the next step of the module, automation of the follow on business processes.

First, everyone knows that these volumetric values are subject to what seem to be an endless stream of amendments. And there is little that can be done to change the number of amendments throughout the process. What we can do however, is automate the processes based on the volumetric values that are processed at any time. Understanding that at the ultimate end of the process the accuracy of the volumetric information will be there, all of the information that was processed up to that point in time can be automated. Therefore all of the processes that use volumetric information within the Joint Operating Committee, producer firm and the industry can be developed with the understanding that they are automated based on these assumptions.

What we will be doing is removing the work that people are currently doing that is best suited to being done by computers. Now everyone fears that computers will be taking over, and that fear has been proven false many times over in our history. The fact that so many man hours are consumed in the processes that are involved in the Material Balance Report. This time could be better used elsewhere which is part of the larger point that we are undertaking in People, Ideas & Objects. We are leaving the work that is best suited to computers, the storage and processing. And enabling the people to do the value added work that involves the leadership, issue resolution, decision making, creative, collaborative, research, idea creation, design, planning and thinking. In essence we are making the computers work for us as opposed to the current situation where we are working for the computers.

Automation of these key business processes will eliminate a large and difficult franchise of the bureaucracy. Those that are part of the bureaucracy will probably leave the industry through retirement or other means. Those that find this to be the appropriate direction to be taking in the industry will join People, Ideas & Objects user community and establish themselves as a future service provider in one of these many processes. Does anyone believe in this day and age that these processes should be managed in the manner that they are today? Is this how we move forward in this industry? We all know there is a better way. And the moment we are freed from this cumbersome and time consuming burden, then we can begin to develop the potential of what this industry can 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

Tuesday, November 18, 2014

What it Would be Like to Participate in the Developments Part II

In our prior post we were discussing the user community participants involvement in the software development of the Material Balance Report of the Partnership Accounting Module of the Preliminary Specification. Today I want to discuss that further and talk more in detail about some of the things that user community participants will be involved in during these software developments. If we look at a production volume it is a pretty simple thing. That is until we qualify it. Is it a daily or monthly, gross or net, partners share, royalty share, inventory, fuel or meter loss, or any number of the possibilities in the oil and gas domain. You have products in various stages of process. A variety of different interested parties that all have some need for the data whether that is regulatory or ownership related. And finally you have the science of engineering being applied to the chemistry of the petroleum products in the development of the plants that process the production. I am certain that we have not determined the full scope of every permutation and combination that these variables provide in the industry at this time. However one day we will. To say that any production is the same shows the lack of understanding of the unique nature of the oil and gas industry.

The Material Balance Report is designed to report on the process of production and distribution of the products from the point of production to their disposition within the various systems. It is the report that has been used in the oil and gas industry, from the operational side since the beginning. Accounting rarely involves themselves in the report. What is different about the Preliminary Specification and the Material Balance Report is that the accounting for production, revenue and royalties as well as all of the production administration processes, marketing and other processes that depend on the Material Balance Report for their information are automated based on the data within the report. By tying the accounting information into the production data we are imputing the integrity of the production data to be consistent with the integrity of the accounting data. Subject to the usual amendment process of course.

Understanding these two principles in the Material Balance Report is the role of the user community participant to define the population of possibilities that could occur under the above scenarios. Once those possibilities are defined, ensure that the Material Balance Report has an effective user interface designed to deal with each instance of that population of possibilities. Then they will go about the process of developing the process management software that will be used to manage those processes, in an automated fashion, for the service providers to use for their oil and gas clients.

I know enough about this process that I know this can be done. I also know it can't be done in the current environment where every producer firm is an island of accounting capabilities on their own. Each Material Balance Report must balance to the accounting system. And each Material Balance Report must balance to the next Material Balance Report up the system that the producer may have nothing to do with. And that Material Balance Report will have to balance to the accounting of the producers who own those facilities, who are dependent on the volumes in the predecessor Material Balance Report. This dependency can be dealt with through our proposed service providers who are focused on one individual process and are representing the industry for that one process. It is in that way that we can bring the integrity of the accounting that we are providing the producer firms to a much higher level than what is attainable in the current bureaucratic nightmare of fudged accounting. I’m sure everyone in that area knows what I mean when I say that.

We have the budget designated for the development of this system. It is well beyond what has been attempted before. We will also keep developing the system over the 20 to 30 years that People, Ideas & Objects are operational in oil and gas. What is key to its development are the users within the user community. They are the ones that are defining what the system will do and how it will operate. They are the ones that know and operate the industry and it will be they in the People, Ideas & Objects user community who determine what their systems need to be to do their jobs.

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

Monday, November 17, 2014

What it Would be Like to Participate in the Developments

Lets assume for a moment that you are a user community participant that has an interest in the Material Balance Report of the Partnership Accounting Module of the Preliminary Specification. Your participation in the user community is oriented around the opportunity to take the Material Balance Report and automate many of the accounting and administrative processes that are dependent on the data in that report. Data and information that is used in the revenue, royalty and production accounting areas. Also in the product marketing and nominations of the products for delivery into pipelines. And determining the product balance in inventories of the commodities. There are many processes that are derived from this data. The Material Balance Report in the Partnership Accounting module holds a special significance to all of these subsequent processes in that the integrity of the data that is published in the report is unimpeachable and therefore the appropriate input for any and all of these subsequent processes. And of course we say unimpeachable from the point of view that these data elements may be subject to amendment, and these amendments would also be automated in the processes.

As a user who has worked within this area for many years you have always marvelled at the physical effort necessary to process the data and information within this domain. Seeing the broad scope of operations in terms of the number of people involved in the accounting and administration of these processes, and the never ending but necessary amendment process, you have always thought that there must be a better way. You knew that it always could be done however the costs and the time commitment necessary for someone to map out all of these processes and make a system work that deals with these is well beyond the scope of what is possible for any one individual oil and gas producer. And that will remain the case for the foreseeable future. However, People, Ideas & Objects are aggregating the resources of the industry in order to apply the solution industry wide, and therefore the scope and scale of this issue are addressable. As a result you have joined the user community and are involved in the developments of these systems.

While in the user community you will be working with other user community participants who have similar skills and understanding of the oil and gas industry. What is interesting is the different perspectives, focus and areas of issue between the users. Everyone has a different history in terms of their understanding and experience in working in the industry. And although that understanding and experience is in many ways the same, the differences can be either enlightening or create tension. Luckily we are all made aware that conflict is the source of creative breakthroughs in terms of solving the difficult issues that we face. And we can see that the Material Balance Report will be a creative and lively environment.

Everyone is well aware of the issues involved in the development of this area of the Partnership Accounting module. We can all agree on what the issues are and to a large part how to solve them. However the devil is in the details and that is where we need to get to and spend the time and energy necessary to make the Material Balance Report of the Partnership Accounting module the system that we know is possible. There are few opportunities in ones career to make the kind of difference that we have here with the People, Ideas & Objects software developments. This will make a significant difference in the lives of those that work in the oil and gas industry. No more of the tedious filing of amendments and chasing data. Instead people will be focused on solving problems, providing leadership, collaborating, being creative, doing research, generating ideas, designing and planning. Things that we need to be doing in order to ensure that we provide the oil and gas producer with the most dynamic, innovative and profitable means of oil and gas operations.

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

Wednesday, October 01, 2014

The Interactive Nature of User Community Participants and Service Providers

We start this week with a look at how the user community, which writes the policies of the administrative, accounting and operations of the dynamic, innovative and profitable oil and gas producer, implements those policies through their control of the software that is developed with the People, Ideas & Objects developers. Operating the industry through their ownership, operatorship and control of the service providers. It is through their early participation in the user community and the leadership that they have shown during their time there that they earn the rights to participate in the service provider sub-industry. The user community will be given the first opportunity to establish these service provider firms.

This is a necessary part of the quality service provider / user community product offering that we are looking for. The user community participant has to have their hands on the situation in which they are working with the People, Ideas & Objects software developers. At the same time they can impart some of the rational as to why the process and software was developed in the manner that it was to the people who are employed within the service provider organization. As they were the ones that designed and implemented it on the basis that it operates on. This feedback loop is necessary for the change dynamic that we are looking for in the industry. For the industry to make a change in the business model, or for the software to change in the smallest of detail, the user community and service providers need to have this crossover in terms of the people who are involved in both organizations.

As we have discussed before the service providers will make up a very large sub-industry. This will not be just a cottage industry approach to the management of processes for the oil and gas industry. With the reorganization required under the decentralized production model the administrative and accounting resources of the industry are reallocated from the producers to the service providers. This reallocation will move a large percentage of the $40 to 60 billion in annual G&A costs of the producers to become the service providers revenues. These revenues are an estimate of the North American based G&A costs of the producers. Therefore the scope of this service provider business operation for the user community participant has the potential to yield significant returns.

Each user community participant will have a limited scope of the entire administrative and accounting processes that makeup the oil and gas industry. This requirement dictates that we have the large population of user community participants in order to cover off the entire scope of the industry. They then can leverage that knowledge across to the service provider who scales the understanding across and throughout the oil and gas industry. Using the People, Ideas & Objects software, derived from the Preliminary Specification, the service provider will manage the process in detail across the oil and gas industry.

This is a business opportunity for those that have the understanding of the oil and gas industry, who are able to solve business related issues, and who have an aptitude for technology and in that order of priority. You may be part of a team of user community participants that own a service provider that take on a large process such as the Material Balance Report. Or you might have a small team that takes care of some unique attribute of accounting. It won't matter. The real value is that the ability to change and focus on the dynamic, innovative and profitable elements of an oil and gas producer are what will be the job at hand. And the fact that as a result of this configuration we will have changed the industry and will begin to realize the many trillions of dollars in opportunity costs that are available from the shale gas reserves and administrative efficiencies we provide.

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

Thursday, September 04, 2014

A View From the Prototypical User Community Participant

Just as in the previous two posts, this discussion will be from the point of view of the future looking back on the developments from the perspective of a user community participant. In this case someone who has extensive knowledge in oil and gas with a strong aptitude in Information Technology. This individual is a member of the user community and choses to work within the community and the service providers as their area of expertise.

Its been a few years that the People, Ideas & Objects systems have been operational in the oil and gas industry and there seems to be more work than ever. Using the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer has been dramatic in terms of its impact on the industry. Certainly there is the performance that was expected however this new business model has so many areas to explore and develop. What we know today is only the beginning of what we can do with these systems, the user community and the software development capability available to us.

Adding to that we have only begun to understand what is possible in terms of how to automate the process, how to further divide the labor and of course specialize. These tools that we use in the user community are powerful in terms of how they can ensure that we provide the oil and gas producer with the most profitable means of oil and gas operations. For example we had a recent breakthrough in the Material Balance Report that “Margaret Thatcher” came up with that reduces the overall process by 15 days. Brilliant. We had it implemented industry wide within one week of her breakthrough. This one change is being reviewed to see what impact it will have on the rest of the process in terms of further improvements. As I said there is just no end to the work to be done.

I have worked on the Material Balance Report since the beginning, starting back in 2015. I have always worked in the production and revenue accounting process of the oil and gas industry and was frustrated, like so many others, with the archaic paper processes. The difficulties in automating those processes were beyond the scope of what one firm could undertake on their own. So when People, Ideas & Objects were organizing the industry to do the Material Balance Report and automation of the production and revenue accounting processes, I was hooked. This whole area has been a difficulty in industry. It needs to have the appropriate approach to make the solution real. We've now had that for the past few years and the current system is operational based on the Preliminary Specification. But it only shows what is really possible. There is so much more.

As a user community participant I am a member of the user community and participate with other members of the Material Balance Report and automation team. I also have a few service providers who are clients of mine that discuss with me their needs and concerns. However, I keep my ear to the ground through the user community to learn what is going on in the broader industry. I also have a strong relationship with the members of the development team for the Material Balance Report and work with them frequently to ensure that they fully understand our needs. I do all of this work by myself with my fees being covered by the user community and my service provider clients. I don’t ever imagine going back to anything else, this work is significant in terms of the value that it provides the oil and gas producers, the service providers who are providing the services to the producers and everyone else that I have contact with. The accounting and administrative processes associated with the Material Balance Report will eventually all be automated. Until that time there is much to do and producer profits to make.

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

Monday, June 09, 2014

Summary of the Accounting Voucher Module

For purposes of review and to keep the Preliminary Specification somewhat fresh in our minds. We have been occasionally looking at elements of the modules of the Preliminary Specification. Today I want to move from the Partnership Accounting module to the Accounting Voucher module to discuss what its purpose is. The Accounting Voucher is a unique module that conducts operations that have not been provided in other ERP systems. It seeks to resolve some of the issues of using the Joint Operating Committee as the key organizational construct of the dynamic, innovative and profitable producer. And opens up some opportunities for real innovation as well.

We are entering a time when the level of automation of the business process can accelerate in material ways. For People, Ideas & Objects not to address this opportunity would be a determining factor in the oil and gas industries capabilities to automate many of the business processes in the future. So much is dependent on the software that is used within the organization that it enables and constrains the organizations capabilities. With the capability to code an invoice to a basic accounting program from a smartphone. The ability and capabilities to capture transactions in highly automated means is a given in the People, Ideas & Objects Preliminary Specification. Therefore what people will be involved in is not recording transactions but designing transactions with the Accounting Voucher. The way that this is stated in the Preliminary Specification is that we are to “manage the disparate inter-dependencies of modularity theory and Transaction Cost Economics.” In essence this will be an area of deep development for the user community to fully explore.

By moving to the use of the Joint Operating Committee, the concept of operator is relegated to the past. Each participant in the Joint Operator Committee is called upon to provide their unique capabilities to the property. Therefore each member of the Joint Operating Committee is incurring costs and generating revenues on the property. Thier access to the Accounting Voucher is a necessary requirement and with the Preliminary Specifications Accounting Voucher they have access to process payments and revenues for distribution to other working interest owners. Having the Accounting Voucher open to all members of the partnership is a necessary and valuable feature of the Preliminary Specification and enables the producer to attain a speed and accountability in their costs and revenues.

Another area where the Accounting Voucher has been used in unique ways is in the Material Balance Report. Here the volumetric information of the producers production is treated in a similar manner to the way that the financial information is treated. That is it must balance debits and credits. And balance within the system that is captured within the Accounting Voucher, or system balance, partnership balance and of course material balance. These balances being required before the Accounting Voucher can close. Garnering the attention of those producers who are partners in the property if the Accounting Voucher is unable to close in a timely manner.

And there are a variety of other minor attributes of the Accounting Voucher that we will highlight as we go through the module in a little more detail in the months ahead. I just wanted to give a bit of an understanding as to the differences and why those differences exist in the Accounting Voucher. It is a unique module that opens many areas of future development for the user community to expand on in the area of automation of the business process and remove ourselves from the labor intensive elements of accounting.

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

Thursday, May 01, 2014

Our Material Balance Report

It’s time once again to have a quick look at one element of the Preliminary Specification as a chance to keep it fresh in our minds. We began this series about a month ago with discussion of the Work Order in terms of its ability to enable like minded groups of producers to collaborate on research projects and study groups. We then wrote a few weeks ago about the Work Orders ability to control costs within the producer firm. Today we want to stay within the Partnership Accounting module and discuss the Material Balance Report.

The Material Balance Report is present in the Accounting Voucher and Partnership Accounting modules of the Preliminary Specification. The purpose of the Material Balance Report is to replicate what the traditional industry standard material balance report does in the reporting of facilities. In the Preliminary Specification the report takes on an expanded and enhanced role of the innovative and profitable oil and gas producer. The report becomes the cornerstone of the producers production activities, reporting and marketing of its products. Everything that is produced is managed through one or many Material Balance Reports until its point of disposition, or transfer of legal title. The enhanced nature of the report is that the balancing of the volumetric information takes on the same characteristics that the financial information has in terms of its unimpeachable integrity.

This unimpeachable integrity is achieved through the fact that a Material Balance Report represents a Joint Operating Committee. And in the case of volumetric reporting this Material Balance Report will be an Accounting Voucher in the Preliminary Specifications Accounting Voucher module. A unique accounting voucher that imposes the balancing characteristics that we desire. And those characteristics are the systems balance, each Material Balance Report must balance between other Material Balance Reports, partnership balance, ensuring that the volumes of each partner or royalty holder are accounted for, and volumetric balance within the report itself. Without the ability to balance each element of the Material Balance Reports volumetric balancing, the Accounting Voucher will not close. Enforcing an integrity in the reporting that those volumes and those values contained within the report are correct.

For what purpose are we expending so much energy on the volumetric balancing of the Material Balance Report? The production, revenue and royalty accounting processes are ripe with amendments and corrections throughout a ninety day reporting process. Is this not unreasonable to uphold the accounting close to a process that is consistently subject to adjustment? I would note that accountants have the tools of accruals and other methods of balancing the Material Balance Report in the short term. The point in enforcing the integrity is to establish a base of volumetric information that is unimpeachable, as I said, that is however, after that ninety day process and is not subject to question. It is therefore at that point knowing that the information, ultimately, will not be inaccurate, from any perspective, that we can automate the processes that depend on this volumetric information. And begin this process of automation on the first day of that ninety day process.

The Material Balance Report will take what is a generic manner of reporting in the industry and expand it to accommodate the regulatory, financial and stakeholder needs. This process of automating the processes of production, revenue and royalty accounting will be comprehensive in nature. This automation has been beyond the scope and scale of the current business models of the software providers and the producers IT budgets. Yet is something that can be handled in the scope of the People, Ideas & Objects, our user community and service providers domain.

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

Saturday, July 14, 2012

The Preliminary Specification Part CCCXXII (AV Part XVIII)


We discussed the Material Balance Report in the Partnership Accounting module a few days ago. The overall discussion regarding the Material Balance Report can be aggregated by selecting its label. What we want to discuss today is the specific attributes of the Material Balance Report in the Accounting Voucher of the Preliminary Specification.

Simply the process of closing the Accounting Voucher will need to consider not only the balancing of the debits and credits from a financial point of view. They will also need to ensure that the material, system and partnership volumes reported in the Material Balance Report are also in balance. Without these systems in balance, the Accounting Voucher will not close.

This imposes another rather strict provision on the quality of the information that is accepted into the People, Ideas & Objects Accounting Voucher module. Precluding the acceptance of a voucher due to the inability to balance a volumetric requirement holds the system up for what could be a fairly common occurrence. What if the volumetric information is unavailable in a timely fashion? What if the information is part of the normal amendment process? Then we are left with the traditional accounting methods of dealing with these types of issues. An accrual of the volumes in order to achieve the balancing necessary should be able to be processed in the current month. These accruals would then be automatically reversed in the following months Material Balance Report. What is different from existing systems is that we are enforcing the systems to balance. Not just inputting key variables, imposing the facts of what actually happened at the facility, or if the facility is subject to a comprehensive Construction, Ownership and Operation agreement, what is agreed to.

The difference may be subtle but the implication is significant. Locking the volumetric balancing, over the long term, into the Accounting Voucher itself enforces the system to follow the volumes as produced and processed. Once this is achieved a certain level of integrity is achieved and then the automation of detailed processes based on those volumes can begin.

Tomorrow we will begin with our fifth pass through the Research & Capabilities module.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for People, Ideas & Objects products remains at the sole discretion of People, Ideas & Objects.

Friday, July 06, 2012

The Preliminary Specification Part CCCXIV (PA Part XXXIV)


Staying on the topic of the Material Balance Report and the technical risk that is associated with that element of the Partnership Accounting module of the Preliminary Specification. We find that the access privileges to give the right people, the right information at the right time would be nightmarish in their scope. I agree, particularly from the point of view of having the participating producers who are members of the Joint Operating Committee reviewing the information contained in the Material Balance Reports. In addition with our zeal to have the industry operate more efficiently we have opened these interfaces to the production and royalty accounting service providers who need access to the Material Balance Report to do their job on behalf of the producers in the Joint Operating Committee. Why can’t we just print out a Statement of Operations for each producer and be done with it?

In answer to that last question, its automation. With so much of the production process subject to amendment, much time and effort is expended in making the corresponding changes in the subsystems that rely on the processes in the Material Balance Report. If the Material Balance Report reflect fact, although it would still be subject to multiple amendments, then the subsystems that operate off of the Material Balance Report could use its information to compile their data. Royalty volumes might change, and the royalty calculations would change as a result. All without user involvement, etc. As long as the Material Balance Report remained in system, partnership and material balance, everything that depends on that data can be relied upon from a volumetric point of view. Any of the volumetric amendments would be populated through the system immediately.

To address the access privileges issue we should turn to the People, Ideas & Objects Technical Vision. There are four technologies that make up the Technical Vision and they include Java, IPv6, Asynchronous Process Management and Wireless Networks. What these technologies provide, specifically Java and IPv6, is unlimited addressing of unique named spaces. So although the number of variables in terms of Joint Operating Committees and the number of people that will have access to them will grow to a tremendous size, all of the systems will be capable of handling the unique nature of each individual requirement. In other words the base capacity of the technologies can handle the demands.

What we have also learned is that the information contained within a Joint Operating Committee is not of the confidential nature to any one producer. The reserves, accounting, strategy formulation and internal discussions of the producer firm are held within the firm and are not party to the Joint Operating Committee. The only information that is held in the Joint Operating Committee is of a semi-private nature that is shared amongst the partnership. Information such as production, costs, well file and other data that is usually available from public sources as well. Therefore, having the producer firms, and the service providers accessing the Material Balance Report does not expose any one of the producers to any material risk of any highly confidential information.

Turning to the Oracle Fusion Middleware stack we look at the Business Process Management Suite to help us understand how the Material Balance Report can be built. How we can take a unit of production through the various gathering and functional units on to the ultimate point of sale. Having the balancing of each functional unit consider that unit of production and the activities associated with it. Noting for the producer or the owner of the gas plant the costs and revenues of processing and gathering, and the disposition of the product to the contract it is sold under. Each of these processes and activities triggering actions within the General Ledger and creating an invoice and sales records for both the producer, the plant owners and the holder of the gas contract. Automation of the process based on reliable volumetric facts.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for People, Ideas & Objects products remains at the sole discretion of People, Ideas & Objects. 

Thursday, July 05, 2012

The Preliminary Specification Part CCCXIII (PA Part XXXIII)


Yesterday we discussed how the Material Balance Report would be built using the Oracle Fusion Middleware layer of the Oracle stack of technologies. The Material Balance Report in the Partnership Accounting module ties together so many of the internal processes of the producer firm and Joint Operating Committee. The production and royalty accounting, sales contracts, nominations, to name just a few, all of which have to match the throughput of the facility or the point of production, and all have to match to other systems within the firm or Joint Operating Committee. Any change in one system will have to be dealt with by designating some other action to bring the system back into balance. The Material Balance Report is a key part of how the production and operations of the oil and gas industry manages their production and product delivery. And to achieve this, it assumes that the industry is willing to actively participate in the development of People, Ideas & Objects Preliminary Specification.

Technically this is one of the more difficult areas of the Preliminary Specification in terms of risk. It would also be one of the areas where value would be gained by having the production properly accounted for in an automated fashion. Should this be done? That depends on the user community and their determination through the remaining part of the Preliminary Specification. A large part of that community is the producer community itself. If the producers see value in this then they will have to be the ones that push through and make the Preliminary Specification real. I can only write about what is possible. And the Material Balance Report as I have expressed here is technically possible.

The next twenty years in the oil and gas industry will be the most dramatic we have ever seen. The demand for energy will ensure that prices remain high. And with so many people joining the middle class, should we really be debating who will fund and drive People, Ideas & Objects forward? The financial recession has us locked in a perception that is backward looking and we can’t see the opportunities that will soon be upon us. Does that future involve an Information Technology perspective that is just a cost, or should it be a vision such as the Preliminary Specification as it stands today.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for People, Ideas & Objects products remains at the sole discretion of People, Ideas & Objects. 

Monday, June 25, 2012

The Preliminary Specification Part CCCIII (PLM Part XLII)


We continue on today with our discussion of royalties in the Petroleum Lease Marketplace of the Preliminary Specification. The prices that the royalties will be based on is what we will be discussing today. It is critical that the producer pays the royalty on the net price at the wellhead for all of the commodities that are produced. How these prices are calculated in the People, Ideas & Objects application is the point of discussion for today’s post.

The first point I should make is that some jurisdictions use their own pricing scenarios. Provinces in Canada calculate the average gas and NGL prices for each producer to pay royalties on. They also use standard costs for gas processing. These are excluded from this discussion as they are unique to the Canadian oil and gas producer and require substantial software development commitments from the Canadian producers that may preclude them from participating in the Preliminary Specification. Please review the July 28, 2011 blogpost “Budgets and Canadians”.

In most other jurisdictions it is the net realized price that is used for calculating the royalty. We’ll use a gas contract to describe the scenario that we are using here. For simplicity we will assume there are no liquids. Going back to the Material Balance Report we see that the gas that is sold under the contract is all of the gas that is produced by company A in the region that is serviced by gas plant B. This gas is aggregated from over 50 wells and is collected over, in some instances, a substantial distance. None of the gathering or facilities is owned by the producer and they pay custom processing and gathering fees for these services. The gas contract is to an industrial consumer who is situated across the state and the point of sale is the delivery into their facility.

The need therefore is for this producer to pay for the transportation and processing of this gas to the point of sale, the consumers front door. The royalty price will be what the consumer pays less the costs of the processing and transportation to get it to them, netted back to the wellhead. Turning to the Material Balance Report each production stream must have a sales contract and transportation contract from the point of origin to the point of sale. This is a requirement of the system. Each of these contracts support the production stream within the Material Balance Report, without a contract the Material Balance Report will not balance, just like in the real world. Therefore all of the information that is needed to determine the royalty price is going to be available from the various Material Balance Reports, where they should be available.

Taking the production from a well by well perspective the prices that will be received at each wellhead might be slightly different since the distance that some of the wells gathering might be materially different and therefore would pay more in gathering. The royalties are going to take the calculations from the point of view of the wellhead and begin the royalty calculations on that basis. These prices are derived from the Material Balance Report based on the contracts that are necessary to make that document operate and balance. Changes in prices and volumes do occur and that will lead to an amendment process within the Material Balance Report. Recall that the Material Balance Report is part of the Accounting Voucher module in the People, Ideas & Objects application. Any changes in the material balance must also correspond to the changes within the Accounting Voucher, and an Accounting Voucher can be for a producer or a Joint Operating Committee. So a volumetric change will recalculate the total custom processing and revenue receipts and a change in custom processing fees will affect total custom processing and net pricing to all the producers in that system. Making a change in one of the systems has an effect in the other. To change the price the producer received in the month can’t be done in the general ledger, it can only be done through the gas sales, custom processing or gathering contracts.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for People, Ideas & Objects products remains at the sole discretion of People, Ideas & Objects. 

Sunday, June 24, 2012

The Preliminary Specification Part CCCII (PLM Part XLI)


The act of paying royalties is an individual producer's responsibility. I believe this holds true in the majority of jurisdictions. Therefore the royalties are calculated on the producer's share and not on the Joint Operating Committee’s production. Nonetheless the production is derived from the Joint Operating Committee and that involves the Material Balance Report. Today’s post will deal with the production end of the royalty calculation and the tie in to the Accounting Voucher and Partnership Accounting modules Material Balance Report.

First let's revisit the manner in which production accounting is handled in the Preliminary Specification. It is through our favorite tools of specialization and the division of labor that we have looked to service providers to provide these production accounting services to the Joint Operating Committees. Being specialized in a geographical region the production accounting service provider is possibly located within the region to have a hands on interaction with the operation. Working for the many Joint Operating Committees that may be located in the region the service provider may as a result work indirectly on behalf of many producers production accounting.

Therefore looking at this situation from a reasonably large producers point of view. They may have upwards of a few hundred geographically based production accounting service providers and twenty to thirty royalty accounting service providers depending on the number of jurisdictions they operate in. The complexity in dealing with these many providers is not the issue as much as the size of the producer. It should be restated here that the basis of the billing of these services should be on some positive action based transaction. In the case of the production accounting service provider it would be on the completion of the filing of a report for the month. Then if there was no report for that month, then no charges would be incurred, etc. The same situation should hold for the royalty accounting service provider, however, you do not want it to depend on the calculation or payment of a royalty.

Within the Accounting Voucher and Partnership Accounting modules resides the Material Balance Report. It is a report to provide for the material balancing of any facility for oil and gas purposes. We have discussed in those modules how the volumetric information is reported and managed within the Preliminary Specification. To review the discussion to date please review the Material Balance Report label. Royalties is one of the areas that will be using the outputs of the information from the Material Balance Report. Production for each producer is allocated through the report as one of the outputs of the process. Therefore this is the input into the royalty calculations for the various jurisdictions that apply to that production. Taking note of any swaps or inventory this volume should be the final production volume for royalty purposes. Ha!, the endless process of amendments begins and will no doubt carry on for at least 30 - 60 days before everything settles down. The royalty calculation being a nature of revenue less costs times royalty rate equals royalty, these production volume changes do not require any human interaction until such time as the point the royalties are due.

In terms of paying royalties on the appropriate volume of production, the Material Balance Report will be a key aspect of this control. Tomorrow we will discuss the Pricing, Gas Cost Allowance and other costs associated with royalty calculations.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for People, Ideas & Objects products remains at the sole discretion of People, Ideas & Objects. 

Sunday, February 05, 2012

The Preliminary Specification Part CLXV (RM Part XIX

In discussing the role of the Production Accountant and the scope of the changes that are contemplated as a result of the Preliminary Specification. I am reminded of the George Bernard Shaw quotation.

The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.

We continue today to discuss the revised division of labor and specialization that would be done through the Resource Marketplace module of the Preliminary Specification. Moving the Production Accounting role to the Joint Operating Committee, having a service provider focus on a specific geographical region to report on for all the producers represented there, and reorganizing the work to increase the throughput of the accounting function should be the objective of the analysis and process management of the Resource Marketplace module. This analysis will also depend heavily on the “Transaction Design Interface” of the Accounting Voucher module.

First of all what are we trying to do here. The idea that I have in mind is that which is referred to as an “Encapsulated Network”. Within this network which might represent a large gas plant that aggregates gas from thousands of wells from many miles and from many different producers with many different kinds of gas. Will be one Production Accounting service provider residing in the region providing services to all of the producers and gas plant and gathering system owners. They will be the ones who will be preparing the Material Balance Reports for all of the Joint Operating Committees in the Accounting Voucher of the People, Ideas & Objects system. Each molecule of gas, as it moves through the system of production on to its sale contract will be reported through the various Material Balance Reports and the associated other production related reports. And as it incurs a point where it can be, as we discussed yesterday, standardized, counted, valued, compensated in terms of a production accounting transfer, then the system will account for that transfer on behalf of the Production Accounting service provider. At the end of the month the billing of the systems Production Accounting will total up the various transfers for the Encapsulated Network and bill the individual Joint Operating Committees for their share of the Production Accounting costs for the month. Professor Langlois notes two important things with respect to these Encapsulated Network and transactions.

Encapsulated Network in a larger system of production is to facilitate complex transfers without making all of them transactions. p 28

and

The most significant fact about this system, is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on... Frederick Hayek (1945)

Now that each process within the Production Accounting role has been defined in terms of its revenue generating capabilities then the service provider can organize the service on the basis of where and how they earn the most profits. Either by providing those services at the lowest costs or by providing those services which are the most technically difficult will bring the highest profits. The point being that the service provider is free to reorganize the service in any way that they can in order to provide a better service at lower cost. That imputes a greater division of labor and further standardization. A process that they will become more expert in as time passes and as such will be the source of their future profitability.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.

Saturday, February 04, 2012

The Preliminary Specification Part CLXIV (RM XVIII)


In today’s post we want to carry on with the discussion of how the industry would transition to a “decentralized production model” from its current “high throughput production” model through the Resource Marketplace module of the Preliminary Specification. We will be using the example of the Production Accountant and the changes that would need to be made in order to make the transition from one model to the other. Using the type of analysis that will be needed to be made during the development of the People, Ideas & Objects software. And is one of the reasons for the high costs of this software development.

The Production Accountant will be primarily working with the Material Balance Report and associated reports contained within the Accounting Voucher module. Recall that the Material Balance Report is a Joint Operating Committee report that is prepared on behalf of all the participants in the various JOC’s that are captured in the report. That would denote that the Production Accountant would also work for the JOC. It is therefore asked why would they work for a specific producer? Since the Material Balance Report seeks to balance a facility or area that the JOC has their facility or interest in, then the Production Accountant can bill their services to the JOC. Taking this to the next logical step why doesn’t the Production Accountant work on all of the facilities in the region for all of the JOC’s. That way there would be an efficiency and understanding of the overall region in terms of what is happening. The Production Accountant could be responsible for handling the Material Balance Report and associated reports for the entire region. Then if the region were to grow into a large gas facility, then the Production Accountants could organize themselves into a service provider that could service their clients on the basis of a renewed standardization and division of labor. This process would also provide the producers with the desired transition to the “decentralized production model” in that no production accounting service fees would be incurred if no production came from the facility that month.

The method to analyse and organize the transition to the Production Accountant as a service provider is based on the following.

...objects that are transacted must be standardized and counted to the mutual satisfaction of the parties involved. Also in a transaction, there must be valuation on both sides and a backward, compensatory transfer - consideration paid by the buyer to the seller. Each of these activities - standardizing, counting, valuing, compensating - adds a new set of task and transfers to the overall task and transfer network. Thus it is costly to convert even the simplest transfer into a transaction.

Although as we mentioned at the beginning, and noted in the quotation, this analysis is costly, however because it is being done once on behalf of the subscribing producers to People, Ideas & Objects. And assuming that we gain significant volumes of subscribing producers, the costs to each producer of this analysis is immaterial.

By standardizing, counting, valuing and compensating the tasks and transfers of the Production Accounting role and embedding the results within the Resource Marketplace and Accounting Voucher modules of the Preliminary Specification we can provide the value to the Joint Operating Committees in this fashion. If you believe that producers should have their own army of Production Accountants then we probably disagree on how the job should be done. It is in the Petroleum Lease Marketplace module that the selection of either the partnerships agreed to production allocation, or how do you say “factual” basis of production allocation should be made. We understand that there are these two methodologies. Usually the smaller plants follow the chemical facts. The larger plants usually follow the agreements. People, Ideas & Objects Preliminary Specification Accounting Voucher modules Material Balance Report can report in either fashion. Leaving the job of the Production Accountant to be politically inert as to how to allocate the production. Tomorrow we will discuss further the division of labor of the Production Accounting role.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification. 

Sunday, December 18, 2011

The Preliminary Specification Part CXIX (AV Part XI)


One area that has been difficult for the oil and gas producer to deal with is the volatile energy prices. With the costs of production and reserve replacement increasing and the reserve depletion on such a rapid pace, the decline in energy prices can have a material effect on the value captured from a field. With every producer producing at capacity, this risk of price declines comes into play more frequently then maybe needs to be realized. This blog post asks the question, what if, there was agreement in the Petroleum Lease Marketplace and implementation in the Accounting Vouchers Material Balance Report of the Preliminary Specification, to limit the production at certain thresholds based on predetermined commodity prices?

We can accurately tell what the costs of reserves and production costs are and there are many times when these exceed the prices that are received in the marketplace. The North American natural gas marketplace is a very good example of this situation. Selling at a loss may fuel the short term cash flow situation however, it as at the long term expense of reserve replacements. In a highly innovative oil and gas marketplace, the costs of innovation are being funded by the commodity prices. However, these costs may exceed the temporary fluctuations in the market prices for the commodities. Is it wise for the producer to continue to produce at capacity?

What if the agreement that governs the Joint Operating Committee has the partnership agreeing to a reduction of production by 15% when the price of the commodity drops below x value. And what if the agreement also reduces the production by 25% when the production prices drop below y value. These situations would help to mitigate the loss of earnings on the reserves and not materially affect the cash flow of the operation. The global implications of many producers implementing this type of price based production profile would put a floor on the commodity prices. A floor based on the marginal costs of reserve replacement.

The implementation of the production decreases would be triggered in the Petroleum Lease Marketplace and signaled to the Material Balance Report. One area that we have not yet discussed in detail is the field data capture that is implicit in the Material Balance Report. This signal from the Petroleum Lease Marketplace module would then choke back the production to the 85% threshold when the prices realized are below the level set in the trigger.

Selling at a loss is a fools game. The political issues surrounding the choking back of production are something that might make some wince. However, the reality is that the costs of production and reserve replacement are escalating and the volatility in the commodity prices only seems to becoming more prevalent. With shale gas costs in North America being as high as they are, who would contemplate producing at these prices? In many ways we are our own worst enemies.

This scenario of price driven production adjustments will be part of the Preliminary Specification. If producers decide to use it, it will be there choice. I think it is necessary with the situation in the energy market that the producer has some protection of their investment from the volatility and political influences of the commodity marketplace.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle and begin building the community for the development of the Preliminary Specification.