Our Priority, the User Communities Development

It is our current number one priority at People, Ideas & Objects to be developing the user community. The user community is the third pillar of our offering to the innovative and profitable oil and gas producer. As we develop the user communities capabilities to provide the oil and gas industry with an alternative means of organization. We can then challenge the bureaucracy and its hold in the administration of the industry. We do this on the basis that there are significant issues unaddressed. Primarily the financial performance of the industry. Capital is being destroyed at a remarkable rate and there is no plan, no hope and no prayers to do anything about it. The bureaucracy are satisfied that they are in control and expect to remain unchallenged. Their interpretation of “earnings” is an example of the disrespect and slack approach they take to the business of the oil and gas business.

I’m confused, when a CFO or a CEO touts their earnings numbers in an investor meeting, do those numbers include a deduction for the costs that the producer incurred for overhead or depletion? Someone should ask that question directly because I think that in most cases the investors assume that the overheads are deducted, and in nine cases out of ten, the bureaucracy has not included the deduction for overhead when they are promoting their next big program. What they are selling is just the revenues less royalties less the operating costs. And that’s it. The overhead and the costs of capital are things that will be eventually accounted for in the Annual General Meeting that will spill all the bad news at once. And say “things didn't turn out like we expected them to.”

And these are the earnings of the industry according to the bureaucrats in power. What came into one pocket, and left the other pocket, leaves what's left, which is my profit. Why would an industry operate on such a basic level? Think about it for a minute. It makes things so easy. There is no hard work in an environment where all you have to do is count the money that’s left at the end of the day. No planning, no budgeting, no thinking about the things that you should do right. Its just what you have in hand at the end of the day. For a bureaucrat it is a great business.

Some investors have become wise to the ways that the industry has operated. They see the bars fill up at 4:15 each day and have stopped wondering where these people are coming from. The party is almost over and there will be a reckoning for those that participated in this charade. Or alternatively, I'll get even fewer invitations for lunch. At some point the industry will need to account for the actions of the past decade and the value that has been destroyed.

What needs to happen is for a proper accounting of the properties performance begin to be provided. That is the revenues less royalties less operations less the overhead costs, a return on investment, and depletion of the capital be accounted for. And in that way if there is no profit recorded questions can be asked as to why. Because there is no reason that the producer should be producing losses at this time. Particularly with the industry wide capabilities in the Preliminary Specification to make the natural gas prices what are necessary for profitable operations. This shrugging of shoulders and shaking of heads that “its not my fault that prices are this low” isn’t going to fly anymore now that a solution has been proposed. A solution has been proposed and the bureaucracy has done nothing to work with it to make it viable in the industry! How does that work when you go to ask for more money?

It will be the user community that provides the alternative to this charade. And its development is our priority at this time. Real profits are what make the industry operate for the short and the long term. And real profits are the hard thing that an industry has to do. That is why the bureaucracy has avoided the topic. Its the hard work and they are not accountable to anyone, so they have let the profitability slip. Therefore its time to hand the reigns of the administrative power over to someone new and that is the user community who are defined in their own vision.

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. 

Internal Use of the Work Order

The last time we took a short break was to discuss the Work Order of the Partnership Accounting module of the Preliminary Specification. Then we discussed the ability of like minded producers to participate in a much greater number of industry based research and study groups without the associated bureaucracy that they cause in today’s environment. There is another aspect of the Work Order, and that is the topic of discussion for today’s break from the conversation.

When we last discussed the Work Order we noted the capability of the Work Order to provide cost distribution to any working group that was formed. That would include producers that you had worked with before, and of course the producers and vendors that you may have not worked with in the past. The Work Order is unlike the AFE and Lease ID in that it is not dependent on an agreement in which to pull its working interest distribution from. It can therefore have any combination of participant distribution that it needs to have in order to accommodate the working group, and for the purposes of its internal use, the topic of today’s blog post.

One thing we didn't mention in our April 1, 2014 blog post was that the Work Order has an approval process similar to that of an AFE. And this is required for the internal needs as well. What the Work Order is used for internally is very simple. To control costs. With the producer firm stripped down to the C class executives, the earth science and engineering resources, some land, legal and support staff. Most of these people should be chargeable to the joint account, or in other words a Joint Operating Committee. However, not all of their time will be chargeable to one Joint Operating Committee and some of their time will be spent on internal work that is for the producers purposes only. These may have special charge codes that charge them to the various capital accounts of the firm. The method that the employee uses to charge their time to the various properties, overhead items or research and working groups is through the Work Order.

The next aspect of this process is the critical one. All of the employees time needs to be charged to a Work Order at all times. At no time during the day should the employee not have coded into their phone, their tablet or computer a Work Order number that is associated with the work that is being done. If there is a departmental meeting then everyone at that meeting should be charging the departmental charge code while they are there. It is in this way that the costs of every operation and task is detailed down to the minute. If you receive a call that is for a different Work Order, then you will be able to assign the time of that call, and that calls costs to the Work Order that you key in after the call. It is this level of cost control and identification that is necessary for the innovative and profitable oil and gas producer.

When we look at the financial statements of the producer we will be able to see the Revenues less Royalties and Operating Costs for their share of the field costs. In addition, with the People, Ideas & Objects use of the Work Order the capital accounts will have detailed entries into each of the properties for the types of overhead costs that were incurred primarily by the earth science and engineers. Their work is primarily of a capital nature and will be capitalized on the balance sheet. The administrative and accounting charges will be coming through from the service providers who are not on the payroll of the producer but are billing for their services, when the property is producing, and the producers share of these costs are showing up on the Income Statement as General & Administrative costs. As a result the accounting during the month will be extremely precise, will be highly specialized with advanced divisions of labor for efficiency and effectiveness. This is how the oil and gas industry needs to be operated in the 21st century. The bureaucracy wants to keep selling shale gas that barely covers the costs of operating. Its time for the user community to be given the chance to operate the industry, and show the investor that they can provide for the most profitable means of oil and gas operations.

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. 

The Bureaucracies New Plan

So that is the bureaucrats idea to fight People, Ideas & Objects Preliminary Specification, our user community and the service providers claim that we provide the most profitable means of oil and gas operations. To calculate profitability on a property basis. As we detailed here in the past few days they will spend the approximate equivalent of what it costs to develop the Preliminary Specification in order to complete their task of enabling themselves of this simple exercise. They were never structured to calculate net profits at the property level. Theirs is a corporate model focused on the compliance and governance of the corporate entity. Anything to do with the property or a Joint Operating Committee, you might as well talk about Mars.

And costly it will be. The first phase will be to have the industry agree to some changes in the way that overhead is dealt with. That is the elimination of the overhead allowances. Expect this to be the first kitten that enters the room. Next they'll have to agree amongst themselves that a change in the manner that overhead is handled will be adopted by the industry. Yet more kittens. The implication of which is that the operators will be offloading their working interest shares of the overhead that they have been carrying. By then the kittens have filled the room and grown to become cats. I’ve tried to herd cats before, particularly in the oil and gas industry. I swore I would never do it again. I’m sure that there will be more people that will swear that they've giving up herding cats, after trying to herd those cats.

What will be the purpose of the exercise? To better calculate profitability at the property level. And why are we doing that? We haven't done that in 60 years, why start now? At which time those that are doing this to counter the Preliminary Specifications claim that we provide the most profitable means of oil and gas operations have no response. Its political. An exercise of enormous effort. And when I say enormous, the cost and effort to do this is approximately equal to a ⅕ of the accounting effort that is currently done today. And its all to counter People, Ideas & Objects claims. It shows you how much of a threat to the installed base of the bureaucracy the Preliminary Specification is. They are wiped out. These people are fighting for their lives it's no wonder that they are making such desperate moves.

I forgot one important element of this whole conversation. It was what we discovered in our Preliminary Research Report of May 2004. That the changes that you make within your organization have to be made first and foremost in the software that you use. Otherwise the changes won't become the established process. So there’s that to consider as well. They'll need to develop the software for all of those systems that they use. That’ll take a lot of money. The problem is there isn’t just one system that a company uses that impacts the overhead. Usually they have several, essentially one for each process. And every time they want a change, the software vendor has their hand out. And they’ll no doubt ask why do they want these changes when some producers don’t?

Herding cats is such fun. But then again, it could be just politics as I said. None of these tasks will really be initiated. Its just a game of “bullshit baffles brains.” They could talk about this process, yet not do anything about it, and no one, that is no investor, the individual whose brains need to be baffled, will be able to discern whether it is truly ongoing in the industry or not. And there will be no shut-in gas to fix the price structure. And we'll continue on for another year of low, and maybe even lower natural gas prices and profitability in the North American oil and gas industry. But that’s one more year where the bureaucracy was firmly in control. And in a way, by saying they'll be calculating profits on properties, it’s almost like they have a plan.

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. 

Accuracy, Precision a.k.a. How We Do It

Yesterday we critiqued the manner in which industry will have to go about calculating profits for each property that they have. This is in response to the Preliminary Specifications claim that we provide the most profitable means of oil and gas operations. You'll notice that in yesterday’s discussion there was no mention of how the producer would produce profitable operations, just calculate them. Thier idea here isn't to actually make the radical changes necessary to be profitable, just to confuse people long enough that the bureaucrats can stay at the helm for a little while longer. The term I believe is “bullshit baffles brains” and it is in use in this instance. Calculating profits on individual properties is the initiative. Not providing the industry with the most profitable means of oil and gas operations.

Nonetheless as we pointed out the bureaucracies exercise will be costly and the results will be questionable in their accuracy. How is it then, that the Preliminary Specification would handle the accounting for overhead at the property level. What a good question, and I'm glad you asked! First there would be none of the fudge regarding whose costs the General & Administrative expenses you were incurring and reporting. When a service provider was sending an invoice to the Joint Operating Committee it will be for the 100% cost of administering their process at that property. At that point the invoice will be paid and the actual costs will be distributed to the individual producers who are working interest owners in the property. Exactly the same treatment that is done today for capital and operating costs would be handled for overhead costs in the Preliminary Specification. Therefore no costs of other producers overhead would be borne by other producers. And there would be no need for the ambiguous overhead allowances that are used today.

Therefore if the property requires an inordinate amount of effort to administer. Or if you carry a large percentage of the working interest share. Your overhead costs are going to be higher. The fact of the matter is under the Preliminary Specifications decentralized production model you will have the precise amount of your share of overhead recorded in the accounts that the property took to administer. The service providers are focused on the processes that they administer. The process of how the costs of the service providers administration is billed will be fully automated. So for example in the instance of the Production Accounting service provider, when a gas chart is read, that is noted in the task and transfer network, when production is captured in the field data capture network it is noted in the task and transfer network. And each unique task in the task and transfer network carries its own unique billing amount. So at the end of the month, the tasks and transfers are aggregated by the service provider to determine what the individual bills will be for the various Joint Operating Committees that produced that month. Then the individual invoices are sent out to each of the Joint Operating Committees.

This precision is being used throughout the service provider network. Again if there is no production from the Joint Operating Committee then there are no activities in the service providers task and transfer networks to create any billings to incur overheads for the month. It is in this way that a producer can shut-in 20% of their production and immediately see a commensurate 20% reduction in their overhead by using the decentralized production model of the Preliminary Specification. And actually improve their overall profitability. In yesterday’s example of a current system, if a producer reduced their production by 20% they would still incur 100% of their overhead for the foreseeable future. Only layoffs would make any changes to those values. If gas prices took six months to a year to respond to the removal of production from the market, the producer would be faced with the same problems that they are faced with today. Angry shareholders and the motivation to produce more.

It comes down to the breakthrough that we made in August of 2003 of using the Joint Operating Committee as the key organization construct of the innovative and profitable oil and gas producer. To not recognize it in your systems is to avoid the legal, financial, operational decision making, cultural, communication, innovation, and strategic framework of the industry. And as a result of not using the Joint Operating Committee you are forced into compromises that in the end make no sense, and do not provide any value to the oil and gas producer. Compromises that were made to accommodate situations that don't exist today. The Internet enables us to overcome these compromises, now we just have to overcome the bureaucracy.

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. 

Industry Catches the Religion

Running around as I have on this blog promoting the fact that we provide the oil and gas producer with the most profitable means of oil and gas operations. Quantifying that profitability at $705 billion in additional revenues for the North American marketplace for the decade beginning in 2009. The time when shale gas volumes created the collapse in natural gas prices. Accusing the bureaucracy of not have a plan to deal with these issues of the industry. And now with the decline in natural gas prices since the cold winter of 2013 - 2014, the bureaucracy not having a hope or a prayer either. You would expect a response from the bureaucrats to the claims that we are making. And now we have.

Going back to the breakthrough that I had in August of 2003. That being the use of the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. The Joint Operating Committee is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. When we move the compliance and governance framework of the hierarchy into alignment with the seven frameworks of the Joint Operating Committee we achieve a speed, innovativeness, accountability and profitability in our organizations not otherwise attainable.

The power of this idea is understated and unrealized by the bureaucracy. They use the corporate model and focus on the compliance and governance of the corporate entities requirements to the SEC, tax, royalty and regulatory bodies. Partners and Joint Operating Committees are things that don't exist in their systems. Those are responsibilities of other people.

Now the bureaucrats say they want to determine the profitability of their properties in order to determine which ones are the most profitable. Sounds to me like they want to copy our ideas again. Well why don't we just look it up in the general ledger? There is no information on the properties net profitability there. So now we have the admission that the industry doesn’t know if a property is profitable or not. What a ridiculous thing to say! Do they not employ accountants? It is at this point that I advise the oil and gas producers to cease and desist their pursuit of this path to counter my claims. Calculating net profits at the property level will only reveal your current systems inefficiencies and defects, be at great cost and with little accuracy. It will only get worse for them, much worse.

Well they could certainly determine the operational profits of the property couldn’t they? Yes, and that detail would be down to the well level in some cases. Certainly down to the property level in most. But that doesn't give the producer anywhere close to a reasonable picture of what the property produced in terms of profit. There is the issue of overhead. And there is a lot of overhead. And lets look at what happens to most of the overhead. Large portions of the overhead are capitalized and pooled along with the capital assets, such as wells and facilities. These are held on the balance sheets as assets and will be expensed as depletion or during a write down of the assets. The rest of the overhead sits in the General & Administrative category and is expensed in the current period.

Within the General & Administrative category is the costs associated with running the company during the year. These costs were the costs that were incurred in operating the properties on behalf of the Joint Operating Committees. Production, Revenue and Royalty Accounting etc. Therefore these overhead costs are the 100% costs necessary to administer the properties. They are offset by the token overhead allowances that the operator is able to charge the Joint Operating Committee in lieu of actual overhead costs. However the overhead allowances are rarely able to make a dent in the actual costs of the overhead incurred. The issue therefore is the ability to allocate the actual overhead costs to the properties in order to determine the profitability of the property. This is not done and is unknown. Some properties take more effort to administer than others. And others have smaller working interest shares imputing that you are carrying a larger portion of the partners share of these costs. That’s correct you are carrying the share of your partners General & Administrative costs. Overhead costs are grouped under General & Administrative and that’s it. No allocations or further accounting treatment at all.

The bureaucrats will find a way by hiring an army of accounting analysts complete with three levels of management to allocate the overhead. That will solve the problem. And then they will know, approximately, what the property produced in terms of profits. If this feels a bit wobbly in terms of the precise nature of the accounting that you were expecting from your producer firm. I would say talk to your auditor. On second thought they don’t understand the need to stay out of the fudge.

So yes the Emperor has no clothes. And the bureaucracy will spend, in aggregate, approximately what is necessary to build the Preliminary Specification to fix this. So from their point of view I may have just done them a big favor, especially with those three layers of management!

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.