Our Value Proposition: Introduction

People, Ideas & Objects has prepared a solution that resolves many of the issues facing the industry today. What’s potentially more valuable is the ability to reorganize the industry in a way that will promote innovation throughout and accommodate the necessary changes over the next few decades. We have recently been highlighting the production discipline that would be gained in the industry and the need for that capability when trillions of dollars are being realized by other parties and not the producers. This is an issue we have consistently highlighted in our promotion of the Preliminary Specification. As this issue is prevalent today, we find other areas of the Preliminary Specification that have the potential to be collectively of equal and possibly greater value. We will be breaking down some of these larger attributes of our offering and discuss them individually over the next few weeks. This will include:

• Capital management.
• Specialization and the division of labor.
• Professor Paul Romer’s non-rival, or sharing of costs.
• Cultural shift to preservation, performance and profitability.
• Setting the Joint Operating Committee as the key organizational construct.
• Implementation of market systems. 
• Innovation and Intellectual Property.

Over these next few weeks each of these topics will be visited to reflect the value the industry and individual producers can gain from the implementation of the Preliminary Specification. 

Society today is incapable of accomplishing anything of material consequence without the ability to have software define and support the organization of the people involved. It may still be available otherwise, however it would not be on a competitive basis. I’m not of the opinion that Tesla is in the business of selling cars to make money from the sale of the car. It serves as a platform from which to build, with software and services that promise far greater prosperity than what mere car sales could provide. This is the value of software in business today. It introduces new business models that are unique to the methods of how money is made in an industry. Without software, a business model will fail. The oil & gas industry's current business model has failed catastrophically.

We have a group of officers and directors that are of the mindset that they can compete with a 1950s business model of the industry. This will involve the consolidation of producers into ever larger bureaucracies to insulate those officers and directors that are today in legal jeopardy due to the consequences of their inaction of managing the business appropriately. They feel the need to drill wells is the business. They assume the remainder of the business will be handled by the market. It has now been realized the industry is poorly managed and there are substantial values freely available to be poached from under the noses of the producers. Just from a word processor, a printer and a pen.

These are the attributes of value. Profitability is the only concern of the corporation, theoretically speaking. The past forty years have diminished that thought and other goals and objectives have come to share that space. Without profitability, particularly in a primary industry such as oil & gas, there is little of anything to go around at the end of the day. The performance of the producers' assets falls well below what is necessary to sustain the entire oil and gas economy's prosperity. The service industry has been particularly affected by the habitual cost cutting and roller coaster ride of the producers' unnecessary maintenance of boom / bust cycles. It is an unreliable employer in which no one can bank a mortgage or family upon. Revenues from the oil & gas assets, although reported as profits, are nothing but the gross margin and therefore do not maintain a competitive criteria. Spending money is profitable, guaranteed. This has eroded the expectation over the past four decades to the point where the industry's asset performance does not cover its long term cost structures.

At the same time the leadership have left what is unquestionably the most difficult and challenging future for the industry in a position where it hasn’t the wherewithal to conduct even a small portion of the task ahead. In order to begin to do so, the first and only task is they need to understand the ways and means of earning profits. There is no government, no investors that can or will undertake to fill the role that the industry needs to do for itself. The size of the task is too large. Profits are the only source of cash large enough to begin to deal with the challenge ahead. Larger bureaucracies, emerging from consolidated producers, will undoubtedly struggle to adapt and earn significant profits after finalizing their deals. The culture of the industry, as displayed over the past decades should provide the evidence of their continued failure. 

Drilling, issuing shares and consolidations have amounted to absolute destruction of all value throughout the oil & gas economy. Industry can not and will not be able to build from the shallow base that it has built for itself. The pursuit of the holy grail of “Petroleum Reserves” has proven to be a fallacy. If they’re unable to produce them profitably they’re worthless. And now the great share swap will be their solution to put the industry right?

Leadership, responsibility, accountability.

Officers and directors are the leadership, responsible, and have had the authorization to employ the resources of the firm to resolve these issues. They’ve failed unquestionably. Had decades of opportunities to resolve their difficulties and chose not to. Catastrophic damages have occurred and they will be held accountable for their (in)actions. They’ve now limited their choices to People, Ideas & Objects Preliminary Specification to be implemented on an urgent basis if they should so choose. If not People, Ideas & Objects have alternatives on how to fund our developments. 

Should they decide to forgo the deadlines of February 16 or April 12, 2024, our alternative will be the implementation of Profitable Production Rights. Leaving them to explain to their shareholders why they’re losing at least 5% more of their revenues due to the inability to make a decision. A continuation of the waste we have seen from these officers and directors. 

I Know, It's Ridiculous!

We have now entered the phase in which the bureaucracy have become untouchable. Annual report and annual general meeting season are over. Accountability is no more. As I mentioned the other day, thoughts move to the cabin and the pension benefits that will be earned over the next nine months of relative stress free living. Has anyone noticed that the level of discussion in the industry regarding the situation that it's in is non-existent! And isn't it odd that the “strength” in oil and gas prices seems to have abated. What to do? I guess one could join the crowded highways and enjoy the summer months with the bureaucrats. Or, depending on your point of view. That is if you agree with the points that I have made here before. And you are an investor in oil and gas, or are a potential user community participant there is much that we can do while the brain trust parties the summer away.

It is ridiculous to expect that our budget will be funded. Just as it is ridiculous to think that the bureaucrats will change and fix the problems in the industry. And just as ridiculous to think that the ridiculous tens of trillions of dollars of our value proposition will come about without the Preliminary Specification. And so here we sit and wait for that one unhappy individual that realizes that as ridiculous as all this is. Someone has to pull the trigger and fund these developments before it's too late. Too late being the bureaucracy find the pension benefits too healthy and the cabin too comfortable to bother with accounting for their actions three months of the year and retire. Then there will be no one and nothing in which to operate the industry. But that is a ridiculous assertion.

All of this doesn't seem too ridiculous to me. There are a large number of people who read these words each and every day. Some may be doing it for entertainment, others may agree with the ridiculous nature of the problem. In most cases they may be living with the difficulties in the oil and gas producers and know that there is a better way and see how the Preliminary Specification can help to solve those issues. They also know that their careers are not going anywhere with the status quo and are stuck in an unchanging environment that is unhealthy for all concerned. It is these people that the Preliminary Specification appeals to. And it is these people that I see as the potential market for the user community participant.

The banking crisis that we experienced in 2008 was evident to everyone, everywhere for many years. Watching house prices rise to levels that no sane person would want to participate in. Having mortgages for those houses being issued to people without full time work, or liar loans as they were called, and then having those mortgages “securitized” and sold to “willing” investors was a bad business model. Then they took it the level of creating synthetic derivatives of mortgages. And thats when people really began to make money. Anyway we all know the history and the fact that the banks are still not able to stand on their own without massive, unprecedented fed stimulus. Which has become about as normal as the summertime commute to the cabin.

The business model of the oil and gas producer is no longer functioning to provide any value to anyone. Except the bureaucrats. They need to keep full production to ensure that they can cover their salary, benefits, pensions and perks. Outside of that who cares what happens to the industry. The problem is that there is no fed to flood the market with deliverability if the oil and gas industry fails in the manner that the banks did in 2008. There is no “adult” supervision. There is only the energy that we depend on for everything that we are. But then again, in a very big way, that too is ridiculous.

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. 

Oil and Gas Pricing

With the Preliminary Specification, our user community and the service provider's operational in the oil and gas industry. Pricing of the commodities of oil and gas will be different than what is currently occurring in today’s marketplace. People, Ideas & Objects provide oil and gas producers with the most profitable means of oil and gas operations. On the issue of pricing we ensure this profitability through two key differences in the way we operate the industry. The first is we enable the producer to use the “price maker” strategy of our decentralized production model. Secondly we include all of the costs of production in the determination of the commodity prices. Capital, royalties, operating and overhead. Not just the royalties and operating costs to calculate the margins as is done today. It is these differences that enable us to make the claim that we provide over $45 trillion (thats correct with a T) in incremental value with our value proposition over the next 25 years. This post will detail how we earn that difference.

There are a number of fundamental changes that occur when the Preliminary Specification is implemented into the industry. The producer firm is organized to focus on their competitive advantages of their earth science and engineering capabilities, and their land and asset base. We do this by stripping out the administrative and accounting resources of the producer firm and establishing service providers who are focused on a single process and use the entire industry as their client base. The service providers are in turn able to focus on their competitive advantages of specialization, the division of labor, automation and making the computers work for us, as opposed to the other way around. This reorganization of the industry opens up many opportunities and enhancements to the way that the producer operates through the Preliminary Specification. The decentralized production model is one area where our value proposition is affected greatly.

With this industry configuration in place, it provides the ability for each property to determine the actual cost of operations. The costs will include the capital, royalty, operations and overhead that is incurred in that property. Overheads are incurred by the Joint Operating Committee, not the producer firm. The overhead is incurred by the service providers who will conduct their services when they receive an activity from the property that starts their work, and subsequently issues their billing. For example, when there is production, the revenue accounting service provider will conduct their process in accordance with the needs of the producer, and then issue their billing to the Joint Operating Committee for revenue accounting services for that property. If the property is shut-in, then none of the service providers are receiving any information from the “task and transfer” network and no work is conducted by any of the service providers. Creating a null operation; no operating costs, royalties or overhead are incurred during times when a property is shut-in. Only the cost of capital is uncovered. This increases the overall profit of the producer as it is assumed that the only reason the property was shut-in was that it was not producing a profit.

If each producer produced only profitable properties in this manner then they would only have properties that were profitable. ;) Their shut-in inventory would provide them with ample opportunities to innovate in an attempt to bring those properties back into production. On an industry wide basis the marginal cost of production would be determined. And the commodities prices would find their equilibrium. In the case of natural gas this would be at least double and maybe triple the price of natural gas in North America. On oil it would have a significant impact as well. This would not only make the producer profitable in the current environment, it would reduce their capital costs of the property by reducing the amount of losses that have to be recovered tomorrow on properties that are losing money today. We have valued this price making capability from our decentralized production model at $5.7 trillion over the next 25 years in our value proposition.

The other critical aspect of our Preliminary Specification that provides the dynamic, innovative and profitable oil and gas producer with our significant value proposition is the manner in which we calculate the costs of the property. It is our assertion that the producers are being misguided by the SEC and accounting firms in their use of full cost and successful efforts. They are essentially bloating the balance sheets of all producers by implementing these accounting policies. Even with these poor prices the producers are able to report profits on operations because they include none of the costs of capital in their calculations. In determining prices we will use a more appropriate means to recognize the cost of capital in the pricing mechanisms used by producers. Then they will be able to capture these values in their price making strategies and recover their costs of capital for their investors.

Just because the industry is reporting accounting profits and stock traders are claiming to have made money, does not mean that oil and gas is a healthy industry. There is a difference between the two of these domains. The business of making money in oil and gas has been fundamentally flawed since the accountants implemented their accounting voodoo many years ago. Never recognizing the full cost of capital in a business is foolish and the investors in the business itself have been made to pay as a result. Until we include a capital allocation, on a reasonable basis, in determining the commodities pricing, this business will not be able to provide an investor with a return on their investment. It is stated that the industry requires $40 trillion in investment in the next 20 years. Where is this money coming from when all you have are accounting profits. With producers sitting on big, fat, bloated balance sheets holding onto capital costs that never see the income statement. Sure I’ll volunteer my capital, let me put my money down, where do I sign up. With the Preliminary Specifications decentralized production model. The capital costs are considered and included in determining the commodity prices. Therefore the capital is being returned to the investors in the long term. The other $40 trillion in our value proposition. Today the bureaucrats say the investments are a sunk cost, and they don't consider sunk costs in their decisions. I suggest we don't consider bureaucrats in ours.

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. 

What Our Tactics Are Part II

There are two major trends that People, Ideas & Objects are capitalizing on in order to make the necessary changes within the oil and gas industry. The first has been the focus of most of the discussion that has taken place here on this blog. That being the unsustainable business model of the current bureaucrats in the industry. With them there is no future, no plans and no vision. Just more of the same losses and nothingness. The other trend that is as strong and is accelerating each and every day is the impact that Information Technology is having on our lives. People are experiencing change at a rapid pace in their personal lives. What could not be done a few years ago can now be done by the average four year old. It is truly remarkable. To disregard technology, which has been the attitude of many people, is now a dangerous position to put oneself in.

The effect of Information Technology in the business environment over the past ten years is of course a different story. The unchanging bureaucracy know that if they adopt the new technologies they lose control of their dominance and their desired form of organization. They need to stay in control and the way that they do that is to ensure that no technologies enter the organization that will ultimately render them even more obsolete.

So where do we stand in terms of the overall Information Technology horizon. I think that to state up to this point, the whole exercise has been a great exercise. The technologies have not been mainstream or powerful enough to make the promised changes. They have needed to mature and round themselves out in order to deliver on the promises that have been made. This history is one of the main reasons that people point to them as being irrelevant in the current marketplace. I think they are wrong. But its not too late. Now is the time in which to get on board and ride this train to its ultimate destination. Industries such as oil and gas will be fundamentally different as a result of the Information Technology revolution. And People, Ideas & Objects, I think, is the beginning of this trend.

When I began this journey in 1991 there was no way in which to implement the vision in any manner. The Internet was still a half decade away. Oracle’s technology was as dominant then but it was unable to carry the load. And computers, servers for that matter, were no better than what we have in our phones today. Probably most importantly was the problem of the user. How would they fit in? Its different today. I don't need anything more from Oracle other than for them to continue in their innovative ways. The Internet is more than capable. Computers and servers can do what we need in no time. And on that point there is an excellent article from the Wall Street Journal on where we are headed. And lastly the user is well educated and capable in the use and application of technology for their needs. I have what I need to implement the Preliminary Specification within the oil and gas industry. Something that until very recently I was unable to state.

So where do you fit in? Do you think the oil and gas industry needs to change? Is Information Technology an enabling capability to where you think it can go? Do you have ideas on how to improve the way in which we work? What will you do about it? I expect the bureaucrats to self select in the overall process. Either through the implementation of People, Ideas & Objects Preliminary Specification or not. They will retire from active employment in the oil and gas industry. Why do you think they have been spending so much of their money on their cabins these past few years? Either they will leave the industry to us, or they will leave it in shambles, they don't care. Their pensions are vested with the insurance industry. The point should be, what actions will you be taking as a result of this opportunity?

If we look at the Wall Street Journal article and understand the consequences of Information Technology in the workplace. Where can the individual go to implement these technologies and ideas in their business and realize the opportunities that are intimated in that article. In oil and gas people can move with People, Ideas & Objects. A vision of how the industry could operate captured in the Preliminary Specification. One that has as its primary focus the user and the importance of their role in the industry and the software that they develop and use. Its an exciting time to be alive. The next 25 years in oil and gas, and what that means in terms of the application of Information Technology, is as interesting as I think it gets.

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. 

What Our Tactics Are

Over the past few weeks we have been able to define a few issues within the oil and gas industry. We have also been able to show how People, Ideas & Objects Preliminary Specification would provide the capabilities for the dynamic, innovative and profitable oil and gas producers. All of these were focused around the capabilities of enabling “price maker” strategies for producers. And what was included in the costs of oil and gas production to ensure those prices were capable of ensuring profitable operations. What we have proven is that the average North American producer is losing money on operations in both oil and natural gas. And that the capital costs of the industry sit on the balance sheets of the producers where they provide no value other than to subsidize the consumers of these commodities.

These elements are some of the components of the Preliminary Specification and are part of the business model that is included within it. There are also many other components that add value to the producer firm. The quantification of all of these elements for the next 25 years stand at $45.7 trillion in incremental value over what the bureaucracy are offering today. Our value propositions base case of operations will be on display in the next two weeks as the earnings are announced by the various producers. It will be important to remember that the costs of capital should be included in their profit / loss calculations. When it costs 30% on average for a producer to maintain their production profile. With all of these costs and more being capitalized. And they only recognize 6-10% of their asset base as their annual depletion. They are inflating their asset base on an annual basis. This takes away from the investor, and the producer, the opportunity to ever earn a return on their invested capital.

Now we will see the extent of the issue with the earnings that will be announced in the next two weeks. Tomorrow we have two of interest in BP and Hess. Wednesday will have our friends at Penn West, with Exxon and Conoco. Thursday will see Chevrons. And then next week we will start with Occidental, Anadarko, Pioneer and EOG. Tuesday Husky, Chesapeake and Tourmaline. Wednesday is Apache, Canadian Natural Resources and Marathon. And Thursday we'll finish with Bonavista Energy.

People, Ideas & Objects have put our plan and vision forward. What is the bureaucracies? We need to look at the next 25 years and how it is that society will be provided with the energy that consumers need. Will this be at the expense of the investors? Those investors who have built this business to this point? Or will there be a change by the industry to the Preliminary Specification that provides for a sustainable business model. I don't think we could frame our solution any better than what we have by providing the Preliminary Specification. Which uses the industry standard Joint Operating Committee as the key organizational construct of the dynamic, innovative and profitable producer. The Joint Operating Committee is the legal, financial, operational decision making, cultural, communication and innovation framework of the industry. By identifying these frameworks in our software and aligning them with the compliance and governance frameworks of the hierarchy, we achieve a speed, accountability and innovativeness in our producer organizations. It is through these frameworks and their alignment that we are able to approach the issues of the industry, whether they are in the administrative, accounting or operational domain, and provide solutions for them.

What do the bureaucrats have. Fudged numbers of how they have been managing this industry. Continued overproduction in the natural gas industry as a result of shale reserves is the precursor to continued overproduction in the oil industry. Yet you hear nothing of this phenomenon and any approach to fix it! It has been five years in the natural gas business since prices have been destroyed. Not a word. No action. This being the first year in which the oil prices have declined. What we have is the same behavior. Not a word. No action. What is it that is expected from this unchanging and incapable form of organization? What we need to do is build the industry from the bottom up based on the Preliminary Specification. That way we will have the capabilities to deal with the industries issues and opportunities in the next 25 years.

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

Our Solution Part VII

Now that we have established our accounting methodology is different from the status quo. I want to reiterate the value proposition we have in providing the oil and gas producer with the most profitable means of oil and gas operations. Through the decentralized production model, and the accounting methods we have discussed here this past week. We are able to generate $5.7 trillion in additional profits over what the bureaucracy will provide in the next 25 years. By accounting for the capital costs of the industry in the price of the commodity we are returning the capital that was used by the industry. Providing a return on investment back to the investors. If the expectation is that the industry will be spending $40 trillion in the next 20 years. Then the investors, under our methodology, can look for a return of those funds as well. Providing, at a minimum, $45.7 trillion more than what the bureaucracy have traditionally provided. And as we all now know, bureaucracies can’t, won’t, will not, ever change. As we have seen in the past few days. The price of oil has shown some strength due to the possible decline in U.S. production. This is the elasticity of supply and demand at work in the pricing. This however won't stop the bureaucrats. Expect more of the same of what we have been seeing the past few years to happen in the future.

Like most people I’m happy with our value proposition. Reading this blog and the Preliminary Specification shows that it is a valid model that will work within the industry. The thing is there’s much, much more. The basis of the Preliminary Specifications research was on innovation. How can an industry that is based on the earth sciences and applied science of engineering become more innovative in its makeup? What we learned in the publication of our Preliminary Research Report was that innovation can be a defined and replicable process. Therefore, what would be required within the industry in order to enable those people with the innovations to come forward and enable them? The answers to this question have been captured and implemented in the Preliminary Specification.

Take as an example our Work Order system. There are two key aspects of the system and the first is a means in which to capture costs within the producers organization. Having the earth science and engineering resources accounting for their time and efforts on a daily basis. And in turn having these costs charged directly to the Joint Operating Committee to which they are working. These people are not overhead. The overhead of the producer has been shifted into the service providers. These are the people who are working in the projects that are Authorized for Expenditure. It will be to the various AFE’s that the majority of the earth scientists and engineers time is allocated to. In the Preliminary Specification there will no longer be a cost associated with being classified with operatorship as the earth science and engineering resources will be charged directly to the Joint Operating Committee.

The innovative aspect of the Work Order is its ability to work within the industry across producers and service industry participants. The ability to organize an ad-hoc group of companies to research or study some idea or innovation. These types of activities have occurred occasionally in all producers. They are however an accounting and bureaucratic disaster awaiting the individual with the innovative idea. These bureaucratic disasters are the constraint to these individuals and producers and the reason they are not undertaken more often. In an innovative, science based industry such as oil and gas. Where the demands of the consumer will become more difficult for the oil and gas industry to supply. The need for high volumes of these research and study groups to be undertaken will be necessary. Significantly higher volumes. Therefore we needed to create a system that would enable the innovator to organize the like minds from within the industry, raise the resources, both cash and other means, and deploy those in a manner that was less onerous than raising an AFE, or the current bureaucratic ad-hoc approach. One that employed a system where the commitments of each producer could be obtained and employed. The bills incurred and paid and the results of the research shared by those participants. And this will be done through a simple interface that eliminates the bureaucracy from this process. And doesn’t question the innovators integrity with questions from accounting each quarter.

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. 

Some Issues Past and Present

Over the past number of weeks I have suggested that the volume of discussion regarding the profitability situation in oil and gas is rather poor. That there is very little in terms of the issue and certainly no one is discussing any solutions to the problem other than idling rigs. Which of course did a world of good and has ceased the decline in natural gas prices over the past five years. One thing you should note about this lack of discussion. Is that the bureaucracy has not offered any criticism of People, Ideas & Objects Preliminary Specification. You would think that a system that was unable to solve a problem or be unable to function would be riddled with holes from the criticisms of those that were challenged by that system. It would seem to me that there is no discussion as there is no criticism of the People, Ideas & Objects Preliminary Specification that they can offer. I wonder why that is?

One thing that can be stated for certain is that I have been at this for a long time. It’ll be 24 years in May 2015. Each of these years has been a great adventure. The turning point for me to start this firm was in May of 1991 I was doing an audit at Imperial Oil and suddenly I saw an opportunity that was so obvious, so possible and so complete that I had to take the chance to make that opportunity real. It really has been an attempt by myself to communicate that vision of what I saw in May of 1991 and make it real.

Another turning point came when I had to find a topic for my thesis for my MBA. Thinking that it would have to have something to do with this business I thought hard about what it was that was so different in that vision of 1991 that is different from today’s industry. And it was the use of the Joint Operating Committee as the key organizational construct of the dynamic, innovative and profitable oil and gas producer. I therefore wrote my thesis on that basis and set up the hypothesis for a long term research project. If the Joint Operating Committee was the key organizational construct of the dynamic, innovative and profitable oil and gas producer. “What” would it look like, “how” would it function, and “how” and “what” would the industry operate? That was May 2004 and this research could be done in a couple of quick sprints and that would be that.

The final edited version of the Preliminary Specification was published on December 20, 2013. That was only eight years and seven months. So a quick sprint is the equivalent of four years and three and one half months. The key was we now had a product. One that solved the administrative, accounting and operational issues and opportunities of the industry now and for the future. One that provides the industry with a dynamic, innovative and profitable footing for its long term health, and for society and individuals too. What was personally so difficult was the work was hard. The hardest work I could have ever imagined. A million things didn't work. And what made it harder was the fact that I was run out of town when I published the May 2004 Preliminary Research Report which was my master’s thesis. This told the bureaucracy I was gunning for them and they fired the first of many shots from then on. So although I don't pretend to hide my dislike of the bureaucracy here, it is personal. This could have been a lot easier.

The bureaucrats might be concerned that I will quit my pursuit of this project. Why when we’re just a few quick sprints away from completion. Compared to the early days, life is just a breeze. There was so much missing in 1991, like the Internet and the Information Technologies that we are using now. Fully mature technologies that weren't even thought of back then. This vision from 1991 only became technically practical in the past five years or sooner! The issue for the bureaucrats is that the only impediment to our future is them. And we have overcome much larger difficulties in these past 24 years.

Nonetheless our friends the bureaucrats have destroyed the business so fundamentally it makes this work more valuable. Did I ever mention that we have a value proposition in the trillions of dollars. Run it yourself. Take the present value at current rates of an annuity of $350 billion and you come up with around $5.7 trillion that industry can earn by using the Preliminary Specification through to 2040. But don't tell the bureaucracy, that will only upset them.

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. 

Some Market Capitalization Losses, So Far

I crunched some numbers, as the squints would say. On how much money has been lost in the past half year from the decline in oil prices. Calculating just the decline in market capitalization of the top ten oil and gas producers from their market high in 2014 to the end of January 2015. The list includes Exxon, BP, Shell, Chevron, Total, Conoco, Apache, Anadarko, Suncor and Occidental. These 10 producers experienced $423 billion in market capitalization declines in that period. That is exactly 105.75 times People, Ideas & Objects budget requirements. And that is just for the top ten! Exxon's market capitalization losses were in the $80 billion ballpark. I'd hate to think what has to happen to make those guys get out of bed.

These losses in market capitalization are the initial quantification of the value proposition that People, Ideas & Objects have been promoting here for the past number of years. The value we provide, the increase in revenue due to the price maker strategy we enable for all producers. Is approximately equivalent to the profit increase in the producers. All of the costs, except for the incremental royalties, are already being incurred. The increases in revenues that would arise from the price maker strategy are therefore free money. We employ the economic principle of elasticity of supply and demand. It may only require a choking back of 10% of production capability to realize a 100% increase in the price of the commodity. The bureaucracy only knows one mode of operation. And that is on. There is no other means of operation. It is full throttle all day, all the time. They have no capability or comprehension of any other means of operations.

When I ran these calculations many of these firms appeared to have lost fully one third of their value. It appears to me that the other two thirds is in just as much jeopardy as the first third. As we should recall under any North American law, the creditors have first priority in any court ordered breakup. That seems a bit radical to put forward, however natural gas is well below $3.00. Oil is mid $40.00 but we are assured that shale producers can now make money at $30.00. Funny how their costs kept falling in line with the prices! And I am not questioning the integrity of their claims that they can produce shale at $30.00. I am only pointing out the strangeness, or maybe the luck of the bureaucracy to have found the silver bullets in terms of cost reductions in shale formations. The fact of the matter is I really have difficulty being lied to.

The fact of the matter is these firms are in financial jeopardy. They have lost a third of their value in the past six months. They have no plans, no strategy, no vision and no discussion regarding the situation that they are in. They are losing money at a phenomenal pace. They have been cut off from the investment community, the banks and even the junk bond community and the smartest thing the bureaucrats can think to do is to continually lie about the state of operations and how much money they can make off shale oil. And I'm the crazy one for suggesting an alternative means of oil and gas operations!

The industry could have saved the losses that all the producers have incurred in the last six months if they only had invested in People, Ideas & Objects. That is an investment return that is real. Not some mythic “we can make money at $30.00 bs.” What we do however is we eliminate the bureaucrats. There is nothing for them to do in the People, Ideas & Objects Preliminary Specification and we have made no special accommodations for them. We have deemed them redundant and eliminated them because they are useless and to be honest more dangerous to have around. Its best when they aren't around so we kept them out. And that is why they have not made the investment in People, Ideas & Objects. They are highly conflicted. It is therefore up to the investors to act in their own best interest by supporting People, Ideas & Objects by getting the funds for this project, our user community and service providers. And then we will offer the alternative to the bureaucracy, and eliminate them from the landscape and build a dynamic, innovative and profitable oil and gas industry from what will probably be the ruins left by these corrupt, self interested, fools.

It used to be that there was speculation of damage to the industry by a crazy blogger with some ideas about the Joint Operating Committee. Then the business model came into view on how the industry could be provided with most profitable means of oil and gas operations. Then we formulated a value proposition in the trillions of dollars. Now we have quantifiable evidence of the fact that the industry is being run into the ground. I don't think there is a future with these bureaucrats. I am certainly biased, but that doesn't make me wrong.

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. 

Not Your Normal Business Operation

The number of times that I've thought that this project should be funded and proceed is beyond my capacity to count. What we have in our value proposition is evidence that the bureaucracy will never act, ever. It is reasonable to assume at this stage that producers are paying capital derived in some form in order to produce oil and gas. That is to say the industry is generating negative cash flows. Their argument of course is that the commodity prices could be just as far on the beneficial side of industry. And of course their correct, when you sit and wait for events to happen to you there are good and bad things that can happen. That however doesn’t mitigate the losses that they are incurring currently. I think what they, the bureaucrats, have to look at is how seriously they have put their firms and the industry in North America in jeopardy of significant failure. And unnecessarily so.

What we propose in the Preliminary Specification, the user community and our service providers is a radically different way in which to operate the industry. One that has a value proposition that is approximately $350 billion greater than the bureaucrats for 2015. The cost of doing this is incidental in terms of the value that is generated. However the cost is still $4 billion and we are a start up. The chances of that happening on a sunny day are approximately one in one zillion years. The thing is its not very sunny in oil and gas and the way that the industry is headed seems to be one of those times when action needs to be taken.

Now I could say that I could do this for $5 and some of the bureaucrats would find that attractive because they would know that it would be impossible. And hence they get to stay in power a little longer and we would be destined to fail. Or I can choose to be open about what the costs are and expect that the situation be evaluated on the cold hard facts of the situation. I’m not the one who is bringing the problem to the investors, we are the ones that are bringing the solution.

We are most certainly thankful for the situation in the commodity marketplace today. It makes our job much easier. And this situation may come and go over the next few years as producers muddle along. The appearance of shale gas on the market is the guarantee that we will have pricing issues for the next 40 years if the bureaucrats are kept in place. The nature of the reserves bring a new dynamic and characteristic that the bureaucrats have proven themselves to be unable to deal with. Without the decentralized production model as provided by People, Ideas & Objects et al there is no alternative to the price maker strategy. And we are protected by copyright.

To make the decision to proceed with People, Ideas & Objects et al would be something unique, one of a kind decision and dependent on the situation. Its not subject to the normal business rules of what a business does and how it generates its business. We are adversaries of the people we want to replace, our current customers! However, if I were failing in such a wholesale manner as the bureaucracy is today, I would hope that there was someone holding me to account. And in that sense the market seems to be working. However, on a much larger scale than what we have seen in the last hundred years.

Information Technology is providing us with opportunities to conduct our business in different ways. The thing that is stopping us from making these changes is the way that we do things today. The problem is that its not only getting in the way its also dragging us down and we need to break away from it as quickly as we can. People, Ideas & Objects seems radical but its also what we need right now.

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. 

A Choice for the Oil and Gas Investor

Commodity prices are not behaving as the bureaucracy would want or expect them to. It would seem to me at this stage in the oil and gas industries development that we would have figured out that if we were going to produce oil and gas that it would at least be profitable. It seems rather wasteful to be taking the commodity that is irretrievably lost once its used and dispose of it with a handful of financial losses with it. The value that the oil and gas industry provides other industries and consumers doesn’t seem to earn the respect of the bureaucrats who just produce oil and gas no matter the consequences. I'm pretty sure we'll look back on this era as a time when we'll regret our waste and the havoc that has been caused in the financial markets. But please note the important criteria that none of the bureaucrats jobs have been lost in this effort, nor have any pension funds been un-vested with any of their pensions, if un-vested is a term. And if things do get bad for them they do have other choices in other industries.

Why should the industry be focused on profits? The simple answer is that we have a lot of work to do. We can't rely on the capital markets forever. This is a mature business, which would indicate that it provides for its investors and has some control over its day to day. Neither can be stated to be the case in oil and gas today. The investors are unhappy, and only the bureaucrats are happy that they have construction for the cabin’s expansion underway this winter. Oil and gas is sold at whatever price is available today. And don't ask them about the cost of what that property is. That only makes the bureaucrats blush. All this talk that it takes $50 oil for shale to make money is what the analysts are determining. Not the producers.

People, Ideas & Objects offers the oil and gas investors a fundamentally different business model that we call the decentralized production model. It is part of our Preliminary Specification. It provides the dynamic, innovative and profitable oil and gas producer with the capability to employ the “price maker” strategy for their oil and gas production. Simply if the property can be produced at a profit then it is placed on production. If not, it is shut-in and worked on by the geologists and engineers to determine how to make it produce profitably at the commodity prices in the marketplace. And when the Preliminary Specification determines the profits it will be the actual profits of the property. The revenue less royalties less operating costs less accounting and administration costs that are incurred by the property. The actual costs, not estimates or accruals, actual costs.

The advantages of doing this are simple however significant. Based on the decentralized production model we have calculated our value proposition in the trillions of dollars. When a property is shut-in it keeps the reserves that would otherwise incur a financial loss and be wasted. And saves them for a time when they can be produced profitably. The producer will increase their profits during the financial period as a result of shutting-in unprofitable production. Even though their production profile will be lower their profits will be higher as they will not be carrying any unprofitable properties. And the best part is that the commodity markets have less oil or gas in the marketplace placing upward pressure on the commodities prices. Moving the commodity markets to the marginal costs. The key to our value propositions creation of value. As evidence by today’s market prices, and actions by the bureaucracy which shows they can’t, won’t, don’t, will not do this, ever. Bureaucracies do not change, ever. People, Ideas & Objects is offering a choice as the only alternative to this insanity in the marketplace.

If this seems logical and simple to you go ask a bureaucrat why they don't implement it. Watch them explode. The net effect of implementing the Preliminary Specification is that the bureaucrats are put out to pasture permanently. They're not needed and will be rendered useless in no short order. Much like the record store manager was by Apple iTunes. This is why the bureaucrats are being careful what they say. Making sure they don't get caught in a trap they can’t get themselves out of. Like saying they can cut back on production. Which of course they can't because they're just not built that way.

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. 

Recalculating Our Value Proposition

Members of the user community need to update their value proposition in terms of the changes that are occurring in the oil side of the business. If oil is being affected by the Saudi’s in the manner that we spoke of in yesterday’s post. Then the value proposition that is provided by People, Ideas & Objects, the user community and service providers is enhanced substantially. We haven't discussed how the calculations of our value proposition is prepared for a while so I thought now might be a good time to prepare an update.

Simply we should calculate the incremental value of the People, Ideas & Objects software that the user community develops, and the service providers implements and operates for the oil and gas industry. That calculation begins by determining what incremental value is generated above the current base case. What we can deem the base case consists of is the current bureaucracies “price taker” strategy in both the oil and the gas sides of the business. We also need to calculate the incremental value that is earned by the producer through the specialization and division of labor that are attained through the continuous development of the administrative and accounting capabilities within the domain of the industry.

Lets deal with this last point first, specialization and the division of labor. These are two of the many tools that the user community can apply as the resource that determines “what” and “how” the People, Ideas & Objects software will do. Using automation, process management, computers, and other tools to continuously refine the specialization and division of labor of the administration and accounting processes and capabilities of the oil and gas industry. These will eliminate the bureaucracy and achieve higher levels of output in terms of the oil and gas production from the same resource base.

The second element of our value proposition is our decentralized production model which enables the oil and gas producer to become a “price maker.” This is in direct contrast to the “price taker” strategy that the bureaucracy has accepted throughout its administration of the industry. With shale based reserves moving the oil and gas industry into an era of abundance it is necessary to move the industry mindset from its current belief that demand is insatiable. To one where production is easily obtained and that can overwhelm demand. And therefore the need to allocate production on the only reasonable and fair methodology, that being profitability of the producing property, is necessary.

Therefore to price this aspect of our value proposition it is assumed that we have the capacity to double the current natural gas prices and bring the natural gas reserves into a profitable situation for the producers. If we doubled the value of all the natural gas reserves, including the shale based reserves, we would easily obtain our claim that our value proposition is in the trillions of dollars. Based on yesterday’s post we are now able to make the similar claim in the oil side of the business and could add incremental value from that business. As a result, our claim that we provide trillions of dollars in value to the dynamic, innovative and profitable oil and gas producer is what every member of the user community could and will be saying to differentiate their services from those otherwise unprofitable bureaucrats.

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. 

Removing the Business Risk

In yesterday’s post we contrasted the two business models that the oil and gas investor has to choose from. The current bureaucracies muddle along business model and the Preliminary Specification from People, Ideas & Objects. It was suggested that the investor could take the assets under management by the bureaucracy and in turn manage them through the People, Ideas & Objects software. There is one problem with that in that the oil and gas business is inherently risky and the investor would be taking on the full scope of the risk associated with the business. And that would not be a good idea. Instead what we need in addition to the software is for the investor to have the software, the organization and the people needed to run the industry for the investor to reduce the risks inherent in the business. What we should seek to do is to remove the bureaucracy in the transition to the new business model. And for clarity purposes this is what we are attempting.

Since the publication of the Preliminary Research Report in May 2004 and its proposal in August of 2003, the bureaucracy has declared war on People, Ideas & Objects. Using the Joint Operating Committee puts the writing on the wall for the archaic ways in which the industry is currently run. They have done everything in their power, their budgets primarily, to ensure that what has become the Preliminary Specification does not see the light of day. The bureaucracy chose to fight instead of participate. I don’t see them changing their tune now. As for the C class executives I think they are in a difficult position. The pressures of the job are far greater now as a result of the crisis in 2008 and I get the sense that they don’t have the bandwidth to take on anything with the scope and scale of the Preliminary Specification. There is also the feeling that even if they could support the Preliminary Specification the bureaucracy would not follow them. A mutiny if you will.

So why would the investor class be successful in making the transition to the Preliminary Specification, if even the C class executives are unable to do so. Simply it comes down to the health of the industry. The profitability is not a temporary situation. It is a permanent structural problem that requires a new business model to address the issues. Continued losses over the short to mid-term, particularly when the costs of, and reserves of shale are being brought onto the market are unacceptable. The industry needs to position itself for the insatiable energy era, to be innovative and dynamic. Not an industry losing money based on a business model of muddling along. The bureaucracy can’t support their justification for these losses. They have done nothing in the face of these challenges. And will do nothing as a result of these challenges. They are leaderless and faceless. They are also the first to leave when the trouble really begins. So we should act well before then and relieve them of their duties.

Back to the original point of the inherent risk of the business being taken on by the investor. By removing the bureaucracy we have a stripped down version of today’s oil and gas producer. The C class executives, the earth science and engineering resources of the firm, some legal and support staff would be directly employed. And the remainder of the needs of the producer, the accounting, production administration, land administration etc would be obtained through service providers organized across the industry. These service providers would be able to achieve levels of service and cost metrics that would make the current bureaucracies embarrassed at their inefficiencies and ineffectiveness. This organization would not only provide the business model for the innovative oil and gas producer, but would also provide the organization that would mitigate the inherent risks that the investors would seek to use an organization for. And after all if the business model doesn’t provide the means to mitigate the risks in the business, what good would it be?

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. 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.

Indirect Control of the Business Model

There is a storied history with respect to how the bureaucracy has handled their ERP systems. To say that it was poorly is giving them credit for having an overall strategy. And it would be generous to grade them as poorly based on their history. The only first tiered vendor with a presence in the marketplace is SAP. IBM and Oracle left decades ago. Second tiered vendors such as P2’s Qbyte provide large portions of the markets offerings. P2 in fact purchased the Qbyte application from IBM when they decided to leave the business.

There has been an attitude that ERP systems are a basic necessity in business and they are purchased for primarily the producers compliance and governance requirements. No one sees these purchases as a strategic competitive strategy, only something in which it is necessary to ensure that the ERP system checks off all the right boxes. Get the application installed at minimal costs and ensure we are compliant with all of the firms requirements. Check. This is the way business was done. Might I suggest there has been a change and the ERP system is front and center in terms of the way in which the firm operates. That it defines and supports the organization's business model.

The bureaucracies business model that was pursued in the past was one of a low cost producer which was consistent with how the ERP systems approach was taken. Now the business model of the producer firm must focus strictly on the competitive advantages of the firm and ensure that these are front and center in the minds of its people. To focus the resources of the firm requires the software that connects them to be built with that business model and competitive advantage in mind. And it is because the existing tier one and two software vendors offerings do not support a competitive business model for oil and gas, that they are inadequate for the innovative oil and gas producer.

I would argue that the bureaucracies have not been able to establish a business model in either their current ERP systems, or in their businesses. And certainly not one that is consistent with the needs of the innovative producer. And are therefore rudderless and adrift. Indeed as 2012 will most certainly prove to be one of the worst years in terms of profitability. And one in which there are no plans or actions to deal with the situation. Control of the industry must be taken by some group. I expect that the investors will eventually declare they have had enough of this mindless, leaderless group of zombies and take control. But how.

Simply by taking control of the business model through the development of the ERP systems necessary to support that business model. Such as People, Ideas & Objects Preliminary Specification. One in which we provide the oil and gas producer with the most profitable means of oil and gas operations. Through use of the industry standard Joint Operating Committee. Which is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. And when we move the compliance and governance framework from the hierarchy into alignment with the seven frameworks of the Joint Operating Committee we will achieve a speed, innovation and accountability in our operations that is necessary for the 21st century.

It is through the development of the Preliminary Specification with People, Ideas & Objects that the investor can achieve the profitability in their operations that they desire. It is also the means in which they can wrestle control of the oil and gas asset from the bureaucracy. To control the business model is through the development and use of the ERP software. And the bureaucracy have neither control of their business model or participation in an ERP system that is providing them the necessary means to control their business model. If the investors were to support People, Ideas & Objects, taking control of the innovative oil and gas producers business model from the hands of the bureaucracy would be like taking candy from a baby.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. 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.

A Summary of Our Competitive Advantage

For the last number of days we have been highlighting our competitive advantage of providing the oil and gas producer with the most profitable means of oil and gas operations. I thought today would be a good day to summarize the six points.

1) Our Value Proposition

We are the lowest cost ERP systems provider in the marketplace. That is by charging for the one time costs of software development, plus an element of profit as our fee structure. Therefore the industry is only paying for the one time cost of software development.

2) Specialization and the Division of Labor

If we review the Preliminary Specification there is a defined restructuring of the industry that takes place throughout the modules. The oil and gas producer is a stripped down version of itself that has the C class executives, earth science and engineering resources, a bit of legal and minor support staff. And that’s it. The rest of the producers needs are provided by service providers. And each of these service providers are focused on one process, or one element of a process, that is organized through the toolset of specialization and the division of labor across the industry. So for example there would be a lease rental payment processor that handles all of the industries lease rental payments. Where the cost of the lease rental payment, and the billing for the lease payment processor is billed directly to the appropriate Joint Operating Committee. Not to the individual producer.

What the advantages of moving to a system or methodology such as this is the lower cost and efficiency. The costs associated with the lease payment processor would be a small percentage of what is incurred by the industry today. By focusing on the most efficient way to process lease rental payments, and only lease rental payments, the processor would become so specialized as to reduce the time and effort in administering these tasks as to be a small component of the costs today. In Adam Smith’s pin factory, his research yielded a 240 fold increase in productivity from the changes that he made in the process of making pins. Having the lease rental payment process, and most particularly the administrative and overhead processes in the industry subject to this type of analysis, complete with a software development capability as proposed by People, Ideas & Objects, similar results in productivity would be attained.

3) Capability to Remove the Marginal Production

With the costs associated with exploration and production, its no surprise that producers are reporting losses on operations. What is surprising is that producers have done nothing to mitigate the overproduction that has caused the decline in natural gas prices. The reason for this chronic overproduction is the producers have to generate the revenues to cover the overheads they incur in the “high throughput production” model they employ. This model has the overhead costs of the producer firm being incurred whether there is production or not, and as a result, it makes their operation a high cost operation, even at full production. At lower production volumes it skews their earnings and their overhead costs appear out of place.

In the Preliminary Specification the “decentralized production” model is employed. As we mentioned in the second point above, the service provider charges for their services directly to the Joint Operating Committee the costs of their service. In most cases if there is no production, there is no charge for the overhead item and neither the producer or the Joint Operating Committee is incurring any of the overhead during times of shut-in production. Therefore the only costs that are not covered during times of shut-in production are the costs of capital. The producer can therefore shut-in production that is not meeting the marginal cost and save those reserves for a later time. And keep that production off the market until the prices rise to the point where they cover the marginal cost.

If producers across the industry follow this process then prices would not have the significant declines that we have experienced in the last eighteen months. If the downswing in natural gas prices were averted by way of a ten percent reduction in production volumes, the total revenues of the industry would have been substantially higher than what they have been. Making the production that would have continued exceed the marginal cost and be profitable, and for that production that was shut-in, no loss on operations would have been incurred because there would have been no overhead or production costs.

4) Innovation for Profits

As the fourth element of our competitive advantage of providing the innovative oil and gas producer with the most profitable means of oil and gas operations. We focus on innovation as the way in which to enhance the profitable nature of the producer. Innovation for profit, particularly from the science basis of the business, is the successful perspective for the 21st century oil and gas producer. It is within the DNA of the Preliminary Specification how the processes of innovation are identified and supported that enhance the ability of the innovative oil and gas producer. From Professor Giovanni Dosi.

In the most general terms, private profit-seeking agents will plausibly allocate resources to the exploration and development of new products and new techniques of production if they know, or believe in, the existence of some sort of yet unexploited scientific and technical opportunities; if they expect that there will be a market for their new products and processes; and finally, if they expect some economic benefit, net of the incurred costs, deriving from the innovations.

5) Lower Costs of Exploration & Development

The oil and gas industry needs a successful, dynamic and innovative service industry in order for it be successful, dynamic and innovative. Today we have producer firms accusing the service industry of being greedy and lazy due to the high costs that are being experienced. A huge gap between what is required and what exists. The Preliminary Specification works to mitigate this conflict by addressing the issue of how the producer firm deals with the generation and management of ideas in the service industry. Currently the producers ignore the rights of the ideas developers and as time has passed, the number of companies that have initiated new products, services and competition have dwindled. Leading to the situation today where the producers have a limited number of participants who have the pricing power on their side.

It is through the Preliminary Specification that the producers begin to respect, sponsor and support the ideas of the service industry. In this way the marketplace will respond with new and innovative products, services and competition. Through a variety of interfaces in the Resource Marketplace and Research & Capabilities modules the producers are able to participate and lead the creation of new and better products and services by clearly expressing their needs.

When the oil and gas industry has a successful, dynamic and innovative service industry supporting the oil and gas industry then the profitability of the oil and gas producer will be enhanced, further contrasting People, Ideas & Objects business model to the current bureaucracies.

6) Earth Science and Engineering Resources

It is through the use of innovation, specialization and the division of labor that we leverage the earth science and engineering resources of the producer firm. As with the fourth and fifth point above, investment in innovation are undertaken with the express intent to return a profit. Innovation on the sciences of oil and gas are the express purpose of the modules within the People, Ideas & Objects Preliminary Specification.

In terms of specialization and the division of labor, the producer firm must approach the issue of the limited resource base of earth science and engineering resources. People, Ideas & Objects have developed the pooling concept to eliminate the unused and unusable surplus capacity that is trapped within the silo’s of each bureaucracy. In addition we have used specialization to reorganize certain skills within these professions to service providers who can specialize on the specific skill. It is with the pooling and specialization that the demand for engineers and geologists will be more manageable in the insatiable energy era.

A quick note about software

All of these components of our competitive advantage require the software known as the Preliminary Specification to be built. As we learned in the Preliminary Research Report (2004), software defines and supports the organization. Without the software to run the industry as described above, it will not happen.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. 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.

The Earth Science and Engineering Resources

We now move on to the final component of our competitive advantage of providing the oil and gas producer with the most profitable means of oil and gas operations. Today’s focus is on the earth science and engineering resources of the producer firm and how these are more efficiently and effectively employed in comparison to what we call the standard corporate business model employed by the bureaucracy. There are many aspects of this component of our competitive advantage, however, they all generate their profitability for the producer firm through innovation, specialization and the division of labor.

In the area of innovation we look to the Research & Capabilities and Knowledge & Learning modules to highlight the processes that are managed within those modules. Focused on the documentation and deployment of capabilities within the Joint Operating Committees. It is there that the research and development of those earth science and engineering capabilities are funneled into the Joint Operating Committee for their ultimate deployment. From an innovation standpoint there is also the Work Order that enables the innovative producer to participate and sponsor working groups to research and study various earth science and engineering based projects. Designed to eliminate the bureaucracy and the inherent difficulty in managing the logistics in accounting for the ad hoc nature of these groups. The Work Order is an interface that enables the user to allocate their overhead and AFE budgets to these studies in a manner that is consistent with the nature of the opportunities.

These innovations are made with the understanding that they will develop revenues in the long run that will exceed the costs. And with the focus on capabilities, the ability to build on previous innovations and maintain a corporate focus is a key part of the process. In addition to innovation we learned a significant amount about capabilities, and that has been incorporated into the Preliminary Specification. My favorite has to be what we have done with the phrase from Harvard Professor Carliss Baldwin “Knowledge begets capabilities, and capabilities begets action.”

The specialization and division of labor of the producer firms earth science and engineering resources takes on the difficult issue of the constraint of these resources. Over the next couple of decades the demand for these resources will outstrip supply due to retirements and the inability to bring on any increase in the numbers of new recruits. There just isn’t that percentage of the population that gets geology or petroleum engineering. The need therefore to deal with the resource constraints is a problem that the industry must resolve and the Preliminary Specification has used specialization and the division of labor to do so.

One of the key difficulties is what I call the hoarding problem. Each producer is building the capabilities within their firm to deal with any contingency at any time. This hoarding of earth science and engineering resources, when taken across the industry, builds unused and unusable surplus capacity within each producer firm. With each producer firm attempting to provide all of the capabilities necessary for their producer firm, they are the master of none. The solution that is provided within the Preliminary Specification is what is called the pooling of technical resources. Each member of the Joint Operating Committee commits the technical resources, based on their capability, to the property. Any deficiency is made up from service providers or outside producers who provide the capabilities for a fee.

Which brings up the last aspect of the division of labor and that is as it applies to the bread and butter geology and engineering work. Much of this work can be turned over to service providers who are organized on the basis of providing a service to the industry. Organized around a process or skill that is common or generic and could be specialized to high level if the scope and scale could be brought into the picture. Having each producer conduct all the earth science and engineering necessary for all of their properties will seem like a business model from the dark ages in a few years. What is being proposed here in the Preliminary Specification is the only reasonable solution to the real issue of the limited resource base.

It is the earth science and engineering capabilities that form a critical part of the innovative oil and gas producers competitive advantage. The Preliminary Specification enables the firms resources to focus on the research and development of ideas, and the deployment of those ideas in the properties that are held by the firm. This is the appropriate posture for a profitable oil and gas firm, and the sixth component in how People, Ideas & Objects provides the oil and gas producer with the most profitable means of oil and gas operations.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. 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.

Lower Cost of Exploration and Development.

We now come to the fifth component of our competitive advantage of providing the oil and gas producer with the most profitable means of oil and gas operation. There are certainly other aspects of our competitive advantage, I am only highlighting the major ones. Today’s component is the lower costs associated with any field work done for exploration or development. This would also include the field operations on producing properties that were covered by a workover or an AFE.

There have been many complaints from the oil and gas producers about the high costs of field operations. I have written about the accusations made by producers toward the service industry and how the situation has developed and what needs to happen in order to correct it. Everyone would agree with the need for a more productive environment to be developed between the service industry and the producers. And I have put the onus on the producers to begin the process of building the capabilities for a more dynamic and innovative service industry. This can begin by developing the Preliminary Specification and implementing the changes within it to start the ball rolling.

There are a variety of interfaces within the Resource Marketplace and Research & Capabilities modules that provide windows to the service industry representatives. These collaborative interfaces are designed to deal with the one issue that is systemic throughout the industry. That issue is the manner in which the oil and gas producers deal with the ideas of others who have developed them. They ignore them. And they use them without respect to who the rightful owners are. This is counter to their own best interests. What has happened is that those that know the time and effort necessary to develop a new idea will not take the effort because the oil and gas industry will not respect their efforts, and therefore they don’t bother developing the idea. No new ideas are coming into the service industry at a critical time when the science is becoming paramount. And to add to the problem the oil and gas producers will not hire anyone for field operations that is not of size and scope to handle the job. So all of the money is going to the larger firms in the service industry, no new competition is being developed and no new ideas to support that new competition. Is it any wonder that the producers complain about the costs associated with field operations?

In order for People, Ideas & Objects to claim that we provide the most profitable means of oil and gas operations. We need to show that the costs associated with field operations would be lower in an environment where the Preliminary Specification would exist. By having the oil and gas producers respecting the ideas of others in the service industries will be all that is required to make the changes from the current status to a dynamic and innovative service industry. There are a variety of interfaces and modules that are dedicated to the initiating, sponsoring and supporting of ideas throughout the Preliminary Specification. As I indicated, these are what are necessary for both an innovative oil and gas and service industry. When drilling a well in a shale formation can cost ten to fifteen million dollars the opportunities for innovation are strong. Today no one is motivated to do so because the producers will not respect the owner of the idea. So everyone just picks up their paycheck and carries on. Its a simple matter of you reap what you sow. Recall in yesterday’s quotation of Professor Giovanni Dosi that investments in innovation is for the purpose of profits. That reasoning applies in this instance as well in that the innovation will reduce the time, effort and costs of field operations by finding a better way.

In the most general terms, private profit-seeking agents will plausibly allocate resources to the exploration and development of new products and new techniques of production if they know, or believe in, the existence of some sort of yet unexploited scientific and technical opportunities; if they expect that there will be a market for their new products and processes; and finally, if they expect some economic benefit, net of the incurred costs, deriving from the innovations.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. 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.

Innovation for Profit.

As the fourth element of our competitive advantage of providing the innovative oil and gas producer with the most profitable means of oil and gas operations. We focus on innovation as the way in which to enhance the profitable nature of the producer. Innovation for profit, particularly from the science basis of the business, is the successful perspective for the 21st century oil and gas producer. From Professor Giovanni Dosi.

In the most general terms, private profit-seeking agents will plausibly allocate resources to the exploration and development of new products and new techniques of production if they know, or believe in, the existence of some sort of yet unexploited scientific and technical opportunities; if they expect that there will be a market for their new products and processes; and finally, if they expect some economic benefit, net of the incurred costs, deriving from the innovations.

The Preliminary Specification has been designed to capture the “what” and “how” of innovation within the software that is used by the innovative producer. Throughout the modules the principles and understanding of innovation were researched and incorporated into the software. Our research included the works of many but most particularly Professor Giovanni Dosi and his paper “The Sources, Procedures, and Microeconomic Effects of Innovation” (1988). It was there that we learned many of the fundamental aspects of what is necessary for the oil and gas producer to focus on innovation. Recall that it was in our Preliminary Research Report (2004) that we learned that innovation can be reduced to a defined and replicable process.

To highlight a few of Professor Dosi’s work, in this next quotation he notes the opportunities, the processes of innovative search, and incentives to investments in innovation.

Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.

To capture all of the research within one blog post would not be possible. I am only highlighting the fact that the Preliminary Specification was designed and developed with these principles in mind. Reference to the pertinent research of Professor Dosi and other researchers is presented throughout the eleven modules of the Preliminary Specification.

The search, development and adoption of new processes and products in market economies are the outcome of the interaction between:

1) Capabilities and stimuli generated with each firm and within the industry of which they complete.

2) Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc.

3) Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.)

Innovating for profit as the fourth element of People, Ideas & Objects key competitive advantage of being the most profitable means of oil and gas operations. It is within the DNA of the software how the processes of innovation are identified and supported that enhance the ability of the innovative oil and gas producer. We are beginning to see the substantial nature of People, Ideas & Objects competitive offering. With our value proposition of being the lowest cost ERP system provider, using specialization and the division of labor to reorganize the administrative and overhead resources of the industry, to use the decentralized production model to remove the marginal production from the marketplace, and today’s innovation for profit. No wonder the bureaucracy is so upset with me.

The Preliminary Specification provides the oil and gas investor with the business model for profitable exploration and production. 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.