Value Provided by the Decentralized Production Model
It is our competitive advantage that we provide the oil and gas producer with the most profitable means of oil and gas operations. An element of that is the decentralized production model. What this model does is take the prototypical producer organization and reorganize its resources in a manner that focuses the producer on its key competitive advantages of its earth science and engineering capabilities, and its land and asset base. It does this by stripping the producer down to the C Class executives, the earth science and engineering resources, the land, legal and some support staff. The remainder of the people, the administration and accounting resources are permanently reallocated into service providers who are focused on a process or subprocess and use the entire industry as their client base.
What the service providers will be doing is conducting the management of their process on behalf of the entire oil and gas industry. It is in this way they will have the volume of activity to apply the toolset of specialization and the division of labor to the process that they manage. Then they can achieve new levels of efficiency and effectiveness that are not available to the stand alone oil and gas producer. Not even ExxonMobil. It is the application of these tools along with process automation and computers that will provide the service providers with their competitive advantages.
Management of the process will include automation of the task and transfer network which is part of the Preliminary Specification. In the instance of a Production Accounting service provider the field data capture, reading of a chart, completion of regulatory reports all denote the completion of a task in the task and transfer network. It is at the end of the month that the service provider prepares their billings on the basis of the tasks and transfers that occurred during the month, and charges the pertinent Joint Operating Committee for the services that were incurred. And it is in this process of preparing the billing that if any property was shut-in for the month there would be no billing generated from the task and transfer network.
Billing directly to the Joint Operating Committee for the costs of administration and accounting, the general and administration costs of the producer, provides us with a new flexibility from the decentralized production model. If the property is shut-in none of the associated overhead is incurred by the producers of that Joint Operating Committee. The overhead doesn’t disappear. It is still the responsibility of the service providers. And they will need to manage their organizations with the understanding that at any time their revenues from operations may be reduced by shut-in oil and gas operations by as much 15%. It is they who can control these costs providing the oil and gas producer with the ability to control their G&A costs with the volume of their production.
The net result is that all producers can shut-in any production that is not profitable. Reducing their production profile however will also reduce their overhead burden as well as their operating costs. When they shut-in their production that isn't profitable they will become more profitable at the lower production volume. The reserves of the properties that have been shut-in will be saved for a time when they can be produced profitably, and the commodity marketplace will have the high cost production removed from the market, putting a floor on the commodity marketplace prices.
This is the manner in how the decentralized production model provides the industry with the ability to be a price maker. It is radical surgery. It is also a plan that has significant opportunity costs. The current bureaucracy doesn't have a plan, hope or prayer. What they will do to fill this gaping void is the interesting question. As hoping for another cold winter isn't going to fool anyone this time. I think that we are going to have an interesting year in terms of dealing with our good friends 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.