Documenting the Transformation Part II

As we pointed out yesterday, there is a distinct conflict within the performance of the producer firm. The earth science and engineering professions are beginning to perform in an innovative manner and the bureaucracy are doing there thing, holding things back. This has led to the decline in natural gas prices from the discoveries from shale gas reserves and the bureaucracies inability to deal with the additional volumes of gas. As we noted in the Abstract of the Preliminary Specification the inability to deal with the changes from the cost control era to an innovative era would result in.

Changing the innovative behavior of one producer carries a scope of change that is as broad and as diverse as is contemplated in the business world. Change at this scale in many instances can not be managed within the organization but needs to be managed through the forces of creative destruction in the greater economy.

Change or the market will force change upon you. I think we are beginning to see the market deal with those producers that are unwilling to change. This past year many CEO’s and CFO’s were shown the door and not in the traditional courteous manner. Suddenly the announcement that the CEO had retired the day before has very rarely been heard. And the type of company that this applied to was not just the small oil and gas producer but it extended up to some of the very large independents. Particularly here in Canada. The boards are feeling the pressure of the shareholders to act to resolve the losses and do something about the natural gas side of the business.

Once again it has to be stated that the bureaucracy are fine. Although there were some announced layoffs in Talisman there doesn’t seem to be any follow through on the actual numbers of people. The bureaucracy know that they can’t be effectively dealt with unless the systems that are used in the oil and gas industry are changed first. They know this because I told them so. This was one of the breakthroughs in the Preliminary Research Report that in order to change the organization, you must first change the systems the organization used. My thinking was they would agree and begin the development of these systems based on the Joint Operating Committee. What the bureaucracy has done instead is used this thinking to seal their prospects even further. By ensuring they never change their systems they will never be challenged in their domain. Such is the responsible way in which to look at the future of the oil and gas business.

The shareholders are realizing the losses as a result of the bureaucracies inability to keep up with the changing dynamics of the business. Who cares? And who is going to do anything about it? And more importantly, how are they going to do anything about it? The bureaucracy are that powerful and that corrupt. As the shareholders see the value in their companies erode, the bureaucracy will still get paid and their pensions still get vested so in terms of the economic forces of creative destruction, they don’t currently exist. And if they do, the bureaucracy will just move on to another industry. Maybe mining, or finance, or retirement.

By that time the value that is held by the shareholders will be all but extinguished and there will be little left but the bits to cobble together. Not much fun from a productive oil and gas producer point of view. Or there is an alternative. For the shareholders to direct the bureaucracy to fund the Preliminary Specification and build the systems that are defined there. That way we can circumvent the bureaucracy and then fire the lot. They are redundant, have been for a long time and are an encumbrance to the business as reflected in the performance of the industry.

Either way the bureaucracy will be gone. Moved on after the bits are left, or fired after the systems defined in the Preliminary Specification are built. Its good to have choices and I’m pleased to be the one offering the choice to the shareholders of how the bureaucracies end is realized. The bureaucracy and I have been having a lot of fun these past few years and I have some particularly intense feelings for them. I vote we build these systems.

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.

Documenting the Transformation

In the Abstract of the Preliminary Specification I noted that the oil and gas producer would have a difficult transformation.

Changing the innovative behavior of one producer carries a scope of change that is as broad and as diverse as is contemplated in the business world. Change at this scale in many instances can not be managed within the organization but needs to be managed through the forces of creative destruction in the greater economy. A time of dynamic change driven by the organizational changes focused around the innovative Joint Operating Committee. How can a firm that has been developed in an era of cost control transform themselves into an innovative, dynamic, earth science and engineering capability focused producer? In many cases the will to do so might exist, however, with the speed and unforgiving nature of the business cycle, not much time will be provided to those that attempt the transformation. We see in this world the capital markets reflecting many interesting phenomenon since 2008. To suggest any trend or definitive result from these would be premature. Its just a different world in terms of being an oil and gas CEO or CFO than it was before 2008.

In the next few days I want to explore the difficulties and implication of this transformation. And where we stand in terms of this transformations transition. Why this topic is of importance to People, Ideas & Objects is due to the fact that the Preliminary Specification is designed for the innovative oil and gas producer. It does not resonate with the bureaucracy or the producer focused on cost control.

Focusing on the North American marketplace. We see a number of producers who have been successful in exploiting the shale technologies. In the natural gas business a collapse of the commodity price has lead to a severe crisis in the business. The inability to deal with the over production, a left over from the bureaucracy, is damaging the entire oil and gas sector. What an innovative oil and gas industry should do is to shut-in any gas that is producing below its marginal costs. And that should include conventional and unconventional resources.

I think it is reasonable to assert that the transition to an innovative firm has begun in the earth science and engineering aspects of the industry. However, within the remainder of the firm, the administrative areas, the bureaucracy reigns supreme. The transition in the earth science and engineering areas are the easiest and most natural areas of the industry in terms of its transition to an innovative posture. The scientific basis of those professions are always moving and these are the basis of the innovations that make up the industry. As time has passed we are seeing innovations moving the science and vice versa at a far greater pace than what has been the traditional norm in the industry. This is to be expected as time passes. This pace of change will only increase.

What we have in the Preliminary Specification is a number of modules designed to support and align the earth science and engineering disciplines with the Joint Operating Committee. These modules are also designed to support the innovative producer. It should therefore be expected that the speed at which a producer could move would accelerate as a result of the use of the modules such as the Resource Marketplace, Research & Capabilities and Knowledge & Learning. But what they also do is capture the major processes of innovation within the producer firm and Joint Operating Committee to ensure that they can be managed in more efficient and effective ways.

What we are seeing in the marketplace today is the separation of the earth science and engineering capabilities of the industry away from the capabilities of the bureaucracy. The speed and capabilities of the geologists and engineers is greater than what the accountants, business managers and administrators can handle. They are tied to systems, like SAP, that don’t understand the business of the oil and gas business, and are incapable of dealing with the situation we have today. And as a result the organization is set in concrete, whereas the earth science and engineering professions continue to accelerate.

These slow plodding bureaucracies are unable to deal with the pace and dynamism of today’s oil and gas scientist. What is going to happen when they are faced with tomorrow’s challenges. I think we need to think about these types of issues and that is why I developed the Preliminary Specification. So that producers can change and the administrative and business aspects of the producers can make the transition to a fully innovative producer.

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.

The Spirit of Compromise

The spirit of compromise is alive and well in the Preliminary Specification. The next step in its development is to include the user community. This will involve the investors, the producers, the users and the service industry to have input in how and what they need from the software. Many compromises will be the result. Its not that People, Ideas & Objects are unwilling to compromise. Its that we haven’t arrived at the point in time that we are able to. And when we arrive there we are completely open to the user community for their needs. For it is at that point that People, Ideas & Objects become a software developer and have no opinion or input into the user community whatsoever. My understanding and input into the process is complete and is reflected in the Preliminary Specification as it stands today. I have nothing more to provide. It is the result of my 35 years of oil and gas experience and the nine years of research that went into our product.

However, there are certainly some areas that we will be unable to compromise on. The movement from the “high throughput production” model to the “decentralized production” model provides no opportunity for compromise. This requires the ability to have the oil and gas producer stripped down to the C class executives, the earth science and engineering resources, some legal and support staff. With the remainder of the traditional oil and gas producer personnel being organized in service providers who provide their services across the industry. There they can provide their services with the tools of specialization and division of labor against the scope and scale of the industry wide processes, with the efficiency and effectiveness never before seen. Charging the specific Joint Operating Committee for the costs of the services directly as opposed to the overhead accounts of the oil and gas producer.

But who could be against such a change, and the dramatic implications of moving to the decentralized production model. When all the overhead and production costs are charged directly to the Joint Operating Committee. And when the commodity prices put the property in a situation where they are not covering the marginal costs of the operation. Shutting in the property also stops the charges for these overhead and production charges. Leaving only the costs of capital uncovered. Saving the reserves for a time when they can be produced profitably. Then an innovative oil and gas producer can go about the task of figuring out how to reduce the marginal costs of production and return the property to production profitably.

This approach is one of the fundamentally different ways in which the Preliminary Specification works. There are many other different aspects to the specification and some may be more open to compromise then the decentralized production model. There is a different way of operating in the 21st century. The higher commodity prices are reallocating the financial resources towards innovation. Producing below the marginal costs will become unacceptable. And the producer firm needs to be light and nimble. Compromise on these points is limited, but there are many other aspects of the Preliminary Specification that investors, producers, users and the service industry can find compromise. That is if they participate.

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.

The Fight Continues

With everything that is contained within the Preliminary Specification. With its business model that provides the oil and gas producer with the most profitable means of oil and gas operations. And the industry having such difficulty, particularly in the natural gas pricing area. One would think that People, Ideas & Objects would have the management of the oil and gas producers throwing money at this project to get it built. That I can assure you is not the case and the reason for our appeal to the investors in the oil and gas industry. The bureaucracy will have nothing to do with People, Ideas & Objects. That has been the case since we published the Preliminary Research Report (2004) and is certainly the case today. One would assume that I would get the message and just disappear.

But is my persistence in vain or should there be a change in the manner that the oil and gas industry operates. We are in the middle of annual report season and have a running total on the industries profitability. Is this performance acceptable, or are there better ways in which to make the industry profitable. The Preliminary Specification has detailed a solution that provides the most profitable means of oil and gas operations. And the differences are dramatic. We have calculated the opportunity costs in the region of $65 billion per year. Again this is not money that would be provided to support the bureaucracy. Their salaries and pensions are paid well before then.

People, Ideas & Objects have tried to appeal to the investor group as a whole. With the opportunity costs that are available to the industry the investors see it as a given that the bureaucracy would proceed with something so obvious. After all who wouldn’t pursue something that promised to generate so much value. What they fail to appreciate is the entrenched ways of the bureaucracy and the fact that they are not motivated by what is right. The bureaucracy needs to be directed to fund People, Ideas & Objects Preliminary Specification and then be physically removed from the field of play. And that is the investor's responsibility.

There is a storied history between the bureaucracy and People, Ideas & Objects. The force and effort taken by them to ensure that the Preliminary Specification does not see the light of day has been impressive. Other than the fact that I am still here, they have tried every trick in the book. And sometimes they tried twice. It is not just that they do not want to be challenged in their franchise, they also do not want to work at change, but most importantly they do not want someone outside of the industry to own the copyright to such ideas.

Quantification of the opportunity costs helps me to take this game to another level and clarify the purpose of the Preliminary Specification. This also makes the activities of the bureaucracy look bad. If you look back in the archive of this blog it goes back to 2005. All in discussion of using the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. It is a long and comprehensive fight that the bureaucracy has put up. Not one dollar has been forwarded in support of this project. This fact points to two possibilities. Either I am crazy or I am right. With the opportunity costs and the industry profitability in question, the answer to this question is coming into focus. At least I think so.

The fight will continue, for that there is no doubt. And now that it is quantified I expect that the bureaucracy will up its game and put up an even stronger offence. Its time for the investors to look at this argument and make a decision as to whether it something that they support. And therefore should direct the management to fund People, Ideas & Objects, or should learn to accept the losses as part of their business.

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.

The Pace of Changes in the Business Model

Some have argued that the vision prescribed in the Preliminary Specification is too radical. If it is too radical it would have to fall on the fact that its focus is on the business aspects of the oil and gas business. And I feel that that is an appropriate area to be too radical on. I would also agree that its detrimental aspects are highly disruptive to the entrenched bureaucracy. Hence the argument. However, if we look at the pace of business today and contrast it to what we might expect tomorrow’s pace will be like. The speed of a producer, in how they accommodate business change, will most certainly be an order of magnitude higher than what it is today. The question therefore is how are today’s bureaucracies handling the business of the oil and gas business today? Will the accelerating pace of change motivate the bureaucracies to pursue their retirement on an earlier schedule then we expect?

If we accelerate the speed of the current business model we’ll only lose money faster. That is the probable outcome of an accelerated future and the current state of affairs. The oil and gas business is already moving far too fast for the bureaucracy. They are at least two years behind a response to the natural gas pricing issues. The point that I am trying to getting at is there is a large contrast between the current situation and the vision provided by the Preliminary Specification. With the pace of change that has happened in the marketplace, and the probable change of pace in the future marketplace. The radical nature of the Preliminary Specification will become more mainstream as time passes. And that time will arrive very quickly.

Not only is the current business model unable to provide a solution to the current day issues. There are no controls for the investors to deal with the issues through that business model. Investors are left to accept the losses that are incurred with only the ceremonial removal of the CEO when things get too obvious. However with the Preliminary Specification there is not only solutions to the current day problems, as we have discussed here many times. The fact that People, Ideas & Objects are providing a software development capability to the industry is a key capability in which to deal with future issues. Organizations are supported and defined by the software that they use. In order to change the makeup of the organization requires that we change the software first. With a software development capability as provided by People, Ideas & Objects the investors will be able to exercise the changes they desire within the industry. A means to affect the business model and assure that they remain profitable as the industry changes. This is an appropriate posture for a dynamic and innovative oil and gas industry in the 21st century.

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 Business of the Oil and Gas Business

If we look at the industry from the point of view of its needs in the next 30 years, and particularly from the perspective of its business needs. The Preliminary Specification provides the means in which to organize and focus on the business of the oil and gas business. Whether that is being more innovative in the areas of earth science or engineering, being more profitable, or structuring the industry to be more efficient and effective. The vision that is expressed in the Preliminary Specification provides these attributes for the industry to pursue over the next three decades.

The investment community has therefore a vested interest in pursuing the development of the Preliminary Specification initiative put forward by People, Ideas & Objects. Its focus on the business provides the owners of the industry with the proper perspective, scope and scale to deal with the issues and opportunities that today’s oil and gas industry presents. And with the software development capabilities that are provided by People, Ideas & Objects the industry will be able to continue to develop the software to meet the issues and opportunities that the future holds. If the opportunity costs for one year were $67.4 billion what will they be for 30 years if the investors don’t act to establish this perspective for their industry. Trillions of dollars in value could be realized by removing the bureaucracy from their comfortable and destructive positions.

Assertion of the business perspective throughout this period should be of primary concern to the oil and gas investor. We see today large portions of the oil and gas industry regulated and controlled by governments. In Canada the development of pipelines has been conceded by the producers to their governments. The firms bureaucrat’s only concern themselves with producing facilities, pipelines are for someone else to figure out. Canadian producers are now realizing the large differentials in pricing as a result of their foolish capitulation of their business perspective to the governments. And that may not be the end of the governments involvement. What if the governments get wise to the power of software to organize key elements of an industry. And decide to develop software for the oil and gas industry that controls the emissions of CO2 as the key criteria, as opposed to the business perspective proposed here by People, Ideas & Objects.

As I mentioned a few days ago there is a revolution to be undertaken in the industry. The investors need to remove the bureaucrats and replace them with the software and business model that is expressed in the Preliminary Specification. They need to do so for their own self interests. After all what good will a bureaucrat provide in 5 years, or 25 years. The time to act is now.

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

Time

The amount of time that is necessary to develop the Preliminary Specification is wholly dependent on the producers within the oil and gas industry. The need for the investors in the oil and gas industry to apply the pressure and compel the producers to develop this product in a timely manner is the priority that I am working on. When the opportunity costs are at $67 billion per year, and we have many years ahead of us, it is imperative that we begin as soon as possible. And right now we are not progressing in terms of the further development of the Preliminary Specification.

There are other developments that need to occur as well. The development of service providers and the organization of their service offering will need to be designed and developed during the next few years. The relationship with the service industry is impacted as well by the Preliminary Specification. In short there is a lot to do to address the issues in the industry and reorganize for the future of a dynamic and innovative oil and gas industry.

These are the time issues that we have to deal with. If it was just a time constraint based on software development deliverables the timelines would be estimable. Unfortunately these are not the critical points that will impede the development of the industry towards the changes to use of the Preliminary Specification. The changes that need to be undertaken by those within the industry will be the impediment to timely deliverables. However, what we are doing is moving closer, and by that I mean very close, to the cultural norm of the industry. People will be able to logically determine the location of an item when the Joint Operating Committee is the key organizational construct of the innovative and profitable oil and gas producer. It should therefore take less effort and time to make the changes noted above.

And these are big changes. No one has ever reorganized an industry, or two. The industry faces a critical decision. Either it must change or it will not prosper. And it has shown no capacity to change. No capacity to create a vision for the future. No capacity to even identify the issues that it is facing. It has stagnated for decades and this is proof that it will not change to address the demanding and difficult future. If we are calculating the opportunity costs of natural gas price declines in a decade then we’ll know that muddling along is the only strategy of the oil and gas bureaucracy.

I see things differently. To attempt this a decade ago would have been a failure. Both technically and from a business point of view. The technical risks have been mitigated since then. The business risks are still present, however, they are far more prevalent on the producer side if they don’t act. It is time that the industry considers the need to implement an Information Technology architecture and software development capability that will serve it for the next three decades. That is the Preliminary Specification and People, Ideas & Objects.

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

Natural Gas Issues and Vested Pensions

These last few posts have allowed us to soar with the eagles and present the scope of the issues the oil and gas industry faces today. With Friday’s discussion of $64.7 billion in opportunity costs, and yesterday’s topic of revolutionary change, who could be against this project? The bureaucracy is standing in the way and is doing all that it can to ensure that it does not proceed. But let’s take it from their point of view, $64.7 billion in opportunity costs and revolutionary opportunities is nothing that should concern them. Their pensions are vested. They earn a decent if not spectacular salary that provides them with the opportunity to do everything they can think they want to do. The work that they do piles up on the left hand side of the desk in the morning. And in the afternoon it is collected from the bin on the right hand side of the desk. All is well and the only concern they have is with talk of doing things in different ways.

If the bureaucracy was asked to live off their pension as an alternative to dealing with the issues that are prevalent in the oil and gas industry, they would. Its only that they aren’t being asked to deal with these issues, and the game is still pretty easy so they’ll hang around before they shift to their pensions. I think “milking it for all its worth” is the appropriate term. After the natural gas prices were down for two years you would think there was some serious discussion as to the issue and possibly some discussion as to a solution. However, not a word. In what way is this acceptable? Let me be clear this is not by accident that its happening. Everyone knows that there’s overproduction. This is deliberate willful neglect.

But on the other hand what should we expect. We know that bureaucracies are leaderless. And its leadership that we need. The solution provided by the Preliminary Specification is the only solution that is offered in the marketplace. It enables the innovative and profitable oil and gas producer to remove their marginal oil and gas production from the marketplace through a variety of interfaces within the software. The first is the Marginal Production Threshold Interface. It allows the members of the Joint Operating Committee, who hold the operational decision authority, to make the decision to suspend production when the costs exceed the prices being realized.

The other aspects of the Preliminary Specification that make it the ideal choice for the market, where shale reservoirs are as prolific as they are, is in its use of the Decentralized Production Model. By stripping the producer firm down to the C class executives, the earth science and engineering resources, some support and legal staff. And organizing the remaining resources in service providers who are focused on processes across the industry. We can take advantage of the specialization and division of labor to make those processes as efficient and effective as possible. Then as the production, revenue and royalty accounting and lease rental and other processes are incurred by those service providers the charges for those services are charged directly to the Joint Operating Committee that the asset belongs to. That way when there is a time when the marginal cost exceeds the price realized and the partnership decides to suspend production then the overhead charges from the service providers are not incurred.

You can hear the bureaucracy screaming with indignation. My attitude towards them is similar to their attitude towards the issues in the industry. I don’t care. Their opportunity to offer solutions and deal with the problems has expired and as they say “they blew it.” They don’t have much credibility if you ask me. So I’ll continue on and I’m sure they will keep collecting that salary for a few more months, knowing that their future is set with their vested pensions.

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 Revolutionary Business Model

When we think of the many ways in which Information Technology has revolutionized the oil and gas industry. Well actually I can’t think of any changes to the ways that the industry has operated in the time that I have worked in the industry. There may be more iPads around and there are certainly greater volumes of data. And lets not forget about the volumes of paper. But in terms of how Information Technology has revolutionized the oil and gas industry there really hasn’t been any significant impact in terms of the ways and means of the industries operation.

What we do is faster, more timely and more accurate as a result of IT. And we may be able to conduct more analysis and deeper thought as to the cause and effect of certain actions. But just as we did in the 1940’s and 1950’s, we get out of bed and report to work at 8:00 for the same companies as yesterday, and conduct very similar, albeit more specialized jobs. At no time could anyone point to me when IT had such an impact on the effect of the industry that everyone would agree that “in 1978 when the PX798 was introduced” was when we really changed as an industry. So the sum total of the impact of IT in oil and gas has been a slow and casual improvement in the quality of information, but that’s it. Nothing more.

I say that because I think that the impact of IT on the oil and gas industry is about to have a dramatic effect. The Preliminary Specifications business model will be revolutionary in terms of the ways and means of oil and gas operations. Providing the oil and gas producer with the most profitable means of oil and gas operations is the key for the oil and gas investor, however, everyone in the industry is impacted as significantly. Focusing on the Joint Operating Committee aligns all of the resources of the industry on its legal, financial, operational decision making, cultural, communication, innovation and strategic frameworks. Moving the compliance and governance frameworks of the hierarchy into alignment with the Joint Operating Committee makes the industry operate in a more natural manner than the current business model promoted by the bureaucracy. Muddling along doesn’t provide the value generation for anyone in the industry. Value that the industry should be providing for all of its stakeholders. Its time for a revolution.

There are significant changes that occur as a result of implementing the Preliminary Specification. Some will look at those changes and say that it is too radical to contemplate. But can we afford to continue on with the way that we are operating today? IT is providing an opportunity to implement a business model that moves closer to the cultural norm of the industry. If that is too radical then we are really stuck with the status quo. And if the status quo is having difficulty with the current industry situation, how will it deal with the future of the oil and gas industry? One in which the demands and expectations could be substantially higher.

I am biased of course, but I think that the Preliminary Specification will be looked upon as revolutionary in terms of its impact on the evolution of the oil and gas industry. Taking it from a sleepy go with the flow type of industry. To an industry that is dynamic and innovative, that generates value and efficiency to the world economy. That is what I think the opportunity is that is before us. And it is that change that we need to make, because if we don’t, there are bigger issues at stake.

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 Opportunity Costs of Natural Gas Prices

In this post we want to compare the two business models, the bureaucracies muddling along vs People, Ideas & Objects Preliminary Specification, in terms of the opportunity costs that are incurred by not having the Preliminary Specification operational. This calculation will be to determine what the opportunity costs would be for North American natural gas revenues assuming that producers were able to reduce production by ten percent and therefore raise the price of gas to $5.50 per MCF. Recall that the Preliminary Specification enables producers to shut-in production of marginal gas without incurring the penalty of production or overhead costs.

Currently natural gas production in North America is 78 Billion Cubic Feet (BCF) Per Day. That’s 78 x 365 days = 28.47 Trillion Cubic Feet (TCF) of gas for the year. We need to reduce this volume by ten percent to 25.88 TCF. With an estimated price of gas at $5.50, less an estimated average $3.00 realized per Thousand Cubic Feet (MCF) for 2012 leaves $2.50 of unrealized opportunity costs. Therefore the opportunity costs of 2012 natural gas prices is $2.50 x 25.88 TCF = $64.7 billion. A number larger than the costs to fund the Preliminary Specification.

The bureaucracy doesn’t need this money as they are adequately funded by the oil prices. However, the investors are entitled to this value nonetheless. It will require some work and effort, both to build and make the changes in the industry as a result of the Preliminary Specification. Work that the bureaucracy is not oriented towards. It’s not that the type of work is different to the work that the bureaucracy is familiar to, its that the bureaucracy is not that familiar to work itself. This situation has been with us now for a number of years. There is no proposed solution to its resolution. With the high costs of shale gas, and natural gas in general, this is not a situation that can continue. Yet the bureaucracy continues with no discussion of any possible resolution or even identification that this is an issue.

The fact of the matter is that the Preliminary Specification is new and not that well known in the marketplace, yet. The bureaucracy are not challenged by it as it is not seen by the marketplace as an alternative due to its relative newness. As we progress the bureaucracy will have a more difficult time in continuing on with their status quo do nothingness. I don’t expect that any solution to the over production will come about as a result of the bureaucracies handling of the situation in the next few years. There just not that smart and they are leaderless.

What the Preliminary Specification does is adopt the Decentralized Production Model. By doing so, all of the overhead costs are incurred by service providers who are organized based on a specialization and division of labor across the industry. That way they can organize their service offering based on the most efficient and effective process possible. These service providers then charge the Joint Operating Committee directly for their costs of production, revenue, royalty accounting or lease rental expenses, etc. Then when production is shut-in there is no service offering to be billed for the month and the overhead costs for the shut-in production doesn’t exist. Eliminating the High Throughput Production Model that the industry operates under today. Shut-in production therefore has no production costs or overhead costs incurred and therefore only the costs of capital are uncovered during periods when the production is shut-in. A producer can shut-in any production that does not meet the marginal costs and save those reserves for when the prices provide a return on investment. A much more rational way to approach the oil and gas industry during times when the shale formations are as prolific as they are. During times when production is shut-in producers can innovate and bring their costs down in their non-producing properties to bring those reserves back on production.

The irrational way in which the bureaucracy is producing oil and gas today is going to be looked upon as foolish in the near future. With so much potential reserves the bureaucracy seems to think that means it can be wasted. I think we should take the responsibility for producing those reserves out of the hands of the bureaucracy and put it in the hands of the investors and have it done profitably and responsibly through the Preliminary Specification.

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.