A Quick Review of Our Revenue Model Part III

We now apply and extend Professor Jurgen Habermas’ 1960’s theory of different knowledge interests. Building on our discussion of People, Ideas & Objects value proposition, and targeting the oil and gas producers / investors as the sole source of revenue, this post will delve into the difficult question regarding what we need these systems for.

Are we developing systems that manage the commercial operations of an oil and gas producer / investor? Of course we are, but that does not address the societal and individual needs of these systems. If we continue to look at just the needs of the producers and investors, then we are leaving many needs unaddressed. Society and individuals are critical elements of a successful oil and gas industry. For example society benefits by having producers and the service industries efficiently interact and develop profitable operations, and individuals create innovative solutions to the demand they see for their services. Overall organizations, individuals and society benefit by an increased and expanding division of labor and specialization. In today’s globalized, high technology workplace, an expanded division of labor and specialization can be more efficiently created through a software development capability like that described by People, Ideas & Objects in its Preliminary Specification.

When we concern ourselves with the economic output of the oil and gas industry. To expand that output requires that we organize based on greater levels of specialization and a further division of labor. The responsibility for increasing output does not fall to society, individuals or organizations in isolation but to all three. Therefore it is reasonable to state that what we need these systems to address society, individuals and organizations needs. I do not foresee the further development of the division of labor occurring without the active involvement of systems development. In a somewhat deliberate manner where all groups are represented.

If we look critically at the division of labor, and eliminate some of the constraints to expanding it further. Constraints like the limitations of working within one firm or one Joint Operating Committee (JOC). If an individual has the capacity to apply their skills to a task for a geographical region that includes 100 producers and 200 JOC’s, the efficiencies could be substantial. The ability to manage a task in this fashion doesn’t exist within our current organizational context.

Following on the logic of the previous section, where the producer / investor firms are the sole source of the revenue for People, Ideas & Objects and associated communities. Sharing the input of these systems development across society, individuals and the organizations might appear to be inconsistent with the reality that 100% of the funds are coming from the producers.

That’s why the People, Ideas & Objects revenue model shares the one time development costs across the subscribing producers / investors. Just because the producer firms receive 100% of the proceeds of oil and gas sales, doesn't mean that they earn 100% of the revenues of the oil and gas sales. Individuals and society have a role and responsibility in these systems and therefore, these need to be considered irrespective of the desires of the producer firms. We’re not going to develop systems that address the needs of society, individuals and organizations when producers have a disproportionate influence due to their control of the revenue stream.

To sustain this software development requires that we cease being subjected to the individual decisions of one or more producers. A company that chooses not to proceed with the development or implementation of these technologies can not hold up the greater benefit of all concerned. Essentially I am stating that the decision to support these communities needs to be made where appropriate representation considers the needs of all concerned. Looking at the cost benefit analysis of supporting this software from the point of view of only one producer, misses the benefits to society and individuals. For example the 2012 opportunity costs of $94 billion requires production discipline be imposed throughout the industry.

Habermas theories deal with the issues of power, influence and most importantly emancipation. But when it comes to using science or computers to change the relations of power in our society, when emancipation is put forth as a knowledge or development interest, then the question of values becomes more controversial. Who is to be emancipated, and from whom? Who is to lose power, and who is to gain? And how can it be the business of scientists or computer professionals to take part in a political struggle for power?

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.

A Quick Review of Our Revenue Model Part II

In the first part of our review of our Revenue Model we established that no one was going to build an ERP system on behalf of the industry. That the only resources that would be available to fund the software developments would be those that are derived from the oil and gas industry itself. Whether that came as a result of the direction of the investors in oil and gas or the C class executives is not determined at this time. The fact of the matter is that the market is too small for anyone to build systems for the industry based on speculation that a market will be there. In today’s post we need to discuss what the motivation will be for these producers to fund these developments. What will compel them to make the efforts to build the systems defined in the Preliminary Specification?

People, Ideas & Objects value proposition is that we provide oil and gas producers with the most profitable means of oil and gas operations. We do this through providing, supporting and defining within the ERP software a business model that enables the producer to be more profitable than any other business model that is available. In comparison to the current corporate business model that is used by the oil and gas producers. We have calculated the opportunity costs for the 2012 calendar year at $94 billion for the North American marketplace. These differences are documented in the Preamble to the Preliminary Specification.

These opportunity costs are the motivation that the oil and gas producers need to fund the development of the Preliminary Specification. The opportunity costs are not available to them in their current corporate business model. To obtain them they must build and operate under the Preliminary Specification. The majority of the gains are as a result of the ability to raise the market prices for natural gas. This is done by the ability to remove the marginal production from the marketplace without the associated losses on operations. A feature of the Preliminary Specification and something that the bureaucracy have proven an inability to deal with.

This value proposition is consistent with the ability of Information Technologies to disintermediate industries. People, Ideas & Objects business model provides a radical ways and means in which to operate the oil and gas industry. Focused on the industry standard Joint Operating Committee it provides the ability to address the issues and opportunities that oil and gas producers face in the 21st century. The Preliminary Specification has been designed to provide the producers with a dynamic, innovative and accountable organization that is also quick. It also removes the bureaucracy from their comfortable position within the industry.

It won’t be by chance that our organizations are able to achieve the attributes described in the Preliminary Specification. Organizations are defined and supported by the software that they use. To achieve a dynamic, innovative and accountable organization will need to be defined in the software first. That is one of the facts that we need to learn. People, Ideas & Objects also provides a software development capability that will enable our subscribing producer firms to take the Preliminary Specification and build on those attributes within their organizations.

A Quick Review of Our Revenue Model Part I

One of the aspects of People, Ideas & Objects that we have not recently discussed on this blog is our Revenue Model. We always refer to it and people have referenced it and reviewed it to see the policies that we have implemented regarding how we fund our developments. I think we should take a couple of days to review the Revenue Model and gain an understanding of the “what” and “how” of these policies.

In terms of a market size the oil and gas producers do not provide a large marketplace for the ERP systems provider. The numbers of oil and gas producers just don’t make up a market of any size in terms of providing the software developer with any pricing or investment leverage. This is contrary to what the producers believe as they think that they are paying high prices for something that is not critical for their operations, but necessary for their corporate needs. And because it has more to do with the firms corporate needs it has to come out of their administrative budgets. Where the prices asked by the software developers appear to be beyond what is reasonable for the producers needs.

This disconnect between the producers and software developers has been going on for as long as there has been software. Many attempts have been made to overcome the difficulties and as we know there are few successes. There are however a significant number of investors who believed that the marketplace for oil and gas ERP systems would be one which provided a good return. Note that I mentioned believed. The belief is legend and the stories are well within the current investment communities memory of why not to invest in the oil and gas ERP marketspace.

What have we seen lately. The fact of the matter is there has been little in terms of innovation in the past twenty or thirty years and there is nothing in terms of ERP software that is coming to market. There is also no support for anything in the marketplace from the producers themselves. The violent response that People, Ideas & Objects has received by the oil and gas bureaucracy reflects that ERP systems are poorly understood. It also shows that this area is not perceived as providing any value to the oil and gas industry.

To the larger point the software investment community is not going to participate in any funding that is not supported by the industry itself. If the industry marketplace is so small when the product is built that they can then treat the software vendor to the fact that they only have the oil and gas industry to sell too. This also has the software investment community running in the other direction. Therefore the funding for any developments has to come as a result of the oil and gas industries own financial resources. There are no free lunches, anymore.

And we have seen with the treatment of People, Ideas & Objects that the bureaucracy is well entrenched. And they are happy with the status quo. And the only threat to their franchise is to have someone establish an alternative to their capabilities with the formation of some software that competes with their ways and means. And they have effectively dealt with that.

Not everyone is so enamoured with the ways and means of the bureaucracy. And that is why I keep moving on with this project. The oil and gas investor community has a vested interest in making sure that the funding of this project goes forward and a competitive system is built. They are the ones that are the most affected by this, and they are the ones that will benefit the most. And that is why we need to have the resources of the industry provided to fund these developments. Its in their best interest and no one elses.

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.

An Overal Industry Capability

Yesterday we discussed how the service providers would use specialization and the division of labor to focus on the administrative and accounting processes of the producer firms and Joint Operating Committees. Today I want to discuss how that specialization will be used to provide a capability that is much higher than what is attainable under the current corporate business model.

We have seen regulations and the complexity of business processes increase in the past decade. Business, for a variety of reasons, has become more difficult and this trend is certainly not new or something that will abate. The difficulties will most certainly continue to grow and our capacity to deal with them must also change. Education is part of the ability to deal with this complexity. Another aspect of how we deal with it is the methods that we use to organize ourselves. Capturing everything within one siloed corporation, no matter its size, is maybe something that we look to as part of the problem.

Capturing the capability within the overall industry and providing it through service providers is how the Preliminary Specification deals with the ever increasing complexity. This has the added benefit of increasing the overall capability of the resources that are available within the industry. First by eliminating the redundancies that are built up within each producer firm. And secondly, through the specialization that is available to each of the service providers in terms of the specific process they manage.

This is how the industry will acquire the capabilities necessary to meet the needs of these regulations and complex business processes. The ability to specialize to the level that these processes dictate, within the current corporate environment, is too much of a demand on the resources of the producer firm. Extending the resources of each of the producers in the oil and gas industry to meet the ever increasing demands of regulation and complex processes will most certainly be too costly to the producer. This, I think, is also part of the concern that is being expressed by the investors.

Whereas the abilities and capabilities to deal with these difficulties when the overall industry acquires these capabilities is within the sphere of what is possible. Whether you are a startup oil and gas producer or Exxonmobil you each share in the concern of the costs associated with administering in the oil and gas industry. The small producer currently has to bring on substantial overhead just to “open” the doors. Something that they could do by hiring the capability through service providers by using the Preliminary Specification. Exxonmobil would be able to meet its very specialized requirements due to the costs of that specialization being amortized over many producers, not just their own activity.

I would also argue that the level of specialization that Exxonmobil would realize would be an order of magnitude higher than what they currently are experiencing. The level of specialization attained by the overall industry would be particularly high in each of the service providers instance and that would be a significant part of the value added process that they provide. A specialization that would be even greater than what was attainable within the confines of Exxonmobil. And available to all within the industry.

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.

Competition Between Service Providers

As a result of implementing the Preliminary Specification. The capability for administrative and accounting functions will reside within the industry as a whole. This will reduce the redundancy of each producer having to build that capability within their own organizations. This will reduce the overall costs of the administration and overhead in terms of the unused and unusable redundant capabilities that are currently built within the industry at each producer firm. What it will also provide is a flexibility in terms of dealing with how the producer chooses to produce. Marginal production can be removed from the marketplace without the penalty of losses on operations.

There is a larger picture here. And certainly we have touched on some of the details with the $94 billion in opportunity costs, and the focus of the investors. The oil and gas industry which has traditionally been required to build the capabilities to focus on the SEC requirements, the tax and royalty requirements, the production and exploration administration, the land administration and accounting demands of the corporate organization. Will instead rely on the capabilities provided to them by a marketplace of service providers that focus on providing these capabilities by managing the processes on behalf of the industry.

And there will be two elements, or two types of organizations that the service providers will be focused on providing these services to. There will be the corporate concerns of the producer firm. And there will be the operational concerns of the Joint Operating Committees. Each entity will be dynamic and independent in their use of the service providers.

That is not to say that there will be a marketplace for eligible capital for gas cost allowance service providers. In almost all instances there will only be one service provider for each process within the industry. And the detail and the precise nature of the process that they will manage will require them to be very specialized. Their focus will be on making their service offering more efficient and effective in terms of its competitive offering. Providing a better service to its customers will be where it focuses its competitive energy. The effectiveness of having other service providers involved in the same process only detracts from the efficiency they can attain in their offering.

The competitive differentiation also arises between the service providers themselves. Although not specifically in the same process the competitive pressures will arise from other service providers efficiencies. There are also the demands of the producers and Joint Operating Committees that will ensure that the prices charged by the service providers are reasonable and in line with the services provided.

Specialization and the division of labor is the toolset that is being deployed here to generate the value for the industry. In order to attain that value the ability to focus on the process is the key to attaining that value. We therefore need to expect that competitive forces will arise as a result of other influences as opposed to the direct competition that we would be most familiar with. Therefore the service provider will enjoy a monopoly in terms of competitive advantage over the domain of the process they manage. This will enable them to pursue specialization and the division of labor over the long term, which is a long term value added process, as opposed to be consumed by the day to day of competing with like competitors. It is these types of differences that we need to implement in the oil and gas industry for the 21st century. Changes that are incorporated in the Preliminary Specification.

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.

Investor Concerns About Overhead Costs

The allocation of resources within the industry are possibly one of the largest issues that the investors in the industry are dealing with. They have consistently raised the point that the administrative costs involved in oil and gas are high and need to be addressed. The finer point of their argument is that the ability of the producer to reduce their production does not affect their overhead costs and should. This has become a particularly difficult point with low natural gas prices.

One could argue with a quick review of most annual reports that the amount of administrative costs carried by a producer, that the point is moot. In a capital intensive industry they would have a point. And they do have a point, the payroll burden in oil and gas is not large. And we have shown through our Revenue Per Employee analysis that the majority of the producers employees are carrying their weight in a substantial way. These are all valid points and I don’t think that that is the point that is being argued by the investors. I think they are seeing the redundancy of building similar organizations within each producer firm and there is no sharing of skills or capabilities between the producers. I think this is their frustration. I think that, like me, they see the majority of the people involved in these jobs doing a fantastic job that could maybe be organized better.

It is not the cost of these resources that is at issue. It is the implication of not being able to deal with the costs that is. If the opportunity costs for 2012 are $94 billion it would be agreed by everyone that we should address these. And none of these opportunity costs are to do with reductions in overhead. They are all as a result of increases in the price of natural gas. But they only arise as a result of the ability to deal with the marginal production of any facility. Something we can do as a result of not incurring any of the operating or overhead costs on shut-in production through the Preliminary Specification. This flexibility is what the investors are after.

To have the capabilities to conduct the administrative and accounting functions inherent within the industry. And to have that capability as a result of service providers who are specialized and organized based on a sophisticated division of labor. Would provide a capability that is much higher than any organization that exists today. And that capability would be available to any producer firm or Joint Operating Committee for the cost of a service fee. That is how the industry needs to be organized for the next century.

In terms of how this affects the people who work in the administrative and accounting fields of oil and gas. The impact would be significant. They would in turn cease to work for one producer and begin to work for many. They would specialize on specific capabilities and become very detailed in their work. Working with large volumes of data and sophisticated systems they would be able to build value for their clients, the producers and Joint Operating Committees who employ them. They may find that at any time their population of data might be reduced by 10% due to the need of the producers to shut-in production due to low commodity prices. This reduction affecting their revenue streams, however, something that they budgeted for.

The investors are asking is there a better way? There has been no response from the industry for years. Now we can point to the Preliminary Specification which I think answers the question for all concerned.

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.

How the Preliminary Specification Deals With Overhead

Within the Preliminary Specification we provide the oil and gas producer with the means to deal with low natural gas prices. This is through the reallocation of the resources of the industry into service providers that are focused on the individual processes and subprocesses. Charges for these services are made directly to the Joint Operating Committee. This enables the producer to shut-in their marginal production, and as a result, the administrative and accounting charges from these service providers would not be incurred. Enabling the producer to shut-in production without incurring the losses on operations that they would incur today on shut-in production. And limiting the downside in terms of the natural gas pricing.

This is the solution for the natural gas pricing difficulties being currently experienced in the oil and gas industry. These overhead type of costs however are part of a much larger issue to the investors of the oil and gas industry. The issue is with the high administrative costs associated with oil and gas exploration and production. The Preliminary Specification deals with this issue as well as the natural gas pricing issue. The issue arises as a result of the current use of the high throughput production model that is in use today. The Preliminary Specification uses the decentralized production model as its method of organization.

The differences in these two models is best described in Professor Richard Langlois definition.

In a world of decentralized production, most costs are variable costs; so, when variations or interruptions in product flow interfere with output, costs decline more or less in line with revenues. But when high-throughput production is accomplished by means of high-fixed-cost machinery and organization, variations and interruptions leave significant overheads uncovered. p. 58

The current oil and gas producer is tasked with developing administrative and accounting capabilities that are state of the art. That is each individual company, there is no shared resource, each company in isolation must achieve these capabilities in order to attain the necessary requirements in the marketplace. With the level of compliance and governance requirements, the needs of the earth science and engineering requirements of the firm this places a significant burden on each producer no matter their size. This is the high throughput production model and any interruption in production leaves no opportunity to diminish the producers administrative or accounting capabilities.

What the Preliminary Specification does is relocates these administrative and accounting resources on the basis of specialization and the division of labor across the industry. A service provider would therefore have the entire industry as its client base and it would be responsible for the determination of eligible capital for gas cost allowance purposes. The industry as a whole therefore may hold the entire administrative and accounting capabilities that are needed at anyone time and by any one producer. The need for these capabilities will be available for a service fee at any time that the producer requires them. At any time that the producer does not need the services of any specific provider, then that service and its associated fee is not incurred.

What we have done here is we have specialized and divided the labor of the industry in terms of the capabilities of its administrative and accounting functions. These services will be far more capable than any organization that exists today and will be able to solve the most difficult of technical problems. What has also been done is we have removed the redundancy of having each producer building the unnecessary capabilities within each producer firm to accommodate the producers needs in terms of their administrative and accounting capabilities. This unnecessary duplication, like that which we have eliminated in the earth science and engineering resources, is unused and unusable as it stands today.

Freeing up these resources will allow them to pursue the higher level tasks that are necessary in an innovative and profitable oil and gas industry. We need to begin these developments to enable the industry to capture this value and free these resources for the challenging work ahead.

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.

Participation has its Benefits

The advantage of using the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. Is that it is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. By adopting this framework as the organizational construct in the Preliminary Specification we are able to approach the issues and opportunities that exist in the industry, such as the current natural gas pricing problems. And the future issues and opportunities that are just around the corner. Such is the nature of the alignment that we achieve between the systems represented in the Preliminary Specification and the organization, the Joint Operating Committee.

This alignment provides a fundamental competitive advantage to those producers who chose to use the Preliminary Specification. Having this alignment will enable them to address the issues of the day and to configure their organizations towards the opportunities they see. It should be noted that those producers that choose to participate in the developments of the Preliminary Specification will receive even greater benefits. They will attain the ability to have the software consider their particular circumstance and include within the definition those unique attributes. In addition they will be able to have those attributes within their organization reinforced through the development of the software. Participation should be considered a unique and one time opportunity for producers within the industry.

Additional benefits will accrue to those who participate when the time comes to be operational on the software. The transition to the software will be seamless and more natural as a result of being familiar and oriented to the changes that will be needed in the organization. Those producers who think they might be best served by sitting out the first iteration might find that those that participated in the first round will have gained the competitive advantages and are already moving the software in new directions that are derived from being operational on the Preliminary Specification. Taking a producer from the bureaucratic ways to the second iteration of the software, without the benefit of being involved in the initial development efforts, as there would also be no basis of organizational similarity, would be difficult. These iterations will be quick, and the organizational development will be approximately equivalent to the speed at which the industry changes.

There is participation and there is competitive oblivion in my opinion. If we can substantiate opportunity costs of $94 billion in one calendar year. This shows the power of Information Technology in its current form. The speed and effectiveness of the technology and organizational developments will only begin to accelerate. Participation in these software developments should be considered a necessary part of the producers core competitive advantage. Would anyone launch a producer firm with the stated purpose of not using calculators or computers. The use, deployment and development of these technologies needs to be part of the core producer firm.

Convincing the oil and gas producers that this is the case will be difficult. They think that drilling more wells will be the future of the industry. And they are hard to argue with. In reality they are not making any money and the day when they can raise money on the value they generate by drilling wells passed a few years ago. Investors are wise to their ways. What is needed is for the industry to get with the times and start looking at what is profitable. Start managing the business as a business and begin participating in the management of that business by getting involved in People, Ideas & Objects Preliminary Specification.

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.

A Sub-Industry

In terms of Information Technology infrastructure the People, Ideas & Objects Preliminary Specification fills the traditional role of an ERP (Enterprise Resource Planning) applications space. That is to say that it operates to manage the businesses day to day operations and administrative aspects of an oil and gas producer. But it also fills other key roles in the industry that are not currently handled by any software vendor. Those are the business operations and administrative aspects of the partnerships as represented by the Joint Operating Committee. And the infrastructure of the industry in terms of the interactions, identification and support of the activity between the service industry, service providers, oil and gas producers and Joint Operating Committees.

This infrastructure is derivative of the Intellectual Property that is inherent in the Preliminary Specification. The business model that captures the annual opportunity costs that are valued at $94 billion for the 2012 calendar year is part of that Intellectual Property and therefore will be provided by People, Ideas & Objects from a software point of view and licensed service providers in terms of the services. This is not just a business that is being started, but a sub-industry.

There is a need for this scope and scale in the oil and gas industry today. The oil and gas industry is poorly served by the technology firms. The technology firms are providing good products and services, however, have become so specialized in their offerings that they have little understanding of their clients business operations and needs. This gap between the oil and gas producers and the technology companies is as broad and deep as could possibly be. It is necessary that a new sub-industry form to fill the gap between the oil and gas producers and the technology companies. That is what People, Ideas & Objects and the service providers will be able to do. With our understanding of oil and gas, and technology, and the service providers understanding of their oil and gas clients we will be able to deal with the issues and opportunities that the producers face on a day to day basis and in the long term.

The basis of competitive advantage for this sub-industry is the Intellectual Property that is formed around the Preliminary Specification, this blog and elsewhere. Key to that IP is the use of the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. This form of organization is what everything else is derived from and to compete with People, Ideas & Objects someone will have to come up with an alternative form of organization.

This infrastructure will naturally be of the cloud configuration. Having ubiquitous access, anytime, anywhere and on any device will be necessary for any 21st century system. One can see the scope of the application and how the costs begin to escalate to the budgeted total that is defined in the Preliminary Specification. Having industry, the service industry and the new service providers working together on one infrastructure will require a budget of at least that size. I would again emphasize that there is significant value there for the producers.

And we are using that value to motivate the industry to complete this project. There is only one way in which we can earn those opportunity costs. And that is to complete the development of the Preliminary Specification. Organization of the industry in this fashion, and the development of the software will need this motivation in order to ensure that it is complete. With everyone pushing toward that goal. A clear, and well understood goal, that everyone can get behind and complete.

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.

Constructive Change to Capture Value

People, Ideas & Objects Preliminary Specifications claim is that we provide the oil and gas producer with the most profitable means of oil and gas operations. This is through an innovative business model that is identified and supported through our ERP system as expressed here. Producers who choose to join the community of users of the Preliminary Specification will find that their competitive position will be enhanced in comparison to those producers who choose not to join People, Ideas & Objects. We have discussed these differences in a recent blog post.

The quantification of these changes from using the Preliminary Specification is the $94 billion in opportunity costs for the North American natural gas marketplace. These are the opportunity costs that would have been earned for the 2012 calendar year. They are in essence the losses that were incurred, and the profits that should have been earned, in the natural gas business, but were not because of the low natural gas prices. The Preliminary Specification provides the ability for all producers to deal with low natural gas prices by removing the marginal production from the marketplace. It does this by reducing the producer to the C class executives, earth science and engineering resources, some legal and support staff. The remainder of the resources of the traditional oil and gas firm are reallocated to service providers who focus on the industry wide process or subprocess. There they are able to apply the principles of specialization and the division of labor to their work and provide the Joint Operating Committees with the most efficient and effective means of administrative and accounting services. These services charge their fees directly to the Joint Operating Committee during the month that the service is incurred. This provides the producer with the flexibility that if they shut-in production for that month, none of the administrative or accounting overhead charges are incurred or billed to the Joint Operating Committee. Leaving only the costs of capital uncovered during periods when the production is shut-in.

This IT infrastructure provides significant competitive advantages to the oil and gas producer. During periods when production is shut-in the property does not incur a loss that has to be added to the reserves and recovered from further operations, making the economics of the property more difficult. And the marginal production is removed from the natural gas marketplace having an effect on the market supply of natural gas. Therefore having an effect on the natural gas prices and returning the prices to the point where profitable production will resume sooner. Companies that don’t participate with People, Ideas & Objects will continue to lose money on operations during production or when they are shut-in. What is needed is this fundamental reorganization of the industry infrastructure to accommodate what is called the decentralized production model, which is part of the Preliminary Specification, and leave the high throughput production model that the industry is currently using.

The time horizon necessary to make these changes is the issue at hand. The vision as it is articulated in the Preliminary Specification is sound. Use of the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer is the necessary ingredient to make all of this happen. What is needed from People, Ideas & Objects point of view is the resources that are spelled out in the Preliminary Specification. In an industry with an annual turnover of $2.5 trillion and opportunity costs of $94 billion you would think that these costs would be incidental. And they are. The real impediment to making the industry profitable as described above and in the Preliminary Specification is the ability for the industry to change.

I have an optimistic point of view on that possibility. The mindless brutality that people are subjected to daily to make things work today would welcome something that makes sense. The Joint Operating Committee is the cultural way of the industry. People intuitively understand it. And the technologies are mature in comparison to what is used in the industry today. That is to say I think we are not taking any technical risk in developing the Preliminary Specification. Therefore my optimism is grounded in what is possible and probable and the industry needs to approach the difficulties that it faces today and in the future with a new structure, and that is the Preliminary Specification.

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.