A Quick Review of Our Revenue Model Part VI

Another element of our Revenue Model is the means in which People, Ideas & Objects is capitalized. Traditionally software developers are stand-alone organizations with their own banking, regulatory and venture capital influences. People, Ideas & Objects is taking a project management perspective in providing this software solution to the marketplace. The differences in our capital structure are significant, with our Revenue Model being a critical element in defining and supporting these differences.

The fact of the matter is, by having user based developments defined and supported by various communities. To then have various venture capitalists, or other groups involved in a traditional capital structure, influence whether or not the software was built to specification is too large of a compromise to be viable. Therefore People, Ideas & Objects is funded by its Revenue Model and focused on its users; making it more of a project management type of venture.

To be clear the scope of People, Ideas & Objects is beyond what venture capital groups would be willing to fund. That is to say if the producers / investors are unwilling to invest in this software development, based on the value proposition put forward, no venture capital groups would touch this type of venture. Amortizing the costs of this development over the production profile of the industry is our value proposition. Complicating our capital structure only complicates and compromises the deliverability of the software.

To suggest that People, Ideas & Objects can be structured without the traditional involvement of investment capital might be naive for me to consider. However I do know, that it would be naive to suggest that the systems as described in the Preliminary Specification could be built with the influences of a traditional capital structure. Therefore, it is with that in mind, and to ensure that the Preliminary Specification captures the full scope of the technical and geographical concerns of each subscribing producer / investor. That producers / investors would be wise to support these developments to ensure their concerns remain the appropriate priority of this software development.

One area where our capital structure is not a concern is in the hosting of the application on the cloud computing infrastructure. I have addressed these needs by separating these business concerns from the software development activities. As I have documented in our Hardware Policies & Procedures, the hardware infrastructure is directly managed by the producers / investors themselves. The purpose in structuring the hardware in this fashion is to eliminate the producers / investors regulatory concerns in running their ERP systems, and to ensure that all parties have a vested interest in the infrastructure. In the process of meeting those concerns the business of the firm that hosts the application will have its own capital structure that will not in any way affect or influence the software developments or communities of People, Ideas & Objects.

We have talked about the risks of becoming blind sleepwalking agents of whomever will feed us. An issue when we are discussing systems development. People, Ideas & Objects Revenue Model shows these risks are real and require a new approach to funding these software developments. It serves no one's interests, People, Ideas & Objects, the Community of Independent Service Providers, Users or Producers / investors to proceed without dealing with this issue. It is best to identify these conflicts and compromising situations now, while the influences are manageable.

Producers / investors are expected to fund the software developments on the basis of their production profile. Rental fees are assessed on all producers / investors starting January 2010. This eliminates the possibility that some producers / investors will pay disproportionate shares of the development costs through early participation. All producers / investors will be required to have their rental fees, and penalties, paid in full from January 2010 to the current year in order to access the applications. These methods and penalties eliminate all incentive to delay and avoid financial participation by producer / investor firms.

Financial participation is how the communities are supported and hence able to avoid the trap of becoming blind sleepwalking agents of whoever feeds them. People, Ideas & Objects are user focused developments. The choices that a software development project can prioritize are many. Users are one, technical efficiency another and there are many other possibilities. For users to support the producers / investors to focus on their competitive advantages of their asset base, oil and gas leases and earth science and engineering capabilities. Users need to have the software tools and means of production, (the financial resources to build those tools) within their control.

This discussion does not preclude the producers / investors participation in these communities. Producers / investors, on the contrary, are critical elements of the user community. These developments will need their full participation and contribution. What is necessary to proceed is the appropriate “political environment” in which users are able to define, build and use the software tools they need to do their jobs.

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 V

This post seeks to clarify People, Ideas & Objects revenue model and provide an understanding of the flow of funds within the associated communities. Needless to say all the funds flow from the Producers / investors, however that is where the money is. I’ll break down the general flow to show how each of the different groups are sustained over the long term.

To start we need to clearly identify the three different groups that are supported by the producer firms. These groups include (1) People, Ideas & Objects, (2) the user communities and (3) the Community of Independent Service Providers (CISP). The need for this financial support is as follows.

People, Ideas & Objects assesses an annual rental on all producers / investors for access to the software applications, software development, cloud computing infrastructure and the user communities involved in the development. These funds are assessed based on an annual rental for each barrel of oil equivalent of the producer / investors. This rental has been set at $1.00 per barrel of oil equivalent for the 2010, 2011, 2012 and 2013 calendar years. Producers with 100,000 barrels per day of production would be assessed $100,000.00 for anyone of those years. In addition, assessments are due and payable by March 31, of each year. Producers / investors are subject to a 300% penalty for any late payments. All producers / investors are required to pay the rentals and penalties from 2010 forward.

Funds are distributed from People, Ideas & Objects to the users groups themselves for their participation in the development of the software. These users are the producers employees or consultants that define and design the systems they and the producers / investors want and need. People, Ideas & Objects are user based software developments.

The third group that receives direct funding from the producers / investors is the Community of Independent Service Providers. This community is engaged by the producers / investors to handle many of their specific systems related needs. Accounting systems integration and training are a few of the areas where the CISP will be used most often. These are also part of the larger group of service providers who handle the administrative and accounting functions of the producers. Funds for these groups are outside of the People, Ideas & Objects Revenue Model.

What happens to these funds is also important to note.

People, Ideas & Objects incurs the costs associated with the hosting of the infrastructure for running the application and software development environment. We also have the developers on staff who are working with the Community of Independent Service Providers and user groups to define and enhance the systems they need and want.

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 IV

We start off with recognition that China is now the world’s number one consumer of energy. That the demand for energy in the next several decades will be insatiable. And the somewhat fixed number of earth scientists and engineers will have substantial business opportunities addressing this world demand. It will be through a reorganization of these fixed human resources, by having People, Ideas & Objects software applications define and support enhanced divisions of labor and specialization, that this demand for energy will be satisfied.

Building systems that deal with the commercial interactions between the producer, society and the individuals that work in oil and gas, and the service industries, is beyond the direct concern of the producer. Yet, are a necessity of basic operations. If we agree that the competitive advantages of the producer firm are based on it’s unique composition of oil and gas leases, physical assets of the firm, and application of the firms earth science and engineering capabilities. The producer will remain involved and focused on the development of efficient software systems to identify and support those competitive advantages. Much in the same manner as society and individuals will work to develop those same systems to meet their needs.

Therefore, the producers / investors decision to financially support these developments affect society and individuals. The producer firm receives 100% of the direct revenues from oil and gas sales. Allocation of a portion of these oil and gas revenues towards an initiative like People, Ideas & Objects can not be evaluated based on its competitive return at the producer level. Everyone is familiar with one or more software development or implementation projects that were terminated as the result of a lack of long term funding. These failures have little to do with the quality of the project or the people that were behind it. Over time the sense of urgency that the project may have put forward fades as does the financial support. Approaching a project with the scope of People, Ideas & Objects, without having an answer to a fading sense of urgency would be a failure.

The question therefore becomes, how does the revenue model of People, Ideas & Objects 1) sustain these communities throughout the development cycle and 2) provide these communities with the software tools they need to expand economic output? We provide this by way of the inherent promise or guarantee of this project. That being, this software development, and associated communities, provide the innovative oil and gas producer / investor with the most profitable means of oil and gas operations. The profitable nature arising as a result of the expanded oil and gas output, based on the enhanced division of labor enabled with the People, Ideas & Objects application, and, the value proposition we have put forward.

The specifics of how we provide our guarantee of the most profitable means of oil and gas operations is contained within the Preamble to the Preliminary Specification. The producer firm can specialize within their domain of the earth science and engineering aspects of what an innovative producer requires. The majority of the administrative and accounting functions will be provided through service providers who are focused on the process and are using the industry as their client base. This specialization and division of labor by the service providers and the producers provides the profitable means of operations for the oil and gas producer in comparison to today’s business model. It however also opens many opportunities for the producer to manage their operations in ways that address the issues and opportunities of the 21st century. These were quantified for North American operations at $94 billion in opportunity costs for 2012.

To achieve this specialization and division of labor between these organizations, individuals and within society will not occur spontaneously. If the oil and gas industry wants to achieve the next level of organizational efficiencies, such as what is defined in the Preliminary Specification. It must be defined and supported in the software that is used within the domain of the organizations, individuals and society that benefits from it. We have reached the limits of the gains that can be achieved by spontaneous order. It must be a deliberate act undertaken by the producers to move to the next level. Only then can the economic output of the industry expand 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.

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.