Internal Use of the Work Order

The last time we took a short break was to discuss the Work Order of the Partnership Accounting module of the Preliminary Specification. Then we discussed the ability of like minded producers to participate in a much greater number of industry based research and study groups without the associated bureaucracy that they cause in today’s environment. There is another aspect of the Work Order, and that is the topic of discussion for today’s break from the conversation.

When we last discussed the Work Order we noted the capability of the Work Order to provide cost distribution to any working group that was formed. That would include producers that you had worked with before, and of course the producers and vendors that you may have not worked with in the past. The Work Order is unlike the AFE and Lease ID in that it is not dependent on an agreement in which to pull its working interest distribution from. It can therefore have any combination of participant distribution that it needs to have in order to accommodate the working group, and for the purposes of its internal use, the topic of today’s blog post.

One thing we didn't mention in our April 1, 2014 blog post was that the Work Order has an approval process similar to that of an AFE. And this is required for the internal needs as well. What the Work Order is used for internally is very simple. To control costs. With the producer firm stripped down to the C class executives, the earth science and engineering resources, some land, legal and support staff. Most of these people should be chargeable to the joint account, or in other words a Joint Operating Committee. However, not all of their time will be chargeable to one Joint Operating Committee and some of their time will be spent on internal work that is for the producers purposes only. These may have special charge codes that charge them to the various capital accounts of the firm. The method that the employee uses to charge their time to the various properties, overhead items or research and working groups is through the Work Order.

The next aspect of this process is the critical one. All of the employees time needs to be charged to a Work Order at all times. At no time during the day should the employee not have coded into their phone, their tablet or computer a Work Order number that is associated with the work that is being done. If there is a departmental meeting then everyone at that meeting should be charging the departmental charge code while they are there. It is in this way that the costs of every operation and task is detailed down to the minute. If you receive a call that is for a different Work Order, then you will be able to assign the time of that call, and that calls costs to the Work Order that you key in after the call. It is this level of cost control and identification that is necessary for the innovative and profitable oil and gas producer.

When we look at the financial statements of the producer we will be able to see the Revenues less Royalties and Operating Costs for their share of the field costs. In addition, with the People, Ideas & Objects use of the Work Order the capital accounts will have detailed entries into each of the properties for the types of overhead costs that were incurred primarily by the earth science and engineers. Their work is primarily of a capital nature and will be capitalized on the balance sheet. The administrative and accounting charges will be coming through from the service providers who are not on the payroll of the producer but are billing for their services, when the property is producing, and the producers share of these costs are showing up on the Income Statement as General & Administrative costs. As a result the accounting during the month will be extremely precise, will be highly specialized with advanced divisions of labor for efficiency and effectiveness. This is how the oil and gas industry needs to be operated in the 21st century. The bureaucracy wants to keep selling shale gas that barely covers the costs of operating. Its time for the user community to be given the chance to operate the industry, and show the investor that they can provide for the most profitable means of oil and gas operations.

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

The Rivers are Beginning to Flow

Its an ambitious task that we have set out for ourselves. Removing and replacing the bureaucracy from their comfortable position in the administration of the oil and gas industry. The problem is they won't leave and they're not doing their job. When the opportunity costs for a decade total $705 billion there is something fundamentally wrong with the way things are being done. Look at the natural gas business and you know what that is. They don't talk about it. They don't have a solution for it. And they just continue on like its blue skies and rainbows.

Throwing the bureaucracy down the river is our responsibility. We need to prepare ourselves in a manner that offers an alternative method of organization to the oil and gas producer. The problem is they just aren't leaving without a fight. So its a fight they'll get. I mentioned yesterday that we didn't need to consider any of their needs in the development of our solutions. Did Steve Jobs consider what the record stores wanted and needed when he developed iTunes and the iPod? No, and it will be the same with us. The way things are done today are constraints that do not affect us in any material way. When it comes time to design a process we can chose the clean sheet approach as the most efficient and effective method for the innovative and profitable oil and gas producer. This is not altruistic or idealistic thinking, its a practical approach to the opportunity that is before us.

Members of the user community have this opportunity to make the difference in the oil and gas industry. It is they who can take the Preliminary Specification and make it real. All of the processes and functions that operate within the oil and gas industry are within the domain of the Preliminary Specification. Making this a comprehensive solution that uses today’s technologies and today’s thinking as the starting point of the user communities solution. Is this possible? I see the Preliminary Specification and the user community developments as a more viable solution than continuation of the bureaucracy for the foreseeable future. We have discussed some possible outcomes of the bureaucracy through either their quitting or failing, there’s also the possibility that they just continue on without anyone asking if its working. The status quo, I feel, is becoming more difficult to maintain than starting with the developments that we are discussing here.

If its not us that takes the time and effort to remove the bureaucracy from its position in the industry, who will? And with what? Many industries have been disintermediated by technologies in the past decade. The Internet will do this eventually to every industry that exists today and that includes oil and gas. However, if we fail in this attempt now with the Preliminary Specification the bureaucracy will be relieved that it will be at least a decade before another opportunity will arise to remove them. For that is how long it will take to prepare another solution to get to the position that we are at today. I know it doesn't seem like much but the Preliminary Specification took ten years of research to put together. And that was on the basis of using the Joint Operating Committee.

There is an investment of time and effort in committing to this user community. Not a lot, but there is some. We need to be able to show the oil and gas investor that we have the overall capability in which to compete against the bureaucracy for their business. What that is and what that means, I don't exactly know. The rewards for doing so are down the road. For when we are able to meet their expectations then we can expect that the funding for these developments will begin. And the user communities budget is $333 - $667 million for the initial funding. The service providers, which are derivative of the user community, will be establishing businesses that provide the General & Administrative services to the oil and gas producers. The current General & Administrative expenses of the producers will then be diverted to the service providers as revenues for their services. The annual G&A expenses of the producers total $40 to 60 billion for the North American marketplace. A majority of those would then be diverted to the service providers. So there is substantial opportunity for those who see value in providing the producers with the most profitable means of oil and gas operations.

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

A Quick Summary of Where We're At

In the past week we discussed profits in oil and gas and the differences in how People, Ideas & Objects provides the most profitable means of oil and gas operations, and the current bureaucracies “plan” to calculate profits at the property level. The bureaucracies plan is designed to counter People, Ideas & Objects claims in the marketplace, theirs being a “bullshit baffles brains” strategy. We also discussed the difficulty they will have in calculating profits at the property level and suggested that the bureaucracy would not be doing any of the changes to make these calculations permanent. That they only needed to get through annual report season with an alleged “plan.”

When making changes to the industry methods of accounting required a process of getting everyone on the same page. A process that I referred to last week as herding cats. I also stated that I had given up on herding cats as a career choice but with so much change in the Preliminary Specification and decentralized production model. How could one believe that they could orchestrate so much change without the task of herding cats at some point?

The behavior that we see in the bureaucracy is consistent with the behavior that was apparent back in 2004. And it will be the same behavior that will be demonstrated in 2024 if we keep them in power. They are not going to give up to any alternative means of organizational method in the oil and gas industry by choice. The power that they have to administer the industry has to be taken away from them. That is the only way in which they are going to lose the capabilities that they currently enjoy. And that is why we are focused on the user communities development as an alternative means of organization for the oil and gas producer.

We are not waiting for someone to grant us the approval to begin our work. We are focused on providing the oil and gas producer with the most profitable means of oil and gas operations. Providing a choice to the oil and gas industry, a self interested bureaucracy without a plan, a hope or a prayer, or a user community focused on the producers most profitable means of oil and gas operations. That alternative is what we are preparing to the producer firm and oil and gas investor and comes in three pillars. The first is the Oracle Fusion Middleware and Applications as the technological base in which we operate. The second pillar is the overall vision captured in the Preliminary Specifications eleven modules, three marketplaces and two business models. The third pillar is this user community complete with their own vision of how they operate. This is the alternative that we offer the producer firm.

As time passes and the user community develops to offer a substantial alternative to the bureaucracy then we will be able to secure the funding necessary to build the software and support the user community. These costs are detailed in our budget. We will build our solution in the manner that it needs to be built to provide the oil and gas producer with the most profitable means of oil and gas operations. And that means that we will not be compromised in the way that we would by dealing with the bureaucracy and having to herd cats for a living. Ours will be a clean sheet operation where we start with the Preliminary Specification and build what is necessary and what we want from there. The bureaucracy doesn't want to deal with us and therefore we don't have to deal with them. This ultimately works in our favor.

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

The Bureaucracies New Plan

So that is the bureaucrats idea to fight People, Ideas & Objects Preliminary Specification, our user community and the service providers claim that we provide the most profitable means of oil and gas operations. To calculate profitability on a property basis. As we detailed here in the past few days they will spend the approximate equivalent of what it costs to develop the Preliminary Specification in order to complete their task of enabling themselves of this simple exercise. They were never structured to calculate net profits at the property level. Theirs is a corporate model focused on the compliance and governance of the corporate entity. Anything to do with the property or a Joint Operating Committee, you might as well talk about Mars.

And costly it will be. The first phase will be to have the industry agree to some changes in the way that overhead is dealt with. That is the elimination of the overhead allowances. Expect this to be the first kitten that enters the room. Next they'll have to agree amongst themselves that a change in the manner that overhead is handled will be adopted by the industry. Yet more kittens. The implication of which is that the operators will be offloading their working interest shares of the overhead that they have been carrying. By then the kittens have filled the room and grown to become cats. I’ve tried to herd cats before, particularly in the oil and gas industry. I swore I would never do it again. I’m sure that there will be more people that will swear that they've giving up herding cats, after trying to herd those cats.

What will be the purpose of the exercise? To better calculate profitability at the property level. And why are we doing that? We haven't done that in 60 years, why start now? At which time those that are doing this to counter the Preliminary Specifications claim that we provide the most profitable means of oil and gas operations have no response. Its political. An exercise of enormous effort. And when I say enormous, the cost and effort to do this is approximately equal to a ⅕ of the accounting effort that is currently done today. And its all to counter People, Ideas & Objects claims. It shows you how much of a threat to the installed base of the bureaucracy the Preliminary Specification is. They are wiped out. These people are fighting for their lives it's no wonder that they are making such desperate moves.

I forgot one important element of this whole conversation. It was what we discovered in our Preliminary Research Report of May 2004. That the changes that you make within your organization have to be made first and foremost in the software that you use. Otherwise the changes won't become the established process. So there’s that to consider as well. They'll need to develop the software for all of those systems that they use. That’ll take a lot of money. The problem is there isn’t just one system that a company uses that impacts the overhead. Usually they have several, essentially one for each process. And every time they want a change, the software vendor has their hand out. And they’ll no doubt ask why do they want these changes when some producers don’t?

Herding cats is such fun. But then again, it could be just politics as I said. None of these tasks will really be initiated. Its just a game of “bullshit baffles brains.” They could talk about this process, yet not do anything about it, and no one, that is no investor, the individual whose brains need to be baffled, will be able to discern whether it is truly ongoing in the industry or not. And there will be no shut-in gas to fix the price structure. And we'll continue on for another year of low, and maybe even lower natural gas prices and profitability in the North American oil and gas industry. But that’s one more year where the bureaucracy was firmly in control. And in a way, by saying they'll be calculating profits on properties, it’s almost like they have a plan.

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

Accuracy, Precision a.k.a. How We Do It

Yesterday we critiqued the manner in which industry will have to go about calculating profits for each property that they have. This is in response to the Preliminary Specifications claim that we provide the most profitable means of oil and gas operations. You'll notice that in yesterday’s discussion there was no mention of how the producer would produce profitable operations, just calculate them. Thier idea here isn't to actually make the radical changes necessary to be profitable, just to confuse people long enough that the bureaucrats can stay at the helm for a little while longer. The term I believe is “bullshit baffles brains” and it is in use in this instance. Calculating profits on individual properties is the initiative. Not providing the industry with the most profitable means of oil and gas operations.

Nonetheless as we pointed out the bureaucracies exercise will be costly and the results will be questionable in their accuracy. How is it then, that the Preliminary Specification would handle the accounting for overhead at the property level. What a good question, and I'm glad you asked! First there would be none of the fudge regarding whose costs the General & Administrative expenses you were incurring and reporting. When a service provider was sending an invoice to the Joint Operating Committee it will be for the 100% cost of administering their process at that property. At that point the invoice will be paid and the actual costs will be distributed to the individual producers who are working interest owners in the property. Exactly the same treatment that is done today for capital and operating costs would be handled for overhead costs in the Preliminary Specification. Therefore no costs of other producers overhead would be borne by other producers. And there would be no need for the ambiguous overhead allowances that are used today.

Therefore if the property requires an inordinate amount of effort to administer. Or if you carry a large percentage of the working interest share. Your overhead costs are going to be higher. The fact of the matter is under the Preliminary Specifications decentralized production model you will have the precise amount of your share of overhead recorded in the accounts that the property took to administer. The service providers are focused on the processes that they administer. The process of how the costs of the service providers administration is billed will be fully automated. So for example in the instance of the Production Accounting service provider, when a gas chart is read, that is noted in the task and transfer network, when production is captured in the field data capture network it is noted in the task and transfer network. And each unique task in the task and transfer network carries its own unique billing amount. So at the end of the month, the tasks and transfers are aggregated by the service provider to determine what the individual bills will be for the various Joint Operating Committees that produced that month. Then the individual invoices are sent out to each of the Joint Operating Committees.

This precision is being used throughout the service provider network. Again if there is no production from the Joint Operating Committee then there are no activities in the service providers task and transfer networks to create any billings to incur overheads for the month. It is in this way that a producer can shut-in 20% of their production and immediately see a commensurate 20% reduction in their overhead by using the decentralized production model of the Preliminary Specification. And actually improve their overall profitability. In yesterday’s example of a current system, if a producer reduced their production by 20% they would still incur 100% of their overhead for the foreseeable future. Only layoffs would make any changes to those values. If gas prices took six months to a year to respond to the removal of production from the market, the producer would be faced with the same problems that they are faced with today. Angry shareholders and the motivation to produce more.

It comes down to the breakthrough that we made in August of 2003 of using the Joint Operating Committee as the key organization construct of the innovative and profitable oil and gas producer. To not recognize it in your systems is to avoid the legal, financial, operational decision making, cultural, communication, innovation, and strategic framework of the industry. And as a result of not using the Joint Operating Committee you are forced into compromises that in the end make no sense, and do not provide any value to the oil and gas producer. Compromises that were made to accommodate situations that don't exist today. The Internet enables us to overcome these compromises, now we just have to overcome the bureaucracy.

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

Industry Catches the Religion

Running around as I have on this blog promoting the fact that we provide the oil and gas producer with the most profitable means of oil and gas operations. Quantifying that profitability at $705 billion in additional revenues for the North American marketplace for the decade beginning in 2009. The time when shale gas volumes created the collapse in natural gas prices. Accusing the bureaucracy of not have a plan to deal with these issues of the industry. And now with the decline in natural gas prices since the cold winter of 2013 - 2014, the bureaucracy not having a hope or a prayer either. You would expect a response from the bureaucrats to the claims that we are making. And now we have.

Going back to the breakthrough that I had in August of 2003. That being the use of the Joint Operating Committee as the key organizational construct of the innovative and profitable oil and gas producer. The Joint Operating Committee is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the industry. When we move the compliance and governance framework of the hierarchy into alignment with the seven frameworks of the Joint Operating Committee we achieve a speed, innovativeness, accountability and profitability in our organizations not otherwise attainable.

The power of this idea is understated and unrealized by the bureaucracy. They use the corporate model and focus on the compliance and governance of the corporate entities requirements to the SEC, tax, royalty and regulatory bodies. Partners and Joint Operating Committees are things that don't exist in their systems. Those are responsibilities of other people.

Now the bureaucrats say they want to determine the profitability of their properties in order to determine which ones are the most profitable. Sounds to me like they want to copy our ideas again. Well why don't we just look it up in the general ledger? There is no information on the properties net profitability there. So now we have the admission that the industry doesn’t know if a property is profitable or not. What a ridiculous thing to say! Do they not employ accountants? It is at this point that I advise the oil and gas producers to cease and desist their pursuit of this path to counter my claims. Calculating net profits at the property level will only reveal your current systems inefficiencies and defects, be at great cost and with little accuracy. It will only get worse for them, much worse.

Well they could certainly determine the operational profits of the property couldn’t they? Yes, and that detail would be down to the well level in some cases. Certainly down to the property level in most. But that doesn't give the producer anywhere close to a reasonable picture of what the property produced in terms of profit. There is the issue of overhead. And there is a lot of overhead. And lets look at what happens to most of the overhead. Large portions of the overhead are capitalized and pooled along with the capital assets, such as wells and facilities. These are held on the balance sheets as assets and will be expensed as depletion or during a write down of the assets. The rest of the overhead sits in the General & Administrative category and is expensed in the current period.

Within the General & Administrative category is the costs associated with running the company during the year. These costs were the costs that were incurred in operating the properties on behalf of the Joint Operating Committees. Production, Revenue and Royalty Accounting etc. Therefore these overhead costs are the 100% costs necessary to administer the properties. They are offset by the token overhead allowances that the operator is able to charge the Joint Operating Committee in lieu of actual overhead costs. However the overhead allowances are rarely able to make a dent in the actual costs of the overhead incurred. The issue therefore is the ability to allocate the actual overhead costs to the properties in order to determine the profitability of the property. This is not done and is unknown. Some properties take more effort to administer than others. And others have smaller working interest shares imputing that you are carrying a larger portion of the partners share of these costs. That’s correct you are carrying the share of your partners General & Administrative costs. Overhead costs are grouped under General & Administrative and that’s it. No allocations or further accounting treatment at all.

The bureaucrats will find a way by hiring an army of accounting analysts complete with three levels of management to allocate the overhead. That will solve the problem. And then they will know, approximately, what the property produced in terms of profits. If this feels a bit wobbly in terms of the precise nature of the accounting that you were expecting from your producer firm. I would say talk to your auditor. On second thought they don’t understand the need to stay out of the fudge.

So yes the Emperor has no clothes. And the bureaucracy will spend, in aggregate, approximately what is necessary to build the Preliminary Specification to fix this. So from their point of view I may have just done them a big favor, especially with those three layers of management!

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

Specialization and the Division of Labor

We noted recently the ability of specialization and the division of labor to enhance the producers profitability. What we want to discuss in this post is how these tools will be applied during different phases of software development to enhance the profitability of the oil and gas industry. Access to the tools of specialization and the division of labor are provided through the use and application of the decentralized production model. By changing the prototypical footprint of the producer to the C class executives, the earth science and engineering resources, some land and legal, and support services. The remainder of the firms resources are permanently moved to service providers who are focused on a process or subprocess that uses the entire oil and gas industry as its client base.

Then as a result of having the process managed for the entire industry under one roof, the scope and scale of the service providers operation can deal with application of specialization and the division of labor in its optimal application. It will be the movement of the people from the producers to the service providers in the first phase of the developments of the Preliminary Specification that provides initial value to the producers. However there will be a secondary phase of equal or greater value that will be attainable in the second phase of development that will be undertaken once the Preliminary Specification is fully developed.

By this time the service providers, the user community and the People, Ideas & Objects developers will have become familiar with the manner in which the industry operates with their new software. And the service providers will have an understanding of the process they manage as to where the efficiencies and difficulties are. They will then be able to determine what is the optimal way in which to execute the process on behalf of industry, both in terms of costs and in terms of quality of service. Further iterations on the process can then be conducted from there.

This process of specialization and the division of labor has been limited in its value to the industry over the past number of decades. What a producer has had to achieve in terms of their administrative and accounting capabilities has been fixed and determined based on regulations and professional requirements. The scale of their data set in terms of preparing royalty calculations, for example, has been determined based on the number of properties the producer has, designating the number of accountants it needs. Each accountant conducting the same tasks for each property. There being no benefits that can be obtained from specialization and the division of labor due to the fact that these tools were not and could not be used. No matter the size of the producer firm.

In the future with the Preliminary Specification in place. The service provider will look at the process in a different manner. Understanding the same regulations and professional requirements are in place. They will have the computer power, the software development capabilities and software of People, Ideas & Objects, application of advanced scientific methods and the ideas, innovations, collaborations, creativity, research and resolution of issues of the people at that service provider to process the industries royalties each month. And the same will be the case at each of the service providers for the individual processes that they manage on behalf of the industry.

It will be in the second phase of development, after we have completed the Preliminary Specification. That we will be able to concentrate on developing software that focuses the service provider on the most efficient processes that the producer will see another bump up in their profitability. The first coming from the fact that the decentralized production model is in place, the second from the full use of specialization and the division of labor.

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

Why Focus on Profits

We have been focusing on profits here at People, Ideas & Objects and making them the key focus of the user community and our service providers. Why is it that we are providing the oil and gas producers with the most profitable means of oil and gas operations. It is certainly a position that is counter to the culture of the industry. In that the industry operates on cash flow. Net earning do not hold much appeal to those that operate within the industry. Yet, as an investor, I am interested in investing my money in businesses that are proven to produce profitable operations. I have a broad choice of industries and businesses to choose from and oil and gas is but one of many that I assess on the same basis as the others.

Its a competitive investment marketplace for any oil and gas company to compete in. If a producer goes to an investor with performance showing the lack of profits for the last five years, they will receive a cool response. And the argument would be that you have to talk to someone who is familiar with the nuances of the oil and gas business. And in a cottage industry that is true. But when you compare the opportunity to invest in Apple, which is wildly profitable, oil and gas is a poor second cousin who can’t compete for the top tier investor.

The argument that would then be put up in defence of the producer would be that Apple will be subject to declines as a result of their innovative technologies running their course. And that is true, one day that will happen, just as the iPod is not what it once was. But for today they are very profitable with iPhones and iPads and they are earning money that they can then invest in their business to develop the next iteration, and the next innovation. This can be done without having to go to the investment community, or a bank to make those investments. They have the cash in hand, and a profitable business that drives those investments in future innovations and that keeps them in the marketplace that they choose to be in. Investors win by earning profits, upside on future innovations. All without the costs of having their investments diluted by adding new shareholders to finance basic investments.

What the oil and gas producers do in the current environment where they rely on cash flow is make themselves wholly dependent on others investment or banking practices to do the next deal. They have no discretionary capabilities in terms of how they will grow the business other than to go hat-in-hand to their benefactors or banks. This may have seemed like a reasonable business model when the business was in a development stage. However, as a primary industry with $3.5 trillion in revenues, to continue to operate it as a cottage industry is, I think, beneath the industries stature. Investors lose by not participating in a profitable industry, continually supporting their investments with more capital or watch their investments get diluted by further investments by others.

The focus on profits will provide the independence for the producer to pursue their optimal course, whatever that is. It might very well be a stand still strategy of not growing but maximize the profits from the assets that they have. The fact of the matter is that they will generate the resources necessary to open opportunities for the future, and also have the profitable operations as a secondary resource to depend on to keep that engine running. They won't have to go to the investors to ask for money or the banks, they will be able to operate with a certain level of independence. If you don't like shareholder activism, give them what they want, profits and earn a high level of independence from them. They'll be happy with the profits and the fact that they're interests are not being diluted by each years stock offering.

This is the reason the industry needs to adopt a model that focuses on profits. And only the Preliminary Specification with the decentralized production model can provide the industry with the most profitable means of oil and gas operations. First by making the industry a price maker, instead of a price taker. And then secondly through the expansion of the industries capabilities through specialization and the division of labor. I suggest we develop the People, Ideas & Objects Preliminary Specification and user community and provide the oil and gas industry with an alternative means of organization. Then we can begin generating some real profits.

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

Previous Failures to Learn From

In our last post we discussed the possibility of the bureaucracy failing or quitting in the oil and gas industry. In this post I want to discuss some of the failures that we have seen and relate them to the current situation and show where we are in terms of a potential failure and how dire the consequences can be. The two examples are of course the former Soviet Union and the great depression where government had to step in and take a more pronounced role in the economy.

Some readers may take offense to the comparison of the current situation to the former Soviet Union. We'll see. The collapse of the Soviet Union came about when production of everything fell into steep decline. The primary reason production was falling was that all of the workers were at the bakery waiting in line for bread. Which there was none, and had been of very limited supply because of the steep decline in production. A catch 22 of the highest order. Without anything to eat the country declined precipitously and rapidly. The simple solution would be to make more bread, which of course could not be done because of the dependence on the system that was breaking down.

In the oil and gas industry we have a similar situation today in that everyone produces natural gas, and oil, at capacity. As a result of oversupply, the prices have declined for the past five years to the point where capital is being destroyed on a wholesale basis. An industry that destroys capital is not fundamentally different than a society that is starving. The real tragedy in oil and gas today is that this destruction of capital would be considered news. At least in the former Soviet Union they knew they were starving. The simple solution is that everyone scales back their production by a small amount, say 15% in order to return prices to a normal threshold. This like baking bread is apparently impossible to do. And therefore the cannibalization of value in the industry continues.

The other example of the failure of the bureaucracy was during the great depression. Who knows what the cause of the depression was. Whether it was tight money or trade wars or both it is still argued today. The fact is that businesses large and small failed. And those that didn’t fail scaled back severely to conserve cash and survive. Management who were new to the scene, in that they had just taken the reigns of power from the merchants. Didn’t have a vested interest in the game at that time. And were quick to seek greener pastures elsewhere. Precipitating a further decline in the performance of the firms in which they left. With society experiencing homelessness and hunger, government became a new force in the economy and has been vigorously debated as to its purpose in doing so, since.

With the destruction in value in the oil and gas industry the bureaucracy are losing their incentives to keep at it. Losing value in the industry will eventually affect them and they will have little in the way to keep them from looking to greener pastures in the many other industries that exist today. They are not builders and they are not movers & shakers. They are able to maintain the status quo and keep things at an even keel. If things go wrong its not their fault and they usually move on as opposed to address the skeletons in their closet.

What will stop the destruction of value in the oil and gas industry today? It is the elimination of the attitudes of the CEO that after I pay all my bills and I still have cash left over, positive cash flow, and therefore I am successful. Earnings don’t enter into the mindset of anyone in the industry. That investors and banks only give out free money. That a write down of assets doesn’t affect my cash so that is not a bad thing. This attitude is laughable if it were only played out in a schoolyard. The fact that it is played out in the oil and gas industry is evidence of how serious this problem is and the sense of urgency that this user community should look towards building an alternative means of organization for the oil and gas industry.

Continued value destruction at the level that the industry is currently incurring in the North American marketplace is not sustainable. Yet this is not considered an issue by the bureaucracy. This continued value destruction may lead to failure or to the bureaucracy leaving the scene. What we can do is continue on in an oblivious manner to a systemic, generational, ingrained and illiterate understanding of how this business operates. Or begin developments of the Preliminary Specification and begin the process of building profits and value once again.

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

Brick by Brick, and Stick by Stick

People, Ideas & Objects have ambitious plans in terms of what we are setting out to do. Using Oracle Fusion Applications with the Preliminary Specification as a vision of what the industry could operate as, and the user community vision providing the means in which it would operate. How is it that this user community is going to develop, and particularly without the help or resources of the industry as it stands today? Well the long and short answer is I don't necessarily know. It hasn't been done before, and what we are setting out to do will have never even been tried before, anywhere. What I do know is that it will be built brick by brick and stick by stick over the next five years, and lead into the time we start the software developments in 2019. Thats the plan.

What I am finding is that there are not a lot of people in oil and gas that are using Twitter. That is both a good thing and a bad thing. I assume they are using Facebook as their social network and the majority of that use would be for personal reasons. For us to use Facebook would therefore interfere with the personal nature of that medium and by using Twitter we are establishing a purpose built network for the user communities needs. Therefore your first step should be to set up a Twitter account and Follow @piobiz as the beginning of this user communities development. Then we can have a means in which we can communicate with other members of the user community and the beginnings of the collaborations can begin. Don't expect too much at first, this is just the beginning, and we have a lot of work ahead.

Our objective is to establish the capabilities necessary to provide the oil and gas producers with the means of organization for the oil and gas industry. If the bureaucracy was to fail completely in the near future. Or if they just decided they had had enough and quit. Not something to take lightly, that has happened before. Then our capabilities would be something that the industry could turn too to provide a solution the industry found itself in. And in turn would find a group of like minded people committed to providing the oil and gas producer with the most profitable means of oil and gas operations. Complete with a technological base in Oracle, and a product vision in the Preliminary Specification. This is what I think it will take in order to make the change away from the current muddling along strategy and the mindless, self-centered bureaucracy.

The need for change in the oil and gas industry has been evident for many years. And it hasn't happened. Low natural gas prices are not even seen as an issue by the bureaucracy. They certainly have no plans to deal with any of the problems that the industry is facing. And technology is used in its most basic and elementary way. I have been an outcast for over ten years now since I published the idea of using the Joint Operating Committee as the key organizational construct of the innovative producer. Plenty of time for industry to have acted positively. But they never will as it eliminates the bureaucracy as its key side effect. That and we use the Internet which also reduces the demand for the bureaucracy. Two good reasons that the bureaucrats will never fund these developments. They will either fail, as a result of their inability to deal with the speed and complexity of the business, or they will quit through attrition, retirement or greener pastures. They are more dangerous than useful at this point in time.

And that is why we need to organize ourselves now. To ensure that the industry will be able to continue to function. This all sounds quite surreal and probably a bit on the crazy side of the scale. I however would prefer we had a solution available for the marketplace to pick up when the bureaucracy does decide to take that permanent vacation.

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