No More Muddling Along

The traditional operational strategy of the oil and gas industry is to muddle along. This is a throwback to the days when there was no opportunity to do anything but to accept the situation as fact and deal with it. Get through the day and survive to tell about it. However is this still appropriate for a $4 trillion industry? An industry with the issues and opportunities that the oil and gas producers have in front of them? An industry where the financial engineering of “cash flows” is the science that dictates operations. Where profits are of no concern, and for those that are focused on profits, they are accused of not truly understanding the nature of the business. It is a fool who tries to argue that profits are not a concern in oil and gas.

The beginning of the end of the muddling along strategy is People, Ideas & Objects. And that starts specifically with our Revenue Model. You can't expect that People, Ideas & Objects will be done on behalf of someone else’s dime, or on someone else’s time. The investment community have tired of the “opportunities” in oil and gas ERP systems. And they certainly have no appetite for our budget. Particularly if it were to be done on a speculative basis. Clearly there are no free lunches when it comes to having the budget for this software development paid for by others on behalf of the producers. If producers want it producers will have to pay for it themselves.

Assuming the producers are putting their hard earned money into something that is potentially valuable to their firm, I would also assume I have the producers attention. That is I think they will be an active and willing participant in our user community. It’s their money, it's their system and it will be their profits when the systems are built. This is the reason that our Revenue Model is not structured to motivate someone else to build it for them. There is really nothing in it for anyone else. All the value is skewed towards the producer. Hence the need to dispatch the muddling along strategy to the scrapheap of history and begin your active involvement in the operational strategy of your business.

It is the user community that holds the power and authority regarding the ways and means of the administration and accounting of the oil and gas industry under the People, Ideas & Objects Preliminary Specification. Producers may resent this fact and chose to fight against it. Or they can accept it and realize that participation in the user community is the appropriate and constructive role that a producer should consider. Either way it will be pleasant to see them get up from their muddling along strategy.

Sitting back and doing nothing about the problems that the industry faces will be the way that things were handled in the past. When natural gas prices decline into unprofitability, producers will have the decentralized production model to reduce production immediately to remediate the price declines. When the engineering and earth science resources of the industry are challenged they will have the ability to use specialization and the division of labor to reorganize them in ways to make them more productive. In essence they will have the tools at their disposal, active participation in the user community and a software development capability in People, Ideas & Objects to deal with the issues and opportunities that face the industry as they occur. No more muddling through no matter the consequences to profitability. But this requires the first act of independence and renouncing of the muddling through strategy. And that is funding this initiative and participation in the user community. No one is motivated by the profits that they'll earn if they make these changes, and no one else is going to do it for them.

The Preliminary Specification and user community 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. 

So Much For Cold Winters

Natural gas prices have to be disappointing for those who were hoping for an end to the low prices that have been realized for the last number of years. Pricing has continued to erode over the summer as storage volumes have been rebuilt from the very cold winter that we had. We are well over the 2 tcf, or half of our storage capacity with approximately 2 and a half months left of storage build remaining. What is clear is that shale gas production volumes are able to deal with the coldest of winters no matter what the damage our winters make to the storage volumes.

And so it will be that we will see low natural gas prices push producers profits further into the abyss of unprofitability. If producers claim that they need $6.70 to be profitable, sub $4.00 pricing shows the extent of the difficulty. If only there was another way! But there is and we all know it as the Preliminary Specifications decentralized production model. As we pointed out a few months ago. The decline in storage volumes to well under 1 tcf was an opportunity for the producers to establish their control of the natural gas pricing and implement the kind of price maker strategy that the decentralized production model provides. Our very good friends, the bureaucrats, are unable to do this due to the fact that they are leaderless and incapable of change. Therefore they continue to produce at full capacity and this opportunity to become price makers passes without a note or a shrug.

A simple 18% reduction in production would have caused no increase in storage volumes to occur during this past summer. Sending a signal to the marketplace that the producers were not going to accept the prices that were being offered. Then as prices rose, those producers who could have produced profitably at the higher prices would bring their production back on and the price and markets would stabilize. This might have been able to have been achieved in as a little as one or two quarters. However, the only leadership that is being demonstrated by the bureaucracy is their over the top response to People, Ideas & Objects.

The natural gas business has been endowed with an unbelieveable grant of good fortune in terms of the shale gas reserves. The bureaucracy feels that these can be produced at a loss in their uncaring and unthinking manner. As long as they have cash flow they will continue to be in control of the industry. The shuffle of money can continue for the life of these reserves and then we can all look back and ask ourselves what otherwise could have been. Or we can get rid of these bureaucrats and replace them with the People, Ideas & Objects software, the user community, service providers and app marketplace that we are discussing here. All of these people are focused on providing the oil and gas producer with the most profitable means of oil and gas operations. The evidence of these facts are the prayers for a cold winter expressed last year by these bureaucrats, their inability to exercise any changes this summer to change the production profile and enhance prices, and the complete lack of discussion of the natural gas prices as an issue within the industry.

Its a 9 - 5 industry, you go in, pick up a paycheck, some benefits, a pension, loads of paid vacation and really no one asks much about what you did or are doing. Its a bureaucratic machine that drones on without anyone asking or caring about anything other than “me.” The only way in which to change this is to offer an alternative. One in which People, Ideas & Objects is preparing now. One in which the industry will be asked to support financially in January 2017 so that we can proceed with the developments. If you like what you see and are happy with this poor performance then you'll know to do nothing, if your unhappy then you’ll want to contact me and participate in these developments and provide the oil and gas producers with the most profitable means of oil and gas operations.

The Preliminary Specification and user community 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. 

There's a Gap in our Offering

While I was on vacation it became obvious to me that we have a Gap in our offering. And that we need to fill that gap with what is best described as an App Marketplace. A place where producers and users are able to purchase from independent software developers, Android and iOs applications that fill in the “gaps” where People, Ideas & Objects can’t get to. Its one thing to think that we can provide the solution to all the worlds problems, however, there is also madness. Developing this App Marketplace can be done easily by publishing our data model and writing an API (application programming interface) for these App Marketplace developers to access the environment they need to develop the small apps that we have seen other app marketplaces create.

Due to the nature of the work of these developers I think it is best to consider them as the App Marketplace and not confuse them by including them with the Service Providers. The Service Providers are providing the actual administrative and accounting services to the oil and gas producers. As a unit they are an entire sub-industry due to the size of their revenue stream. The App Marketplace would only be lost if we included them in that same classification. So we need to create a separate category for the App Marketplace. Note however they are derivative of the user community just as the Service Providers are. Members of the user community will have the exclusive priority in establishing themselves in the App Marketplace that they also enjoy as Service Providers.

One unique aspect of the App Marketplace will be that they will be generating their revenues from the sale of their applications to users and producers. This could be on a one time basis or as a monthly fee. Being that their fees structure will be different will require that they have a different license from People, Ideas & Objects than that which the Service Providers have. What we are providing the App Marketplace is the mobile software application environment of the People, Ideas & Objects and user community. Therefore, the structure of the relationship between the App Marketplace developers and People, Ideas & Objects will be structured differently than the Service Providers.

What we see with the Apple and Android app marketplaces is a remarkable amount of innovation and useful applications. The motivation and understanding that makes this possible is contained within its own marketplace and would be impossible to replicate within People, Ideas & Objects. Therefore it is best to establish our own marketplace and let these developers apply their ideas to the issues and opportunities within the oil and gas industry. People, Ideas & Objects doing the heavy lifting in areas like the decentralized production model, material balance report and in other areas of the Preliminary Specification that are not mobile in nature, and the App Marketplace providing the widget like applications that are useful for the individual purposes that assist people in doing their specific jobs. A division of labor and specialization that makes a lot of sense to me.

And so it will be that we will establish an App Marketplace for the mobile marketplace in People, Ideas & Objects. Providing the users and producers with a means to further their innovative ideas. The producers with a way in which to enhance their profitability. And People, Ideas & Objects to provide oil and gas producers with the most profitable means of oil and gas operations.

The Preliminary Specification and user community 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. 

Capitalizing Royalties?

I certainly support any innovation in the oil and gas industry. However there was a bit of a dust up in Canada last week regarding PennWest’s treatment of their royalties over the past few years. It seems that their accounting will need to be restated for a few hundred million dollars of capitalized royalties. On what universe would a producer firm consider that royalties would be eligible to be capitalized? I know, its the only expense item that’s not capitalized! I guess that is what passes for logic in the rarified air of the bureaucracy in oil and gas these days. PennWest’s stock took a tumble as a result of this revelation and there was the comment by one investor that “if there’s one cockroach, there'll be others.” I think that investor has the substance of the issue appropriately in focus. Lets have a closer look at the facts as we know them.

A review of PennWest’s 2013 MD&A, Financial Statements and Notes reveals no discussion of any capitalization of royalties. Therefore no direct admission of the practice. The amounts quoted as being required for the restatement for 2013 were $70 million and are therefore material and would otherwise require disclosure. Unless they were Generally Accepted Accounting Principles used throughout the industry. Interestingly however there is no discussion of the amount of G&A that is capitalized either. Capitalized G&A is about as bread and butter an issue in oil and gas and I would be surprised if PennWest was not capitalizing any G&A, but capitalizing royalties. The logical conclusion is they are not disclosing the capitalization policies of any of their costs due to the fact that they are Generally Accepted Accounting Principles. Otherwise someone is in deep, deep trouble for nondisclosure of material misstatements.

Some discussion of the issue came out on Thursday July 31, 2014 between the past CFO Todd Takeyasu and the new CFO David Dyck who is the one who issued the press release about the restatement of earnings. The text of the conversation was run in the Globe and Mail and is as follows.

Penn West did not say which employees are “believed responsible” for these accounting practices, but noted they are no longer working for the company. The review arose from information brought to the attention of chief financial officer David Dyck, who started on May 1, taking over from Todd Takeyasu. In an interview, Mr. Takeyasu said the committee’s concerns could be a result of different interpretations of accounting methods. 

“Some of this stuff is grey, but I'm probably not at liberty to say much,” he said. “Some of that is possibly a matter of documentation.” 

He added: “The new people might just have a different view of it.” 

New board members and executive officers may have a “will to do things slightly differently,” he said.

Indicating that it would seem that there appears to be a different point of view on the treatment of capitalizing royalties between the two CFO’s. Of note it is important to point out that Mr. Takeyasu retired in March of 2014. That Mr. Dyck’s resume does not have him as the CFO of an oil and gas producer in any of his previous positions. Now I know Todd Takeyasu very well. Todd is the type of guy that has never taken a risk in his life. He would never have crossed the street unless the crossing guard whistled and motioned directly to him to cross, twice. And had a stamp from that crossing guard to prove it. Therefore it is reasonable to assume that this is not a rogue CFO blazing across the horizon looking for fame and fortune. Todd would have ensured that PennWest would have had this well documented. I have been personally witness to years of Todd’s audit files. And I'm sure Todd’s lawyer has copies of that documentation as well. The other conclusion to make from this is that the initiation of these ideas are a result of an industry wide initiative. The other roaches hiding in the background.

So lets conclude from this that we might look forward to an industry wide summer of restatements and late nights for the accountants in the energy industry. Their attempt to earn some profits might have seemed innovative to some, however, lets put this in perspective. You can fool some of the people some of the time, but you can't fool all of the people all of the time.

The Preliminary Specification and user community 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. 

And We're Back

Its good to be back. When we left we were discussing the various positions within the leadership team of the user community. The board of directors, the officers and the product owners. We are going to continue to focus on the user community as our primary concern. Having systems developed without user community participation will be useless in the future, even more so than they are today. It is the user communities development that we need to be concerned about. This is the difficult aspect of People, Ideas & Objects Preliminary Specification that needs to be developed. We have set out to have the user community prepared to begin the software developments of the Preliminary Specification in 2019, therefore we are committing to a full five years of user community development. We also established January 2017 as the time in which the producers will be called upon to support the user community and the software developments with the funding necessary to proceed to our first commercial iteration.

If you haven't had the opportunity to read the user community vision recently, I would highly recommend a review of it again. This is not your typical user community. It is significantly different in that the People, Ideas & Objects user community has the power and authority to affect the changes within the industry to provide the oil and gas producer with the most profitable means of oil and gas operations. As we proceed through the development of the user community, this capability will begin to evolve and develop into the means in which we are able to offer the investor community a choice as to how they want their oil and gas assets operated. On the basis of the old tired and stale bureaucracy, or with us on the basis of being the most profitable means of oil and gas operations. The user communities value proposition is tangible and substantial. In the era of shale, the difference in value is in the many trillions of dollars.

Our fight with the bureaucrats may have just begun. They have never been challenged before as they are challenged by the threat of the now forming user community and Preliminary Specification. Be wise to their ways and be cautious to any open discussion of this project. Make sure you are not speaking to someone who has the wherewithal to make your life miserable. Some characteristics of bureaucrats are consistent in that they are petty, bitter, and can be vengeful to those who they see as having an advantage. Please do take care.

The definition of our user communities leadership team was the point that we left off prior to our vacation. We are looking to recruit these positions and have them in place prior to January 2017 as tangible evidence of our ability to prove to the industry that we have the capability to provide an alternative means of oil and gas operations. And then with the industries financial resources we will be able to continue with the remainder of the user community developments and actually begin software developments of the Preliminary Specification in 2019. If you, or someone you know, would be interested in one of the positions listed in the user community vision, please contact me.

One of the key advantages of early participation in the user community is the ability to participate in the service provider marketplace. User community participants will be those that are provided with the exclusive opportunity to establish the service providers that service the oil and gas producers with their administrative and accounting services as defined in the Preliminary Specification. As we have discussed before these service providers will be participating in a new sub-industry that is being established through the reorganization of the industry that is being undertaken by the Preliminary Specification and the user community. The service providers will have as their revenue stream the approximate $40 - 60 billion in annual G&A costs of the producers reallocated to them, as revenues for the administrative and accounting services they provide. A significant business opportunity for those service providers and user community participants. In addition the budget for the developments of the first commercial iteration of the Preliminary Specification contains user community development costs in the range of $333 to 667 million. There are significant business opportunities in terms of the long term prospects for anyone who wants to provide the oil and gas producer with the most profitable means of oil and gas operations.

The Preliminary Specification and user community 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. 

Another Holiday!

We'll be off today in recognition of Alberta's Heritage Day, returning tomorrow.

It's Time for Some Time Off

It’s summer and everyone deserves some time off. I will be taking some time off myself, returning August 4, 2014. What we have now is the product in the Preliminary Specification, the Oracle Fusion Middleware and Oracle Fusion Applications and our user community. We have the rough sketches of a plan that’s in place for the period up to January 2017. And we have begun the process of putting the people in place to make this project real. The September to December 2014 time frame “might” be an opportune time for us. I think it will be too early yet. However, we will begin our push then and see what happens. Until August 4th have a good summer and we'll see you then.

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. 

User Communities Product Owners

We come to the last category of our user communities leadership team, the product owners. There will be many product owners in the user community, I think as high as twenty in total. Each one will have one element of the development as their responsibility. Each one of the modules of the Preliminary Specification will have a product owner. There will be product owners for the data model, user interface, architecture, decentralized production model etc. Product owners have a defined role in the traditional software development team, however, I see them holding a critical position in the People, Ideas & Objects development team and user community developments. They will be ensuring that the needs of the user community are met by the People, Ideas & Objects development team.

How the product owner will ensure the user communities needs are met will be as a result of their creative design, issue identification and resolution skills. As well as other skills. Taking in the whole of the user communities input, finding the innovative and value generating ideas from the community and working with those users to integrate those ideas within the module or systems in ways that provide the oil and gas producer with the most profitable means of oil and gas operations.

Having the understanding of the developments as a result of being a key member of the development team gives the product owner a unique perspective on the issues and opportunities in the oil and gas industry. They will be the one who will prioritize the developments for the developers and provide other management activities regarding the user community. Their ability to listen to the user community regarding their module gives them the insight to predict the direction and needs of the user community in the near future. Ensuring that their user community operates with little interruption from the noise of the irrelevant and inconsequential. Using whatever tools that are available to keep their community informed and up-to-date.

Through these interactions with the People, Ideas & Objects development team. And through the interaction with the user community itself. The product owners will be able to exercise significant leadership over the domain of the module that they are responsible for. It will be they who are ultimately responsible for ensuring that the decentralized production model is properly integrated in the Preliminary Specification if that is their domain. It will be they who are responsible for the billions in opportunity costs that the industry will be able to earn as a result of the that module being implemented properly in the software. That there is no confusion or misunderstanding within the user community, and that in turn is delivered to the software developers.

These product owners will be well versed in the ways and means of the oil and gas industry. They will understand technology like those few people who really do understand today’s technology. They will be leaders in the community. And they will see these positions as the most exciting positions in the oil and gas industry to have come along in the last one hundred years. If one of these modules was yours, it would be the result of your efforts to ensure that the community and the development team got it right.

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 User Communities Officers

When we discuss the officers of the user community we are of course speaking of the Chief Executive Officer, Chief Financial Officer and Chief Operations Officer or CEO, CFO and COO. These positions will need to be filled once we have secured the board of directors and they have a chance to recruit these individuals. These are the people who will be able to put a name and a face to the organization and will become the public image of the user community. As in any organization these officers will have the authority and responsibility to enact the plans and budgets of the organization. They will be the ones that are looked to by all within the community for the direction, goals and objectives of the organization.

The user community will be comprised of a variety of different types of users. Some will be the casual user who is fully employed by a producer firm or a service provider. Others will be full time consultants who specialize in the analysis and systems work that is prevalent in the user community. Still others may be full time employees of the user community organization that we are discussing. These officers will be representative of all of these types of users and ensure that the collaborative input of their understanding of the oil and gas industry is captured and delivered to the People, Ideas & Objects developers. It will also be necessary that the user community is kept aware of the larger role that they share in controlling the business model of the industry. And ensure that this work continues to provide the oil and gas producers with the most profitable means of oil and gas operations.

It will therefore be a collaborative style of leader that we are looking to fill the three officer roles in the user community organization. Therefore I see these roles being filled by unique individuals from the oil and gas communities. Ideally they would be individuals who have achieved significant success in their career. Someone who would see the community role of these positions as something new and challenging. Yet still see the effectiveness and the power of the user community in affecting change in the oil and gas industry through the business model.

It is my concern that the user community would lose its focus and get lost in some of the blind bunny trails that organizations seem to find themselves in at times. This focus on providing the oil and gas producer with the most profitable means of oil and gas operations is an infinite challenge. That we have defined significant value in the model today is testament to the value of the low hanging fruit that exists in using the Joint Operating Committee. We have only begun to explore this model. And the value for the producer will essentially never stop, and therefore we can never stop collecting that low hanging fruit and reach for the more difficult value that is also attainable. This I see as a primary responsibility of the individuals who are the officers of the user community. To keep this community focused on finding that value for the producers through the hard work necessary to do so. Complacency is unacceptable.

What we know today about software is critical to be kept in the minds of the user community members and their leadership. That software both enables and constrains organizations. It enables them to do the things that software, when it exists, can provide the organization. It at the same time however constrains them from doing anything else. And that includes change. People, Ideas & Objects provides a software development capability to ensure that the industry has the ability to be enabled by software and to deal with the constraints of the software that it uses. But that is not enough. It also needs a user community that understands the dynamic nature of the software and its impact on organizations. And understands that it is not encumbered by those constraints due to the fact that the user community controls the business model and have a dedicated software development capability at hand. These are the tools that the dynamic, innovative and profitable oil and gas producer of the 21st century needs to have at their disposal. And the officers of the user community need to lead the way in which this happens.

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 User Communities Board of Directors

For the remainder of this week I thought I would go through the individual positions that are available in the user community leadership team. That way people will have a better understanding of the types of positions that are available and which ones they may be best suited for. Today’s topic is the board of directors of the user community. As I have indicated before I don't know if this is a board of governors or directors at this point, we'll however just use the term directors at this point. There are six positions available here including the chairman’s position. One of the unique characteristics of the chairman's position at this point is that position holds two votes. As I indicated in a previous posting the position of chairman is being filled by myself.

The role of director for the user community will be that for the user community itself. It is a position that looks towards the needs of the user community and its requirements. Based on the user community vision it will hold and control the business models of the software contained within the Preliminary Specification. It will recruit the officers and executives necessary to operate the organization consistent with its vision. It will approve the budgets and financial statements of that organization. It will engage the oil and gas industry at large in agreements to provide for their needs in terms of what their ERP and other systems requirements are. It will be responsible for the actions and activities of the user community in fulfilling its obligations to the producers in the industry and its users.

The user community will be endowed with an Intellectual Property License from People, Ideas & Objects. This license will permit the user community to further develop this Intellectual Property with the understanding that all developments will become the property of Paul D. Cox, where they will remain available for the user community to use and develop further. No charge will be levied to the user for use of this Intellectual Property. On the contrary, users will be paid for their contributions. We are paying for the acquisition of the Intellectual Property from the user community. Resources will be provided from People, Ideas & Objects for this purpose. The user community will be for the exclusive use of People, Ideas & Objects.

Directors would preferably be drawn from the oil and gas business community. From a broad mix of administration, accounting, earth science, engineering and technological disciplines. Having a diverse board of directors would represent the needs of the users. Ideally they should be senior members of the community and have established careers. These positions would be part-time in terms of their time requirements however we would expect these people to be fully committed to providing the oil and gas producers with the most profitable means of oil and gas operations. As that is the key differentiation that makes the user community so valuable and worthwhile.

If you are interested in these position please contact me below. Or alternatively if you know of someone who would be a worthwhile candidate for the user community, send this information on to them. What we have with the Preliminary Specification, the Oracle Fusion Middleware and Applications and user community developments is an excellent product to offer the oil and gas industry. What we also have is a plan in which we are offering our product as an alternative to the industry as a replacement to the bureaucracy. With a product and a plan we can now focus on the people and work towards this decision in January 2017.

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.