Operations of the Service Providers Part II

I want to continue on with the discussion of the operations of the service providers in the environment of the People, Ideas & Objects Preliminary Specification. The service providers role is a critical one. As we discussed yesterday, they have the capability to implement the toolset of specialization and the division of labor on the administrative and accounting processes of the oil and gas industry. The Preliminary Specification moves these capabilities away from each producer having to build the administrative and accounting requirements in-house. To a reliance on the capabilities that are provided on an industry wide basis. This movement of capabilities enhances a producers profitability by reducing the heavy burden of building the enormous capabilities necessary to operate an oil and gas producer today. As a result of this movement, each process that the producer has will be made available through a service provider for a transaction fee.

It is on the basis of changing the relationship of how the producer accesses their administrative and accounting capabilities that we are able to enhance their profitability as we noted above. However, it is also how we are able to implement the decentralized production model. This model provides the capability of the producer to implement a “price maker” strategy that will be a key competitive capability in this shale based reserves era. This is enabled by the producer shutting in any unprofitable production. Reducing the amount of the commodity on the marketplace and therefore increasing the commodities prices. At the same time, during the period that the production is shut-in, the reserves are held for a time when they can be produced profitably. The property records a null operation as there are no revenues, no operating costs and no overhead costs. The lack of overhead costs being incurred is a feature of dealing with the administrative and accounting capabilities on an industry wide basis. When the property is shut-in the service providers will receive nothing from the task and transfer network that will cause them to incur any administrative or accounting action or generate a billing for their services for that month.

The task and transfer network is a part of the Preliminary Specification that will be developed in a variety of different modules. It provides the high level of automation that is necessary for the service providers to efficiently process the oil and gas producers operations. The task and transfer network is the automation of the processes that is a key toolset of the service provider. Just as specialization, the division of labor and cloud computing are key toolsets of the service providers. It is the application of these tools that are the focus of the service providers in providing the oil and gas producers with the most profitable means of oil and gas operations.

The task and transfer network is the beginning of automation of the producers process. When an activity occurs at a property such as production, construction, operation or drilling for example. Then that activity invokes the process management of the software and the pertinent service providers. If nothing is conducted at the property to invoke a process at the task and transfer network then no administrative or accounting work is incurred by the software or the service providers, creating no billing from the service providers. The producers are being billed only for what they use. It is in this way that a producer can control their costs and ensure that they are able to have higher profitability at lower production volumes, and achieve higher commodity prices by removing their excess unprofitable production from the marketplace.

It is the service provider that resides at the point of discovery and conflict of the producers administrative and accounting operations. It is there that they can improve and enhance the process through the substantial toolset that they have at their disposal. Key within that toolset is the People, Ideas & Objects software development capability and their direct participation in the user community. And it is in that way they can effect real change to ensure that their producer clients are provided 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. 

Operations of the Service Providers

As an operational service provider, you will be responsible for the management of a process on behalf of the oil and gas industry. A simple job some might say, I would argue that it would be one of the most technically challenging and demanding businesses that could be considered. The dimension of the work would be breathtaking in terms of understanding the scope and scale of the work that is undertaken each month. Without getting into the details of a specific process in this post, and speaking only of the generalities, I want to discuss the scope and scale, and the details of the “what” and “how” of a service provider in the People, Ideas & Objects Preliminary Specification.

Having as the process domain, the entire North American producer population to manage would be a difficult and challenging task to grasp initially. The approach to the process would be fundamentally different than that which would be done in a junior oil and gas company or ExxonMobil. Even they don't come close to that scale of the proposed volume. Therefore the need to design the process within the user community from the basis of some new method of organization will have already been determined as a result of your early participation in the community. The softwares design and process management will be consistent with this new philosophy.

As a result of this new philosophy, the user community research will have determined a new level of specialization and division of labor for the people that need to be involved in that process and the tasks that they will need to do. Defining what the computers and what the people can each do best. As we have noted here many times before, computers are good at storing data and processing information. People are good at making decisions, collaborating, innovation, ideas, planning, creativity, design, leadership and problem solving. This new specialization and division of labor between computers and people will be the base that your service provider will use in this new oil and gas environment. It will be one of the things that you use to enhance your service to ensure that the oil and gas producers continue to achieve the most profitable means of oil and gas operations. A new specialization and division of labor that will provide better services and lower costs to the producers and reveal new ways in which to do business that can add value to their organizations.

And participation in the user community will continue as a result of your work in the service provider. The need to make changes in the specialization and division of labor has to be initiated in the software first and foremost. We are defined and supported, and constrained by the software systems that we use. Any change that we make in our organizations must first be made in the software. As a member of the service provider sub-industry your role in the user community continues so that you have the ability to affect the changes necessary through the People, Ideas & Objects software development capability and user community commitment and vision. This feedback from the service providers is one of the primary reasons that there will be constant development work being done on the systems and services provided by this ecosystem. All to the benefit of the oil and gas producers enhanced profitability.

If this sounds like the more appropriate manner in which to operate the industry. One where change and dynamic capabilities are the competitive advantage of the oil and gas producer. Then you can join me here. The alternative is to continue on with the profit destroying methodology of each producer attempting to develop the entire scope of administrative and accounting capabilities in-house with no sharing of those capabilities. It can't be that I am the first that asks if that is working.

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.

Show me the Money!

I want to touch on another area where the user community has a significant business opportunity in terms of their participation with the software developments of People, Ideas & Objects. Within the budget of People, Ideas & Objects there are financial resources earmarked for the user community in the range of $333 to 667 million for the development of the first commercial release. To be candid I will not be looking to raise the minimum amount of money from the industry. I do not want to give the bureaucracy any opportunity to interfere with our projects success, and therefore will be asking for the full $4 billion in funding for us at the start. Our value proposition is valid and our costs are minimal in comparison to that value proposition. Therefore to leave an opening for the bureaucracy to obstruct us, if we were required to raise funds a second time, would put this project in jeopardy. Therefore the user community would have the upper limit in terms of their budget allocation.

The first business opportunity for those members of the user community is to establish themselves as permanent members of the community. These positions will not be one time instances during the first commercial release. We are committed to providing the oil and gas producer with the most profitable means of oil and gas operations. Providing the software development capabilities and user community to the industry on a permanent full time basis to ensure that the industry has the capabilities to deal with constraints of the software, the opportunities and challenges of the industry as they occur. Therefore the user community participant would be able to establish themselves as a permanent member of that community and specialize in the types of services that are needed within the community. These could be provided as either an employee of the community or as a business operation.

The second aspect of the user communities business opportunities is the service providers that are derivative of the user community itself. The service providers are comprised of people and businesses that are participating in the user community and also have business interests in the service providers that are being established as a sub-industry of the oil and gas industry. Recall that these service providers have as their revenue stream a reallocation of the funds that the producers incur as G&A expenditures today. These will still be G&A expenses of the producers in the future however instead of being paid to the administrative and accounting personnel they have on payroll, they will be paid to the service providers who will be conducting the administrative and accounting services under the decentralized production model. These costs that are being incurred today by the producers are estimated to be in the $40 - 60 billion range for the North American oil and gas industry.

These service providers will organize themselves around a process that is managed in the People, Ideas & Objects software. Their management of that process will be on behalf of the entire industry in most instances, with the occasional exception for geographical location being necessary. This process management will be supported by a license that provides them with the exclusive management of that process. This license is granted by People, Ideas & Objects and is earned by the service provider through their previous development efforts in the user community.

If you have had the idea that you would like to establish an operation within the oil and gas industry. And believe that People, Ideas & Objects Preliminary Specification will rule the world. As it should. Then this may be the opportunity that comes around once in a lifetime to make that business operation real. Secondly, or maybe primarily, this is the opportunity that you will have 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.

Where's the Rest of the Plan?

We have been discussing the software development plan of People, Ideas & Objects and the user communities development for the past eight months. During this time we have not discussed the period of time beyond the development of the user community, January 2019, when we are actually into the developments of the software. There are a number of reasons for that which I would like to present today. First of all these details will be determined when the resources of the industry are secured and the user communities leadership team are in place in January 2017. It will be at that time that we will have a better ability to determine some of the key issues and opportunities that will be involved in the final software development.

First of all, as of right now it is somewhat of a moving target to make any estimate of the timing of these developments. The technology industry has gone through a significant maturation of its technologies in the past decade and we are the recipients of the value from this maturation. What we propose to do with People, Ideas & Objects and the user community could only really have been done in the past few years. And with today’s technologies it would be significantly easier and more robust than if we did start several years ago. I think I should thank the bureaucracy for holding us up this long, it really has added significantly to our product quality. Particularly Oracle Corporation is going through some changes that I find very dramatic. Their Oracle Database 12C is a significant leap forward in terms of cloud computing and they are committed to that form of delivery. Their Oracle Fusion Middleware and Oracle Fusion Applications which were a complete, ground-up writing of an ERP system based in Java and other Oracle technologies were released in 2010. They are now becoming robust. And we are the recipients of the value that is generated by them.

Similarly development tools and programming languages have been through revolutionary changes. Java is very robust and we are now able to fully implement our concept of “asynchronous process management” throughout the Preliminary Specification without any difficulty from a programming point of view. This enables us to introduce these concepts that will alleviate many of the timing issues that have traditionally disrupted the accounting processes in oil and gas. Software development teams are also finding different ways in which to operate that provide new levels of productivity, which is good. However the real benefit is the closeness that they can achieve to the user community and the quality in the software product deliverables.

There is also significant stress in the oil and gas industry. It seems every day there is another CEO or CFO that has left their post at their firm. What is the future direction of the oil and gas industry? Who is offering a discussion as to where the direction is headed? I don't see anyone taking up the discussion and nothing but people sitting on their hands trying to survive from quarter to quarter. As good as the oil prices are they can't make up for the costs in the oil business and cover the natural gas losses forever. Projecting this status out past January 2017, let alone to January 2019 for me is very difficult. I can't see what the industry is doing at that time. If I were in industries shoes I would be desperately looking for solutions to this the mother of all muddling along periods.

If the industry wanted to buy some time they could accelerate their forwarding of the financial resources to People, Ideas & Objects from January 2017 to today. That would cut 2 years off our time table. We would be able to recruit the leadership team in a much shorter time period and begin developments much sooner, probably in January 2017. That might be worth a few hundred billion dollars to them. Otherwise we'll stick with the timetable and the plan that we have. To project the software developments out beyond January 2019 and into the future software development realm is into the great unknown. We could be looking at a new generation of applications, programming language features, tools and development methodologies. The productivity and quality of which we could not even imagine today. So we will look forward to that day and stick to our plan and enjoy the scenery, that is the show being played out in the oil and gas industry.

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. 

Development of the User Community

Our software development plan sees us continuing on our primary focus of developing the user community for the next five years. This leads us into January 2019 when we will commence developments of the Preliminary Specification with the full user community in place. We have allocated the five years that I feel is necessary to establish the user community in the oil and gas community. The role and responsibilities of the user community in the developments of the software are one thing that we are unwilling to compromise on. But there is also the broader issue of the role and responsibility that the user community has in terms of the developments of the oil and gas industry itself. This is reflected in the user communities vision and is expressed in the power and authority that the community holds to define the ways and means of the administration and accounting of the innovative and profitable oil and gas producers. The People, Ideas & Objects user community is not your typical user community, it has the power and the means in which to determine the direction and priorities of the issues and opportunities of the oil and gas industry.

We have embarked on the beginnings of the development of a leadership team that will begin the formation of the user community. There are almost thirty positions that were identified just prior to our vacation that are being actively recruited. These include the board of directors, the C class executives and the product owners that will be the critical parts of the various software development teams. Scroll back to see if these positions have any appeal to you or someone you might know, and then follow the procedure to join here. Ideally we would like to have these leadership positions in place for the January 2017 deadline we have established for industries financial participation. These resources will fund our budget in its entirety and therefore we can begin to develop the remainder of the user community over the following two years. These resources will also be used to set up the software development team and have them prepared to start the software developments in January 2019.

I can not stress the importance of the users involvement in these software developments. The complexity of the oil and gas industry is second only to the space industry. Approaching these software developments in the traditional manner of token user development would be a waste of money and a waste of people’s time. It would also be a waste of a significant opportunity that we have to do this correctly. User participation in determining what and how the systems that they will use are the only systems that work and are usable for the long term. Just compare Google and Apple, which are heavily user represented, to the long term disappointment that Windows provides. To date no ERP system has been developed with user involvement, that is at least in oil and gas. They may claim to be, however, in comparison to what we are discussing here, and the investments that we will be undertaking to develop the user community, there will be no comparison.

There are thousands of individual positions within oil and gas that need to be captured within the Preliminary Specification. Each position requires an individual at least six months in order to fully understand and learn how to do the job that is being done. This knowledge and understanding needs to be captured by the user community in order for the user to be identified and supported within the systems that they need. That takes time and money to undertake. And that is why our budgets are as high as they are. Significant levels of analysis needs to be undertaken to ensure that the user is supported by the systems that we develop. That the work that we do is to ensure that the tasks that are best left to the computers are done by the computers, and the work that is done by the users, the leadership, the unstructured problem solving, acquiring and processing new information and deciding what is relevant, the creativity, the collaboration, research, generation of ideas and design are completed by the people to ensure that they 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.

Advantages of a Dedicated Software Development Capability and User Community

It has been a while since we have had the opportunity to discuss the decentralized production model of the Preliminary Specification. The decentralized production model is one of the business models that are implemented in the Preliminary Specification and will be available to those producers that actively get involved with this community and participate in its development. One of the important elements to remember is that this model provides significant value for the producer, when it is developed. And as it is with software today. Organizations are defined, supported and constrained by the software that they use. It is therefore important that industry adopt People, Ideas & Objects and the user community in order to have the tools to effectively deal with opportunities to implement these and new business models that may provide further value to the innovative and profitable oil and gas producer. The People, Ideas & Objects software development capability and the user community being the type of tools that industry can use to eliminate the constraints of software in their organizations and enhance the definition and support of these business models.

The decentralized production model works through a variety of different modules in the Preliminary Specification. It works to maintain a level of production discipline across the industry in order to avoid the situations where overproduction of natural gas occurs. The method of production discipline is implemented through an allocation method based on profitability. If a natural gas property can be produced profitably then the property will be produced. If the property is incurring a loss then the properties gas production will be removed from the marketplace. This is the necessary methodology to ensure that the marketplace is not supplied with the over production of natural gas and industry wide losses. Situations like what have been the case for the last number of years where overproduction brings down the natural gas prices to the point where all natural gas properties are incurring losses.

The decentralized production model does this by first of all stripping the innovative and profitable producer down to the C class executives, the engineering and earth science resources, land and legal and some support staff. The remainder of the administrative and accounting staff, including the production and exploration administration staff are reorganized into service providers who are focused on the individual process and use the entire industry as their client base. It is with that scope of industry wide clientele that they will be apply the automation, specialization and division of labor toolsets to their process to make them more efficient and cost effective for their producer clients. It will also be that they will bill the individual Joint Operating Committees for the work that they complete on behalf of the properties in what we call the task and transfer network. A fundamentally different methodology in comparison to today’s accounting treatment of the producer incurring the overhead.

Therefore during the times when a property is shut-in due to low natural gas prices the individual service providers will receive no activity from the properties task and transfer network. And therefore there will be no billings generated by the individual service providers for those months that the property is shut-in. And therefore that property will report a null operation. No revenues, operating costs or overhead. Only the costs of capital will be recorded in the accounts for that property during times of shut-in operations.

The advantages of the decentralized production model are many. First of all the property is reporting a null operation. It is not reporting a loss on operations. These losses on operations, as they are incurred today, need to be added to the reserves costs and therefore need to be recovered in the future by higher natural gas prices. Another advantage of the decentralized production model is they save the reserves for the time in which they can be produced profitably when prices are higher. And they remove the excess, unprofitable production from the natural gas marketplace putting upward pressure on the natural gas prices. Cost control of the overhead items becomes a feature of the decentralized production model. This is attained through the service providers managing their operations with the understanding that at any time their operations may experience reductions in revenue from producers shutting in production. Lastly the producers profitability, with the lower production profile, will be higher than the profitability at full production.

It is these types of situations that the capabilities of a dedicated software development team and an enabled user community provide the innovative and profitable oil and gas industry. These capabilities need to be purpose built and require the active long term participation of the oil and gas industry. They also require the financial resources of the oil and gas industry for today and tomorrow. As we stated in yesterday’s post, no one is going to do it on behalf of the producers. I think it is clear that the monetary value of these changes, which I have quantified in the trillions of dollars, are only in the best interests of the oil and gas producers.

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. 

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.

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